Podcasting may have more buzz than the 100-year old medium of broadcast radio, but iHeartMedia CEO Bob Pittman says the heritage audio format still reaches nine in ten Americans each month and that offers a prediction for how big its digital cousin could become in the years to come.
“I think it's reasonable to expect that anybody that likes the radio, would eventually like a podcast, which implies that you're going to be at 90%-plus reach,” Pittman says. He told the Wells Fargo TMT Summit Wednesday the podcast industry is roughly already halfway toward that goal.
Podtrac says iHeart had 34 million unique listeners to its podcasts in the U.S. during October, and rather than pulling ears away from its portfolio that includes 850 radio stations, Pittman told the conference he sees their podcast venture as helping fill in the “dead spots” among consumer’s media time.
“Ten years ago, people said the kids are in bed now, we can just relax. Nobody does that anymore. They have something going at all times. They filled up every video opportunity already, and what they're doing now is filling up the audio opportunities,” Pittman said. But he also sees their cross-promotion of podcasts on radio as working to help attract new listeners to on-demand audio. “Because we advertise our biggest podcast on the broadcast radio, I would even argue that a lot of the growth we've experienced in podcasting has come from us finding new people for podcasting that were never in podcasting before,” Pittman said.
During the third quarter iHeartMedia reported its podcast revenue grew 42% to $91.3 million which the company says was thanks to a mix of new shows as well as growth of its existing portfolio. And for the first three quarters of 2022, iHeart’s total podcast revenue has increased 57% to $245.5 million.
COO/CFO/President Rich Bressler said that has continued to allow iHeart to also leverage its multiplatform strategy and a salesforce of 1,500 reps who are each able to sell ads in podcasts. “We haven't actually invested that much building a podcast business, because it was a natural adjacent business for us,” he said.
That has worked to iHeart’s favor as investors have increasingly focused on profits, not growth – something that has led to belt-tightening at rivals such as Spotify and Acast. Pittman told the conference that their aim was to make money from day one. “We wanted to be profitable when we started -- the margins weren't as good and the margins have grown, but we want it to be a profit,” he explained.
Bressler said on an annual basis, iHeart expects its digital business to have a profit margin in the “mid-30s” range. Helping that will be a planned $75 million cost-reduction program announced in recent months, with moves such as cutting its real estate footprint in half and leaning into technological efficiencies.
Pittman also credited their profitable podcast business not on what deals they sign, but those that they don’t – opting to avoid pricey but buzzy alliances that often don’t work out economically.
“I've never heard anybody have something that's an unprofitable bad deal and turn that into a good deal. Whatever that deal is, that's your starting point. It's just the philosophy difference. But if you believe numbers, we're in the right place,” he said. Pittman also thinks the podcast business is “past the days of crazy deals.”
Advertisers More Hesitant To Make Cuts
More broadly, Pittman told investors on Wednesday that the ad market has been “more robust than you would expect” considering the headlines about a softening economy. He believes one of the reasons is that the same people making the advertising decisions today are the same ones who addressed economic uncertainty two years ago at the start of the pandemic. That is different than the usual gap of time between recessions when different decisionmakers come in and the lessons learned have been lost.
“People found in the 2020 downturn was if they stopped advertising, their competitors stole their customers, and it cost them more money to get them back,” Pittman said. “So I think the reason why advertising doesn't look as bad as you would expect it to, given all the headlines, is because they've learned a lesson.”
Pittman said iHeart did an analysis of the biggest advertisers versus the smallest advertisers. What they found was that the very smallest advertisers are most likely to pull back, simply because they do not have the resources to continue marketing when their business softens. “You're seeing it hit the smaller advertiser much harder than the big advertiser where people have discretion and they're deciding that the best economic decision for them is to keep advertising through it,” he said.
Bressler added that while big marketers and ad agencies are still spending, the numbers are not quite as robust as they would have expected at the start of the year because of the economic uncertainty.
Pittman also noted that programmatic ad selling remains a “very small piece” of the iHeart sales equation as building out self-service features have “gone on the backburner a little bit” during the downturn as iHeart has focused on the fundamentals.
Media stocks have taken a hit in recent months as investors worried a slowdown in the economy could lead to reduced advertising revenue. Pittman made the case to the investor conference that iHeartMedia should be viewed as a “recovery stock” since the health of its radio and digital businesses have shown the company is able to take “full advantage of the recovery” when it arrives.
“I don't think there's a distinct pie for radio anymore. When we’re talking to a client we're talking about events, about podcasts, about data -- we're talking about the whole range of services,” he said. “You can think of us as a reach company, an audio company, and as a data company. And on all those metrics, we are sort of top of the pyramid.”