Beachbody – Health & Wellness Subscription Model &
Digital Fitness Trends – 26 October 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Bill Bradford (BB)
Former Chief Digital Officer at Beachbody LLC
Agenda:
1. Strategic update across at-home fitness products, including coronavirus tailwind and its sustainability
2. How could multi-level marketing support or inhibit Beachbody's (NYSE: BODY) growth, considering
potential conflicts with D2C?
3. Nutritional, content and hardware offerings, plus strengths and weaknesses vs Peloton (NASDAQ:
PTON)
4. Consumer price sensitivity and international expansion opportunities
Contents
Q: What does digital transformation mean vs having a website and next-day shipping? The term seems to
apply across industries including apparel and health and wellness.
Q: How has in-home fitness changed during your time in the industry? There’s been an explosion of
hardware-plus-subscription-content offerings such as Peloton. How has coronavirus supercharged any
trends?
4
5
Q: Beachbody has started going into connected fitness with its hardware solutions, but it’s also in nutrition,
which is anything from bars to dietary supplements. How has it expanded from a pure content solution
provider to all these other categories? It seems to have taken the opposite trajectory to Peloton, which moved
6
to content from hardware.
Q: Was Beachbody hesitant to jump into the Peloton model where it also offers a physical product?
Q: Are there further opportunities for Beachbody to leverage its content on other hardware solutions or
platforms? You’ve already touched on multi-level marketing vs direct marketing.
6
6
Q: Could you give an overview of multi-level marketing and the challenges of scaling a business through this
channel? It’s an interesting set-up that seems to thrive in certain companies and hold back others.
7
Q: Could you elaborate on the metrics that play into customer retention and make subscription-based
content solutions for health and wellness such as Beachbody’s better than competitors’?
Q: Was Beachbody positioned adequately to take advantage of consumer demand from coronavirus with its
product offerings? It was a once-in-a-generation opportunity to acquire new customers that might not
otherwise have tried a certain platform. Could the company have been better-positioned with its digital
capabilities or hardware solutions?
Q: What are your thoughts on the coronavirus bump? Is this a one-time event or could sales be sustainable,
with a linear growth rate from consumers wanting more at-home work-out solutions? Could consumers
return to the gym and growth flatten, with whoever made gains in the pandemic keeping them?
Q: What’s your take on Shakeology – Beachbody’s nutritional subscription – and the value-add here? What
makes its supplements better than those from a regular retailer?
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Q: Another selling aspect of Shakeology seems to be packaging it with a digital option. How does Beachbody
bundle services? Is consumer retention higher when they have other parts of the category?
9
Q: Do customers like to re-evaluate as they go through the plan, perhaps thinking they should focus on the
content solution and get the dietary supplements elsewhere, or alternatively that they like the bars and
shakes but can use their Pelotons? How does Beachbody deal with mixing and matching?
9
Q: How hard it is to build out an in-home fitness content solution and have the right operations, trainers and
9
studio? Is it a challenging process or is the barrier to entry a lot lower given the technology available?
Q: What are Beachbody’s opportunities with hardware such as the Myx bike and the weights vs competitors’
offerings? I say this because Lululemon has the Mirror, but I don’t think I’ve ever heard of anyone buying it.
Tonal definitely has an enticing set-up where the customer can just pull it down and it’s base-friendly.
Comparing the supply chain practicalities of these devices, a large 150-pound bike is a lot harder to ship than
a glass mirror. Could you speak to these dynamics around the consumer and the practicality of getting a
product to them?
10
Q: Would you say Beachbody is still reliant overall on multi-level marketing, or can it sell the bike or engage
customers through other channels vs relying on the coaches?
10
Q: How could having a hardware solution allow Beachbody to build a better profile of its consumers by
gathering new types of data? How do the physical and digital aspects together allow this increased accuracy?11
Q: What are Beachbody’s international expansion opportunities, given we’ve touched on domestic multi-
level marketing and how scaling the business through other channels may lead to competition with the
associates and coaches? How could scaling work globally if the company can sign licensing agreements and
get the product out there?
Q: Are any platforms successful in a global format? What may be successful vs less enticing at this scale?
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Q: What are your thoughts on content categories including running, cardio and boxing? What are the trends
here?
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Q: How are consumers reacting to price changes for in-home fitness subscriptions? If a consumer is paying
USD 40 per month to run on a treadmill, the value-add from the subscription may start to depreciate as they
become more aware of the core activity they’re doing. Are consumers apprehensive about a USD 3 price
increase? What are you noticing across price increases vs promotional activity?
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Q: How did the pandemic change Beachbody’s ability to hike prices, given USD 99 per year seems very low?
