iheartmedia An Analysis of a Stable Company That Could Use Improvements Kristen Doverspike, Kaitlyn Partington, Marla Scacchitti, Cyree Sutton-Ames

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1 iheartmedia An Analysis of a Stable Company That Could Use Improvements Kristen Doverspike, Kaitlyn Partington, Marla Scacchitti, Cyree Sutton-Ames DCOM 261 E-Business Strategy Professor Kline 5/9/16

2 2 iheartmedia, a Fortune 500 company, offers a collection of radio selections and podcasts, hosts concerts and award shows, and handles an outdoor advertising agency. iheartradio, the Internet radio subsidiary of the company and the most well-known of iheartmedia s offerings, competes against other top radio stations like Spotify, Pandora, and itunes Radio as well as other concert-centric companies like Live Nation Entertainment. As the digital music world continues to grow, iheartmedia must think of ways to stay contemporary. Various analyses reveal that iheartmedia, although it has a strong consumer base and a unique radio service, could improve in a number of ways in order to give it a competitive advantage in its market spaces. PESTEL Analysis A PESTEL analysis of iheartmedia shows that the company has placed itself in competitive environments that are stable, but limited. Based on the locations that they have chosen, iheartmedia has taken a safe route toward success. They are reaching their target audience while reducing the impact of external factors that they face in relation to where they choose to expand. Political iheartmedia is a publicly traded company on the New York Stock Exchange with its headquarters in San Antonio, Texas. According to Drenkard and Henchman from Tax Foundation (2015), Texas is ranked 10th as one of the best states for corporate tax environments. Therefore, in terms of financial foundation, iheartmedia has set itself up for success with the backing of stockholders and a corporate-friendly taxation system.

3 3 iheartradio is accessible in the United States, Australia and New Zealand, which are all countries with political stability. The United States is a democracy, Australia is a federal parliamentary democracy, and New Zealand is a parliamentary democracy. As a result of government stability where they are located, the laws and restrictions allow for growth of the company. All three countries face some regulations on business, but it is relatively easier to start a business in those countries. These countries offer many resources and financial assistance for companies looking to enter their marketplaces. Economic Economic factors also do not have a huge impact on iheartmedia, as the company has placed itself in stable economies. According to Trading Economics, the United States has an economic growth rate of 1.4%, an unemployment rate of 5%, and an inflation rate of 1%. These numbers suggest that iheartmedia can enter into the economy knowing that there are people who can afford their product. It also suggests that, due to economic growth, there should be more employment opportunities within the company. Overall, basing the iheartmedia headquarters in the United States puts the company in a stable economy to build a strong foundation for business. A similar, stable economy is also present in Australia, where the economic growth rate is 3%, unemployment is 6%, and inflation rate is 1.7% according to the Reserve Bank of Australia. The economic growth rate in Australia is higher than that of the U.S., suggesting that business could do well there. New Zealand does not have as strong of a growth rate and has an unemployment rate that is slightly higher than Australia. Compared to other countries, however, it is still a stable

4 4 economy. The World Factbook states that New Zealand s economic growth rate is.28%, the unemployment rate is 6.1%, and the inflation rate is.9%. Overall, all three locations where iheartmedia does the majority of its business are not strongly impacted by economic factors. They have stable economies and can potentially promote the growth of the iheartmedia. Social For iheartradio, social factors are very important to consider, as the radio stations and genres of music that are offered should reflect the demographics that they are serving. In each of the three countries where iheartradio is present, the demographics vary, so it is important to break down social aspects by ethnicity, age distribution, population growth rate and level of education. According to The World Factbook, the United States the ethnic breakdown is 77.4% Caucasian, 13.2% African American, 1.2% American Indian and Alaska native, 5.4% Asian, and 17.4% Hispanic. In this melting pot country, it is important to provide music that likens to all ethnic backgrounds. When it comes to age distribution, 23.1% of citizens are under 18 and 14.5% are over the age of 65. These statistics are then coupled with a population growth rate of 0.78% per year (The World Factbook, 2016). The under 18 age range is an important group for iheartradio to target. Potential consumers may start choosing which streaming service they want to use in their teens, which is a prime time to acquire new users. Also, many Americans are educated; 86.3% get their high school degrees and 29.3% earn bachelor s degrees. These statistics suggest that an understanding of technology is present in the U.S. and that many people are likely to make educated decisions about which company they choose.

