Zumba’s creator “Beto”‘s story:

Once the fitness craze was Richard Simmons’s “Sweatin’ to the Oldies.” Then, other workouts like Billy Blanks’s Tae Bo caught on.

But while many fads have been relegated to VHS tapes in the attic, two big investors are betting that Zumba Fitness, the Latin American dance-based workout, will have staying power. Insight Venture Partners, a New York-based venture capital firm, and the Raine Group, a media and entertainment investment firm, have poured tens of millions of dollars into the fitness company, a deal that values Zumba Fitness, based in Florida, at more than $500 million, according to people with knowledge of the matter.

“Zumba owns its category,” said Jeff Horing, a partner at Insight. “The ones that have done well, have done reasonably well, but none have Zumba’s scale.”

Developed in the 1990s, Zumba has become a breakout hit in recent years. Now, the creators are capitalizing on the craze with media, merchandise and licensing deals.

More than 100,000 instructors, spread across 125 countries, each pay $30 a month to be part of the company’s official network, giving them access to new music and choreography. Since 2002, the company has sold more than 10 million instructional tapes and DVDs. The Zumba video game, available on the Nintendo Wii and the Xbox Kinect, has sold more than six million copies. For the devoted, the company also has a line of fluorescent-colored apparel and footwear, with sneakers starting at $75.

The Raine Group, which is backed by Ari Emanuel, the influential chief executive ofWilliam Morris Endeavor Entertainment, plans to use its extensive contacts in Asia and the Middle East to expand the brand internationally. In the United States, the company is surveying potential partnerships with television executives and considering developing a regular show around Zumba. It’s also preparing to offer its first smartphone app to help students and instructors communicate.

“Zumba is not just a participatory sport, it’s an entertainment brand,” said Joseph Ravitch, a co-founder of the Raine Group. “Zumba has television, apparel and international opportunities that are underdeveloped.”

Zumba Fitness started by accident more than two decades ago, when Alberto Perez, a dance instructor, forgot music for his aerobics class. Forced to wing it, he used tapes from his personal collection, a hodgepodge of salsa and merengue songs and created dance moves to the rhythms. The workout was a local hit, gaining popularity in Cali, Colombia, before Mr. Perez decamped to Miami in 1999.

In 2001, he met Alberto Perlman, then an unemployed technology entrepreneur still reeling from the dot-com bust. Mr. Perlman’s mother, who was taking a class with Mr. Perez, prodded her son to meet with her “magical” instructor.

At first, Mr. Perlman wasn’t sure what to make of the dancer, who could not speak English and showed up to the meeting in a broken-down 1983 Pontiac. But after watching a class, Mr. Perlman imagined the fitness program, which resembled an ad hoc dance party with catchy music, as the next infomercial hit. He immediately called his longtime friend and business partner, Alberto Aghion, who had heard about Mr. Perez through his sister.

“I felt like I was looking into the window of a nightclub,” said Mr. Perlman, now the chief executive of Zumba Fitness. “This guy had taken the experience of Saturday night and turned it into a fitness class on Monday night.”

Later that year, the three men founded Zumba Fitness. The company’s initial goal was to make money by selling instructional videos via low-budget infomercials. But Zumba’s popularity skyrocketed when it began building a network of instructors a few years later. Over the last four years, the number of weekly Zumba students has surged to 12 million from 1 million, according to data from the company.

Zumba Fitness derives a large amount of revenue from the membership fees it charges fitness instructors. Edmee Cherdieu D’Alexis, a former Equinox fitness manager, built an entire business based on Zumba’s brand. Her start-up, Z Club NY, connects Manhattanites with Zumba classes and instructors through an online portal. The company rents locations, manages an elite group of vetted instructors and charges students $19 a class, offering discounts for larger packages.

To build the business, Ms. D’Alexis, who received $100,000 in seed capital, has relied mainly on word-of-mouth marketing and online offers at sites like Groupon. Started in 2011, the club now attracts 1,400 people a month.

“Eight months ago, we were not covering expenses, but now we are,” Ms. D’Alexis said.

But the exercise trend shows signs of saturation in some markets. In New York alone, there are more than 500 licensed instructors, according to Zumba’s Web site. The competency of the instructors can also vary widely. While many of Z Club NY’s teachers have years of formal dance training, Zumba Fitness requires instructors only to attend an eight-hour training session to obtain a license.

Zumba’s meteoric rise has also created considerable challenges for the company. Counterfeiters have been selling Zumba apparel and pirated DVDs not licensed by Zumba Fitness. In one raid in Britain last year, the company discovered thousands of counterfeit goods worth roughly $1.5 million. Zumba Fitness now has a legal department of 10 people, roughly 5 percent of its total staff, focused on stamping out copyright violations and pursuing instructors who are using the brand without official licenses.

If Zumba becomes more than a fad, it will be in the minority. Many fitness programs flame out after a few years. Tae Bo, a workout that combines tae kwon do and boxing, was huge in the 1990s. Now you can buy the workout tapes for as little as $1.99 on Amazon.

Zumba Fitness hopes to avoid the same fate by exploring new lines of business. It is creating a concert program, which will pair live music and Zumba instruction. It has already organized one-time fitness events featuring contemporary artists like Pit Bull and Wyclef Jean.

For now, momentum is on Zumba’s side. Its official Facebook page has attracted more than 3.4 million “likes” and fans include Michelle Obama and the singer Jennifer Lopez.

“Zumba is more than a fitness program; it’s representative of a whole lifestyle and attitude,” Mr. Ravitch said. ”Zumba is for dance fitness what Starbucks is for coffee.”

(source: Nytimes.com)

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