iHeartMedia believes wide customer base can help in soft ad market

iHeartMedia, a leading player in the US audio space, believes its wide customer base and diversified operations will be sources of strength if the ad market enters a challenging period.

The background

• Bob Pittman, iHeartMedia’s CEO, noted on an earrings call that it was originally hoped that 2022 would be a “robust advertising year” for the industry.
• However, the Russian invasion of Ukraine, and “secondary effects” like burgeoning inflation, have caused significant macroeconomic uncertainty.
• In response, many industry-watchers have expressed concerns that advertisers may soon cut back their outlay.

Mapping expenditure trends

• Looking at current expenditure patterns, iHeartMedia has noted a particular rhythm in activity on the part of advertisers.
• “We have seen a trend that we see more softness for the first month of the quarter than we do the other two months of the quarter,” Pittman said.
• “Our thesis is that in times of uncertainty, [in the] first month of the quarter, everybody takes a beat and waits and looks and then continues to spend in the other months.”

Strength in diversity

• Pittman reminded investors that iHeartMedia currently has “tens of thousands of advertisers”.
• Such a diverse slate of ad clients means there are likely to always be pockets of robust ad expenditure even if other parts of the market are “softer” in challenging times.
• “We've got no advertising category that's over 5% of our revenue [and] no single advertiser over 2%. So we have a remarkable diversity here,” Pittman said.

The advantages of audio

• Radio, Pittman continued, is “the least expensive medium with the largest reach”, meaning it has a compelling value proposition for advertisers.
• Diversification is also a source of strength for iHeartMedia, with digital more important in the mix, today delivering 26% of revenue, versus 12% in the first quarter of 2020.
• Even in the “major advertising downturn” of 2020, iHeartMedia’s digital revenues climbed by 26%, including a 91% lift for podcasts.
• “We feel the increased relative size of our digital and podcasting businesses … puts us in a stronger and more resilient position than we’ve ever been in to weather any advertising downturns,” Pittman said.
  

Final thought

“Advertisers who’ve lived through challenging economic times like these know that materially cutting back their marketing today will result in them losing sales over the long term. Instead of pulling back entirely during times of uncertainty, these marketers often look for more efficient means of engaging with their customer base” – Bob Pittman, CEO, iHeartMedia.