One of the things radio is best known for is driving foot traffic to a retailer’s grand opening. With more than half of the states in various phases of loosening stay-at-home restrictions, millions of businesses large and small will, at some point, need to get the word out about their grand reopening. That represents a major opportunity for radio, iHeartMedia Chairman and CEO Bob Pittman said Thursday.
“In essence, almost every business locally is going to have to have a grand reopening. Logic would tell you that we would benefit from that,” Pittman told analysts during the company’s first quarter 2020 results call. “Every business is going to have to build back its traffic and reintroduce itself to its consumers. And we’re very good at that.”
As the country enters a new phase of the devastating COVID-19 pandemic, iHeart managers are scrutinizing consumer trends in states that have begun to reopen. While ad sales haven’t come roaring back, sales activity, such as contacts with a client, ad proposals, etc., have “gone up dramatically in the markets that are opening up,” Pittman said. But it’s too soon to know how that translates into sales, or if sales volume will return to pre-COVID levels. Still, Pittman predicted “a flood of demand” in individual states as they reopen. “We’re going to have to be ready for it and we’re building out our capabilities and our sales plans based on that,” he said.
The first quarter got off to a strong start for iHeart, with solid year-over-year revenue growth in January and February before hitting a coronavirus-induced wall in March. Total Q1 revenues declined 1.9% year-over-year to $780.6 million, mainly from a 5.2% decrease in broadcast radio ad spend. But broadcast ads tied to the company’s SmartAudio programmatic platform declined by only half that much. And digital revenue grew 22.2%, propelled by big growth in podcasting.
One Pandemic, Two Different Stories
Looking past first quarter, two distinctly different stories are emerging, Pittman explained. One is all about the consumer and the other pertains to advertising.
As with previous disasters, the COVID crisis underscored the companionship role radio plays. “In real times of need, like this one, they need us more than ever,” Pittman said. With shelter-in-place orders, listening shifted to at-home and digital devices took off. “Listening on home devices exploded,” he said, citing internal data that showed web listening up 43%, smart TVs up 35%, gaming consoles up 28% and SIRI up 18%.
Moving swiftly to respond to radically altered lifestyles, programmers aired hourly COVID 19 reports, pumped out daily newsletters and podcasts, saluted healthcare workers, staged Wednesday Night Living Room Concerts, First Responder Fridays and virtual proms, and arranged for John Legend, Hillary Clinton, Eli Manning and about two dozen others big names to deliver commencement addresses to graduating college seniors via podcasts and on the air.
In normal times the company would monetize all of that. “We fundamentally believe and have always seen that advertising revenue follows consumers – just not at this moment of dislocation,” Pittman acknowledged. Most of iHeart’s revenue streams saw what he called a “major drop” as businesses temporarily shut down and cut back on ad spending.
Cost Reductions To Mitigate Revenue Loss
While programmers were responding to vastly different consumer lifestyles, President, COO and CFO Rich Bressler was putting major cost reductions in place to mitigate the revenue loss and preserve cash. In addition to cost savings from fewer sales commissions, the company made moves to lower fixed costs, starting in February, before world health officials declared a global pandemic. Those “modernization” efforts will save the company $50 million this year. Another $200 million in savings will come from pay cuts, furloughs, suspending new employee hiring and T&E expenses, pausing its 401(k) match and a major reduction in what the company pays consultants and other discretionary expenses. Bressler and his team cut capital expenditures by $80 million and will save $100 million in cash tax savings from the CARES Act. Combined with cash on hand, the moves will allow iHeart to “weather the storm, even under conservative recovery scenarios,” Pittman said.
In a candid moment on the one hour-plus earnings call, Pittman told investors, “We hate to be in this environment, with this kind of impact on our revenue.” But the company “recognized it quickly,” responded appropriately and is now focused on recovery and capturing ad demand as it returns. Strategic decisions made in past years, like going all in on streaming, podcasting and data and analytics, have put it “in a unique position to benefit from the upturn, no matter when it comes or at what speed it arrives,” Pittman said.
While Bressler said “revenue will continue to be challenged,” Pittman shared some pacing data, with the caveat that it’s not a reliable predictor. May bookings were up slightly over April and June looks better than May. Third quarter appears “a good bit better” than second quarter, Pittman said, before adding “We’re in uncharted waters.”