Like the radio industry overall, 2022 got off to a strong start for iHeartMedia. But a confluence of macro-economic factors “led to increased volatility and uncertainty, which moderated our 2022 results,” Chairman and CEO Bob Pittman told analysts Tuesday. That has some advertisers holding back their spending in first quarter 2023 but the trend is different this time. Last year spending by big advertisers was stronger than small advertisers. Now the opposite is true.
“When you're a brand advertiser, you can actually pull back more than you can if you're an advertiser who is advertising directly to get sales at that moment,” Pittman explained. “And I think that's what we're seeing in Q1.”
Based on revenue and adjusted earnings, fourth quarter 2022 was iHeart’s best performance in company history. Total revenue grew 6% to $1.13 billion as the audio giant’s Digital Audio Group registered another quarter of double-digit growth and revenue at its Multiplatform Group held steady.
In first quarter iHeart is experiencing the same economic headwinds impacting the entire advertising marketplace. Even red-hot podcasting is feeling the pinch. “If you look at the revenue streams in media, podcasting appears to be the strongest of them all but certainly is not immune from the downdraft of an ad slowdown,” Pittman said on the company’s quarterly earnings call.
Podcast Industry In Transition
Podcast revenue at iHeart jumped 17% in Q4 to $113 million. That was against a tough comp of 130% year-over-year growth in Q4 2021. The company remains bullish on podcasting and Pittman says the podcast industry has begun “a transition toward more rational behaviors” in terms of how much money it spends acquiring content. “We think this new market behavior will have a positive ripple effect across the entire industry, including us,” he added.
Podcasting is part of iHeart’s Digital Audio Group, which increased billings 10% to $301 million in Q4. While management said its digital businesses performed well in light of economic challenges, they also see ways to do better. During Q4, the Digital Audio Group adjusted sales priorities and commission structures to target what Pittman called “certain incremental revenue streams.” But the change in focus had “a negative impact” on revenue growth and margins for the quarter and the segment has since taken steps to “realign our sales force’s focus back to higher-margin digital revenue opportunities,” Pittman said.
Radio Group Shows Resiliency
The Multiplatform Group, which houses iHeart’s 850 radio stations, grew its topline by 1% to $733 million. Increased political ad sales from the 2022 midterm elections weren’t enough to offset general advertising declines. However, Pittman told analysts that its broadcast radio assets showed resiliency last year and are “performing much better than they did during previous advertising downturns.” In 2020, revenues at the Multiplatform Group declined 28%. But they rose 4% for full year 2022. And in 2020, at the beginning of the pandemic, digital accounted for 12% of the company's revenues. Today, it's over 25%. “We expect that percentage to continue to grow significantly over the long term, even as broadcast radio grows as well,” Pittman said.
The Chairman and CEO also spoke about iHeart’s use of artificial intelligence in music programming and scheduling, including a new proprietary system that uses AI to provide “real time evaluation of listeners’ sentiment and predicts audience engagement and reactions.” Stations where the company used this system experienced a 15% year-over-year increase in AQH share among adults 18-49. “This validates our ability to identify an opportunity, design the strategy and execute it successfully, and often as we did here, using new technology,” Pittman explained.
In January 2020, before the pandemic, iHeart announced a “modernization” plan to use new technologies to make operations more efficient. On Tuesday the company offered an update on those efforts. “We've reduced our office space by half, and we have reduced our U.S. workforce by approximately 20%,” Pittman said. On its third quarter 2022 earnings call, it announced a new cost program that will generate another $75 million in annual savings. And on Tuesday, the company said it would reduce capital expenditures to below 2022 levels in light of all the economic uncertainty.
Aiming to keep its 300 million social media followers engaged wherever they are, Pittman said iHeart made a “successful expansion” into TikTok, growing its follower count on the short-form video platform 300% in 2022 to 27 million Tik Tok users. Importantly, Pittman said iHeart is “monetizing those relationships.” Calling the company’s on-air talent and podcast hosts “iHeart’s influencers” and “an “imponent asset,” Pittman said last year its “top 50 influencers reached two out of three Americans every month.” Meanwhile, iHeartLand destinations in the Metaverse on Roblox and Fortnite have attracted nearly 10 million visits.