Did coronavirus give an opportunity to double this or tack on a 25% increase for new customers?
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Q: How promotion-driven is Beachbody’s nutritional business in a normalised demand environment? This
seems to be where Beachbody can vary prices significantly and quickly tack on promotions.
13
Q: How do you assess Beachbody’s marketing strategy, particularly its micro-influencer relationships, which
are where most of the costs happen? As you said, there are a lot of conflicts where the company has to try not
13
to step on the toes of the coaches, so how does it manage this sales channel conflict?
Q: How much of a role does the coach or associate play in maintaining a customer’s subscription after it’s
been acquired? Is continued engagement a corporate responsibility?
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Beachbody – Health & Wellness Subscription Model &
Digital Fitness Trends
Transcription begins at 00:00:14 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Beachbody – Health & Wellness Subscription
Model & Digital Fitness Trends. I’m Nyree Hinton and I’ll be facilitating today’s Interview with Mr Bill
Bradford, former Chief Digital Officer at Beachbody LLC.
Bill, before we get started with today’s Interview, please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information, or any other information which is confidential, during this Interview.
BB: I agree.
NH: Could you introduce us to your background and the various roles you’ve held in the industry?
BB: I won’t go over my entire resume, but I think the relevant roles are the fact that I’m a digital
transformation kind of guy, starting from when I was at AOL back in the early 2000s. I made my way, I was in
the consumer-facing product group running the e-commerce platform, and then I moved over to Yahoo. I was
in the Media Group over there as the VP of Products and Platforms for the Media Group. Moved down to
Santa Monica and, from there, I was recruited to head up the Digital Group at Fox Broadcasting, which
included all things that didn’t go through the linear airwaves that were supporting the TV network, so it
included transforming our company to be a multi-platform streaming company, as well as going over the air. I
re-monetised the content going through new digital channels that were not measured by Nielsen necessarily,
and so it was really a transformation role from 2007 to 2014.
It was at that point that I specifically entered the fitness industry by being recruited by Beachbody to be their
Chief Digital Officer, and what that meant was I employee number one of the Digital Group to build it out and
to migrate the company as the C-suite leader to a subscription-based model. That’s where I came in and
pitched that as a strategy, as a subscription-based offering, as opposed to individual transactional sales of
individual titles by DVD, and so I built that Group out and, by the time I had built it up to full scale, it was
about 120 people and a multi-platform, digital-streaming, subscription-based business. I left that about two
years ago, and then I moved over to Pvolve and have a similar role. It’s a smaller fitness start-up play out of
New York. Chief Product Officer there as well, so I ran the streaming platform implementation, a new platform
for them, and integration into their e-commerce, which is still in use today, and then I migrated to my current
role at Advanced Human Imaging, which is a smartphone-based telehealth company that’s headquartered out
of Australia, and I’m the Chief Business Officer there.
[00:03:26]
Q: What does digital transformation mean vs having a website and next-day shipping? The term seems to
apply across industries including apparel and health and wellness.
BB: It’s a great question, because digital transformation is not just what was previously done analogue, we’re
going to now do through the internet. It really requires a whole-cloth business and organisational strategy
change. I’ll give you an example. Just in the world of Beachbody, moving from a DVD model where you’re
selling the individual titles, you were optimising for a different type of sale and revenue model than you were
in a digital subscription-based engagement strategy, so what’s different about it? (1) Your monetisation is
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completely different. Instead of big-cart transactional sales, you’re moving to a subscription-based offering,
which, in the subscription world, retention is key, and so in a world where retention is key, what do you need
to know now? You need to understand what the customers are doing on your platform, what they like, what
they don’t like, what causes them to churn out, and having customer data insights that we never needed before
when it was just sending out a shrink-wrapped DVD that you didn’t even know the customer even opened in
the first place. It requires organisational change to have a data group, which wasn’t really required before, a
consumer-facing engagement data group, and how do you optimise for retentions in different marketing?
Retention marketing is a different animal than acquisition marketing, so what I’d like to say is when you’re
doing a digital transformation, it’s not just putting things in ones and zeros, bits and bytes. It is a full business
transformation that takes advantage of the technology if it’s going to be successful.
In a similar way, when I was at Fox, the digital transformation of the television network included not just,
“We’re going to take what was put over the airwaves and now we’re going to stream it.” It’s, “How are you
going to monetise it now, and how are you going to work with advertisers in order to figure out a way that they
can pay, that’s not measured by the industry standard, Nielsen?” It required a whole-cloth transformation of
how the television network even thought about what success looks like, who are the customers. Customers are
not just who is on the Nielsen panel. It’s whoever is using your product and engaging with it, and so it requires
organisational transformation and a different way of incentivising the employees in order to adapt to the new
world, so it’s not just putting something online and hoping that you’re going to be successful.
