Pedal to the Rhythm: The Music Industry vs. Peloton
Peloton is a fitness technology company that makes exercise bikes and treadmills with LED screens that stream classes from their New York and London studios to homes all across the globe.[1] If customers would rather not shell out $2,000 for a spin bike or $4,000 for a treadmill, they can also easily stream classes to their smart devices using the Peloton app available on the App Store.[2] These machines offer useful metrics such as miles per hour, distance covered, and calories burned, which allow class participants to see how they compare to their peers via an online leaderboard.[3] Class members can even “high five” each other as they compete.[4] The instructors for the spinning and bootcamp-style classes each have their own followings, oftentimes with thousands of social media followers and devotees that rarely miss a class.[5]
Whether somebody rides via the app or their Peloton-made device, he or she has to pay a monthly subscription in order to access the popular classes: $19.50 for app riders and $39 for hardware owners.[6] With hundreds of thousands of monthly subscribers, Peloton is a sizeable company with a recurring revenue stream.[7] The music industry is a powerful lobby, and is notorious for being protective over artists’ rights, and ultimately, their royalty rights. In short, the music industry vs. Peloton is a big-money game, with huge stakes for both sides that could define the future of both at-home fitness and music licensing.
While instructors are an integral part of all Peloton classes, the music behind them sets the mood and pace for the class, motivating participants to beat their personal records and achieve their fitness goals.[8] All music played in public settings such as bars, restaurants, or gyms, requires a license.[9] Due to consent decrees, these establishments have generally been able to obtain blanket licenses for any song they wanted to play.[10] Rights organizations such as BMI and ASCAP generally handle these licenses and then pay artists a royalty on a per-use basis.[11]
The problem for Peloton arises under a different type of license, known as a synchronization license, which is required when music is played in connection or timed with visuals, such as a movie, commercial, or, as is the case with Peloton, an exercise class that is streamed to thousands of individuals all across the globe. Synchronization licenses are handled by individual publishers, who have the right to negotiate them with each company seeking the right to play the music in question.[12]
In March 2019, members of the National Music Publishers’ Association (NMPA) filed a suit against Peloton, seeking more than $150 million in damages, alleging that Peloton willfully did not obtain a synchronization license.[13] The plaintiffs assert that Peloton used more than 1,000 songs owned by the plaintiffs, and that Peloton is a “textbook willful infringer.”[14] Further, the plaintiffs allege that Peloton entered into synchronization agreements with owners of some musical works, but not the plaintiffs at issue here. Since the initial filing, the NMPA has doubled its suit to seek damages of $300 million, asserting that Peloton used more than 2,000 songs.[15]
In its answer to the complaint, Peloton denied the charges and stated several defenses, including lack of ownership, the doctrine of estoppel, the doctrine of unclean hands, copyright misuse, implied license, and failure to mitigate damages.[16] Peloton understands how important music is to its services, stating in their S-1, “Music is an important element of the overall content that we make available to our Members… Although we expend significant resources to seek to comply with the statutory, regulatory, and judicial frameworks, we cannot guarantee that we currently hold, or will always hold, every necessary right to use all of the music that is used on our service, and we cannot assure you that we are not infringing or violating any third-party intellectual property rights, or that we will not do so in the future.”[17]
Peloton feels as though it has been cast as a villain with regard to its portrayal in its dispute with the music industry. The company stated in its answer, “Peloton has invested heavily in creating the infrastructure and systems to facilitate appropriate licensing for its service offering, which presented a novel use case to the music industry.”[18] Peloton asserts that the music industry is the real villain, having colluded to fix prices and refusing to deal with Peloton in violation of §1 of the Sherman Act.[19]
This begs the question: where do we stand now? In response to the initial lawsuit, Peloton removed all the classes that featured the songs in question—a move that has been dubbed “The Purge” by loyal followers.[20] With Peloton having undergone an IPO in the months following the massive lawsuit, and with the stock price fluttering below the IPO price, investors and subscribers are all anxious for the case to be resolved smoothly.[21]
The Peloton lawsuit could have major implications for the fitness tech community as it moves forward, especially with competitors such as Echelon coming into the fray.[22] This lawsuit will serve as a benchmark for standards in music licensing, and it could lead to innovation that would allow companies to obtain licenses in a different way, outside of the traditional licensing categories. One thing, however, is for sure: Peloton needs music to be successful, and the music industry will inevitably want Peloton to pay for it.
Footnotes