5 5 Australia has a less diverse ethnic demographic with 92% Caucasian, 7% Asian, and 1% Other (The World Factbook, 2016). 31.3% of the country s population is under the age of 24, and 15.1% are over 65 (The World Factbook, 2016). The population is growing at a rate of 1.4% (The World Factbook, 2016). Again, a younger demographic represents a large portion of the country, and it is a very important age group for iheartmedia to consider in decision making. Australia is almost 99% literate, so iheartmedia is dealing with an educated population which makes selling their products easier. New Zealand s demographics are slightly more diverse than Australia s, with 71.2% European, 14.1% Maori, 11.3% Asian, and 7.6% Pacific people (The World Factbook, 2016). Citizens under the age of 24 represents 19.87% of the population, but the overall population is growing at a slower rate of 0.82% (The World Factbook, 2016). Studies have shown that the majority of New Zealand s youth stay in school until 19 years old, so their population is welleducated (The World Factbook, 2016). All three countries in which iheartmedia does business show a breadth of potential new users that are ready to make an educated decision about which Internet radio streaming service they would like to use. Technological iheartradio provides both streaming and live radio music access online. Users can listen to iheartradio on smartphones, tablets, computers, home entertainment systems these include Xbox, Amazon Fire TV, Chromecast, smart TVs, and more and in select automobiles. Because iheartradio relies on loyal listeners, it has to adjust its services as new technologies emerge in order to keep up with the trends of its users. The company has proven to stay ahead of technological trends, and it most recently moved into the automobile market. According to

6 6 iheartmedia, car systems with Internet radio access introduce a technological factor, as they operate through smartphones that have Internet access with either a data plan or in-car wifi. iheartradio has quickly adjusted to this new technology through its smartphone app, iheartradio for Auto, which can be downloaded on both Apple and Android devices. Other technological factors to take into consideration include Internet speeds for streaming and the maintenance of the software that is needed to keep the service running. Other than that, iheartmedia s main concerns lie in keeping their services up-to-date with the latest technology devices to make sure that their radio service can be used with any device that has Internet access. Environmental Unlike satellite radio services, iheartradio is not affected by weather conditions. As a result, iheartradio does not have any vital environmental factors. However, iheartmedia s outdoor advertising company, Clear Channel Outdoor, must abide by certain environmental regulations. Clear Channel Outdoor offers brands advertising services in digital and print, through mediums that include billboards, public spaces such as malls and airports, and various street advertising. According to iheartmedia, Clear Channel Outdoor has clients in 49 of the top 50 designated market areas in the United States and in 30 other countries as well. Due to this global reach, iheartmedia has to take into consideration the environmental regulations in each of its locations. In the U.S., this includes adhering to the Highway Beautification Act and staying within the certain spacing and sizing regulations of the area. Additionally, as with any outdoor advertising company, Clear Channel Outdoor is affected by environmental factors such as storms and other adverse weather conditions.

7 7 Legal iheartradio works in conjunction with The American Society of Composers, Authors, and Publishers (ASCAP) to protect music composers intellectual property. According to the ASCAP, they operate to ensure that all artists get treated fairly to receive copyright protection and royalty payments. iheartradio, along with all Internet radio providers, must maintain licenses to legally broadcast music and must pay royalty fees to the artists whose music they play. The Copyright Royalty Board determines these fees, and iheartradio must adhere to and keep up with the regulations set by the board. The Federal Communications Commission, or the FCC, is a U.S. government agency that regulates national and international communications through radio, television, satellite, cable, and wire. As such, iheartradio conforms to the regulations that the FCC mandates. Any violations of FCC rules will result in immediate legal action, so iheartradio has to be conscientious of what their stations are broadcasting in terms of music, content, and commercials. The latest reported FCC violation by iheartmedia was in regard to transmitting Emergency Alert Notification codes on a live radio station in The EAN code was aired without any authorization or real emergency present, so iheartmedia faced a $1,000,000 fine and admitted their fault (FCC). These are the types of violations that affect iheartmedia, and as a result, the company must constantly monitor and adhere to the legality of streaming music and audio. SWOT Analysis iheartmedia, although it proves to have many strengths and opportunities, has to face both threats and competition within its market space. A SWOT analysis will describe and

8 8 analyze iheartmedia s platform and value proposition in terms of its strengths, weaknesses, opportunities, and threats in order to reveal what could be improved upon within all aspects of the company. Strengths iheartmedia is primarily known for iheartradio, but it also offers many additional services. Along with their radio streaming services, iheartmedia offers news, talk, and sports information and updates, as well as operates an outdoor advertising company. The company s ability to function across multiple platforms also creates and promotes the element of global reach and ubiquitous capabilities. According to iheartmedia, it currently offers 858 broadcasting radio stations and over 2,000 live radio stations for its users to access. This company allows users to create their own playlists to access anytime and anywhere. Another positive result of the ubiquitous reach of this company is the ability to promote this company. iheartmedia has a strong marketing and advertising campaign due to the different services it has to offer. They utilize digital on-air advertisements, digital ads, and mobile ads. They also hold a great deal of live events that help promote their radio service. Weaknesses Although iheartmedia is an up-and-coming company, it is not as strong as it seems. The music streaming market space is extremely competitive, with competitors that include itunes, Spotify, and Pandora. One of the major weaknesses of iheartmedia is the lack of strength in their brand. The ability to create a competitive advantage in the music streaming service is difficult, because every company is offering a similar service, and more often than not, users will lean toward using well-known companies instead of trying out a new service. That being

