Mr Cook said last month Apple was "on the prowl" for more acquisitions, after buying 24 companies in the past 18 months and he was not averse to large acquisitions.
The Beats move follows a string of high-priced deals in Silicon Valley, after Google acquired smart home developer Nest Labs for $3.2 billion and Facebook offered an initial $19 billion for WhatsApp Messenger.
One motivation for the Beats deal may lie in shifts in music consumption. Subscription services are the biggest growth area for the music industry, with revenues increasing 50 percent to $1.1 billion in 2013, according to a recent report by the IFPI, the global music industry association.
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But downloads fell 2 percent to $3.93 billion – the first annual decline since Apple launched its iTunes store in 2003. iTunes is still the world's largest music download service.
Apple has dabbled in music streaming but never launched an unlimited subscription service to compete with fast-growing rivals to iTunes such as Spotify.
In 2009 it acquired Lala, a music streaming service, and last year launched iTunes Radio, which competes with elements of Beats, as well as more established players such as Pandora.
Mr Iovine and Dr Dre – real name Andre Young – were inspired to create Beats by the poor sound quality of the headphones bundled with the iPod and iPhone. Beloved by music and sports stars Beats has become a street-smart fashion brand
Ahead of Apple's expected launch of an 'iWatch' accessory, Beats will also give its designers and engineers access to years of experience in what some see as the original "wearable technology."
Nonetheless, the pricey deal is likely to raise questions about Apple's internal capability to innovate after the death of Mr Jobs in 2011.
At the end of March, Apple's global cash pile stood at $133 billion, net of the $17 billion in debt it raised last year. Since then it has raised a further $12 billion, which it said at the time was to help fund its $130 billion dividend and share buyback programme. However, most of its funds are held overseas and its domestic cash has fallen by $16 billion to $18 billion since it resumed paying dividends in 2012.