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Five years ago, fitness companies looked like the next big thing for music rights owners as the onset of the COVID-19 lockdown turned Peloton, the maker of high-tech stationary bicycles and treadmills, into a household name and the leader in a suddenly hot connected fitness market.
Peloton’s founder, John Foley, had created an online version of music-driven, brick-and-mortar studios such as SoulCycle. Unlike the staid strength and cardio products of earlier years, the new breed of bikes and treadmills manufactured by the company were internet-ready and could stream live or pre-recorded workouts. Other startups took notice, with competitors like Tonal and Hydrow vying for market share.

“There were fitness companies who saw what Peloton was doing, which was really putting music at the center of their workouts,” says Vickie Nauman, a licensing expert and founder/CEO of CrossBorderWorks. Instructors, some of whom would become small-time celebrities, used music to create identities and build communities. “This was the original founder’s vision,” she says.

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Flush with investment capital, fitness companies followed Peloton into expensive licensing agreements with rights holders to infuse music into their at-home products. Royalties from connected fitness companies, as well as social media and other new revenue streams, went from about 3% of the average catalog’s revenue in 2021 to “something like 7%” in 2023, according to Jake Devries, a director in Citrin Cooperman’s music and entertainment valuation services practice.

As it turned out, 2020 and 2021 were peak at-home fitness. The financial impact of the post-pandemic fitness bubble was seen in Universal Music Group’s results for the fourth quarter of 2024: A decline in its fitness business accounted for a nearly one percentage-point decline in its subscription growth rate, equal to approximately $12.5 million. And during its most recent earnings call on April 29, the company noted that fitness revenue was flat in the first quarter.

After pandemic restrictions ended, the stay-at-home fitness business ran into competition from gyms and fitness studios as people returned to public life. As a result, according to numerous people who spoke with Billboard, connected fitness companies had less cash to put into music licensing and, realizing they didn’t need massive catalogs and didn’t have the expertise to properly manage the rights and issue royalty payments, looked for more affordable, less arduous options.

Peloton, founded in 2012, was a trailblazer in at-home fitness. Its studio-quality bikes, which currently cost between $1,445 and $2,495, are outfitted with touchscreens that stream live and on-demand content for an additional $44 per month. Music is a focal point for the online classes, just as brick-and-mortar studios like SoulCycle incorporate popular songs into their workouts. Despite the high prices of Peloton’s bikes, online content has a greater financial impact: In its latest fiscal year, subscriptions accounted for 63% of the company’s $2.7 billion of revenue and 96% of its $1.2 billion of gross profit.

Music enhances online workouts in the same way it makes going to a fitness studio or a gym more enjoyable. But building cycle workouts around setlists of specific songs isn’t straightforward. Unlike brick-and-mortar locations that require only blanket licenses from performance rights organizations such as ASCAP and BMI, Peloton required more expensive direct licenses to incorporate music into its streaming content. After being sued by music publishers for copyright infringement in 2019, Peloton settled the following year and began negotiating the proper licenses.

Such a license had never been done for a fitness company, so major labels and publishers modeled custom licenses for Peloton based on their deals with Spotify and other on-demand music platforms, according to a licensing executive familiar with the negotiations. The agreements called for Peloton to pay rights holders based on a monthly per-subscriber fee, and the pool of royalties would then be proportionally divided based on usage, according to this person.

Peloton had built a name for itself in the fitness community by 2019, but it was supercharged the following year by the COVID-19 pandemic. As people stayed away from public places such as gyms and fitness studios, Peloton’s revenue jumped from $384 million in fiscal 2019 to $1.45 billion two years later, and its share price climbed from $27 following its September 2019 initial public offering to $171 in January 2021.

The enthusiasm for at-home fitness also benefited Peloton’s competitors. Hydrow, which offers rowing machines with Peloton-like streaming content, raised $25 million in June 2020 and another $55 million in March 2022. Tonal, a connected strength training platform, had raised a total of $90 million by 2019, before the pandemic piqued interest, then raised $110 million in September 2020 and $380 million in two funding rounds in 2021 and 2023 — the latter at a lower valuation.

As other connected fitness companies quickly sought music licenses to replicate Peloton’s success, rights holders offered them a version of the Peloton license, which provided them rights to large catalogs. (Peloton, the lone publicly traded company of the bunch, revealed in its 2021 annual report that it had a catalog of 2.6 million tracks.) “Once there was a model, it was always going to be easier to replicate a model you think is working than create a new licensing deal,” says the licensing executive.

