Issue No. 118: Music as a Moat

Fitness and music go hand in hand. But now, these billion-dollar industries are converging like never before.

While musicians and publishers look to capitalize on the digital fitness boom, fitness brands are busy navigating copyrights and enlisting A-list artists.

As music becomes inseparable from the modern-day fitness business, fitness companies will become media platforms in their own right.

In The Zone

The right playlist can make or break a workout.

Equal parts motivation, entertainment, and science, research shows that music can improve athletic performance — affecting heart rate, respiratory rate, and brain activity.

The impact is so profound that Dr. Costas Karageorghis, professor of sport & exercise psychology at Brunel University in London, said: “music can be like a performance-enhancing drug.”

Nothing new, music has long been an essential accompaniment to exercise. Except now, the soundtrack is vertically integrated into the fitness stack, creating a growing list of challenges and opportunities.

Remix

Music’s role in the fitness industry has evolved over time.

Prior to the current era of connected fitness, instructors doubled as DJs, expertly (or not so deftly) curating playlists for class. As boutique studios and fitness apps gained popularity, the landscape started to shift.

In 2018, SoulCycle unveiled a media division. Seeking to diversify beyond the studio, the company rolled out initiatives like SoulCycle Radio on SiriusXM, Retreats by SoulCycle, and the Sound by SoulCycle concert series.

The right idea but wrong execution, SoulCycle didn’t introduce digital or hardware offerings until last spring.

Also in 2018, music licensing company Rumblefish inked a deal with ClassPass to support content in its app. And audio-guided workout provider Aaptiv closed its Series C, with Warner Music Group and Bose investing in the round.

A sign of things to come, Peloton acquired Neurotic Media, a B2B music aggregator, in June of the same year.

Turn It Up

Connected equipment—and Peloton, in particular—helped make music central to the future of fitness. But not without a few snags along the way.

In 2019, ahead of its public offering, Peloton warned of music-related risk. In its S-1 filing, the company said:

“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 also noted the complexity of music licensing agreements, writing:

“We cannot assure you that we are not infringing or violating any third-party intellectual property rights…” 

They were right. In fact, the company was in the midst of a $300M lawsuit brought by the National Music Publishers’ Association. Ultimately, the suit was settled for an estimated $49M. But not before Peloton members expressed their dissatisfaction with the fix.

Consumer backlash aside, the lawsuit signaled the music industry’s seriousness around licensing and the costliness of acquiring the appropriate rights.

Music to Their Ears

Representing a lucrative new revenue stream, the rise of live and on-demand fitness content is music to the ears of artists, publishers, and labels.

Between 2000 and 2014, record sales dropped more than 40%. But, bolstered by the rise of streaming, the industry posted a compound annual growth rate of 13% between 2015 and 2019, reaching $11.1B. Of note, streaming accounted for 80% of industry revenues in 2019.

Thanks in part to the growth of fitness platforms like Peloton, alongside streaming services, social media companies, and video games, Goldman Sachs expects music industry revenues to reach $142B in 2030.

The recent flurry of activity speaks to the potential:

• Peloton partnered with Beyoncé for exclusive content.
• iFit teamed with Feed.fm to improve its music offering.
• Equinox Media licensed Universal Music Group’s catalog.
• Echelon announced a fully licensed music offering via MediaNet.
• VR fitness company Supernatural did deals with Warner and Universal.

According to the Wall Street Journal, digital fitness already represents hundreds of millions of dollars to labels and publishers. Soon, Universal expects the leading fitness platforms to be among its top revenue generators, alongside the likes of Spotify and Apple Music.

Opening Act

For fitness companies, creating compelling workout content set to hit music is table stakes. As time goes on, the ability to secure licenses and team with popular artists will become a competitive advantage.

Meanwhile, as digital fitness becomes a profit center for the music industry, companies like Peloton will evolve their content strategy.

Working directly with artists, the Peloton x Beyoncé deal is likely the first of many music-related partnerships. In fact, Peloton’s Artist Series has already seen success. And the company has begun experimenting with original music too, releasing exclusive Elvis remixes.

Seizing on these synergies, artists have begun investing in the connected fitness space. Pitbull and Jay-Z are both investors in CLMBR, where they’ll certainly leverage their clout and content.

Beyond fitness, we’ve seen this strategy play out at Calm. Musical artist Harry Styles, an early investor in the company, literally crashed the app when his Sleep Story was released on the platform.

Looking Ahead

In the near term, the quest for differentiated content and cost controls will lead to greater verticalization of music within the fitness stack.

As Peloton CEO John Foley has said, he’s building “a media company akin to a Netflix”—meaning heavy spending on original content is inevitable. And “Peloton Music” isn’t out of the question.

This fact will create substantial moats for deep-pocketed category leaders like Peloton and Equinox while causing headaches for independent fitness creators and upstart brands who don’t have an unlimited budget.

Further on, AI-generated music could reshape the landscape once again, creating highly personalized, activity-specific playlists. For now, Amazon-backed Endel, AI streaming app Mubert, and OpenAI’s Jukebox are just scratching the surface of what’s possible.