Top execs at iHeartMedia said Tuesday they continue to see improving signs in the second half of the year – both in the ad market and in the U.S. economy in general. Speaking to analysts on the company’s quarterly earnings call, Chairman and CEO Bob Pittman said he expects these indicators “to have a positive impact on us in the second half of the year,” with most of the upside coming in the fourth quarter.
Third quarter revenue is expected to decline by mid-single digits, or low single digits when political ad sales are excluded. Total billings in July at the audio giant were down 5%.
Revenues at the company’s high growth Digital Audio Group are on track to be up mid-single digits in Q3 while Multiplatform Group billings are expected to decline in the high-single digits, or minus mid-single digits minus political. Audio Services, which includes the Katz Media Group rep firm, is forecast to decline in the high teens but down low single digits, excluding the impact of political.
“We continue to see improvements in the advertising marketplace and believe that they are an indication that our Multiplatform revenues will continue its quarterly sequential improvement,” President and COO Rich Bressler said. The Multiplatform Group, which includes 850 radio stations, a portfolio of networks, and an events business, declined 5.9% to $595.9 million in the second quarter. That marked sequential improvement from Q1 when it declined 7.4%.
“As we've had conversations with advertisers, as well as looking at historical trends, we feel confident that Q4 certainly is going to be much stronger. I think the question is how much stronger,” Pittman said.
Q4 has long been radio’s richest revenue and earnings quarter in large part because advertisers accelerate their spending during the lucrative holiday season. Fourth quarter 2022 was the largest in iHeart’s history, even after an economic slowdown that lasted most of the year. “The question will be: Will the advertisers who have cut back or stood on the sidelines throughout the year start to spend as they enter the fourth quarter,” Pittman said. “Based on the improving trends we've mentioned here, and how the fourth quarter of last year performed, we think the answer to that is most likely yes. But we'll have better insight into those trends as we near the end of the third quarter.”
During the first half of 2023’s soft ad market, iHeart made further cost reductions so as to operate more efficiently. That freed up capital to reduce “our highest cost debt at advantageous prices, while also continuing to reinvest in our high growth areas like podcasting,” Pittman said. Q2 podcast revenues rose 12.9% to $96.7 million, while total revenues declined 3.6% year-over-year to $920.0 million slightly better than its guidance range of down mid-single digits and 1% ahead of Wall Street estimates. When factoring out the impact of political ad sales, revenues declined 1.8%.
Addressing concerns about broadcast radio’s growth potential when compared to faster growing digital, Pittman acknowledged that the company’s 850-station group “will likely post a lower growth rate than iHeart’s digital business.” But he added that “we feel certain broadcast radio will provide long term sustainable revenue and earnings growth for iHeart.”
Positioning For Strong 2024
Like other media companies, iHeart faces difficult comps in the second half since the third and fourth quarters of 2022 included substantial political ad dollars as well as some COVID-related advertising that’s no longer there. However, actions taken to improve operating efficiency along with “the gradual improvement we're seeing in the advertising marketplace,” has Pittman predicting continued quarter-by-quarter sequential revenue improvement. “This will also help position us for a strong 2024, which as a reminder is also a presidential political year.”
Added Bressler: “We expect to have a strong 2024 with a resumption of our growth story in terms of revenue, profitability, and free cash flow generation. And of course, this growth will increase our ability continue to improve our capital structure.”
The two execs used the earnings call to bring analysts and investors up to speed on larger developments in the audio space. Pittman cited the recent dentsu study that found audio performs better than video in grabbing people’s attention and generating brand recall. The media agency network, working with Lumen Research, found that audio advertising (including podcasts, radio, and music streaming) drove significant attention compared to other ad platforms.
Pittman contends the dentsu study, coupled with what he called a “precipitous decline” in linear TV viewership and “upheaval” in social media platforms “creates maybe the best environment we've had to make our case to advertisers and their agencies about the power and value of audio media, with radio and podcasting at the forefront.”
To bolster his argument, he pointed to the Senate Commerce Committee advancing the proposed AM Radio for Every Vehicle Act at the end of July with near-unanimous bipartisan support. Pittman said the bill being passed out of committee was due in part from strong listener feedback to Congress, and reflects “the passionate and vocal consumer base that radio enjoys.”