iHeartMedia, Inc. (IHRT) Earnings Call Transcript & Summary

Okay. Good afternoon, everybody. I'm Ben Swinburne, Morgan Stanley's Media analyst. Quick disclosures. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com. And if you have any questions, please reach out to your Morgan Stanley sales representative. Really happy to welcome back to the conference, iHeartMedia. We have CEO, Bob Pittman; and CFO, Rich Bressler. Bob and Rich, it's great to have you guys back.

Happy to be here.

Absolutely. Good to see you guys. Maybe, Bob, we'll get into the sort of the nuts and bolts of the business and the numbers, but I wanted to start a little high level, if that's okay. How would you describe sort of the strategy for you and the team to drive growth in the business looking forward?

Well, look, I think fundamentally, we look at the consumer. And I've been around a long time. I've always found that advertising profitability follows the consumer. And so for us, it is developing engaged relationships with the consumers on any platform they want to engage with us on and then monetizing that by renting that relation to unaffiliated third parties called advertisers. And I think you being able to use technology today and using our scale to drive efficiency. And so that -- what does that mean? That means our Multiplatform Group. We don't think looking at the consumer. Some people say, oh my gosh, that's the -- what they call the melting ice cube. It's going away. And I go, not if you're watching the consumer. As a matter of fact, Nielsen just came out with something. Last year was the first year radio head surpassed TV in terms of audience size, in terms of audience, and where I think it was 3%. This year, it's up to 12% differential. So, the gap is widening. What does that mean? It means radio actually is pretty rock solid in terms of being America's companion. The mission of our company is to give everybody in America friend anytime, anywhere. So, the people who ride the work with Ryan Seacrest every morning, love Ryan Seacrest and that's their pal. We think that radio continues to be a growth engine for us. We think it will be a 1% to 2% long-term growth, small, but also has great free cash flow characteristics. And as you know, we use that reach of broadcast radio to feed a lot of other parts of our business. And then we think our digital business, which we built using the power of broadcast radio as an adjacent businesses, podcasting, events, digital radio, continue to be a nice growth driver for the business, but it's on top of the Multiplatform Group, not as a replacement for the Multiplatform Group, unlike television, where they've lost users to subscription services or magazines and newspapers people just stopped using it. This is a pretty solid business. So that's sort of the fundamental. And obviously, AI provides us with a level of efficiency that I think we couldn't have dreamed of 5 or 6 years ago. We've been using some already called machine learning or AI, whatever you want to use for some years now and have seen some very positive benefits. One of the most important areas in a Program Director's life in terms of building a radio station, a music radio station is picking the music because we have the same music that everybody else asks. How are we #1 and somebody is #20. And we used to do about 3 big data inputs for a programmer to look at every week. When we started using AI, we can get 3,500 inputs. And then we were able to say, this is the assist, let's give you the suggestions and the programmer picks among the suggestions. In some markets, we actually tested letting AI make the final decision. The ratings were about 10% better. So, we -- and by the way, now we can reduce time spent on other stuff, add more productivity. And that's just one example of how we intend to use it.

If you mention AI in your first answer at this conference, you get an extra...

I say to everybody what's going at the conference and they go AI, big surprise.

I just have to say one thing about that. We've talked about that today, and Bob and I were on something else on Sunday, Monday in terms of AI. I love the fact that everybody is turning out AI. But if you go back, Bob just talked about programming and data informed programming made decisions. We made those announcements about how we're going to take advantage of that 5 years ago, 4 years. It happens to be called AI today. We happen to meet the other day with Carolyn Everson, who used to run all of ad sales for Facebook, now known as Meta and she said -- and we said like 5, 6 yeas ago, she goes, we were talking about this like 11 years ago. So, I do get a kick out of it. Everybody saying oh, we're all using AI.

Just arrived.

Just arrived.

Bob, you mentioned the consumer. I want to just come back because you made a comment on the call last week that was interesting, you said we don't have a consumer problem in radio. I know you guys do a lot of research on this. How does -- there's so many companies at this conference competing for consumer time, including a lot of companies with audio services, where does radio fit in to the consumer given just the fragmentation and competition that's out there?