[00:06:45]
Q: How has in-home fitness changed during your time in the industry? There’s been an explosion of
hardware-plus-subscription-content offerings such as Peloton. How has coronavirus supercharged any trends?
BB: If we talk what is the industry, how do we define this, it’s really the in-home fitness market, and, for a
long time, the in-home fitness market has drifted from having an exercise bike in your house to buying an old
P90X DVD 15 years ago, and so getting your body to move at home, not motivated by somebody in the gym,
but it’s more self-motivated. With the advent of digital technologies, more and more of that stuff has been
enabled to be more sophisticated. Beachbody, we moved the market in a particular direction, made it more
digitised and consumer-facing and engaging, but Peloton did a great job in also having an integrated fitness
solution that included equipment that was high-end, plus a subscription offering in order to get people. That
was the business model, but it was really how do you get people moving their body at home and doing
something they don’t want to do, motivating them to do that, and so this industry is every bit as much about
new technologies as it is about finding ways to motivate people at home and create communities, and so I
think that’s what Peloton really did. It was to create a Peloton community, and they were very successful
because they not only had a great product, but they did enough brand advertising that they created this pent-
up demand out there that you felt like you wanted to be part of that.
With the success of the Pelotons and the Beachbodys of the world, it’s attracted a lot of investment capital for
people to come in and have their own solutions. You’ve got the Tonals of the world, another high-end piece of
equipment that has content, Sweat by Kayla out of Australia, knowing the users, you’ve got Les Mills. Now we
have other big players coming into the space, like Apple and Amazon, that are trying to take their piece of the
pie, so a lot of money coming in and a lot of investment and innovation, all around solving the same problem,
which is how to get people to move their body at home and how do you monetise that. Your follow-on question
is what has COVID done? I would say COVID has accelerated this, because everybody knows that the gyms
have shut down and in various states of repair across the country, and some have reopened, but it created this
psychological awareness that it may be much safer to work out, more than likely it’s much safer to work out, at
home, and so it accelerated growth and investment into this area. I was gone from Beachbody when COVID
happened, but definitely, the publicly disclosed stuff, you could see that their subscriber base significantly
grew with COVID, and I’m sure that it grew in other players as well, because of the situation in the country,
and the world actually.
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[00:10:37]
Q: Beachbody has started going into connected fitness with its hardware solutions, but it’s also in
nutrition, which is anything from bars to dietary supplements. How has it expanded from a pure content
solution provider to all these other categories? It seems to have taken the opposite trajectory to Peloton,
which moved to content from hardware.
BB: I’m not going over anything that’s not publicly available, but Beachbody started off as a direct marketing
infomercial company, selling individual titles of fitness titles that were on DVD, and they did that for about 10
years. Their breakout success was when P90X really became a national phenomenon, and, in that, they
realised that there could be a model where you incentivise other people to sell on your behalf and basically
create walking billboards, because it already was happening. As people did P90X, they became a walking
billboard for the company. That’s when they created that multi-level marketing model, I guess it was about 12
years ago now, which created that reseller sales channel model, but it was still selling DVDs and then the
nutrition supplement, Shakeology, and the primary way that that sales channel sold was through bundling the
Shakeology and the individual fitness title DVDs into what they called Challenge Packs. That model became
the dominant revenue model for the company while they were still doing infomercials and selling individual
titles. When I got there in 2014, actually I launched the subscription digital service in 2015, but it was moving
away from the individual title model bundled with Shakeology as the primary revenue source to a subscription
model, still bundling with the nutrition supplement, Shakeology.
That was then enhanced over time. They introduced the Performance line to the market, which helps your
body recover better and your workouts to be more productive and effective. That became another product in
the offering, but the big picture is they developed two primary sales channels, multi-level marketing and then
direct marketing to sell the fitness service, which now became a bundled offering of all of the titles that
Beachbody ever did and would, will create, into what’s called Beachbody On Demand. That was my product,
and then it was bundled and marketed in different ways, and so now they’ve evolved clearly into the connected
fitness market with the Myx bike and making the Beachbody On Demand service interactive and live as a
component of it with the BODi. That will be available as a standalone offering plus with that Myx bike as a
bundled offering, so I think it’s approaching the Peloton models that they’re trying to do. They have the high-
revenue purchase that they can create through that Myx bike and then create their ongoing relationship
through the BODi service, which is an extension of the strategy that was already in place.
[00:15:36]
Q: Was Beachbody hesitant to jump into the Peloton model where it also offers a physical product?