But these fitness startups, desperate to corner share in a fast-growing market, initially made some missteps. “Because it was such a race, I think that many online fitness companies saw this as an existential opportunity, and they did not take the time to investigate what they were getting into,” says Nauman. “And so, they licensed all of this music, and that sent a signal to rights holders all over the world that fitness was going to be an enormous new line of business.”

The Peloton-style licenses weren’t cheap. Record labels and publishers were “aggressive with the rates they were asking for a lot of the services,” says an attorney familiar with the terms of the licensing contracts. An app-based product would likely pay 30% of revenue to music rights holders, according to this person, while hardware-based products with higher overhead and costs would pay approximately 16% of revenue. “That’s a pretty big share of revenue for a company that is not a music company,” the attorney adds.

The Peloton-style sync licenses also came with more complexity than fitness companies could handle. Managing a music catalog requires technology and know-how that fitness companies don’t have. They needed help matching compositions to sound recordings to ensure licenses were acquired from all rights holders, and the reporting required for PROs and making direct payments to record labels and publishers were outside of the fitness companies’ expertise.

As fitness companies dealt with stagnant growth, they laid off staff and tightened their budgets. From February 2022 to May 2024, founder/CEOs at Peloton, Tonal and Hydrow were forced out. When Peloton replaced Foley with former Spotify CFO Barry McCarthy in February 2022 and announced plans to lay off 20% of its corporate staff, its share price was trading under $30, down more than 82% from its high mark just 13 months earlier. Tonal and Hydrow each laid off about 35% of their workforces in 2022, and Hydrow further thinned its staff in 2023.

Sync licenses are crucial to Peloton because classes are often built around playlists, and music is crucial to the indoor cycling experience. But not every connected fitness product needs to integrate music in a way that requires a more expensive, Peloton-style license. For many other companies, a non-interactive, DMCA-compliant radio service with pre-cleared music is more than adequate.

Constrained by tighter budgets, some connected fitness companies started looking for alternatives to their original licenses. Today’s connected fitness CEOs tend to be most concerned about the cost and complexity of music licensing and the likelihood of being sued, says Jeff Yasuda, founder/CEO of Feed.fm, a provider of licensed music to connected fitness companies such as Hydrow, Tonal, Future and Ergatta. Being able to use popular music in their apps isn’t a priority.

“For a fitness company, your job is to make the best jumping jack app on the planet,” says Yasuda. Making a mistake handling music rights would put a company in jeopardy of facing lawsuits brought by music rights holders. “It’s just not worth the risk,” he says.

Feed.fm assures clients that the rights are compatible with various laws in different countries. It provides pre-cleared catalogs from Sony Music, Warner Music Group, Merlin, Insomniac Music Group and A Train Entertainment, and it works with record labels to create thematic stations, including one curated by CYRIL, a recording artist for Warner-owned Spinnin’ Records, and a Brat-inspired station featuring Charlie xcx, Dua Lipa, Chappell Roan and other artists that represent the brat summer of 2024. A rights holder itself, Feed.fm has signed 40 to 50 artists, which its vp of music affairs, Bryn Boughton, says gives it greater flexibility in licensing.

Outsourcing the licensing ultimately saves fitness companies money, says Con Raso, co-founder/managing director of Australia-based Tuned Global. Raso’s pitch to fitness companies is to invest money in marketing and let companies like Tuned Global handle the technology. “We don’t think, unless you’re doing it on a massive scale, you’re going to save money,” he says. Raso estimates that Tuned Global can remove 70% of clients’ costs versus licensing music and managing rights themselves.

Beyond traditional fitness apps, there’s big potential for licensing ambient or mood music for a new wave of mental health-focused apps. In the last six months, Raso has seen an uptick in demand for licensed music from companies more broadly associated with health and medical care. Consumers have a wide choice of apps for yoga, meditation, mindfulness and sleeping that incorporate music. Led by companies such as Calm, the market for spiritual wellness apps hit $2.16 billion in 2024, according to Researchandmarkets.com, and will grow nearly 15% annually to $4.84 billion by 2030. Record labels have already made forays into this space. Universal Music Group, for example, formed a partnership in 2021 with MedRhythms, which uses software and music to restore functions lost to neurological disease or injury.

The COVID-era boom of connected fitness products, though, seems all but over, having failed to live up to lofty expectations. Chalk it up to the chaotic nature of the pandemic and fast-moving startups battling for market share, says Nauman. “I don’t think it’s anybody’s fault,” she says. “I think it was such a lightning-in-a-bottle time that they were in a race to get to market as fast as they possibly could.”

Additional reporting by Liz Dilts Marshall.