Less BS, More Facts, Some Opinions
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iHeartMedia is cutting its office square footage by half across the U.S. The company does not plan to close offices in any of the 160 markets where it has a presence.
The company declined to share how much office space it currently pays for or a timeline for when this process will be completed. An iHeartMedia spokesperson said the reduction began as early as 2019.
A “huge portion” of the media and internet companies tracked by Craig Huber, media analyst and founder of research and advisory firm Huber Research Partners, has reduced their real estate footprint to save on costs in the past two years, he said. Many are getting out of leases or subleasing excess real estate.
While overall real estate costs at iHeartMedia have declined with a reduced real estate footprint, “much” of this money is being reallocated to hire more people, to develop more projects and build out technology at iHeartMedia, said iHeartMedia CEO Bob Pittman. “It’s a reallocation of expenses to where we will get our growth,” he said.
Pittman declined to share how much money these changes will save the company overall. iHeartMedia had $63 million of free cash flow in the third quarter, and “when including the proceeds from real estate sales” its adjusted free cash flow was $70 million, said Rich Bressler, iHeartMedia president, COO and CFO, in a Q3 company earnings call.
iHeartMedia’s revenue in Q3 was $989 million, up 7% year-over-year. Consolidated adjusted EBITDA was $252 million last quarter, an increase of 10% year-over-year. The company has around 10,000 employees.
“For organizations that have a growing remote workforce with employees spread across the U.S., cutting back on real estate is a very valid strategy. Downsizing office space will save the organization money that can be invested in other areas of the business including the workforce,” Terri McClements, PwC’s senior partner and DEI consulting leader, said in an email. In a recent PwC study, real estate professionals said 10-20% of office real estate may need to be removed or repurposed next year.
Real estate is “certainly a place that [management teams] are looking at to save costs… as a lot of people are embracing the hybrid work model” Huber said. The downside of this process is the impact it may have on company culture.
However, the changes at iHeartMedia are an effort to improve culture and collaboration, Pittman said.
The philosophy at the company, Pittman explained, is that the office should be a “productivity tool and should be used when we need collaboration, ideation and culture building.” Meanwhile, individual tasks like answering emails can often be done effectively from home, he said.
All live studios and recording studios in New York City have moved into the same building as iHeartMedia’s corporate offices, for example.
“The enemies of collaboration are walls and siloed locations. The more we can mix together the people who work together by location within an office, the more naturally the collaboration comes and the more freely new ideas will flow,” Pittman said.
The process of reconfiguring iHeartMedia’s office space began before the pandemic, moving to an open plan with fewer individual offices and more meeting rooms. When the pandemic hit, “we increased the pace of these office design changes, because with this new work environment it’s clear that we needed to make the offices reflect the needs of our employees, and old [and] traditional office design hampered them as opposed to helped them,” Pittman said.
Meeting rooms also host teleconferences, Pittman said – which has become the way teams often communicate between people working from the office and those at home. While many employees don’t have a permanent office space because they are not coming in everyday, there is enough space for all employees when they do come into the office, Pittman said.
iHeartMedia does not have a “one-size fits all policy” when it comes to its work model, he said, depending on the needs of the employees and the projects they’re working on. Some weeks an employee may need to come in every day to work with their team, and some weeks they may not need to come in at all, Pittman said.
The share of real estate costs on a company’s overall operational budget varies significantly at different companies, Huber said. The largest expense is labor, which on average makes up over 60% of a typical company’s cost base, he said. Rental agreements can account for an average of up to 5% of a large company’s total operating budget, such as in the case of Fortune 500 companies, said Marisha Clinton, senior director of Northeast regional research at real estate company Savills.
Warner Bros Discovery, BuzzFeed and Dotdash Meredith have subleased hundreds of thousands of square feet in Manhattan this year. Vox Media is reorganizing its office space to “reprogram” unused space, a company spokesperson said in September. However, leasing activity has slowed this quarter, Clinton said. Savills closed on 16 leasing deals in Manhattan over 100,000 square feet in the third quarter. This quarter there have only been two deals so far, down from 12 deals in Q4 2021, she said.
“Given the uncertainty that we’re facing in the economy, there’s definitely more of a wait-and-see approach… to real estate decisions,” Clinton said.
The end of the year is always a mad dash to finish work ahead of the holidays — and this year is no exception.
Getting back into work in early January, it can be difficult to remember what everyone was talking about before the family festivities (and drama). To make sure we’d have a good sense of what marketers expect to focus on in the New Year, we spoke with CMOs about the big topics they expect to focus on in 2023.
