Peloton used-equipment activation fee

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In 2024, Peloton announced the introduction of a $95 USD / $125 CAD used-equipment activation fee for purchasers of second-hand Peloton devices in the U.S. and Canada. This fee, outlined in Peloton's Q4 FY2024 Shareholder Letter, highlights a broader issue in modern consumer markets: the erosion of ownership rights through digital connectivity and corporate oversight.

Background

Peloton, a fitness equipment and subscription services company, relies heavily on recurring revenue from its connected fitness subscriptions, which constitute a significant portion of its income. To maintain control over its ecosystem and extract value from the secondary market, Peloton introduced the activation fee under the guise of ensuring a high-quality onboarding experience for new members purchasing pre-owned devices.

The fee applies to secondary-market buyers of Peloton's flagship products, such as the Peloton Bike and Bike+. Upon payment, users gain access to virtual setup assistance and historical data summaries for their devices. Peloton markets the fee as a way to enhance user experience, but critics argue it serves primarily as a revenue-generation tactic.

Undermining the first-sale doctrine

The introduction of this activation fee raises significant concerns about the erosion of the first-sale doctrine, a legal principle in U.S. copyright law that allows purchasers of a legally acquired product to resell, lend, or give it away without requiring further authorization from the original manufacturer. Traditionally, once a consumer purchases a product, the seller relinquishes control over how it is used or resold.

Peloton's fee effectively inserts the company into every resale transaction of its connected fitness devices. By tying the core functionality of its products to ongoing payment and cloud connectivity, Peloton:

• Restricts consumer autonomy: Buyers cannot fully utilize a purchased device without paying an additional fee, effectively imposing a form of "double-dipping."
• Creates a paywall for ownership: Ownership of the hardware is incomplete without additional payments to Peloton, circumventing the First Sale Doctrine's intent.
• Sets a concerning precedent: Other companies may adopt similar fees, further undermining consumer rights and resale markets.

This approach transforms a straightforward sale into an ongoing service relationship, placing Peloton in a gatekeeping role over transactions between private individuals.

Consumer impact

The fee imposes an additional cost barrier on consumers who already paid for the hardware. By tethering functionality to cloud servers and subscription models, Peloton effectively restricts ownership rights. Without payment of the activation fee, the device's functionality is significantly diminished or inaccessible.

This approach:

• Discourages secondary market transactions: Buyers are less likely to purchase used equipment due to increased costs.
• Promotes waste: Devices that could otherwise be resold may instead be discarded, contributing to environmental waste.
• Erodes ownership rights: Consumers are left with limited control over the products they purchase, contrary to the principles of the First Sale Doctrine.

Financial and strategic context

Peloton's financial struggles provide context for this policy. The company reported a net loss of $30.5 million in Q4 FY2024, an improvement from prior quarters but still indicative of significant challenges. While subscription revenue grew modestly, hardware sales declined, reflecting broader challenges in the connected fitness market.

The activation fee appears to be an attempt to shore up revenue streams amid these difficulties. However, its contribution is unlikely to resolve the company’s financial woes. Critics point out that such fees alienate customers and detract from Peloton’s brand image as a premium fitness provider.

Broader implications

Peloton’s activation fee underscores a broader trend of companies leveraging digital connectivity to maintain post-sale control over products. This aligns with practices seen in other industries, such as:

• Subscription locks: Requiring recurring payments for access to basic device functionality.
• Cloud dependency: Rendering devices unusable without an active connection to company servers.
• Fee-based activation: Charging for services or features that were traditionally included in the purchase price.

These practices collectively undermine consumer ownership and foster a landscape where corporations retain ongoing control over products long after sale.