The transformation of consumer media continues, and it just seems to be gaining steam. This time, the target is on terrestrial radio. The two largest owners of radio stations in the United States recently filed for bankruptcy.
iHeart Radio Files For Bankruptcy
iHeartMedia operates 850 stations, and it filed for bankruptcy protection last week. Cumulus operates 445, and it filed several months ago. While each company faces unique personal challenges, the overarching problems are shared across the entire industry. Namely, a lot fewer people are listening to radio, and that makes the entire concept much less profitable.
And, where’s there’s less profit to be had, there tends to also be mounting debt. There’s only so much rope creditors will give you. Sooner or later, “maybe next month” is not going to cut it. You have to restructure, or you have to close your doors.
iHeart, especially, is under the gun with debt. The company started in the red after taking on serious debt to acquire Clear Channel Outdoor in 2008. It was an unsustainable situation, and analysts knew it. iHeart hoped for a radio Renaissance, or they hoped to gobble up enough of the market to put the books back in the black. That didn’t happen.
Satellite media, iTunes and, now, streaming media have conspired to continue building their market base by bleeding off former radio listeners. And it didn’t take much convincing. The old radio format of playing the same group of paid-for songs and peppering this repetition with talk and commercials just didn’t compare with being able to build your own “stations” on streaming media… especially for the Millennial and Z generations, who were not “raised on the radio.”
Negotiations in Place
iHeart may have a light in the tunnel still. The company has, reportedly, been able to successfully negotiate with creditors to restructure more than $10 billion in debt, which accounts for about half of the current debt load of the company.
That’s good news, but it doesn’t come anywhere close to dealing with the major issue. Radio is losing its audience, and it has yet to find a way to stop the bleeding. Talk radio and format flipping has been successful to a point. There’s definitely a locked-in audience for certain brands of talk, as well as for demographics who were, in fact, raised on the radio, and love the nostalgia factor.
But as more and more Boomers and Gen X consumers are discovering Pandora, Spotify and Apple Music, not to mention podcasts, the market for radio will continue to shrink, making the competition for listeners even fiercer. Companies like iHeart must not only find a way to get their debt under control, they have to figure out a new or altered business model that allows them to transition from the current business to one that today’s consumers demand.