It’s not the robust advertising year that many expected when 2022 first got out of the starting blocks. But now, just two years after a global pandemic sent shockwaves across the planet, marketers aren’t drastically cutting their ad spends due to recessionary fears the way some may have expected. “Right now, we think this one is pretty mild in the grand scheme of things we've seen through our years of living through any sort of downturn,” says iHeartMedia Chairman and CEO Bob Pittman.
The reason why there hasn’t been a significant advertising fall-off in 2022, according to Pittman, is because marketers that gutted their ad budgets in 2020 learned a lesson from the pandemic. “I think people who cut back their advertising, if they had to do over again and knew it was coming back so quickly, wouldn’t cut their advertising out,” Pittman told the Goldman Sachs 2022 Communacopia + Technology Conference on Tuesday.
Analytic Partners, a firm specializing in marketing return on investment, released a report in early August showing that during a down cycle, brands cutting spending in categories where competitors maintain or increase it stand to lose a possible 15% of their market.
While there has been no shortage of recessionary fear in today’s macroeconomic environment, Pittman made the case that whatever is going to happen is already here. “I don't think we have something looming; it feels like we're in it,” he said. “I think this is what it is.” The company is building its business based on the current environment, leaning on high growth businesses like podcasting and digital, that represented about 10% of its business in 2020 and now comprise 26% today. “Our composition of revenue has changed rather substantially in just this two-year period of time,” Pittman added.
‘The Biggest Positive Trend Driving Radio’
In addition to its fast-growing digital business, Pittman says iHeart and radio will benefit from a change in the way media is bought and sold. “The biggest positive trend driving radio,” he said, is ad agencies shifting from buying media in silos in favor of building out unified media planning and buying platforms that combine all of their media inputs together. “They're putting everything together and they're saying, based on the audience reach and the cost, let's come up with the optimal campaign for our clients.” That will help move audio’s share of the ad budget (currently 9% according to WARC) closer to its share of media consumption (31% per WARC).
In addition, media with lower cost per thousand impressions are likely to benefit while those with CPMs above the mean will see a tapering off, Pittman predicted. “I'm seeing broadcast radio, which we have a lot of impressions, is going to benefit enormously from the unified buying platforms,” he explained. “There's this macro trend happening in the way advertising is bought and sold… The beauty of what's going on today, when you begin to move into these automated tech stacks, is [that] facts override bias. And I think the facts are firmly on our side.”
On its second quarter results call, iHeart management said it expects third quarter revenue to grow between 3% and 7% year-over-year. COO and President Rich Bressler said Tuesday that iHeart will generate $350 million in free cash flow this year. “We've got a highly leveraged capital structure that's generating a lot of cash and delevering very quickly,” he told conference attendees. “You have the ability to create a lot of equity value for our shareholders.”
Podcast Industry Consolidation
Turning to its fast-growing podcast business Pittman said the podcast industry has entered the consolidation phase. “The top podcasters get bigger and it becomes harder and more fragmented for the smaller players to catch up. And I think that's exactly what you've seen as a trend line.”
Pittman gave three reasons why iHeart was able to grow into the largest podcast network, according to Podtrac. “Having something that's similar [to radio] gives us a natural advantage in terms of content creation, in terms of ad sales, and probably more importantly, in terms of promotion,” he said.