The good news about radio is that we generally are in a period of people's day in which they can't use their eyes. And our biggest competition in the old days was this thing called peace and quiet. I don't know if you're old enough to remember this, people used to say, ah, the kids are in bed. Now I just got some peace and quiet for me.

That got disintermediated.

Nobody has peace and quite anymore. They fill up every second of their day. Start with their phone, end with their phone or some device or Alexa or something. So, we've been able to mine areas that we don't compete with video. People say, oh, podcasting, and then you could put video with it. I go, people don't want video with it. And they are looking for a time when they can use their ears not their eyes. So for us, I think it's -- being a great advantage. I think if you're in video, if you grow somebody else has to go down, it's a zero-sum game. In audio, you are just mining new territory. So, you don't -- somebody doesn't have to go down for you to go up.

Can I just say add one more thing there just what Bob has articulated and just because it dawned on me when you were saying other companies here. I just want to come back maybe to first principles in terms of audience. One of the reasons Bob mentioned we have an audience challenge, what we really do, we have to do -- keep doing a better job from a monetization standpoint. As a reminder, we get about 30%, 31%, 32% of people's time during the day and we're only getting about 9% of the advertising dollars. But that remains about 31%, 32%. If you look at -- and I think this is important when people are thinking from an investment thesis, our audience has been rock solid, and we've got reach over 90% of the country and that reach is across all demographics, it's rock solid. This is not the newspaper industry, which fundamentally lost its readership. It's not the magazine industry, which fundamentally lost its readership. Bob pointed out, what's happening to ad-supported TV. So, I think the fundamental premise in terms of the relevance of the medium, quite frankly, is misunderstood. So, it's what it's important to continue to mine this...

And by the way, I would say also, podcasting and digital audio are adjacent businesses to what we do. And when people say, how do you make such a profitable podcasting and everybody else is struggling to do it because it's an adjacent business. We already have an infrastructure. We make audio content every day. We just got to make a little more of it for podcasting. We don't have to build the infrastructure for it. When we sell audio advertising, we don't have to start from ground zero and hire all these sales group. We just have to tell our sellers and sell some podcasting. That gives us an enormous advantage. And by the way, the same with how are we able to do these events and make money on them when others aren't because, again, it's just an adjacent business and something else we do add on to what we have.

Yes. When you're talking about winning with consumers, you did acknowledge that you need to do better with advertisers. Just going back to Rich's point on monetization. So, what are you guys doing that's going to be more impactful? And what are you hearing from the ad community that is preventing them from allocating more money to radio?

