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iHeartMedia Plans to Use Artificial Intelligence “to the Fullest”

"I think AI can fundamentally change the cost structure of the company," says Pittman

A challenging advertising climate chilled the results for iHeartMedia’s first quarter of 2023. Company executives say continued “advertising softness” led to a downsizing of the company’s revenue by 3.8% compared to the same period a year prior.

But a story with more long-term implications is the company’s eager embrace of artificial intelligence. “We plan to use it to its fullest,” said Chairman/CEO Bob Pittman, without offering specifics. He said AI could “ fundamentally change the cost structure of the company.”

First quarter consolidated revenue for the company was $811 million, iHeartMedia reported. Of its three reportable segments, the multiplatform group — including 850 radio stations — saw revenue fall 7% to $529 million compared to Q1 2022.  iHeart says broadcast radio brought in revenue of $383 million in the first quarter, down from $415 million in the same period in 2022.  

Pittman on Tuesday described “an uncertain macroeconomic climate and advertising marketplace” for the media company. However, he says there are signs of a recovery in the ad markets over the long term. “Our expectation is that it will get better through the year. I think major advertisers were holding back trying to put away some money for the year in Q1. And in terms of categories, auto is doing better.” 

The first quarter data released by iHeartMedia reveals the challenges of operating a media group in an economy that’s facing “recessionary fears,” Pittman said.

The company’s Premiere Networks and Total Traffic and Weather Network (TTWN) saw revenue decline 8.2% in the first quarter compared to YoY, totaling $108 million. 

Revenue for the digital audio group climbed 4.3% in the quarter YoY on revenue of $223 million. The focus of the company’s digital audio division is podcasting and the iHeart streaming platform. Podcasting revenue was the biggest gainer with revenue of $77 million, a 12% increase from the same quarter a year ago. The audio and media services division reported revenue of $61 million for the quarter ending March 31, 2023. iHeartMedia says revenue for the division, which includes Katz Media Group and RCS, was flat compared to 2022. 

iHeartMedia’s total consolidated revenues continue to shift away from broadcast radio to digital. In Q1 of 2020, the multiplatform group accounted for 81% of the company’s revenue, but that division’s revenue has now dropped to 65% of total revenue in the most recent quarter, according to company. 

Free cash flow dipped to a negative $133 million, according to the company’s filing. The company paid down $20 million of debt during the first quarter of 2023, according to its filing with the U.S. Securities and Exchange Commission, but $5.4 billion of total debt remains.

iHeart says it continues “aggressively managing the company’s expense base,” and will embrace artificial intelligence as part of its strategy.

“We and every other company are looking at how to use AI. I think AI can fundamentally change the cost structure of the company. That’s the primary value for us. It will turn employees from doing, you know, lots of employees doing rote work, to our employees doing more editing and more of the higher level work,” Pittman said on the investor call.

 “I think we’ll do stuff faster and our costs will be lower. We think AI will be a major productivity enhancer for American businesses and we plan to use it to its fullest.”

The company hasn’t disclosed any plans to use the technology to create AI DJs, but did previously announce it would use AI to translate some of its podcasts into foreign languages. And this week it announced in a press release it would add “Daily Dad Jokes,” an AI-generated stand-up comedy show from Klassic Studios to its iHeart Podcast Network. 

President, COO and CFO Rich Bressler pointed out the significant cost savings the broadcaster has carved out since the pandemic through its real estate consolidations and workforce reduction.

“As a management team we constantly look for efficiencies in the company. We took out $250 million (on an annual basis) as we went to the fourth quarter in 2022. And we have announced another $75 million of cost savings to be realized in 2023,” Bressler said. “The company will continue to aggressively look to improve its overall capital structure.” 

The company’s capital expenditures for Q1 were $39.2 million compared to $22.6 million in the three months ending March 31, 2022. “Capital expenditures during the three months increased primarily due to the timing of real estate payments associated with the drastic reduction in our real estate footprint,” iHeartMedia stated in its report.  

Bressler says iHeartMedia expects its Q2 consolidated revenues to decline in the mid-single digits. Nonetheless, he believes the company is well positioned to withstand the economic downturn no matter how long it lasts.   

In a press release ahead of its quarterly call, Bressler was quoted: “While we can’t predict when the advertising marketplace will fully recover, we believe that our multiplatform revenues will continue to recover and that our digital audio group revenues will continue to grow throughout 2023. With the benefit of what are expected to be record levels of political spend in 2024, and the annualized impact of the cost reductions we have made over the past six months, in 2024 we expect to resume our growth trajectory that was interrupted by this period of recent advertising softness.”

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