We have a little secret: we believe that everything is better with music. If you’re a business owner, we’re probably preaching to the choir. Department stores and boutiques blast playlists tailored to trigger sales; co-work spaces and coffee shops aim for ambient music that’s a perfect balance between chill-enough-to-work-to and won’t-put-you-to-sleep; and don’t get us started on how the right song can make the most grueling workout bearable. However, using music in your store, restaurant, cafe, workspace, app, fitness studio carwash, etc. without obtaining the proper rights can kill your business.
Let’s look at the current legal battle between Peloton and a group of publishers who are claiming that they did not authorize Peloton to use their music and are seeking damages of over $150 million for copyright infringement. And, we’ll look at how Peloton is refusing to go down without a fight.
The Parties
Peloton was recently valued at $4B and has over 600K subscription members. Apparently, “Music is the lifeblood of the Peloton workout experience.” Each workout is produced to a playlist, which can set the mood or tempo for a workout, and “performed” or led by an instructor. Videos of the workouts can be live-streamed or played on demand by subscribers.
On March 19, 2019, ten publishers filed a lawsuit in New York federal court alleging that Peloton “has used more than 1,000 musical works owned or administered by Plaintiffs over a period of several years in the videos that it makes available to its hundreds of thousands of customers without a synchronization (or ‘sync’) license…” and that Peloton’s copyright infringement is knowing and reckless. The complaint notes that Peloton has obtained some licenses from other publishers, suggesting that it knows how to obtain the proper rights and intentionally neglected to do so with respect to the plaintiffs.
Genius Note. You may be wondering why the songwriters and performers are not suing, when their songs are at issue. In a nutshell, it’s because they don’t own the rights at issue. As a creative, it’s crucial to closely review and understand any contract before you sign it, because it may assign your copyrights to another party, like a label, producer, or publisher. In this suit, the plaintiffs have identified several songs that they own at least a portion of the rights in, but there are countless other songs that are not at issue because this group of publishers has no rights to them.
Another Genius Note. For the copyrights that the plaintiffs co-own, the songs may be at issue even if Peloton obtained a license from the other co-owner. This is an example of why thorough due diligence is important when clearing the rights to use music. Often, there are multiple owners of rights in a work, and you would hate to spend time and money obtaining licenses only to be sued by one of the owners whose permission you failed to secure.
Sync Licenses
A sync license allows a licensee to reproduce a copyright protected work in connection with or in timed relation with a visual image, such as using an upbeat Calvin Harris tune to signal a high-paced crescendo of a cycling class. Because a sync license is specific to the particular work that the licensee plans to incorporate the music into, a separate license would be required for each video in which a song is used. Popular songs may appear in numerous videos. For example, the complaint alleges that Peloton used “Umbrella” in 55 videos and “Diamonds” in 45 videos. Unauthorized use of a song in one video streamed thousands of times can result in significant damages. Using that same song in over 50 different videos, which are each streamed thousands of times, can increase liability exponentially.
The Aftermath
Peloton has taken a few actions in response to the lawsuit that have made major waves. First, Peloton removed the songs at issue from its playlists. Apparently, from the slew of complaints that resulted from subscribers, music really was the lifeblood of Peloton’s workouts, and subscribers are not happy to have their music options limited. Second, Peloton’s April 30th answer to the complaint was accompanied by a countersuit, alleging that the reason it had not obtained all the necessary licenses is because the National Music Publishers’ Association (“NMPA”) and its members engaged in illegal anti-competitive practices, such as price fixing and a “concerted refusal to deal with Peloton.” Peloton admits it does not have “catalog-wide license agreements” with the publishers, but claims to have “limited-use license agreements” with “some” publishers.
In addition to its anti-competition claim, Peloton’s suit argues that the traditional sync license (which is common in television + film) is not appropriate for its innovative business model, because it is not feasible to obtain a separate license for each song in as short as a few hours before a live-streamed class begins. Instead, Peloton sought and apparently obtained two other kinds of licenses from rights holders: (a) catalog-wide licenses from major and independent record labels and (b) public performance licenses from the relevant performing rights organizations. However, Peloton admits it has had difficulty obtaining the remaining licenses from the publishers, citing the difficulty in determining who owns what rights to which songs. Peloton’s 46-page filing is stock full of other heavy allegations, including that the NMPA violated its Non-Disclosure Agreement with Peloton, forced its member publishers to stop negotiating with Peloton, and refused to tell Peloton which publishers it was representing (further impeding Peloton’s ability to negotiate directly with the rights holders).
This will be an interesting legal battle to watch for a few reasons.
- We may see a court opinion discussing whether a traditional sync license or a different kind of license is appropriate for innovative technology, such as live fitness classes coordinated to music and live-streamed or streamed on demand to users around the globe.
- We may get some clarity on the extent to which a creative rights association can act on behalf of its members without running afoul of anti-competition laws.
- In legal disputes such as this, big businesses can sometimes be characterized as anti-artist. We’re curious to see whether the creatives whose works are at issue will take a side and if so, which one.
The publishers’ complaint against Peloton can be viewed here. Peloton’s counter-complaint can be viewed here.
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Are you a small business owner that uses Spotify to set the vibe in your store? Or maybe you’re a budding filmmaker looking for music for your project? Either way, let’s chat about licensing and make sure you don’t end up singing the same sad song as Peloton. Complete your intake here.