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Not just about headphones as Apple bets on Beats Music

Nuno Dantas | Flickr

Apple's reported deal for Beats Electronics is more than about headphones, analysts told CNBC, as the technology giant looks to become a major contender in the rapidly expanding music-streaming space.

The Cupertino, Calif.-based company is in talks to purchase Beats Electronics, the company started by rap icon Dr. Dre, for $3.2 billion, according to a report in the Financial Times.

Beats Electronics is famed for its premium headphones, a market worth over $1 billion, but the company recently launched Beats Music, a streaming service.

Read MoreApple in talks to buy Beats for $3.2B

"This is not about acquiring expensive plastic headphones," Brian Blair, analyst at Rosenblatt Securities said Friday on CNBC's "Squawk Box."

"The only reason the story has any teeth is because Apple does need to do something about its iTunes platform. Digital downloads have been in decline for the last couple of years. Nobody's downloading music anymore, everybody streams it," said Blair.

Music listeners are moving away from downloading. Digital music sales fell in 2013 for the first time since iTunes' launch a decade ago, data from Nielsen SoundScan showed.

Read MoreApple + Beats: Wall Street says why bother?

But global revenue from music subscription services grew by 51.3 percent in 2013, surpassing $1 billion for the first time, according to industry body IFPI.

Apple is not without a music-streaming service of its own. Its iTunes Radio allows users to create personalized stations. But the streaming market has a number of players across the world. In the U.S., Pandora has 31 percent of the market share, followed by iHeartRadio and iTunes Radio with 9 percent and 8 percent, respectively.

Apple is far behind Pandora and a deal for Beats Electronics provides no guarantee that its music-streaming business will get ahead, according to Sam Gee, senior technology and media analyst at Mintel.

Read MoreDr. Dre—World's first billionaire rapper?

"They have an in built advantage in that hundreds of millions people have an Apple device in which they could update their system when they wanted to," Gee told CNBC in a phone interview.

"Having said that, the music-streaming market is getting crowded so success will depend not so much on how much music is available but more on discovery software. Apple's strong point has traditionally been hardware rather than software so I don't know how well they'll adapt to that."

—By CNBC's Arjun Kharpal.

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