BB: I want to be careful not to go into individual management discussions that I was privy to. I would just say
that it took them longer to get into the hardware business, even though the model was already out there with
Peloton. It’s just a different kind of animal and different kind of supply chain, different selling proposition that
requires, I think, more of a brand advertising play that wasn’t in the DNA of a direct marketing company at its
genesis, but clearly they’ve evolved and it’s now part of the strategy.
[00:16:37]
Q: Are there further opportunities for Beachbody to leverage its content on other hardware solutions or
platforms? You’ve already touched on multi-level marketing vs direct marketing.
BB: Beachbody, the way I like to say it, is a different media company through either a network or a studio, or
they’re vertically integrated. Netflix started out as a network. They licensed other people’s content, then they
became studio and they created their own content and they have the distribution platform themselves that
they own and operate. Beachbody historically has been studio, creating its own content and distributing it
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originally through the media of DVDs and then through Beachbody-owned-and-operated applications that my
team had built out, so, to your question, could they monetise it in different ways? Sure. They could become a
licensor of that content to other people’s platforms. It’s not in line with the current offerings that they have
today, and it may, potentially, compete with especially the multi-level marketing sales channel, where there’s a
feeling of exclusivity in the content that those individual resell coaches are selling into the platform that they
can sell into, as opposed to competing with the licensor of the Beachbody content. That would, I think, be
orthogonal to that strategy.
[00:18:25]
Q: Could you give an overview of multi-level marketing and the challenges of scaling a business through this
channel? It’s an interesting set-up that seems to thrive in certain companies and hold back others.
BB: Multi-level marketing is definitely a proven sales model. The reason they’re out there is because they
work, and I’m not an expert in the world of multi-level marketing, though I have definitely interoperated with
it, but multi-level marketing companies, my understanding based upon the industry is there’s a certain ceiling
to them as far as the number of people that will buy from an individual reseller. That’s why there’s a certain
cap, typically, of revenue that you’re going to ever get out of that channel, and so typically the way that you
expand is the international expansion, because, in a certain market, only a certain percentage of people will be
the kind of people that want to buy from a reseller. The internet especially is a great disintermediator that
doesn’t require a reseller to get in between you and the transaction, so I believe that MLMs have a certain type
of people that will buy from them and a certain type of people that will actually be those resellers, so I think it
can be limiting. It could be a very powerful growth mechanism and high margins, but it also could be limiting
as far as your overall potential revenue opportunity, because of the nature of the sale. It’s just it’s a little bit old
school vis-à-vis the internet.
[00:20:28]
Q: Could you elaborate on the metrics that play into customer retention and make subscription-based content
solutions for health and wellness such as Beachbody’s better than competitors’?
BB: In any subscription model, you have the CAC-to-LTV ratio is something that, no matter what business
that you’re in, if you’re operating on the internet, it’s is your CAC going to be less than your LTV and will you
have enough margin that comes out of it? The key metrics that feed into LTV, that are different from a
traditional single-transaction sales model, are clearly retention and retention toward making money.
Therefore, you have to figure out what is going to drive customer retention, and, my experience, engagement
drives retention, and so if you have a customer base that is engaged in your products with different parts of the
product, then they typically will retain. In the fitness industry, there are certain metrics that I have utilised and
that are leading indicators, like, “This cohort we’ll probably retain,” and it’s how many times people work out
on your platform. If you can get them to create habits that overcome that initial hurdle of getting off the couch
and you’re motivated to go do this programme, but, if by the third or fourth workout, you’re like, “Okay, I’m
done,” then you’re going to lose them. If you can keep them around and developing a pattern of, “It’s okay that
it’s going to hurt while you’re working out,” then you’re going to create a long-term customer, and so the LTV
calculation is directly fed by customer engagement on the platform. Ultimately, that creates success stories,
which creates a beautiful flywheel. It creates people that are great collaborative marketers or organic
marketers, because they feed the ecosystem that, “This programme actually works,” so they share it with their
friends, and it helps to grease the skids on new acquisitions.
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[00:23:03]
Q: Was Beachbody positioned adequately to take advantage of consumer demand from coronavirus with its
product offerings? It was a once-in-a-generation opportunity to acquire new customers that might not
otherwise have tried a certain platform. Could the company have been better-positioned with its digital
capabilities or hardware solutions?
