Behind iHeart’s Product Strategy Pitch

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Within days, a reborn iHeartMedia will emerge from Federal bankruptcy protection. An IPO is in the works. Debt will still be high, but a lot less than it is today.


What’s iHeart’s product strategy, as detailed in its prospectus? It’s all about reach.

One of the centerpieces of iHeart’s 131-page SEC filing made Wednesday, which signals its desire to issue new Class A and Class B shares of a reconstituted iHeart, is what essentially amounts to an investor presentation.

In describing iHeart, the company first discusses what it does best — provide audio content to an audience that craves something to listen to more than at any point in a generation.

“Audio is hot, and we are the No. 1 audio media company in the U.S. based on consumer reach,” iHeart notes.

It then seized on a characterization of the radio industry as feature in Deloitte Insights’ Technology, Media and Telecommunications Predictions 2019 report: Radio is a business defined by “Revenue, Reach and Resilience.”

Within audio, there are two segments, as iHeart sees it:Within audio, there are two segments:

• The “music collection” segment, which essentially replaced downloads and CDs
• The radio — or, “companionship” — segment, in which people look to audio, starting with broadcast radio and the personalities there, as their friend and companion.

With some of the nation’s most recognizable air personalities airing on its stations, whether they are locally based or distributed via syndication through iHeart’s Premiere Networks, iHeart is banking on its talent to greatly assist in offering a product that will allow it to embark on a strong rebirth process.

Speaking of companionship, iHeart said, “We serve this second segment and have used our large scale and national reach in broadcast radio to build additional complementary platforms. We are now the only major multi-platform audio media company, with each platform building on and extending our companionship relationship with the consumer.”

While competitors such as Entercom Communications have made significant strides with its Radio.com app and subscription-based audio streaming services such as Pandora and Spotify continue to dominate the conversation thanks to savvy marketing and organic growth, iHeart is the lone audio company in the U.S. that marries live over-the-air content with on-demand audio and exclusive offerings featuring its star radio personalities.

While that alone should be enticing for investors, iHeart’s No. 1 play is — like a suave real estate investor — all about location.

“Our product strategy is ‘be where our listeners are with the products and services they expect from us,’” iHeart says. “Our reach now extends across more than 250 platforms and over 2,000 different connected devices — and that reach continues to grow.”

Those platforms are centered on events, social media, podcasts, digital and, of course, broadcast radio.

Speaking of the latter category, iHeart notes, “We have never been stronger with consumers, and our broadcast radio assets reach more consumers today than ever. Our broadcast radio audience is almost twice as large as that of the next largest commercial broadcast radio company, as measured by Nielsen.”

Indeed, iHeart has in recent months been dominant in such top markets as Los Angeles, with its AC KOST-FM, Hot AC KBIG-FM “My104.3,” Talk KFI-AM and CHR/Pop KIIS-FM ranking high in a crowded market that is seeing a resurgence at former CBS Radio stations now owned by Entercom.

Still, iHeart has its detractors, and those that continue to question its future. Will it part ways with some of its smaller markets, or hold on as long as it can to avoid selling stations at a loss? Then, there is payroll and talent. Despite a huge ratings surge giving KGB-FM 101.5 in San Diego some of its strongest ratings in recent memory, Operations Manager/Music Director and afternoon drive co-host Bob Buchmann on April 2 exited the Classic Rocker after his position was eliminated.

In a Facebook post, Buchmann expressed shock while speaking highly of his employer. “I work for wonderful people who told me I did nothing wrong and everything right,” he wrote. “Now in my seventh year, I was made KGB-FM Operations Director last August. In the afternoon drive Bob and Coe Show, the February Nielsens rank us No. 2 in the market. Come to think of it, I’m not a bit in shock, I’m a lot in shock! Thank you for being there for me day in and day out.”

While such stories generate much discussion, they are infrequent and only speak of a fraction of what iHeart has accomplished in bankruptcy — and what it intends to accomplish once it emerges by the end of June.

On digital, iHeart says, “Our iHeartRadio digital platform is the number one streaming broadcast radio platform—with six times the digital listening of the next largest commercial broadcast radio company, as measured by Triton.”

And, with podcasts hotter than ever, iHeart notes, “We are the number one commercial podcast publisher in America—and we are almost three times the size of the next largest commercial podcaster as measured by downloads, according to Podtrac.”

Another plus is how iHeart has developed an enviable social media platform worthy of advertisers’ attention. “Our personalities, stations and brands have a social footprint that includes 145 million fans and followers as measured by Shareablee, which is six times the size of the next largest commercial broadcast audio media company,” iHeart says. “This social footprint was at the heart of delivering 310 billion social media impressions for our recent iHeartRadio Music Awards and its associated activities.”

Then, there is the iHeart brand, which has become a household name thanks to its music festivals, in addition to the iHeartRadio app. “We have been able to unify all of our local brands under a master brand — iHeartRadio. Using that umbrella has allowed us to build our other platforms as well as extend into third-party platforms like Snapchat, YouTube and cable and broadcast television.”

To that end, iHeart notes that its business model “has been to build strong consumer relationships at scale and monetize them by renting those relationships to unaffiliated third parties.”

Now, iHeart is “transforming” its sales process to be more competitive with the major digital players that have brought data, targeting and technology into the media buying process. “Additionally, we have built out a strong marketing sales function to support the marketing needs of advertisers and agencies in addition to the more traditional media buying transactional relationships,” it says.

But, even with marketer excitement over digital and social opportunities, iHeart has made it clear that “the backbone” of its company is its 848 “live broadcast radio stations” — omitting the “and local” phrasing seen at some of its competitors due to iHeart’s extensive use of voicetracking across all market sizes.

“With our broadcast radio platform alone, we have almost twice the broadcast radio audience of our next closest broadcast competitor,” says iHeart, which may suggest no station sales are on the immediate horizon. “We believe our differentiated reach, national footprint with local execution, best-in-class engagement and shared infrastructure provide us with a strong foundation and operating efficiencies as we expand onto new platforms. In addition, we have developed an iconic master brand that resonates across our diverse geographical markets and unifies our multiple platforms and local brands.”

But, what about the debt?

“Our leadership position across multiple platforms and our advancements in our digital-like broadcast advertising capabilities are starting to yield a financial impact,” the company notes.

For the fiscal year 2018, on a pro forma basis, iHeartMedia generated $3.6 billion in Revenue, $50 million of consolidated net income, $514 million of operating income (14% margin) and $976 million of adjusted EBITDA (27% margin), the highest adjusted EBITDA margin of any major advertising-supported audio media company.

“Upon completion of the reorganization, iHeartMedia will carry substantially less debt, providing the company with significantly enhanced financial flexibility,” the company says. “With our inherently low maintenance capital expenditures and working capital profile, iHeartMedia expects to generate significant free cash flow and de-lever over time.”

While it may take time for iHeart to become debt-free, it is certainly on track to significantly de-lever while building on brand strength that has made it the industry’s top audio content company.