Peloton has become a premier name in home fitness in the seven years since it was founded. Its appeal isn't just its machines, like its stationary bikes, which sell for about $2,000. It's the classes you can watch on the machines as you work out for a $39 monthly membership fee.
Of course, a key element of those classes is pulse-pounding music from Lady Gaga, Rihanna and other top artists. The company even has a feature that lets its members transfer songs from their online classes to their personal playlists.
The problem is that Peloton allegedly never got the licensing rights for that music. The company now finds itself embroiled in a $150 million lawsuit brought by music publishers. The suit calls the company a "textbook willful infringer" for failing to get the necessary licenses for thousands of songs.
Many in the fitness and music industries are puzzled by how the company overlooked the important step of securing rights to the music that's an integral part of its brand. One music attorney says, "I am baffled by it. Usually, companies know that when you use outside content for anything, you need a license."
However, one entertainment attorney says some startup companies won't initially negotiate contracts for intellectual property. Once they're successful, they expect they can get the rights at a lower rate because publishers will want them to use their music.
That's a risky strategy. As the attorney notes, the publishers "might also be offended because they didn't get the license from the beginning." Then, "they can put you out of business, or at least make a big dent with a lawsuit for punitive and statutory damages." The attorney notes that Peloton may have negotiated with co-owners of the music who have a right to license it.
Whatever the case, one branding expert advises the company to apologize and pay the publishers. She says that many people "care about the artists and they don't want to see themselves as cheating" by working out to music their favorite musicians haven't been fairly compensated for. The lawsuit and resulting negative press could also impact Peloton's plans for an initial public offering predicted to be worth about $4 billion.
It's essential for startup companies to ensure that they have taken the appropriate legal steps to secure any intellectual property they use. This can save you significant expense and reputation damage later.