BB: I think Beachbody was pretty well-positioned. I think the digital platform was very well-positioned as far
as delivering content and acquiring people in and the whole e-commerce platform that supports it all, and they
did have a trainer base, trainers meaning the on-screen talent. Of all the solutions that were out there, they
had better penetration and brand awareness than many people, the Tony Hortons of the world and Autumn
Calabreses. Could they have been better positioned? My personal opinion is yes, that they could have had even
more talent that they didn’t home-grow but they licensed in. That’s the TV marketer in me, that talent sells
and so they could have had more of a licensor model to augment the catalogue. I think it could have helped
them be even better positioned, but I think, from an overall platform perspective, they were in a good position
to seize an opportunity at a point in time, yes, but, like I said, I think they could have been better positioned if
they had a little bit different mindset on licensing content and/or paying for talent, but maybe the business
model didn’t support it, so it is what it is.
[00:25:28]
Q: What are your thoughts on the coronavirus bump? Is this a one-time event or could sales be sustainable,
with a linear growth rate from consumers wanting more at-home work-out solutions? Could consumers return
to the gym and growth flatten, with whoever made gains in the pandemic keeping them?
BB: I’ve read different studies as far as they’ve done these different surveys, like who will ever go back to the
gym, and I’ve seen various numbers. We’ve seen 30% all the way up to 70%, “We’ll never go back to the gym,”
and that’s a pretty wide range. I think it’s going to be, “We will see,” type of thing, and my personal opinion is
some of this behaviour change is here to stay. The question is how big of a percentage? Clearly, not 100% of
people will never go into a gym again and only get at-home solutions, so there will be some leakage out to
physical offerings. I think there will also be some hybrid offerings that are both in-gym and digital that will
take advantage of some of those, and I think it’ll be the Xponentials of the world. They have a whole fitness
franchising world, but they’ve also got the digital offering. I think the COVID bump is a point in time that
created new behaviours, but I don’t think you’re going to have sustained rate of growth. It’s going to settle in, I
think, and just with a new mix of consumer behaviour, and I think it’s anybody’s guess as far as what that
percentage is really going to be.
[00:27:25]
Q: What’s your take on Shakeology – Beachbody’s nutritional subscription – and the value-add here? What
makes its supplements better than those from a regular retailer?
BB: Shakeology is a very good product. The ingredients in it are superfoods. It’s a very, very good product and
it actually works. I’m still a customer two years after leaving. Is it worth the USD 130 a bag? In my mind,
probably not compared to what you can get in retail for USD 50, and so I think the primary way that
Shakeology can and is sold, the only way it’s sold, is through the multi-level marketing network. I think
because it’s such a high-cost monthly subscription, it requires that person-to-person selling, which reinforces
the value on an ongoing basis of, “Why the heck am I paying USD 130 for this? Oh, yes,” because there’s this
MLM-driven community that reinforces its value. I think if you tried to put it on the shelf in Costco next to
Vega, people are going to choose Vega, USD 45 or USD 50 vs USD 130. Once again, it’s a great product, but it
requires a certain kind of sales channel in order to push it out there with the volume that they have. That’s my
opinion.
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[00:29:28]
Q: Another selling aspect of Shakeology seems to be packaging it with a digital option. How does Beachbody
bundle services? Is consumer retention higher when they have other parts of the category?
BB: I don’t know what they’ve publicly disclosed as far as the different cohorts in general. They way that they
sell Shakeology with Beachbody On Demand as a bundled offering, it’s called a Challenge Pack. That’s the
primary way of driving, that it’s sold through the multi-level marketing, so you have people that are
standalone Shakeology subscribers, but, more often than that, they are buying what they call the Total
Solution, so it’s the fitness plus nutrition is what’s going to get you the results. That initial sale to a new
customer in a Challenge Pack for USD 130-140, up to to USD 150, you’re getting a year of Beachbody On
Demand, which typically you’d pay USD 99 for, and you’re getting your first bag of Shakeology, which you
typically would pay USD 140 for, so USD 240 value for USD 140 or USD 160. That gets you on the plan and
then the notion is that, in success, if you actually use these two things together, you’re going to start to see
results and then you’ll become a retained, loyal Shakeology customer, and, in the meantime, you have a one-
year Beachbody On Demand that you can take advantage of, and so it’s a great way to get that initial customer
start.
[00:31:36]
Q: Do customers like to re-evaluate as they go through the plan, perhaps thinking they should focus on the
content solution and get the dietary supplements elsewhere, or alternatively that they like the bars and shakes
but can use their Pelotons? How does Beachbody deal with mixing and matching?
BB: It’s a good question. Clearly, it’s not one-to-one as far as the number of people that are Beachbody On
Demand, the content subscribers with the number of Shakeology subscribers. That’s all publicly available.
There’s a percentage that buy these supplements on a monthly basis compared to use the digital platform to
work out, so they don’t retain everybody for sure if it’s a higher-end market subscription. When you think
about USD 99 for a year of content vs USD 130 for one month of the nutritional supplement, it’s pretty stark,
but there are tons of people that do buy Shakeology on a monthly basis, but it’s not everybody.
