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Peloton Wants to ‘Sell Happiness’ With IPO, But Faces Serious Music Licensing Risks

"We may be unable to license a large amount of music," the exercise bike startup says, which could "materially harm" its business.

Peloton is spinning to the public market. 

The tech-enabled exercise bike startup, founded in 2012, has released documents for its upcoming initial public offering (IPO). It tentatively plans to raise $500 million, and will trade on Nasdaq under the symbol PTON.

Peloton posted $915 million in total revenue for the year ending June 30, 2019, a 110% increase from $435 million in fiscal year 2018. On the other end, it hit $245.7 million in total losses in 2019, up significantly from last year’s reported $47.9 million net losses. 

The company, which offers customers a library of 13,000-plus online fitness classes in addition to manufacturing stationary bikes, has surpassed 1.4 million members, defined as anyone with a Peloton account. Its connected fitness subscriber base — those using the workout videos — grew to 511,000 in fiscal 2019, a 108% jump from fiscal 2018, when the company claimed 246,000 connected subscibers. 


Among Peloton’s biggest risk factors for continued growth? Its ability — or inability — to secure licenses for the music used in its workout videos. Peloton forms agreements with record labels, music publishers, performing rights organizations, artists and other copyright owners for those rights — a complex and time-consuming process that leaves Peloton vulnerable to the financial demands of rightsholders.

“Given the high level of content concentration in the music industry, the market power of a few licensors, and the lack of transparent ownership information for compositions, we may be unable to license a large amount of music or the music of certain popular artists,” the filing reads, “and our business, financial condition, and operating results could be materially harmed.”

Also: “We cannot compel third parties to license their music to us, and our business may be adversely affected if our access to music is limited. The concentration of control of content by major music licensors means that the actions of one or a few licensors may adversely affect our ability to provide our service.”

Peloton adds that it “intends to vigorously defend” itself against a $150 million lawsuit filed by the National Music Publishers’ Association (NMPA) in March, accusing Peloton of copyright infringement for using music by artists like Ariana Grande and Drake in its videos without the necessary licenses. Peloton estimates that the lawsuit will cost the company anywhere between $4 million and $11 million.


The company recorded its “normal and recurring royalty expense” for music at $0.4 million, $1.0 million, and $2.8 million for fiscal years 2017, 2018, and 2019, respectively. 

Meanwhile, the filing includes an optimistic letter from Peloton co-founder and CEO John Foley, who writes that what the company is really selling is “happiness.”

“It is no secret that exercise makes us feel good. It’s simple science: exercising creates endorphins and endorphins make us happy,” he writes. “On the most basic level, Peloton sells happiness.”