You know what, I think the days of people allocating money to sectors is coming to an end. That's probably good for us. They used to have some for radio, some for TV, some for digital and then you fight amongst yourself for share of that. Today, they go, I've got $100 to spend, who's going to give me the best return. That we're fighting for return. That's good for us. The problem in the past was that radio never really sort of told its story well. They were all happy because radio advertising went up a little bit every day and a company like ours big, kept getting more and more share within it. So, everything was fine. I think we are trying to tell a story, but we fight as a bias. Most of the radio buying is done by people who live in Brooklyn and Manhattan, probably only 2 counties in the United States where people don't listen to radio every day and drive their car to work. And so you're going against both a personal and historical bias. As people are beginning to use algorithms to plan and pick what gets a good return, that's great news for us. So, some of it will be solved by technology. Some of it is solved by us. We're going out and meeting the clients and talking to the heads of strategy at the agency who is not the radio buyer who, by the way, can't add any more money to radio. They're just going to split up what someone gave them. And I think we're making great progress there. That requires us, though, to spend a lot of money developing an ad tech platform that has data, attribution, targeting, et cetera, in it inherently. And we're also able now to look at that audience across all forms of audio. So, if you say in podcasting, I want to reach this audience for this podcast, but I want to reach it at scale more than just this podcast. We can find those for you not only in digital radio, but we can find it on broadcast radio for you as well, that begins to expand it. And the second thing that is really important which has been really misunderstood is in digital, people say, I'm going after the target audience. I found the target. I'm only going to spend money on the target. 82% of consumers say somebody else influenced my decision. When you come to voters, it's actually, the number is 94% say someone else influencing. It's not only your kids and your spouse and your close friends, but it's people at work, it's people at the store. It's anybody who gives you a sideways glance about it. I wouldn't buy that thing if I were you or you should get that. And so radio is one of the last standing media that can give you the target and then you also reach people that influence you. There's a big difference between saying, hey, I got this great new thing and everybody going, I never heard of that. So, I've got this great new thing, so I've been here about that too. The difference in response rate from those 2 outcomes is dramatic. And the ability for us to give the target and also give the people who influence the target makes radio unique in this world. And I think the digital folks are finding them -- the advertisers are. There are a lot of people spend -- move money dramatically to digital. Procter & Gamble, it's like 2010, got out of radio, got rid of outdoor and put it and sales went flat. And then when they got -- you remember the activists, they had to cut the marketing cost. Marc Pritchard, genius, goes in and says, wait a minute, I'm not [indiscernible] I'm going to re-look. And he said, I got a little too carried away with some of the digital stuff and took a couple hundred million dollars out of digital, put it in outdoor, put it in radio and within 18 months, became the largest advertiser radio and the sales increased dramatically. So, people are seeing not only is it theoretical, but they're seeing the results of making those moves.

And then just one thing I might add. When Bob talked about some of the investments and just to be clear, we basically made those investments. We've given guidance and that's all been included. We've already built out the only fully integrated audio text there. So just as a reminder, we can plan campaigns, monitor them and report out just the way the big digital players can do, except we do it with cohorts, as Bob pointed out, not one-to-one. And with cookies going away on one-to-one, I said, we're a little bit smart and lucky that we've built an asset base, not just from a listener standpoint, but also just the way the advertisers are thinking about the world that it's coming much more towards us. And then just to touch...

By the way, just to add, he's talking about broadcast radio...

Yes, that's what I was going to say. And I was going to say, so we've got digital and broadcast Bob talked about. And we've also read all these things about things like programmatic and what's coming out there about programmatic. As a reminder, in digital, we can do anything in programmatic hooked into all the DSPs and everything else. And we announced at CES an agreement with Magnite that we're going to launch in April. And we're going to start to bring -- again, it's early days, but audio programmatic on the broadcast side to the marketplace. And just to be clear, there is nobody in broadcast, whether it's television or audio, nobody that has programmatic out there. And if you look at the way the world is going, it's not going to be significant for this year, but the world is going to continue to move towards programmatic. I know John Wren spoke early today here, and he's talking about that. That's definitely -- and we will have the only audio broadcast -- the only broadcast programmatic...

And more than programmatic, it's also automated. Programmatic implying there's bidding on it and automated meaning, the process is all digital and all automated, but may not be real-time business.

So is there -- it sounds like this -- this is not an investment challenge for you guys within your P&L to build this or maybe it's already built but is there a product -- because I know about SmartAudio. If you guys have had products or have products in the past, does this mean it's being built on top of that? Does it mean new coming to the ad community that's going to change the way the revenues...

SmartAudio was the first -- let's put the data against it or let's put the pieces. Now we're talking about building automated platform that will run SmartAudio. So, one is sort of the platform for it, the other is what are the products we're running across it. SmartAudio, sort of being the lead product we're running through it.

I see. And is this something that the sort of Brooklyn Nights and Manhattan Nights will then put money against? Or are you going over them?

Good news about it is, when we go to this platform, the decision-making is away from a human decide, I think 9% is enough for radio to the algorithm is examining all the options and is looking for the best return for the advertiser. They will look at things like reach, engagement, trust, brand safety, et cetera, all things we score extraordinarily high on. So, we are like running into this, pushing into it because we know it will be good for us. We also think when you begin to unify everything on similar platforms that the pricing moves toward probably, revert to the mean. It means everybody above the mean probably comes down, some people below the mean, which is probably us and Outdoor benefit the most from being on these shared platforms.

