The recent quarantine triggered by the coronavirus pandemic has caused a surge in demand for home fitness video-streaming services. Beachbody, which has a track record of over 20 years in the business, has been a leader in the field as media formats evolved from VHS to DVD and now streaming. In an interview with IPO Edge, Beachbody Co-Founder and CEO Carl Daikeler explained the advantages of offering a $99 annual service that’s accessible to most people and doesn’t require major equipment purchases such as Peloton Interactive, Inc. or Nautilus’s Bowflex. He also explains how the company has defied convention by allowing trainers to look realistic rather than dolling them up in Hollywood hair and makeup. He said that once the company went to streaming, it adopted a Netflix, Inc. model that gives access to a full library of 80 videos along with nutrition planning services. (Beachbody is privately owned and hasn’t made any announcements about going public). The full interview is below:
IPO Edge: Beachbody is designed specifically for health and fitness at home. Have you seen an increase in demand as a result of recent quarantines and do you expect those customers to stick around after stay-at-home orders are lifted?
Mr. Daikeler: We have seen incredible engagement from current subscribers as well as new subscribers since the coronavirus began to keep people at home. Last week alone we saw a 220{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} increase in subscribers and a 79{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} increase in usage vs the same time last year on Beachbody on Demand. We have also made our kids classes freely available on Vimeo, which have seen a huge spike in usage of over 13x. We offer the total solution with fitness, nutrition and support, and believe that our customers will recognize the benefit and value of what we are providing, and stay with us long after the quarantine ends. For most people, Beachbody is the gateway to a healthier lifestyle and we hope that continues.
IPO Edge: How does your business model compare with other popular options like Peloton Interactive, Inc., Nautilus’s Bowflex, or NordicTrak that require significant investments in equipment?
Mr. Daikeler: Physical equipment is a financial and space commitment and is not for everyone.
At $99 a year– a fraction of the cost of the equipment-based programs – Beachbody has proven to get you results without the need for big or expensive equipment, which has been scalable as we grow.
To give you an example, last year we launched Morning Meltdown 100, a challenge for subscribers to complete 100 workouts. Psychologically, to get someone to commit to doing 100 workouts is a massive commitment, so as motivation, we created a laminated calendar with a goal to cross off one workout per day. It makes the program tangible and we have seen tremendous success. We have over 80 programs and add four or five new programs a year, so subscribers can move from program to program, which makes the commitment easier.
IPO Edge: Let’s talk about the evolution of home workouts. How have media formats changed and what has been the impact on your business?
Mr. Daikeler: We have been selling fitness and nutrition content for over 20 years and have seen several evolutions, from VHS to DVD and now to digital streaming. Regardless of the format, we have always maintained a holistic approach to helping people get fit and lose weight. From day one, I believed that to be a fitness company, we needed to offer the whole solution to see complete results. We also defied convention in a number of ways – for example, early on we realized the instructors shouldn’t look perfect and have Hollywood hair and makeup – people want a program that feels realistic, which we give them.
In 2016, we shifted to streaming with digital delivery and we have seen tremendous success. We offer the Netflix, Inc. model, giving customers the whole catalog of 80 programs, as well as recipe and meal planning nutritional videos, and have built that into a strong subscriber-based platform. Once we moved from the passive exchange with the DVDs to streaming subscription, we saw things shift dramatically as the content has become incredibly powerful and interactive. Again, the constant has been our holistic approach – fitness, nutrition and accountability.
IPO Edge: How has nutrition complemented your exercise offerings?
Mr. Daikeler: Nutrition is a critical part of what we are offering and part of our holistic approach. We offer nutritional support from experts to help people manage a sensible eating approach 24/7, all year round. They can start and stop their fitness routines and still manage a decent fluctuation in weigh; but, if they let their nutrition go, it’s incredibly difficult to achieve their long term weight loss goals. We also have a variety of content for subscribers to access to help meal planning.
IPO Edge: Who is your typical customer?
Mr. Daikeler: Beachbody is not fitness for people who love it. I hate working out, so wanted to create a solution for others like me who don’t want to go out for a jog – and that’s always been our design. P90X, for example, is a 90-day program with 12 workouts designed to deliver results in that fixed amount of time, so it’s tangible and doesn’t feel like a life sentence.
IPO Edge: Tell us about how you get help from happy customers to promote Beachbody.
Mr. Daikeler: Our Coaches and customers are walking billboards. Their success and transformations are noticeable and become a topic of conversation in social settings, which translates into new subscribers.
We have 2 million customers, and 340,000 of them are “Coaches.” While we are structured as an MLM, we do something very different and have a unique value proposition. Being a Coach is a way for many of them to monetize their relationship with Beachbody. All coaches were customers first who achieved results with our program, so it’s the natural next step. But the real value is in the peer support our Beachbody Coaches offer to help people succeed and achieve their goals. We know accountability through Coach and group support is critical to achieving success and currently have groups on Facebook and Instagram – and will soon be launching BODgroups – to make it easier for Coaches and customers to engage within Beachbody on Demand.
When putting a group together, it’s the coach’s responsibility to keep everyone motivated and engaged and help them stay positive and supportive of one another through regular communication.
IPO Edge: How do you look at customer acquisition costs generally and how does that translate to profits?
Mr. Daikeler: When we acquire a customer, it’s important to us that we do so profitably, and on a free cash flow basis in the near term. Preserving cash flow and profitability have always been important, a discipline which we’ve maintained since 1999. We are profitable, with no debt, and have a historical Ebitda margin of 10{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208}. We had over $900 million of revenue in 2019, and are on target to surpass $1 billion this year.
IPO Edge: How do you compete with free options like Alphabet Inc.’s YouTube?
Mr. Daikeler: We create defined programs of 21, 60, and 90 days that drive results. To get that commitment, people want evidence of success and to know what the journey will look like. We’ve also seen that by paying for a subscription, people feel they have skin in the game, which we’ve found to be extremely important to keep them engaged and committed.
IPO Edge: Do you keep people around after 90 days?
Mr. Daikeler: We have 92{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} retention from month to month, so we know that customers are finishing programs and beginning new ones, but more importantly seeing results. At a reasonable price point, these programs, along with nutrition and meal planning, offer a holistic approach to fitness and nutrition to drive long-term success.
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