Spotify just became a fitness company and nobody in fitness noticed

Spotify just became a fitness company and nobody in fitness noticed

I opened Spotify this morning to build a playlist before a HYROX session. I found a Peloton stretching class instead.

Ten minutes. No upcharge. Sitting right there next to my music like it had always been there. I did the whole thing, because apparently I do not know my own stretching routine and a stranger on my phone does.

Then, because I am who I am, I went digging to see how much fitness content Spotify had quietly loaded into an app I pay for because of music.

More than 1,400 Peloton classes. Strength, Pilates, barre, yoga, stretching, meditation, floor cardio. Free users get workout content from creators too. Spotify launched the whole category in April.

Spotify is not a fitness company. Spotify just became one of the largest distributors of fitness content on the planet, and it charged its members exactly nothing extra to do it.

Now let me tell you about the conversation I have roughly nine times a week.

An operator tells me they are going to add content. Good. Then they tell me the plan: put it in a higher tier, charge for it, protect the margin.

Then, in the same breath, that same operator tells me they cannot roll the app out to the whole base because some members do not have a smartphone.

I am going to say this as kindly as I know how. Both of those instincts are going to cost you a January.

Read what Spotify actually did, not what you wish they did

Spotify did not build a fitness tier. They did not launch Spotify Premium Plus Sweat for an extra four bucks.

They gave it away inside the subscription people already had. Then they raised the price of the subscription.

Premium ARPU hit 4.89 euros in Q2, up 7 percent, and the filing says it plainly: the increase is attributable to price increases. That was the third US price rise in four years. Subscribers still grew 9 percent, straight through the hike, to 300 million.

That is the entire play. Content is not the revenue line. Content is the permission slip for the price increase across the whole base.

Netflix ran the same play. Added Spotify Studios and Ringer video podcasts. Added fourteen more shows from iHeart. Raised the standard plan by two dollars fifty in January, before the new content even landed. Tightened up account sharing so the base they were pricing was a real base.

Neither company cared about a small premium tier. Both cared about a couple of dollars across everybody, held longer.

The part where I do arithmetic at you

Here is what our own platform data says, and I am using the published numbers because I want you to be able to check me.

Gen Z is 46 percent of new gym joins. Millennials 32, Gen X 13, boomers 7. Gen Z also churns at 54.42 percent a year. The 65 plus cohort churns at 26.48.

So the cohort you are winning is the cohort that leaves, and the cohort that stays is the cohort you are not winning.

Blend that mix and you get roughly 47.5 percent annual churn and an average tenure of about 2.1 years. New gym joins are down 9 percent year on year and cancellations are up 8. You are filling a bucket with a hole in it and the bucket got smaller.

(If you read my breakdown of why the K-shaped economy isn’t splitting anymore, it’s bending, the churn math here is going to look very familiar.)

Now watch what happens when you stop treating retention as a soft metric.

Your steady state membership is not driven by how many people you sign. It is joins divided by churn. The base scales with one over your churn rate. That is the whole business, in one fraction, and almost nobody runs it that way.

Les Mills data says members in structured group training average 22.6 months of tenure against 16.2 months for gym floor only members. Call that a 1.4x tenure effect from giving somebody a structure instead of a turnstile.

Run that through a 5,000 member club at forty dollars dues and eight dollars of in club spend:

Get 60 percent of the base engaged with free programming and content. Blended churn falls from 47.5 to roughly 40. Average tenure goes from 2.1 years to 2.5. Same marketing spend, same joins, and your steady state base grows 19 percent to about 5,950 members.

Now add the two fifty a month across everybody, because they are getting more and they are staying longer, and you have earned the right.

Revenue goes from 2.88 million to 3.61 million. EBITDA goes from about 634,000 to about 1.28 million. It doubles. Margin goes from 22 percent to 35.

Three quarters of that gain came from retention. One fifth came from price. The price only worked because the retention came first.

And the tier play you were about to run?

Same club. Same content. Same licensing bill. You sell it as a ten dollar premium tier and you hit the 3 percent attach rate that premium tiers actually hit.

Eighteen thousand dollars of revenue. Against thirty thousand of content cost.

It is EBITDA negative. You built the whole thing, you paid the whole bill, and you monetised three percent of the people standing in your building.

That is not a margin protection strategy. That is a rounding error with a launch plan.

Somebody already ran this in our industry

Life Time made their app complimentary. Free. No club membership required. Digital accounts went up 216 percent to 2.3 million. Then they put an AI companion in it and gave that away too.

Then they raised average monthly dues to 245 dollars, up 12.3 percent, with revenue per membership up 11.8.

They are not competing with the gym down the street. They looked at Spotify, Netflix and YouTube, understood they are in a fight for time consumption, and ran the exact same play.

And while we are here: Hyatt makes you use the app. Membership is free, and it is required. Check in, digital key, room service, spa booking, folio, all of it. They take the transaction off the front desk, redeploy the labour into service, and put a merchandising surface in your pocket for the whole stay. Technology to scale care, is how they describe it. Technology to cut queue time and grow basket size, is what it does.

So here is my challenge

Open it up. Free, to everyone.

Fill it with a mix of licensed professional content and your own coaches, because your coaches are the reason somebody picked you over the box down the road and they should be in the phone too.

Push check in, booking and payment through it so your front desk stops being a scanner and starts being a host.

Then price the whole base, once, with your chest out.

Do it now and you walk into January with a lighter head count, a more profitable promo, staff who are servicing instead of processing, and members who get results whether or not they made it through the door that day.

And on the seven percent who might not have a smartphone: the big boxes worked this out years ago. Grandma has a Facebook account and she is liking her grandkids’ photos as we speak. Nobody is taking her key fob away. You are just no longer building your entire digital strategy around the smallest cohort you have.

Engage the masses. Price the base. Keep them longer.

That is the rant. Go run the math on your own club and tell me I am wrong.

Want to see what your own club’s math looks like?
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