The tougher ad market aside, iHeartMedia says it continued to see double-digit revenue growth from its podcasting business during the final months of 2022. The company reports $113 million in podcast revenue during the fourth quarter, which was a 17% increase from a year earlier. The growth rate was even bigger for all of last year when iHeart’s podcast business grew 42% to $358 million.
“The macroeconomic conditions are certainly impacting the entire advertising marketplace and even the podcasting industry is not immune to some effects of the advertising slowdown,” CEO Bob Pittman said. During a conference call with analysts on Tuesday, he said across iHeartMedia’s portfolio “podcasting appears to be the strongest of them all, but certainly is not immune from the downdraft of an ad slowdown.”
Total fourth quarter revenue at iHeartMedia grew six percent to $1.13 billion as the audio giant’s Digital Audio Group – which includes its podcast business – posted a 10% growth rate during the fourth quarter. And iHeart’s Multiplatform Group, which includes its radio business, squeezed out a one percent growth rate for Q4.
The business climate looks similar in the first quarter according to iHeart executives. The company is forecasting its revenue will be down mid-single digits during the first three months of this year after a one percent revenue drop in January.
“In periods of uncertainty, what we find is advertisers holding back and taking a look at what the year might be. If they’ve got an opportunity to hold back, it’s certainly in Q1,” Pittman said. But he said that while last year business was better from the big marketers, so far in 2023 it has been the smaller advertisers that have been stronger.
Pittman thinks it is the wait-and-see strategy that big marketers use when they are unsure which way the economic winds are blowing. “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. And I think that’s what we’re seeing in Q1,” he said.
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 executives 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 its sales force’s focus back to higher-margin digital revenue opportunities.
“We have learned from this experience, have initiated steps to realign our sales force focus back on high-margin digital revenue opportunities,” President/COO/CFO Rich Bressler said.
Podcast Industry In Transition
Recent months have seen several producers, including iHeart, trim the size of their podcast payrolls and scale back on the number of high-profile yet money-losing deals – most notably at rival Spotify which cut six percent of its workforce amid a larger reorganization. Pittman sees something larger at play.
“The industry seems to be going through a transition toward more rational behaviors in terms of content expenditures,” he told analysts. “I think there were people who thought they were buying share, but we’re really buying losses.”
One measure of how the investment that iHeartMedia has made in podcast is paying off is that during the fourth quarter one of every ten dollar booked in revenue came from podcasting. That compares to a two percent contribution at the start of 2020. And iHeart says it now has 46 shows that have more than one million downloads.
Pittman said that iHeart has deliberately avoided engaging in “uneconomic behavior” in podcasting, and as it has grown both revenue and profits, he believes others are now seeing it is a strategy that makes sense. “We think this new market behavior will have a positive ripple effect across the entire industry, including us,” he said, telling analysts that it presents an opportunity for iHeart when looking to strike deals. “There’s a certain rationality that’s returned, which is good for us with our size and scale -- if we’re really bidding on product based on economics, we’re in very good shape,” Pittman said.
TikTok Expansion
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 TikTok users. Importantly, Pittman said iHeart is “monetizing those relationships.” Calling the company’s podcast hosts and on-radio talent “iHeart’s influencers” and “an “important asset,” Pittman said last year its top 50 influencers reached two out of three Americans every month.