[00:32:53]
Q: How hard it is to build out an in-home fitness content solution and have the right operations, trainers and
studio? Is it a challenging process or is the barrier to entry a lot lower given the technology available?
BB: It is hard to create good content, and people think that the barrier to entry is pretty low. Digital cameras
these days can do great things and just put somebody on a green screen and just go. I have told other people
that if I were starting a new fitness service and was looking for a head of content to create the best possible
fitness content, I would hire Carl Daikeler because, in my opinion, he’s the best at it, at creating a fitness
programme content offering that works and is engaging and that keeps you motivated. There’s been a lot of
different fly-by-night things where people think that there’s a low barrier to entry, because they produce some
content and they just don’t get any traction. I think that’s one of Beachbody’s real strengths, is their content
production capability and the fact that they’ve been doing this 25 years and there are certain things you do and
don’t do, so they’ve learned over time that there is an experience moat around the ability to create great fitness
content. Can that be replicated? Absolutely.
There’s a lot of talent out there that knows how to create good other kinds of content, and so I think there will
be more and more people that enter into the space. You see the Apples of the world. Amazon is dipping their
toe in the water with Halo and that fitness offering, which is primarily a licence deal right now, but they’ll
create their own content I’m sure. I think that, in summary, Beachbody is great at creating it. They’ve been
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doing it for 25 years. Some people that think that it’s easy to create content have been fly-by-night. You think
of Chris Hemsworth, the Centr thing that he launched, you think, “A super handsome guy, really fit. He’s going
to create this service,” and nobody cares, so it’s got to be more engaging than just a pretty face and some good
production quality. There’s a certain way to keep people engaged in a fitness programme and get results.
[00:35:53]
Q: What are Beachbody’s opportunities with hardware such as the Myx bike and the weights vs competitors’
offerings? I say this because Lululemon has the Mirror, but I don’t think I’ve ever heard of anyone buying it.
Tonal definitely has an enticing set-up where the customer can just pull it down and it’s base-friendly.
Comparing the supply chain practicalities of these devices, a large 150-pound bike is a lot harder to ship than a
glass mirror. Could you speak to these dynamics around the consumer and the practicality of getting a product
to them?
BB: There are a couple of things in there. There’s the manufacture of something that’s quality that people will
want to buy that’s a high-end product, and then there’s the distribution and customer service associated with
maintaining something, because now it’s a piece of hardware and some people (? 37.27) and things break and
you’ve got to be able to maintain it. Developing that kind of expertise is something that just tread lightly until
you’ve got to hire people that have done it before. (1) Creating a great product that you can in fact assemble
and have a reliable supply chain, you can see all supply chain issues that are out there today, it’s something
that you need to enter into with eyes wide open knowing that supply chain issues can become a real problem
for your business. They went into this space after I left, so I don’t know about the talent that’s there, that
they’ve hired in order to facilitate all of that. My assumption is that they hired good people to do it, but there
are definitely risks associated with it, but, at the same time, it also can create a higher revenue opportunity for
the company if you can do it right and get people to have a piece of equipment in their home that is best
utilised through a subscription offering. There’s some goodness that’s there, and Peloton have proven that out
through their success over time, though their model, if you’ve seen the stock price, is under pressure. You’ve
got to continue to innovate. Otherwise, if you don’t have a growth story, then (inaudible 38.51), at least from a
valuation perspective.
[00:38:56]
Q: Would you say Beachbody is still reliant overall on multi-level marketing, or can it sell the bike or engage
customers through other channels vs relying on the coaches?
BB: I think that they have to. I think with the coaches, you’re going to have a built-in enthusiastic customer
base that will buy whatever the company puts out. Not everybody in the hundreds and thousands of coaches
that they have will be able to afford this high-end piece of equipment, though you will get a bunch of them that
will buy it, I’m sure, because it’s from Beachbody and there’s a very loyal following there. However, like I said
earlier, I think the MLM sales channel, there’s a certain cap to it and so if they really want to grow, they’re
going to need to figure out. I think it’s going to be a business challenge for them to figure out how do you
balance selling it through the coach network, the MLM side with selling direct to consumer. All the brand
advertising that’s required in order to plant their flag and why are they any different than Peloton, that’s going
to be a challenge for them, because they are late to the market compared to Peloton and how BODi is going to
be significantly different from a consumer perspective, especially vis-à-vis the Myx bike offering, so I think
there are some challenges there.