We've actually, I just want to -- we've talked about this a little bit before. We've called it and I think Bob referred to it earlier, taking some of the human interaction out on the buying side. I think the terms we've used previous are unified systems, unified buy and selling, breaking down the walls at the ad agency and advertisers. This is just the next -- this is making it much more tangible, bringing it to life more. It's within sight. Again, it's not to be significant this year. And it's really the natural evolution of what we've been working on.

Great. Okay. Well, thank you for all that explanation. One of the slides that you had in your investor deck last week that I thought was interesting was the Miller Kaplan data, just comparing your performance in the overall industry, which is pretty stark. I mean you've been taking share. And it actually looks like that market share -- those gains have accelerated post pandemic. I think a lot of investors don't really focus on your competitors within radio that much. Maybe you could talk a little bit why you think you're doing better and doing better at a faster clip?

Well, look, we are -- if you really think about it, we are really the big scale player within whatever you would consider radio to be. We don't view that as our marketplace. It's interesting, television, the government restricts how much audience that TV network can have by law. And so you have a lot of players that sort of equal size that people cobble together to make a buy. We are able to deliver 90% reach with one company. I think the next largest radio company is probably about half of that. So, we're able to have a conversation no one else can have. And it's a little more like the other businesses. If you go by search, people aren't saying, well, let me talk to Google and Bing and dot, dot go, they're doing a deal with Google. And I think the same with Meta. You just develop relationships and we're developing those kinds of relationships. I think that shows up in our share. But if you sort of look at it the other way, there are really 2 vectors of growth for us. One, the pie widens for us because of all the products we've got. And then our other sector of growth is within the sectors because of our size and scale and the tools we have and the information we have, we're able to continue to increase our share of the dollars. So, I think it's just a representation.

And I do think, by the way, just -- I think scale does matter at the end. And we're all talking about the products and technology, all the questions you've just been asking, Ben, but that gives us the tools, take for example, podcasting, we have over 1,000 people during advertising sales in our company -- excuse me, across 150 markets, we have a deliberate strategy that any salesperson can sell anything any time of any of our products. So that means we have a 1,000 feet out of the street selling broadcast radio, but we have 1,000-plus feet on street selling podcasting and we talk about the technology. So quite frankly, really proud of everybody in the organization, our team outperforming. But we should be outperforming significantly and we are.

And it's interesting just listening to the conference is going on. There's a lot of talk about scale and who's got scale. In audio, we've got scale. We are probably -- and if you look at the digital players, including iHeartRadio digital product, the Spotify, Pandora, et cetera, about 25% [indiscernible], 75% is broadcast radio. But when you look at ad impressions because so many of those are commercial free, that we are probably -- we're about [ 90% ] of the ad impressions are broadcast radio. So again, this is this unique opportunity. And within that 90%, we have such scale, we can deliver what an advertiser needs. We don't have to go buy something or add something to it to give them the scale they need.

Yes. I want to stick with the theme of technology and ask you about the car. When I think of radio, at least I'll be dating myself, but I think about drive time and commuting, part of my New York upbringing, there's been a lot of investment, a lot of software in dash. We can think about Android Auto and CarPlay. With the scale that you guys have, does that -- what does that do for your business to be able to be in the dash in a much more interactive way than -- and talk also about the competitive landscape.

Let's take the consumer packaged goods companies, [ end of caps ] always help. Having multiple locations in the same store are good. The same is true with the car. And look, the broadcast radio device in the car has no signs of going away. A couple of people talk about taking the AM out of the car. They reverse course when they got response from consumers going -- they thought AM was dead. Why did they get so much response. I mean it's just a flood above Washington. There's a bill out with [ Marquee and Cruise ] as the cosponsors. I don't think there are many bills like that, but there's enormous bipartisan support. So, I don't think the AM radio is going away. There are more radios in the car than there are smartphones in America. Now, add on top of that with our iHeart radio product, anybody who wants to do anything fancy in the car or bring in CarPlay or anything else, we had iHeart through the app. So, we got a couple of bites at the same apple. I think that's good for us. I will remind you that although 2/3 of the listening of radio is out-of-home, office listening is substantial and also middays in the car and in the office are substantial because we have the office plus the car and everybody is driving around for lunch or whatever, that you get actually a bigger audience at midday than you do morning or afternoon drive these days.

