Ben Gilbert: prediction

Transcript context

…You're paying $40 a month. I know you've got some fun stuff on this. In 2019, everybody in Silicon Valley knows this is a great business now. People started talking about an IPO, going public, which happens in September 2019. Leading up to that, there's kind of an issue with the business they got to sort out. Earlier in 2019, they got sued for first $150 million and then they up it to $300 million by the National Music Publishers Association because they're obviously using all this music as part of the classes at Peloton and they didn't have the proper sync licenses. Yes. This is one of my larger bear cases for Peloton. Music licensing and gross margins are a treacherous tale. If you look at Peloton’s income statement today and across the recent quarters, we're at sort of a relative point of maturity here, about a third of the revenue that comes from subscription, not like the physical bike sales, but if you just look at the subscription revenue, a third of that goes to cost of revenue. While we don't know for sure, it's very likely that the majority of this goes to music licensing. Even though investors love a good subscription business, this is not 86% gross margin like SaaS is, it's more like 66% gross margins. A little examination, why do we think that this mostly goes to music? In part, the variable cost for everything else should be pretty low. Maybe bandwidth is probably the next highest cost for streaming video. I have some particular beef as a pedantic person with the video that they do stream. I find it to be too low frame rate, to have some motion blur, and to be a little bit compressed, but all that aside, it's still expensive to stream video. Did they put content production cost in variable cost here too?…

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