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[00:40:38]
Q: How could having a hardware solution allow Beachbody to build a better profile of its consumers by
gathering new types of data? How do the physical and digital aspects together allow this increased accuracy?
BB: I frankly don’t think you’re going to get that much more data by somebody buying a bike and using the
bike with their fitness programmes than you would just watching their digital engagement through a digital-
only offering. I don’t think that really that’s going to be a huge differentiator as far as additional data, energy
burn that they can measure vis-à-vis the bike. That’s interesting, but I think, overall, digital engagement is
really, like I said earlier, the key to driving retention, which is the key to driving LTV. I just don’t think that the
bike itself is going to give you a huge differentiation as far as the consumer profile that they can build on all
these people. That’s my opinion. There’s already such a rich amount of data that you can get on a user just
through the digital offering.
[00:42:09]
Q: What are Beachbody’s international expansion opportunities, given we’ve touched on domestic multi-level
marketing and how scaling the business through other channels may lead to competition with the associates
and coaches? How could scaling work globally if the company can sign licensing agreements and get the
product out there?
BB: It’s a real strategy question. It’s not as simple as take the existing product and just translate it into French
or Spanish or German and just launch it and expect it to be successful, because, ultimately, the content itself
has to be relevant to that market. What may be really successful in the US market, where they’ve really done a
great job, may not translate, so if people in Germany want to do Insanity Max:30, it’s not clear to me. I think
in specific markets, you need to have the production capabilities and the market insights to develop something
that’s interesting to that particular customer base in that market, not just shipping out US-based content and
assuming everybody is going to want it. My personal opinion is to be successful in a different market, they’re
going to need to scale the content machine and have a footprint in those countries in order to really
understand what that country really wants, and not just exporting US-based content.
[00:44:07]
Q: Are any platforms successful in a global format? What may be successful vs less enticing at this scale?
BB: To be honest, not. Probably the best example would be Les Mills. They’re doing a really good job, these
guys out of New Zealand, and they have a lot of international growth, and I believe that their model is really
interesting because they have this licensing model into studios and Les Mills certified trainers and live events
that they do that are starting to pick up again. I think they’ve been successful in exporting a brand and an
offering to different markets. I haven’t looked specifically at the numbers, but I think they’ve been more
successful on a one-to-one basis than Beachbody has, in just that their content has been more internationally
accepted and appreciated, but, beyond that, I haven’t seen something that’s just killing it, is a global
phenomenon as far as a way to work out. We did see people around the world that did P90X or Insanity and
all that, but it doesn’t necessarily translate into a robust, profitable market.
[00:45:38]
Q: What are your thoughts on content categories including running, cardio and boxing? What are the trends
here?
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BB: There are definitely a lot of different categories, and yoga is a big one as well you didn’t mention, so the
HIIT, high-intensity interval training, which is closely followed with cardio, is a huge category, but more and
more people want to do yoga through these digital platforms, and you have muscle building. You’ve got MMA
type of content, they had Core de Force, and there are other ones that are out there. A lot of martial arts,
especially in the jiu-jitsu world, or starting to hang out (? 46.52) as far as (? 46.53) and that kind of stuff
virtually, and so there’s a lot of different content, a lot of different types of category. I believe the dominant
still is cardio. I’m actually very sceptical about the Peloton treadmill. I know they’re doing a lot of advertising. I
don’t know why you would need to necessarily have a live interactive experience to run a treadmill. That dog
doesn’t seem to hunt, in my mind, but I may be proven wrong, but I know they, almost by definition, are
trying, but they have to expand it in new categories, so they’re taking a bet on the treadmill. I don’t see it, but I
may be wrong, and it’s like a elliptical type of thing. Do you have to have a live experience to get on an elliptical
and have a successful workout? Probably not, and there are some boxing offerings that I’ve seen out there as
well, but I think that the primary market share is still cardio.
[00:48:03]
Q: How are consumers reacting to price changes for in-home fitness subscriptions? If a consumer is paying
USD 40 per month to run on a treadmill, the value-add from the subscription may start to depreciate as they
become more aware of the core activity they’re doing. Are consumers apprehensive about a USD 3 price
increase? What are you noticing across price increases vs promotional activity?
BB: The pricing in this world literally is the Wild West, and it still is I think, as far as how do you determine
what to charge for these things, because we have the benchmark, and I’ve seen it in my experience, “What does
a gym charge? Oh my gosh, we’re cheaper than a gym,” but should it be USD 40, should it be USD 20, should
it be USD? There’s a certain consumer perception of something that’s USD 8 or USD 8 a month vs something
that’s USD 40, and even though it’s the same cost of delivery in many cases, how you price it will determine
how much penetration you get and the kind of customer. I think that we have not narrowed in on what is the
standard offering that you should expect for these digital offerings. When you think about Beachbody On
demand, it’s USD 99 a year. That’s so much cheaper than what you would pay for a Peloton or a Tonal monthly
subscription, and then I know BODi is now USD 19.95 a month if you buy it on a month-to-month basis. The
industry is making it up and just looking for what that sweet spot is, and you do see, once you do some price
increases, that some consumers will churn out. It’s typical subscription economics, so yes, I think the answer is
they’re still trying to figure it out.