Makes sense. You mentioned earlier, feet on the street and local sales force. How much of that is an advantage for you guys, particularly when you talk about going beyond radio and competing with broadcast television, for example, and other local ad buys?

Yes, it's interesting. If you look at any of the TV networks, they really only own what 10 markets and the rest affiliated markets. So, they don't have sellers in those local markets. We actually have sellers for our own stations in those markets. And as Rich pointed out, our strategy of any seller anywhere can sell anything has really paid off for us because as we have new products, one, they're able to talk to the advertiser about more products, so it gives them more credibility with the advertiser. And for us, it allows us to be able to put revenue on to new revenue streams very quickly. The podcasting business really has been a juggernaut for us and digital too. And a lot of that is because of having that advantage in the local markets as well as our national sales.

Yes. Actually, that's what I wanted to go to next. So, a good segue to the Digital Audio Group. It's now $1 billion business for iHeart in 2023. Nice margins, kind of anchored by podcasting, but bigger than that. Can you talk a little bit about the growth outlook for your Digital Audio Group and what's driving it?

Well, what's driving it is the consumer as always and I mean, I've been in a lot of businesses, it's always the consumer. And so, I think it's -- we continue to serve the consumer, serve them well and then you begin to get a flywheel effect that when you've got so many big podcasts, then when you got a new podcast, you advertise it on the existing podcast or you do a spin-off of an existing podcast, do a sort of a slide podcast or you do slates. Charlamagne tha God, had big podcast with The Breakfast Club. He developed an company with a partner with a man called Black Effect which is the #1 network for podcast in the Black community. But everything is sort of built off of Charlamagne and the relationship Charlamagne has in the community. And so I think it feeds on itself. And again, with the radio side of digital, this has been just sort of a no-brainer. My age group thinks about radio, a 20-year-old thinks about content. They call it Z100, they call it Elvis Duran, they call it Ryan Seacrest. Radio to them is a device. And they look at you like you're crazy for calling that radio like why are you using that word. That's good for us because it makes them very fluid and very devices invisible. They just get it wherever they can.

And the other thing, by the way, earlier when we talk about technology, products, needs of advertisers, just think about from a Multiplatform approach out there. And Bob talked about Procter & Gamble. But whether it's Procter & Gamble or T-Mobile or Bank of America or any of our big advertisers out there, they're often coming to us or Capital One, like on an annual basis, okay, we need the following solution. I love the line when someone comes to us, CEO or CMO, gee, we know our business. Now these are our challenges. You know your assets, okay, teach us how to use your assets, you're the experts on those. And the fact that we've got this technology that -- in terms of the tech stack that goes across broadcast and all of our digital assets out there and all they care about at the end, more and more and more people care about, they want ROI. They want to -- they're very simple. We give you a dollar and how are you going to give us $2 back at from an attribution standpoint. And so having all those platforms out there with digital, as you pointed out, and we get that recognition. But don't forget, there wouldn't be digital without the efficiency and the reach of broadcast radio.

My understanding is podcast CPMs are healthy and higher than broadcast radio. So, I'd be curious if you guys could fill that in a little bit for us. But why are podcast ads working so well for advertisers? I mean they obviously most see the ROI at those higher CPMs. So, what's making it so effective?

Look, I think some of it, CPM is supplying demand, some of it's cool and new. But I will say it also has incredible engagement. It is -- there's almost no medium that has the engagement of podcasting. What's the number, Rich, 85...

85% of it -- by the way, for all of us have been running media companies a long time the most engaged medium we've ever seen. And just actually, 85% of all podcasts, you listen to all the way through. People listen to. And to be clear, you can fast forward them, you can stop. You can do all the technology you can do with online video or anything else, that level of engagement. What's also interesting...

