Peloton is a company best-known for its static exercise bikes. The company enjoyed rapid growth during the pandemic, but has had a troubled six months featuring a falling stock price as well as publicity problems.
Last month, co-founder John Foley stepped down as Peloton’s CEO. His successor is Barry McCarthy, former chief financial officer at Spotify. Given McCarthy’s background, it’s perhaps unsurprising that the new CEO has said that content, rather than hardware, is his focus.
McCarthy told the Financial Times that Peloton’s content is “where the magic lives”, rather than purely in the hardware. And content is already a substantial part of the overall Peloton product; the company currently offers two subscription products.
The first is the “Peloton All-Access Membership”, available to owners of the company’s bikes and treads. For UK users, this is priced at £39 a month. The other membership option is solely for the app and available to those without hardware. It is priced at £12 a month.
As Peloton bike and tread sales slow, Barry McCarthy may look to focus on content to grow these digital-only subscriptions.
A gear-shift, rather than a change in direction
Peloton’s focus on content isn’t something that represents a radical diversion for the company.
Daniel McCarthy is assistant professor of marketing at Emory University’s business school. He has been following and studying Peloton’s business.
“They’re building off of a strong base, it’s not as if they’re making the pivot into doing something that they have not historically been strong in, rather, they’re taking a pre-existing strength and doing more with it,” he said.
Peloton currently produces all of its own content in-house. One of its strongest assets are its instructors, who have built a strong relationship with the company’s existing customers.
In a recent interview with the New York Times, new CEO Barry McCarthy seemed to suggest that the Peloton platform could be opened up beyond in-house content.
“Today, it’s a closed platform — but it could be an open platform and part of the creator economy,” he told NYT.
Marketing professor Daniel McCarthy suggests that this could look similar to app stores on other platforms.
“I think one of the things that they could potentially experiment with is opening themselves up to other people, and then have some sort of revenue sharing agreement. Not dissimilar from what, you know, what Apple does with the App Store,” he said.
Peloton currently has a base of devoted customers who love the content that the company produces. Michelle Wiles, founder of brand consultancy, Embedded, is one such customer. She says that at the moment, Peloton customers can go on the platform and know that they will get access to high quality content.
“It may alienate customers if Peloton becomes a place where we have to hunt for good content. It offers not just great products but curation,” said Wiles, “Even if my favourite instructor hasn’t posted something, I know that all the content is good. Versus if I want to just watch a workout video around any topic, I’ll just go on YouTube and search for it.”
“The main silver lining in the Peloton story is that they have customers that love them. And so they really don’t want to mess with that,” said Daniel McCarthy, “If, with the content initiatives, they can take what they’re doing right now and just make it that bit more engaging to the wider audience, then great. But they’ll want to do it in such a way that does not disturb the experience that the existing base has come to know and love. Because that would be potentially just giving up the golden goose.”
He adds that Barry McCarthy could look instead at ways to monetise the company’s existing subscriber base.
“It could be something like special classes that are only offered at a premium price or other things that could be purchased within the workout, or even just something as simple as giving tips to the instructors,” he said.
Two visions of Peloton
Michelle Wiles is bullish on Peloton’s prospects.
“I think, despite their troubles, they have built one of the most incredible and sticky products. People say, the stock is going down post- COVID,” she said, “And to that, I say, well duh, people are using it less as pandemic restrictions go away. But when you look at how much people are using the product, and compare that to any other gym service, it’s still outrageously high.”
She sees Peloton’s problem as being fundamentally one related to image. Peloton is a company that people love to hate, she says.
“I think the big issue is that there are almost two different worlds in how customers and non-customers perceive Peloton,” Wiles said, “I think, right now, Peloton needs to sell to non-customers, because customers are sold and they love the brand. The main question they need to address is the perception of the company as an elitist and unattached kind of brand.”
“Peloton constantly markets on the back foot. They had a campaign starting a couple of weeks ago that would show someone who criticised Peloton and then a quote from that same person saying, actually, I love the bike now. That’s a story I’ve heard many times. But it’s not going to convince someone to come around, instead it comes off as very reactionary and defensive,” she added.
For Daniel McCarthy, the crux of Peloton’s problems is the total applicable market.
“As Peloton doubles down on content, I can see the incremental revenue opportunities. But the big question that goes through my head is, does this fundamentally change the total applicable market concern?” he said.
“If Peloton wants to fully make the transition to the Netflix of fitness content, they need to significantly cut the price of the bike. Or, do without it, and just go digital only,” McCarthy said, “That would blow up in the market big time. But cutting the price of that bike significantly, that would really hurt them. Because right now 70 to 80 percent of their revenue is coming from hardware.”
Right now, Peloton’s business is really centred on their hardware. But Daniel McCarthy said Peleton’s earnings reports are likely to show the first signs that the focus is shifting on to content.
“I think one of the things that’s striking to me is that when they report their churn rate, it excludes all the digital customers. First, that tells me the churn of the digital-only customers must be worse. But second, it says something about the strategic focus,” said McCarthy, “So I think one of the things that could be interesting to watch for is, do they start disclosing a bit more about the digital-only subscribers? I think that would be a pretty strong tell that they’re getting more invested in them as part of the overall strategic direction of the company.”