9 9 said, iheartmedia is beginning to offer additional services such as their outdoor holdings and concerts to attract new customers. Although this can be seen as an advantage, it is a financial weakness. At this point in time, iheartmedia is not financially struggling, but their profits are not at sufficient level to be considered overly successful. Opportunities This company has great opportunities associated with its wide range of services. Currently, iheartmedia has created valuable partnerships with Samsung, LG Smart ThinQ Hub, AppleTV, and Firefox OX for Panasonic TVs and DTs. They also have a partnership with Build A Bear Workshop to create a storytelling app to incorporate family values and customers. Although its competitors are fierce, iheartmedia is able to expand its company by enhancing and promoting its new event offerings of outdoor holdings. Although these holdings cost the company a large chunk of money, they have been very successful attracting new users and creating a trust and loyalty to the brand. Business Wire reveals that the number of registered users for iheartmedia has exceeded 71 million, with an average increase of 40% from year to year. iheartmedia also has a partnership with the Universal Music Group (UMG), which is allowing this company to bring virtual reality performances to the United States. This new partnership will afford an opportunity of a new networking effect to connect artists and consumers. While the music streaming industry has been historically focused on providing its users with songs and the ability to create playlists, iheartmedia is trying expand its user base by offering additional services that afford users to purchase tickets to concerts and iheart Media holdings where the music genre is shuffled and never boring.

10 10 Threats As previously stated, iheartmedia has immersed itself in a very competitive market. The streaming industry is currently dominated by radio streaming services such as Spotify, Pandora, and itunes. These companies have brand loyalty and continue to expand their offerings from music downloads to live video streaming. iheartmedia is currently working on a competitive advantage through virtual reality and various partnerships, but at this point, the financial revenue and profits are not at a sufficient level to make the company better off. iheartmedia is actively trying to combat its weaknesses through new partnerships and offerings. Porter s Five Forces A Porter s Five Forces analysis considers the threats of rivals, new entrants, substitutes, buyer power, and supplier power to determine a company s place in an industry. Overall, iheartradio does not face too many threats in the streaming service industry. Rivals within the industry (High) Within the broadcast radio industry, the threat of rivals it is medium to high, as there are many competitors that iheartradio goes up against. Some big name competitors that iheartradio competes with are Spotify, Pandora, Apple Music and others. Apple Music has approximately 11 million paid subscribers, Pandora has about 70 million subscribers, Spotify has 30 million subscribers and iheartradio has approximately 80 million users. iheartradio is the leading provider of the streaming music, and it has a competitive number of stations that customers can listen to either on the web or through mobile apps. The iheartradio platform is unique in the streaming world in that it leverages the content of the 858 terrestrial radio stations owned by its parent company, iheartmedia.

11 11 iheartradio allows users, unlike Pandora, to access not just music but also the human commentary and personality that accommodates it on whatever local station the user wants to listen to regardless of the geographic location of the user. Also, all of iheartradio s offerings are free, which has likely contributed to its massive user base. This model sets it apart from the freemium and subscription services of Spotify, Apple Music, Tidal and Pandora. Threat of New entry (Low) The threat of new entrants is relatively low. At this point in time, the music streaming market is very saturated, and big moves have already been made within the market, such as Apple buying Beats Music. Apple s acquisition, which created Apple Music, could potentially discourage new competitors entering the market, as they would have to create a new algorithm to beat out every existing competitor in the market. Also, new entrants would have to create an analysis of the market through Blue Ocean methods to enter the music streaming market, and if they try to go any other way, the entrants will be unsuccessful and only gain a small percentage of the market. Threat of Substitution (Low) The threat of substitutions for iheartradio is low. Potential substitutes include traditional FM and AM radio stations that are accessed in either cars or home stereos. Satellite stations, such as Sirius XM could also be used in iheartradio s place in automobiles. But the key difference between iheartradio and other stations is that users are able to access and customize 858 terrestrial stations to their liking. Therefore, the substitutes for iheartradio are very low and shouldn t pose a problem for the company. Bargaining Power of Buyers (Low)