[00:50:31]
Q: How did the pandemic change Beachbody’s ability to hike prices, given USD 99 per year seems very low?
Did coronavirus give an opportunity to double this or tack on a 25% increase for new customers?
BB: It was after my time, so I’m not really sure. I’m not really sure their thinking. I think there probably was
an opportunity to increase the price. It’s tricky when you have multiple sales channels, and, if your primary
way you’re selling that through a multi-level marketing channel is through a bundle, it’s almost like you’re
keeping it artificially low to create a loss leader to get people into that higher-margin, higher-revenue
Shakeology. Doing any kind of price increase, it’s a delicate balance there, and then how you not compete with
yourself when you’re doing direct acquisition as well. It’s a tricky needle to thread, especially when it’s being
used as a component of a bundle.
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[00:51:46]
Q: How promotion-driven is Beachbody’s nutritional business in a normalised demand environment? This
seems to be where Beachbody can vary prices significantly and quickly tack on promotions.
BB: It’s not a highly promotional-driven thing on the nutrition itself. It’s more around the overall offering, so
these Challenge Packs, the way that they bundle them, and those are the things that are discounted on a
periodic basis typically to coincide with a marketing release of a new programme, a new fitness content
programme that’s on the platform. “Come on in and get your Challenge Pack for USD 140 that includes the
new blah, blah, blah workout programme,” and so the stunting is on the bundle itself, not just on the nutrition.
The nutrition itself is hardly ever discounted, in my understanding.
[00:53:04]
Q: How do you assess Beachbody’s marketing strategy, particularly its micro-influencer relationships, which
are where most of the costs happen? As you said, there are a lot of conflicts where the company has to try not
to step on the toes of the coaches, so how does it manage this sales channel conflict?
BB: It’s hard. That’s all I can say, and I’m going to be careful. I don’t want to say too much, but it’s very
difficult when you are going through a reseller model with any kind of company. You’re going through resellers
as well as selling directly to the same potential market base, so you’re competing with the individual resellers.
You have to create a feeling of privilege and exclusivity of selling to that reseller model, that if it starts to look
like they’re competing with corporate, they could be incentivised to pick up their wares and sell another
product, because a lot of these people, they’re non-professional salespeople that are stay-at-home folks,
primarily mothers at home, and they’re just looking to supplement their income in the vast majority of the
cases. If they feel like, “What’s the point? I’m competing with that ad on TV to get to this customer that I’ve
been grooming for a while,” that’s a tough thing, and so you can disincentivise your reseller base through
success on the other channel, so it’s a tricky thing to manage.
[00:55:17]
Q: How much of a role does the coach or associate play in maintaining a customer’s subscription after it’s been
acquired? Is continued engagement a corporate responsibility?
BB: It’s both. The content has to got to be really good, otherwise people fall out. The corporate has to have
delivered a good programme in the first place for people to want to stay engaged with, but the individual
reseller, that’s called the coach, the better ones are the ones that actually follow up with the customers and
enter what they call Challenge Groups, like, “Let’s all work out together, and let’s keep each other
accountable.” In the fitness market, that’s a huge thing. If you have somebody that’s an accountability partner,
that makes all the difference in the world, so it really can be a great retention vehicle to use those folks as a
retention army that keeps people in the game vs just falling off. The extreme example is, in the old days, if you
bought a P90X DVD, you may never open the shrink wrap. You were really motivated at 23:00 at night. You
feel like the person on the left, you want to look like the person on the right and you’ve ordered a DVD and
then, five days later, when it comes in the mail you’re like “Forget it,” vs if you buy it through a coach that’s
following up with you and it’s like, “Let’s do this together. Let’s join this Challenge Group.” You’re feeling like
you owe something to the group. There’s a psychological motivation that’s really powerful that can be
harnessed.
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[00:57:03]
NH: I think that’s a good place to end the Interview. Let me just close by saying thank you again for your time
today, Bill, and thank you, clients, for joining Third Bridge Forum’s Interview today. If you would like to speak
to Bill in a private call or meeting, please let your relationship manager know. Have a good one.
BB: Bye-bye.
Transcription ends at 00:57:15 of the recorded material
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