Podcast networks report Q2 revenue growth, with positive signs for continued improvements in 2023

iHeartMedia, Spotify and Acast reported revenue growth between 12% and 31% year over year in their podcast businesses during the second quarter of 2023, with better performance compared to the first quarter of this year.

Executives told shareholders they are seeing improvements in the U.S. ad market and are bullish on continued growth in the third quarter and beyond. 

During the three companies’ earnings calls, podcast execs discussed how they’ve shifted their strategies to be more mindful of overhead spending amid the podcast bubble bursting. They also outlined the ways they believe generative AI tools can help podcast creators and ad buyers.

Their earnings results mirror recent reports that U.S. podcast ad revenue is expected to continue growing. According to research conducted by PwC for the Internet Advertising Bureau in May, total podcast ad revenue is projected to hit $2.28 billion in 2023, up 25% year over year. 

Q2 podcast revenue up

Podcast revenue at iHeart was $97 million in Q2, up 12.9% compared to Q2 2022. Podcast revenue made up about 10.5% of iHeart’s total revenue in Q2 2023, which was $920 million (down 3.6% year over year). In Q2 2022, podcast revenue made up about 9% of iHeart’s total revenue of $954 million.

This “[illustrates] how powerful podcasting is as both a short-term and long-term growth engine for the company,” Bob Pittman, chairman and CEO of iHeartMedia, said in an earnings call on Tuesday morning. “In the second quarter, podcasting was by far the best performing segment of the advertising marketplace.”

Revenue at the Sweden-based podcast marketplace Acast grew 22% year over year in Q2 2023 with net sales amounting to about $36 million (non-ad revenues – including SaaS and subscription revenue – make up about 10% of net sales). Organic revenue – or revenue not coming from recent acquisitions or divestments – grew 15% quarter over quarter, Acast CEO Ross Adams said in an earnings call on August 3. 

Acast’s total growth was driven primarily by the North American market, which experienced revenue growth of 31% year over year to about $10 million. (Adams moved to the U.S. a year ago to focus on growing Acast’s business in this market.)

Though Spotify did not break out how much revenue it made from its podcast business alone, its earnings showed podcast advertising revenue growth “re-accelerated” to more than 30% year over year. That’s compared to podcast revenue growth of less than 20% year over year in Q1 2023. Total ad-supported revenue at Spotify, including its music business, grew 12% year over year to $404 million.

Podcast revenue growth came from “better sellout rates in general,” according to Spotify CFO Paul Vogel during the company’s earnings call on July 25. “In terms of year-over-year growth rates, the best month was the last month of the quarter for us from a podcasting perspective.”

Spotify’s podcast ad network SPAN “was a big driver of the outperformance. It definitely helped podcast ad revenue. Podcast ad revenue got better throughout the quarter as well in terms of growth rate,” Vogel added.

Spotify’s CEO Daniel Ek said decisions to sunset original podcast shows that were under-performing – based on user acquisition, retention, conversions and subscriber data – also helped to grow its podcast business.

“Not surprisingly, what we’re finding is that some of these shows work really well with our audience. Some of them don’t work well. Some of them work well, but during a different cost structure as we probably overpaid relative to what we should have done. And so we’re coming at this with the process of rightsizing some deals, doubling down on some of the things that worked really nicely and then stepping out of some deals and relationships that [haven’t] worked out,” Ek said.

Opportunities with generative AI

Media company executives touted generative AI technology for content production or cost savings opportunities amid disappointing advertising revenue in Q4 2022 and Q1 2023 earnings calls. Audio companies are now also jumping on the bandwagon, outlining some plans for AI tools with shareholders.

Spotify’s Ek said there are three major applications to generative AI technology, including improving discovery, engagement and retention, as well as helping to generate podcast show summaries, he said during the July earnings call. (In February, Spotify debuted an “AI DJ,” which learns a user’s music taste to create a personalized playlist.)

Ek also shared how he believes generative AI can help podcast ad buyers “significantly reduce the cost that it takes [to] develop new ad formats” by using the technology to test and create thousands of ad creatives across Spotify’s network.

In the second quarter, Acast launched Collections+, an AI-powered tool that pulls podcast and listener data from a range of sources, including Podchaser, which Acast acquired a year ago. The tool sorts podcasts into sales verticals to help with targeting listeners across different podcasts.

iHeart’s executives did not mention generative AI in their earnings call.

Q3 outlook

iHeart expects revenue from its Digital Audio Group, which includes its podcast business, to be up in the mid-single digits in the third quarter of 2023.

“We continue to see improvements in the advertising marketplace and believe that… our digital audio revenues will continue to grow in the second half of 2023,” Rich Bressler, president, COO and CFO of iHeartMedia, said in the earnings call on Tuesday. He pointed to “improving trends” in the first half of 2023 and the growth of political advertising ahead of the upcoming presidential election as reasons to believe that “this advertising marketplace recovery continues” and that the company expects to “have a strong 2024.” 

Spotify is projecting a gross margin increase of 26% in Q3 2023 (up from 24% in Q2), “primarily driven by [year-over-year] improvement in podcasting and other cost of revenue,” according to the company’s Q2 earnings report.

In Q3, Acast will continue to focus on the U.S. market, as well as roll out more automation tools for podcast ad buying, Adams said.

While Emily Villatte, CFO and deputy CEO at Acast, declined to share Q3 guidance with shareholders in the earnings call, she did say the company was seeing “very positive indications in North America… We’re continuously monitoring developments closely.”

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