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iHeart’s Podcast Business Grew 79% In Q1; Digital Now Makes Up Quarter Of Company Revenue.

Podcasting continued to be the fastest-growing segment of the business at iHeartMedia, which reports it had $68.5 million in podcast revenue during the first quarter, a 79% increase compared to a year ago. Podcasting’s share of iHeart’s revenue has quadrupled during the past two years, representing eight percent of Q1 revenue for the radio giant. That compares to two percent in 2020. CEO Bob Pittman said it is “clear evidence of the success of our digital transformation.”

In its first quarter report to investors, iHeart said its Digital Audio Group -- which includes podcasting -- saw revenue climb 36% to $214 million, with digital now contributing a quarter of company revenue. Overall, iHeart revenue rose 19% year over year to $843 million. Its radio stations business is part of the Multiplatform Group, where revenue rose 15% with iHeart’s traditional business still accounting for the majority of company revenue.

But speaking to analysts on a conference call Thursday, Pittman said the investments that iHeart has made in its ad tech is pushing digital forward at a pace faster than what overall industry forecasts suggest.

“All of this is powered by our sales strategy of any seller anywhere can sell anything, a unique iHeart capability,” Pittman said, noting that before the pandemic, digital’s share of their revenue was half as large. That not only will play a role as iHeart responds to a long-term evolution to audio consumption and ad spending changes, but in the near-term if the U.S. slips into a recession this year as some economics predict, Pittman told analysts it will give iHeart a “much different profile than past downturn” and help mitigate any effects of a downturn.

In a note to clients Friday, B. Riley Securities media analyst Daniel Day reported that iHeart delivered more podcast revenue than he had been expecting. And it led him to raise his outlook for the year, telling clients that he now expects iHeart will have from $398 million to $431 million of podcast revenue. And Day estimates iHeart will surpass $1 billion a year in podcast revenue by 2026. “[We] continue to believe that iHeartMedia's ability to profitably scale its podcast and digital audio business is the most misunderstood aspect of the stock,” he told investors.

In recent weeks, iHeart has added about two dozen podcasts to its lineup that now includes more than 600 shows. President/COO/CFO Rich Bressler told analysts that iHeart may not grab headlines with flashy signings as some of its rivals, but by working with its in-house talent and striking business deals with select outside partners, they have been able to help keep a lid on costs while improving profit margins on the business.

“We watch very carefully the cost on podcasting, especially, whatever revenue shares we do with partners,” Bressler said. “Being as big as we are, we have the luxury of being pretty picky on economic deals for podcasting. And we have the courage to walk away from something that sounds big, but if we can't make money on it, we're not interested.” He also noted the publisher side of the business has the best revenue returns as compared to simply being a distributor of shows available via RSS fees.

Beyond the bottom line, executives also shared another reason why “build” has worked better than “buy” for iHeart. During the past year its total downloads has grown from 257 million a month to 443 million, a 72% growth year over year. Bressler said two-thirds (65%) of that growth came from growth in existing podcasts the company had launched more than a year earlier. The other 35% of that growth in downloads were from new podcasts.

“With this organic growth strategy, we emphasize building over buying,” said Bressler. “Which allows us to minimize risk in deploying upfront capital and to maximize focus on leveraging our platform to sustainably grow audience and advertising revenues for each podcast we develop.”

First quarter results slightly exceeded the guidance range provided earlier by the company despite what Bressler said have been “external factors that have been impacting the economy.” And those macroeconomic conditions – rising inflation, higher interest rates, supply chain issues and global uncertainty – have some investors worried about a potential advertising recession on the horizon. For the second quarter, iHeart is forecasting overall revenue growth of 10% to 14% versus a year ago.

When asked how iHeart might weather softness in certain ad categories or even the potential for a recessionary environment over the next year or two, Pittman and Bressler said the company’s diverse revenue base is a potent asset, with no single ad category comprising more than five percent of revenues, and no single advertiser more than two percent.

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