I have one thing to add, in video, you skip ads. In podcasting, you go to higher speeds, 1.2, 1.5. We just listen to it faster if you want to get through something, but you don't skip the ads and that makes a huge difference in terms of the performance. Also the relatability of that host and the content because if you think about radio, is radio sort of broad, we cover a lot of topics, but not deep. Podcasting is we go really deep on one topic. When you go deep on something, smaller number of people, but deep, you've got an incredible engagement. And I think that shows up in terms of the ad performance for our clients. And for us, we're also able -- Rich was talking about the ad tech platform. The ad tech platform now lets us look at, here's a podcast audience. I really like that audience, but I'd like more of them. It's like the look like on Facebook. We can now go find that target audience for you at scale on broadcast radio. And as you point out at a lower CPM. So efficiently, we're able to spread that message and spread that audience broader than what you got on podcasting.

Yes. And the last thing I would just say, as you think about podcasting and think about advertiser demand, just to remind everybody, if you go back 3, 4 years, podcasting was primarily a direct response, by the way which is great, it's a great business. It's only really since we become involved in podcasting and the platform that we've created, we have brought the biggest advertisers in the country to podcasting. And the reason why that's important is because big advertisers bring big dollars, just to state the obvious. But it's -- and that's where it's attracting them, it's not because they like us, the right podcasting, they're just seeing those results, which are driving those because of that engagement, which is driving those high-level CPMs. And if you look at just any of the projections out there, they're only projections, to be clear, and people have wide ranges. But everybody out there, whether it's e-marketer or other people who do projections are taking the U.S. ad industry from podcasting from let's say, I don't know, $1.5 billion, $2 billion last year to $4 billion, $5 billion, $6 billion of advertising revenue over the next few years, over 3, 4, 5 years out. And so whatever those numbers are, they're big, the increases are big, even if they go to the lower end of that range. And if you think about us and iHeart, we're going to participate in 2 ways. One is we're participating just because the pool is going up. And then on point, back to your previous question, Ben and you made the point with Miller Kaplan, but if you look at our investor deck, we showed in other areas, we just continue to take share at the end and I don't see any way that's not going to continue to have.

I will add 2 last points on this. Advertisers are increasingly interested in trust and attention. And there have been a lot of studies done on trust and attention because they know it improves the performance of their advertising. And radio and podcasting used to show up 1 and 2 on both of those.

And I think back to when money was free and there was this sort of streaming war equivalent in podcasting was sort of the podcast wars, right, with the content, which seem to be over and I'm not saying that this deal is good or bad, but I was surprised to see SXM basically bring the SmartLess guys over from Amazon and a deal the press reported as $100 million multiyear deal. Can you guys just talk about sort of the state of play in terms of competing for podcast talent and whether that's a factor as we think about margins for your podcast business?

Sure. There are 3 sectors of podcasting. One is the distributor. I'm going to run on the platform, just looked at some research the other day. And Spotify, I think is #1 there. They're like 30-something percent. Apple is about 25%. I think iHeart was about 17%. You don't make any money from that. You're just carrying it because you're on your app, people want you to have it. The second element, which is not a great business is sales rep business. Let me have your business, and I'll give you -- I'll keep 20% or 10% or whatever to sell it. We don't think that's a good business. And the business to be in is publishing business. We create products with other people, sometimes by ourselves and we sell it ourselves, that's got a good healthy margin. It's one of the reasons that we have a margin which is accretive to our overall company margin and everybody...

For podcasting.

