Im sure rolling Beats technology, contracts, and subscribers into iTunes/Music.app was the plan from day one regardless of what they may have said at the time - you don't want people bailing off of the service because they think it is going away immediately.
Combine this rumor with the rumors regarding U2s involvement with Apple around music formats (Iovine and U2 are like peas and carrots) and things start making sense.
This makes more sense to me. They are not killing Beats, but integrating it into iTunes and iTunes Radio. Plus uping their format to be more lossless (thought sounds like aweful english, but I think I said it correctly).