Lawsuit threatens company’s quality and earnings
Peloton’s allegedly improper use of pop music may be enough to impact more than its initial public offering, but the overall quality of Peloton’s product. The company faced a $150 million lawsuit from the National Music Publishers Association (NMPA) in March for the use of thousands of pop songs without proper licensing, but the amount sought has doubled to $300 million during the discovery process.
Peloton sells a twofold product, a $1,995 stationary bike with a $39subscription fee to access prerecorded cycling workouts. These workout videos feature choreographed workout routines, set to the tune of popular music. Riders can select workouts based on the tracks featured, choosing to climb to Bruno Mars or sprint to The Beatles.
In March 2019 however, nine music publishers sued Peloton, seeking $150 million in damages, alleging that the company knowingly and willfully used the plaintiff’s songs in their workout videos without being granted proper licensing.
When songs are used in the background of a recorded video, a sync license must be obtained to legally use the track.
“They have to get permission from both,” said Assistant Professor of Music Industry Studies at CU Denver, Benom Plumb. “If they’re using the song and the artist’s recording, they have to get permission from the label for the recording and they have to get permission from all of the publishers on the song.”
Failing to obtain a license means that parties involved in producing a song do not get paid for the streaming of their track. Since Peloton has allegedly failed to get sync licenses for each track used in their workout videos, the NMPA hopes to compensate the plaintiffs for their lack of credit in Peloton’s streaming services.
During the discovery process of the case, NMPA lawyers discovered at least 1,000 additional songs used by Peloton without sync licenses, leading them to double the amount sought to $300 million.
This second suit was filed in early Sept. 2019, weeks before Peloton’s initial public offering (IPO) on Sept. 26. The company planned to sell stock in their company for prices beginning at $26, but as news of the lawsuit reached the public, stock prices plummeted to just above $20.
In response to their timing of the suit decreasing stock value, Peloton countersued the NMPA for anti-competitive behavior.
Stock values aren’t the only aspect of Peloton that has suffered from the lawsuits. Many Peloton users have witnessed a decline in the music quality in their workouts. Peloton has begun to remove the songs in question, causing their amount of content to decrease, leaving the customers who paid the out of pocket expense disappointed with the company.
Whether the NMPA’s suit or Peloton’s countersuit will succeed, only time will tell. To Plumb, however, the process of legal discovery—the pretrial procedure where both parties access previously unknown documents possessed by the other party—will reveal the key aspect of obtaining any form of music license: the paperwork.
“There’s a big paper trail,” Plumb said. Uncovering the existence or nonexistence of the paperwork involved will be key in settling the cases.
As streaming services of all kinds begin to utilize licensed music more frequently, this lawsuit could signal a change in the industry. Videos of all kinds, including workout videos with seemingly benign usage of music, are proving to pose a major liability to companies who use them.