For podcasting and everybody else is talking about they're going to get to the profitability of podcasting or single digits. And we have had -- when we talk about the wars, we didn't participate in wars. We were in Switzerland. We stayed out of it. And if somebody came to us and said, this is the greatest podcast where everybody is going to love it. And here's the deal, we go, we can't make any money on that. There is no good deal where we don't make money. So, we just stayed out of it and it had an incredible discipline. It's unusual to find the #1 player resisting to urge to play that game and we did. And there was the thing of what's going to be subscriptions, what's going to be exclusives. They had all sorts of other schemes of where it's going to go. I think all of those have fallen now. Everybody is back to economics. Are there occasions going to be people who say I got to buy my way in. I'm sure there will be. I've been around a long time in the business. I've never seen anyone lose money on a deal and have it be a good deal eventually. Nobody ever goes, yes, I know you lost [ Lemur ] here. Let me cut all my pay and I'll let give you a profit. If you're willing to pay that once, guess what, you're stuck paying that forever, so -- or you let it go to somebody else and it goes around and finally somebody goes, nobody can make money on that level. But I think we're sort of out of those wars. It doesn't make it easier, sure. But because we're #1, we usually get first luck, that people will come to us first. We get to look at it. And if it's a great deal and we think it's great, we can do the deal. If we think it's wonderful, but we can't make any money, we pass and they go to probably the second largest and third largest, and the fourth largest...

To look at the deal again when it comes back. By the way, the one thing just very quickly, I'd say...

Which we got a few of those.

Yes. So we -- I don't know, we get whatever, 20%, 25% of the U.S. podcasting advertiser industry revenues. And by -- again, this is speculation, but by most estimates, I don't know whether we're getting 90%, 95%, 100%, 110% of the industry profits, to be clear out there. And so I think that kind of just goes back to what's called the podcasting business. And sometimes I think people forget this word business.

And again, I go back to something we said earlier, we have an advantage because it's an adjacent business. We're able to do podcasting for incremental costs. Where you have an audio studio, come in our studio and use [indiscernible] it cost us $0.01 more for you to do that. I didn't have to build a studio. We didn't have to hire an engineer to come. They're already on duty, we're already there.

Let's go from a bigger picture down to sort of the business right now. We've been talking with a lot of companies about the ad market currently. You guys gave guidance last week for Q1 for I think revenues to be down kind of mid single-digits, but some encouraging trends as you move through the quarter. So maybe you could update us on sort of the state of the advertising market as you guys see it?

I think we said flat.

By the way -- well, we said flat to down 2%. No, I just want to make sure.

I think we -- and we said it in the call, we think this year is the recovery year. We went through 4 quarters of really feeling the ad recession. We feel it's turned. That's our view. We saw -- January was down 8%. February, March up. We see that continuing into second quarter, which we said in the conference call as well. So, we think we're seeing the signs, it's there. We think political kicks in, as you know, political is sort of a 3-month phenomenon, sort of September, October, November, the back half of the year. That adds to it. But I think even without that, the first part of the year, we're seeing it turning. I think if you look at some of the ad agencies, I think they're all saying they get a sense or they're talking to their clients that things are up or going to be up. So -- and again, you've been around a long time, you know this, too, is we tend to lead -- the advertising market sort of leads the economy. We were sadly there ahead of before it really turned bad. And I think we're probably there as an early indicator on recovery as well.

Yes. And by the way, just as a reminder, it was interesting, we went out there. We were in some meetings, but saw that John Wren, who's been doing this a long period of time and very successful. He was the CEO of [ OMB ] for everybody's benefit. I think said today that he's cautiously optimistic, which he probably hasn't said in years. And I think he said every kind of vertical or category they have is either pacing up or plans to be pacing up going to 2024. So I think it's -- we didn't say that he did but in line with what we're hearing.

I think it's Super Tuesday, today, right?

What happened to result.

I don't know. I haven't looked at my phone. But political is obviously important to you guys. I think in 2020, there was a decent amount of business early in the year. Should we be thinking about the year a little bit differently this cycle?

Yes, I think you don't have a primary battle really. So you're missing that money. You don't have Bloomberg and [ Stier ] in January needless to say. And so I think -- but again, there's a big battle for the House, a big battle for the Senate. There are a lot of ballot initiatives. There are a lot of issues out there. Reproductive rights. We know there's going to be a lot of spending against that. So, a lot of PAC spending. And then there's a lot of down balance stuff, too. So, we think it's going to be a big political year. We've seen no indication that it's not. But I think, again, it will probably be even more concentrated in the back half of the year than typically is.

