As forecasters and analysts handicap the second quarter for media companies, iHeartMedia says it sees advertising growth ahead and that broadcast radio is one of only two mediums that stand to gain from the current macroeconomic headwinds. “We find that during this period of uncertainty, that when something weird happens in the world, there is a reaction of freeze-up for a second, and then people go, ‘OK, the world didn't come to an end, let’s go,’” CEO Bob Pittman said Tuesday at the J.P. Morgan Global Technology, Media and Communications Conference.
April was one of those months, he added, where the company saw revenues decline year-over-year. But May and June are pacing higher.
The outlook from the audio giant is the opposite of that of social media company Snap, which issued a profit warning Monday saying, “the macroeconomic environment has deteriorated further and faster than anticipated.” The revised guidance caused it and other technology stocks to tumble in trading in New York on Tuesday.
But Pittman and iHeart COO Rich Bressler made the case to investors that while some advertisers pull back during times of uncertainty, others actually ramp up their marketing. “You're also finding that as people get a little nervous about things, efficiency becomes important again,” Pittman said, pointing to radio and outdoor as the two advertising mediums that trade at a cost per thousand impressions well below the mean. Sensing an opportunity, iHeart “refocused our pitch to the marketplace, understanding there's some anxiety here – let's sell into this,” Pittman said.
The iHeart assessment was reinforced by GroupM global President of Business Intelligence Brian Wieser who noted that it is not yet clear how economic uncertainty is impacting the ad market. Some companies may increase ad budgets while others may pull back, Wieser said, as noted by Wells Fargo Media analyst Steven Cahall.
Diversity Equals Resilience
A portfolio of 850 stations in 160 markets along streaming, podcast, social and events assets gives iHeart a diverse revenue base to weather economic downturns, Pittman and Bressler said. In addition, no single category contributes more than 5% and no single advertiser more than 2% of its ad revenue. “When you think about diversity, it goes to so many different categories, which is why we've been resilient during this period of time,” Bressler added.
Its biggest growth driver is podcasting, which grew 79% in first quarter and now accounts for 10% of company revenue. “I’ve never seen anything grow quite like this,” Pittman said, chalking up the trajectory to Americans’ love for companionship and a good story. As a medium that is consumed while doing other activities, Americans are filling up what used to be quiet time with audio, according to Pittman. “Now instead of whistling while I work, I listen to a podcast while I work. Instead of trying to jam my computer into the side and watch a movie while I'm cooking, I now listen to a podcast.”
While iHeart continues to bulk up with new shows, the vast majority of its growth in podcast downloads during the last year has been from existing shows. Unlike radio’s limited shelf space for new programming, there are no constraints on the number of podcasts that can be launched. It’s no secret that iHeart uses its 850 radio stations as a giant bullhorn to promote new podcasts but all the promotion in the world can’t turn a stiff into a hit. Pittman said it takes about two to three weeks of heavy promotion to determine whether they have a hit podcast on their hands.
While podcasting and digital in general are iHeart’s main growth propellants, the Multiplatform Group that houses its radio stations continues to generate the bulk of revenue and grew 15% in first quarter. Some of that is coming from advertisers who came into the company through another doorway. “There is a natural inclination to buy the hot new shiny thing more than the old thing,” said Pittman. “But that doesn't mean that's where it winds up.”Some come in via podcasting or events and end up buying broadcast radio. “When you reach 90% of America, you can't begin to understand how important that is to get a message out,” Pittman said at the conference. “And as soon as people come in for something shiny, what they really want is our results. And the best way to get results is with a lot of exposure.”