iHeart Is Aiming For Casual Music Fans With Streaming Service, Leaving the Music Nerds to Spotify and Apple

Denise Truscello/WireImage
Drake performs onstage at the 2016 iHeartRadio Music Festival at T-Mobile Arena on Sept. 23, 2016 in Las Vegas. 

"We have seen a lot of streaming services built for tech-savvy early adopters," says iHeartRadio president Darren Davis. Instead, he wants his ­company's new on-demand venture to remind users of an earlier, more intuitive Internet service. "AOL was so easy to use that millions of people did."

That kind of simplicity could set apart iHeartRadio's newly announced initiative in the fiercely competitive world of on-demand streamers. In January, the ­company plans to add two tiers to its ­existing radio-style streaming service: iHeartRadio Plus (ad-free radio with additional features) and iHeartRadio All Access (closer to an on-demand streaming ­service). Features and prices have not been announced but are expected to cost around $5 and $10 per month, respectively. Unlike Spotify and Apple, which trumpet ­innovative music-­discovery tools or ­exclusive content to music ­aficionados, iHeartRadio wants to attract the casual fans who never bought that many CDs or downloads in the first place but still listen to the radio.

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It's a significant gamble for iHeartMedia, formerly Clear Channel, which dominates U.S. radio with its 858 stations but is still saddled with debt from a 2008 leveraged buyout that took the ­company private. Under ­chairman/CEO Bob Pittman, who led the team that created MTV and later worked as a top executive at America Online, the company is ­trying to retool itself for the post-terrestrial age. iHeart is ­betting it can boost its own digital ventures with its existing broadcast business, which reaches a combined monthly of 269 ­million Americans older than 6 years old, according to Nielsen.

 

iHeartMedia enters on-demand streaming at a time when two new players also are vying for a ­mainstream audience: Pandora (which recently announced its own streaming service) and Amazon (which is expected to do so soon). And while iHeartMedia doesn't have the technology bona fides of those companies -- let alone Apple and Spotify -- it has the ability to promote its new service as well as its own exclusive content, in the form of interviews and live events, like the just-wrapped iHeartRadio Music Festival that featured two days of top-shelf star acts including U2, Drake and Britney Spears.

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Indeed, for all of the media attention that streaming receives, terrestrial radio still accounts for about 90 percent of total U.S. music listening, ­according to Nielsen. That already has translated into ­success for the company's ­existing radio-style streaming service, which in the second quarter of 2016 accounted for more than twice as much streaming activity as Apple Music, according to the MusicWatch consultancy.

"They have a good user base," says MusicWatch managing partner Russ Crupnick. "In combination with the broadcast network, they're a more important player than most people realize." While iHeartMedia's radio business has plenty of reach, the company is unprofitable, with $20 billion in debt -- although EBITDA (earnings before ­interest, taxes, depreciation and ­amortization) is growing -- and it's ­notoriously ­difficult to make money in the streaming business. ­iHeartRadio's service could be used to boost loyalty to its radio stations, but, says Davis, "we're not going into this thinking of it as a loss leader."

As for the debt, "our capital structure has not limited our ability to grow and innovate," according to company spokeswoman Wendy Goldberg.

In some ways, on-demand ­streaming represents a new business for iHeartMedia: "They're moving from selling ads into asking people to enter their credit card numbers," says a major-label source. But Davis notes the company's service works seamlessly with online radio. "We're not just giving you a search box -- we're tying on-demand to the live radio experience," he says. "Even aside from any revenue that comes from subscriptions, this will be ­positive for our company because it will keep people listening to their favorite radio stations."

This article was originally published in the Oct. 8 issue of Billboard.