And by the way, the other thing and also everything we've been talking about for the last 35, 40 minutes, our capabilities are different than the last time election cycle, even on a midterm election cycle, our capabilities are different.

Yes, I was going to ask you about it. I mean, your digital business is multiples of what it was, at least in 2020.

That business, but again, back to all our capabilities, including servicing our Multiplatform our Broadcast Radio business. We have capabilities, everything Bob and I spoke about the last half hour, we get about 2020, we didn't have these range of capabilities in 2022.

Okay. Yes, I was wondering if maybe you'd see more political dollars in the Digital Group this year than we've seen in the past. I mean is podcasting, other opportunities too.

Absolutely. We expect it to be a very solid political year.

Okay. Rich, you guys have been taking cost out of the business pretty consistently for a number of years. Are there still opportunities to find efficiencies in the business sitting here in '24?

Yes, very much it's interesting about cost. One of the reasons -- so maybe for some context, we've talked about Bob and I being cash people, but we are constantly challenging ourselves and I was joking earlier to some investors. Gee, you could see what we talked about in between some of our meetings today and our calendars the next couple of days. And Bob talked a little bit about AI in response to your questions. But we say this, but we rigorously live by the fact we are looking at our company structure and our cost. If we started iHeart today, how would we go about putting it together. And again, we're not perfect at that. But if you wake up every day with that mentality, there's always ways you could be more efficient. Quite frankly, we've given out a number of cost targets, which we've met the last couple of years. And if we had to do it ourselves, we wouldn't say those targets publicly not because we don't want to be held accountable and we know we need to. But because costs are an ongoing way of life in our company, when we put out a target that we go back to our employees the next they say, okay, now we're going to work on being more efficient. Wait, you just said we were done with that, done with that cost program. But the reality is we're never done. By the way, and I think it's forever will never be done.

And that's kind of becoming the norm everywhere now. It's sort of interesting.

And technology with technology, it should be when someone says, I need to hire somebody, we say, can I do the job. We began to push back on where is the efficiency. Also, we hired 100 people, how can we possibly so smart that we got to ride on 100 people. We said we want to set up this structure. How can we have been so right that everything is perfect. We got to weave the garden. We've got to go back and find places where we missed. And then we got a place like, yes, I thought of a better way to do that. Our technology can do that. How do we do it and get that done. We've taken substantial cost out of the Multiplatform Group since 2019. We've used that to feed the higher growth businesses, but we should always be looking to fund something from something that is not working as well and just in the hierarchy of importance take something from down here to move it up to here.

Maybe in the time we have left, I want to make sure we hit on free cash flow and the balance sheet is obviously that's a huge focus for the capital markets, Rich. What's the message to the market on your free cash flow outlook for this year and how you're thinking about getting the leverage down to where you'd like it to be?

Well, I'd say a couple of things. Free cash flow continues to be the top priority for Bob and I from a financial metric. I think we've proven that year in and year out. Just to add, I think the best evidence of that is not just the last couple of years, but in 2020, the toughest year, I think any of us have ever seen and knock on wood, any of us will ever see in the environment. We generate a significant amount of free cash flow during that period of time. So, we did what we needed to do to generate free cash flow. We haven't given specific free cash flow number for 2024, but we did give guidance about. We said we spent about $100 million of CapEx, which, by the way, we can dial that back if the revenue doesn't show up. I think we told people to assume cash taxes at about 10% of the EBITDA number. We have our -- we have a debt due in 2026, as everybody knows, in 2027. We've got a great set of advisors, and we are laser-focused on making sure that we're opportunistic -- but the best weapon we have to be opportunistic is we've got a great business that's generating a lot of free cash flow. And we just need to keep that up, which we will, and that will give us the flexibility to continue to have a good cost efficient capital structure.

Great. Well, Bob, Rich, thank you guys for coming back.

Thank you.

Really appreciate it.

Thank you for having us.

Thanks, everybody. Thank you.