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Peloton IPO filing reveals more details on its music costs


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Peloton is still facing up to a lawsuit from a number of music publishers over music that they claim was not properly licensed by the fitness startup. Still, it’s pressing on with its plans to go public, with its official S-1 filing published overnight, revealing plenty of information about Peloton’s business – including its dealings thus far with music rightsholders.

The big numbers first. Peloton is planning to raise $500m from going public, based on a business that has signed up more than 1.4 million ‘members’ – a term it uses to describe anyone with a Peloton account.

(Reminder: Peloton’s business model is selling people exercise bikes and treadmills to use in their homes, as well as a subscription to live video-streaming exercise classes – complete with music playlists – run by its instructors. It has so far sold around 577k devices, with 92% of the buyers still having a subscription as of the end of June 2019.)

The filing reveal that Peloton generated revenues of $915m in its 2019 financial year (which ran from 1 July 2018 to 30 June 2019), up 110.3% year-on-year. However, the company reported a net loss of $195.6m that year, compared to $47.9m in its fiscal 2018. Of those revenues, $719.2m (78.6%) came from selling the bikes and treadmills, and $181.1m (19.8%) from subscriptions.

What about music though? In the filing, Peloton says that it “continues to vigorously defend its position” in the publishing lawsuit, while estimating that the costs of any judgement or settlement may range from $4m to $11m – this compares to the up-to-$150m being sought by the publishers in damages.

The filing also gives details of ‘content costs for past use’ – money set aside to pay rightsholders for past use of their music while negotiating new licensing deals. Those costs were $15.5m in its fiscal 2017, $14.5m in its fiscal 2018 and $16.4m in its fiscal 2019.

Meanwhile, its “normal and recurring royalty expense” for those three years was $0.4m, $1m and $2.8m respectively, and Peloton also said in the filing that it has committed to pay minimum guarantees under certain music-licensing deals of $13.3m in its fiscal 2020, $18.4m in its fiscal 2021, and $10.3m in its fiscal 2022 – $42m in total for those three years.

These figures are all useful for anyone keen to understand how Peloton’s business is growing. What’s much more subjective, of course, is how important music is to that business: rightsholders argue that it is crucial, so will undoubtedly fillet the S-1 filing and subsequent quarterly financial results for ammunition to use in their licensing negotiations with Peloton.

Stuart Dredge

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