12 12 The bargaining power of buyers is low, as the environment is completely controlled by iheartradio. iheartradio has nothing for buyers to buy; its entire platform is free. There is no subscription that the user has to go through and there is no premium version of iheartradio so therefore, the buyers have no options but to just use iheartradio with no fees or payments. Also, iheartradio sponsors a major music festival each year in Las Vegas, and tickets are sold through the iheartradio website or the iheartradio app. The company sets a price for the tickets, so the buyers have no bargaining power to change the prices in any way. Supplier Power (Low) The bargaining power of suppliers is quite low for iheartradio. iheartradio already has a sizable amount of content, artists, and radio stations, so the supplier power is low. The service allows users to listen to any station they want, and iheartradio does not have to be afraid of artists who can refuse to allow their entire catalogue of songs to be played on rival platforms. The radio service operates under the regulations of any other traditional radio service. Therefore, iheartradio has a competitive advantage within its ability to play all tracks from the latest albums of Taylor Swift, Adele, and others who would not allow their music to be played on other music streaming services such as Spotify. Additionally, iheartradio represents many of the most listened to U.S. radio stations, so it is able to get support from some of the biggest artists who play at the concerts that are sponsored by iheartradio. Some of their past performances were by Kanye West, Jennifer Lopez, Miley Cyrus, Drake, Katy Perry, Coldplay, Maroon 5, One Direction and Rihanna. Therefore, when the newest albums are able to be played on relatively any radio station, the user will be able to listen to them without any interference from the artists.

13 13 Recommendations Create a clear competitive advantage Overall, iheartmedia is successful given its status as a Fortune 500 company and its large user base. However, iheartmedia does not have a clear competitive advantage. They already have a structure that sets them apart from other radio streaming services. iheartmedia has live, local radio stations, which is unlike any other radio streaming service. The company needs to capitalize on this advantage, because for people who are accustomed to listening to a local radio station, they may enjoy the fact that iheartradio offers that station. For example, someone from New York City that is away at college will still have access to Z100, a New Yorkbased radio station. If a person is coming into work and wants to continue to listen to a station that they listened to during their commute, iheartradio can provide that option. Therefore, it is essential to have iheartradio continue to get in contact with local stations and ask them to join in on the iheartradio service. To increase effectiveness, iheartradio should ensure that local radio stations are a central focus, and they should enlarge their list of local radio offerings to create a stronger competitive advantage. Increasing Customer Loyalty iheartmedia has a huge following with an outstanding 80 million users, but they are not giving their users any consequences for leaving their service for another. It would cost a user absolutely nothing to switch from iheartradio to a different service such as Spotify, Pandora or Tidal. iheartmedia should incorporate giveaways to show their loyal customers that iheartmedia gives back to them. Their giveaways should include prizes, such as concert tickets based on specific artists that the users listen to the most. Having these types of giveaways will

14 14 create a switching cost for them. If a user is not on iheartmedia as a loyal user, he or she will not be included in the giveaways and will be losing the opportunity to get free tickets to their favorite artist s concert. Also, having these giveaways will give iheartmedia an extra component and competitive advantage over other companies, as this is something no other company has. Brand Strength iheartmedia is currently financially stable, but its brand strength is lacking. More often than not, people are not aware of the business hierarchy within iheartmedia. Many people associate iheartmedia with iheartradio, when in fact there are many additional services offered by this company. iheartmedia needs to capitalize the promotion of its services in a more distinct matter. When it comes to branding, the company needs to create a strong platform that promotes iheartmedia as its primary company and then target its subgroups of the radio, news, and advertising services. One key element in creating its brand strength will be consistency. iheartmedia must decide to stick with one key element or symbol and apply it to each of its services, instead of creating totally distinct and separate brands for the same company. The overall goal of strengthening iheartmedia s brand is to help promote its vast variety of services and opportunities for its users. These actions will hopefully attract more customers and increase popularity of this company, affording more revenue to accumulate overtime. Overall, iheartmedia is doing well. Its large iheartradio user base along with its successful outdoor advertising company have created a wide range of market spaces to enter. That being said, iheartmedia could use a stronger brand. Its radio service is unique, but the other subsidiaries are often unheard of due to a lack of strong branding. Strengthening

15 15 iheartmedia s brand while also creating a clear competitive advantage would place the company where it needs to be in order to come out on top in their prospective markets. Australian Economy Snapshot. (2016, May 4). Retrieved May 08, 2016, from Drenkard, S., & Henchman, J. (2014, October 28) State Business Tax Climate Index. Retrieved May 08, 2016, from The World Factbook. Australia-Oceania :: Australia. (2016, May 05). Retrieved May 08, 2016, from The World Factbook: New Zealand. (2016, May 05). Retrieved May 08, 2016, from The World Factbook: North America :: United States. (2016, May 05). Retrieved May 08, 2016, from United States Economic Forecasts Outlook. (n.d.). Retrieved May 08, 2016, from