iHeartMedia's IPO Plans: Music Industry Skeptics, Optimists Weigh In

ISSUE 9 2019 - DO NOT REUSE - COMMISSIONED FOR ONE TIME USE
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Bob Pittman, the chairman/CEO of iHeartMedia, likes to compare his broadcast-radio empire -- which reaches 275 million listeners each month and is saddled with nearly $6 billion in debt -- to a house. "It's still worth a million dollars, even if you mortgage 99.9% of it," he recently said.

In a bid to reduce that debt, iHeart, which owns 848 radio stations, filed paperwork earlier in April for a potential initial public offering. The company cut its debt -- which, at one point, was nearly $21 billion -- by more than one-third last year after a court agreed to its bankruptcy plan; a successful IPO could raise money to pay off the remaining debt, allowing the once-mighty company -- formerly known as Clear Channel Communications -- to make acquisitions and develop technology.

"It's a cash raise, of course," Skip Bishop, a longtime Sony radio-promotions executive and a Nashville consultant for developing artists, says of the IPO. "I would bet on the company. They haven't put all their eggs just in old-fashioned transmitters and antennas -- they've been aggressive in every other arena of the entertainment business and been successful at it."

iHeart remains dominant, particularly in its broadcast business, with an audience double the size of top competitor Entercom, thanks in part to valuable personalities from Elvis Duran of WHTZ (Z100) New York to Charlamagne Tha God (The Breakfast Club) to Rush Limbaugh. Since Pittman took over in 2010, iHeart has focused on digital, concentrating radio content into an app that competes with Spotify and Apple Music and, more recently, plunging into podcasting. The company's iHeartRadio app has 128 million registered users, though iHeart does not disclose how many are monthly active listeners or paid subscribers.

Pittman inherited the company's massive debt, which came from a leveraged buyout in 2008; he has since aggressively tried to unburden the company, first with a Chapter 11 bankruptcy that allowed its media division to split from its billboard-advertising business. Pittman, the former DJ who co-founded MTV in the early 1980s, has consistently emphasized that iHeart's "operating business" of popular radio stations and 20,000 live events, including the popular holiday-season Jingle Ball concerts, should be evaluated independently from its debt issues. "As we've always said, one has nothing to do with the other," he said in January. "Audio is hot."

But for all the numbers that Pittman reels off in interviews to demonstrate the broadcast industry's continuing strength, other studies suggest radio may decline in the not-so-distant future. Advertising hasn't grown for several years, thanks to competition from YouTube, Spotify, Pandora and others, and a 2017 study from New York University's Steinhardt Music Business program suggests listeners in their teens and 20s have largely switched to on-demand streaming -- AM/FM listening among this group has declined by nearly 50% from 2005 to 2016. (Broadcasting officials have denounced this study and refuted its findings.) Cumulus emerged from bankruptcy last year, and Entercom's 2017 merger with CBS Radio led to more debt and a decline in the stock price.

Jerry Del Colliano, a Steinhardt professor, disputes Pittman's view that iHeartMedia's debt issues are separate from its operational strength. "It's more fairy dust -- there's not enough revenue in the radio business to support a business like theirs with debt that high," says Del Colliano, who is critical of iHeart and the broadcast industry in his blog Inside Music Media. "If you can get away from all the public relations releases, radio's probably the coldest industry you could ever want to be in right now. 

What [iHeart] really is [trying to do], in my view, is to change the subject again. If they pull off an IPO and anybody can see a way to make money, I want the names of those people -- so I can sell them something."

Although iHeart reportedly laid off several employees in recent weeks, including veteran reporter Rick Flagg of the company's Florida News Network, iHeart's day-to-day business actually hasn't changed much. Many analysts view the potential IPO -- to which iHeart has not yet attached an opening stock price or given any specific details like banks or numbers of shares -- as a way to allow the company to make more strategic purchases, like its acquisition last year of podcaster Stuff Media. "What happens is iHeart winds up with a clean balance sheet, and they get back into the mergers-and-acquisitions business," says George Reed, director of radio-TV brokerage Media Services Group and owner of 11 Florida radio stations. "The recent Chapter 11 cleans up the balance sheet, and the IPO cleans it up even further, infuses equity capital into the business and gives them the flexibility to operate aggressively."

Whether radio is booming, as Pittman suggests, or slowly becoming an anachronism in an era when listeners can pick any song they want, even in their cars, iHeartMedia's stations are functioning as if nothing has changed financially for the company. Chris Taylor, global president of eOne -- the independent label that represents The Lumineers, veteran rapper The Game and rising MC Blueface, who is suddenly being played every two hours in Los Angeles -- says radio remains important in turning performers into pop stars. "We've been spending just as much money as ever, perhaps even a little bit more," he says. "A day with radio is a better day."

Beggars Group vp promotions Risa Matsuki, who regularly works with iHeart's programmers, says the company's broadcast reach remains crucially important for record labels, far more than its mobile app. "Even though they've been embroiled in a lot of this negative stuff involving the bankruptcy, they really seem to know how to turn it around and come out the right way and seem like the biggest guy on the block," she says. "They always do just enough to make it right and continue to be the Goliath they are.

"They're like Cher," adds Matsuki with a laugh. "They have a lot of lives." 

This article originally appeared in the April 13 issue of Billboard.