“We’re settling into a ‘new abnormal,’ where virtual and real worlds collide every day,” said Mastercard CMO Raja Rajamannar. “This is the undercurrent for the trends I’m watching.”
Rajamannar continued: “AR is on the rise. Even though VR seemed to be the buzzier ‘reality’ in recent years, AR technology has been gaining more and more traction. This is likely because there are more tangible use cases. Plus, the ability to use an existing device instead of an expensive headset makes it easier to access and lends itself to faster adoption.”
“Importance of communities is something that I think about a lot,” said Zola CMO Victoria Vaynberg. “For Zola we started our in-app and now on-web community at the start of the year. We have thousands of active couples in there. Outside of our business, when you think about what Web3 worlds are really about it’s ultimately communities.”
Vaynberg added that allowing for community to be built on brand properties not only fosters connections with people who share the same interests but gives the brand more insight into the community they serve.
“It’s a great tool but also a great listening tool for us to hear about what couples want whether it’s product feedback or cultural insights or how weddings are changing,” said Vaynberg. “It’s really important to get as close to the consumer as possible. Community as a whole is a top priority for me.”
Zola isn’t alone in using its own insights to find ways to boost brand growth. The National Hockey League is also turning to its own data to find ways to grow its audience.
“We’re focused on growing and knowing our fans,” said NHL CMO Heidi Browning. “From a growth perspective, we’re focused on expanding and diversifying our fanbase, with a focus on female, multicultural and younger audiences. To grow, we need to know more about our current fans. We’re aggregating, analyzing and activating based on insights derived from first and zero-party fan data.”
Finding ways to make sure customers will return is critical any time but especially during a more difficult economy. It’s no surprise then that going beyond the usual retention strategies will likely be common for brands next year.
“We’re going to focus heavily on retention and re-engagement,” said Lia Haberman, CMO of Fit Body App. “Our previous efforts to reduce churn were pretty standard automated efforts: cancellation surveys, win-back campaigns, exit incentives, etc. Now, we’re actively reaching out and trying to retain every subscriber looking to cancel. We’re digging in to understand why they’re leaving and then offering them a personalized incentive to stay. In this economy, you want to work to retain or win back every single customer.”
In recent years, brands have spoken out and taken stands about various issues more and more. Marketers expect that to continue to be a focus in 2023, albeit the issues will likely be more closely tied to the brand’s lane.
“We’ve been very vocal about the Respect for Marriage Act,” said Zola’s Vaynberg. “It’s important for brands to know their lane. I don’t think it’s your job to comment on everything that’s going on in the world but for us we have clear company values and brand values. Continuing to use the leverage we can to support what we know is right will continue to be an area of focus.”
This week’s Future of TV Briefing looks at the potential implications of pod bidding for streaming advertising — whenever streaming ad buyers and sellers start to support it.
The key hits:
Seventy-four pages into IAB Tech Lab’s OpenRTB 2.6 document lies buried a potential solution to the streaming advertising market’s emerging ad load problem.
Once implemented by streaming services, adopted by advertisers and supported by demand- and supply-side platforms, this fix could thread the needle between maximizing ad revenue and minimizing ad exposures at a time when the economics of streaming is pressing services to reconsider their low ad loads that have helped them to attract ad-supported audiences but capped their ad revenue.
“It’s going to provide a lever to get that nice balance between monetization and engagement of content upfront,” said Adam Markey, director of product management at Roku.
In April, IAB Tech Lab released an updated version of its OpenRTB protocol governing the processes for the programmatic buying and selling of ads. As incremental as a x.6 update typically is, this one included support for pod bidding. As detailed in the explainer video below, pod bidding would not only permit advertisers to bid to have the first or last ads airing in an multi-ad break (called a “pod”) but also would allow streaming services to dynamically divvy up their ad breaks in a way that could enable them to maximize ad revenue without expanding ad volume.
“It really enables this new universe for publishers — I would call it like TV on steroids,” said Amit Nigam, vp of product at sell-side ad server Beachfront.
“It’s conceivable that, in addition to having a target revenue per pod, you could have a target revenue for the entire stream. And if you manage to make your target revenue within the first one or two pods, that you could decide to skip the rest of them,” said Rob Hazan, senior director of product at supply-side platform provider Index Exchange. “All of these options and trade-offs between monetization and end-user experience are now possible.”
Ad load implications
Let’s rewind a bit to break down why cherry-picking ad placements and flexing ad pod compositions seem to have such big implications for the streaming ad market.
For starters, not all ad slots are created equal. “It’s known that on linear and on [streaming] the first and last slots are more premium positions,” said an agency executive. That premium pedigree stems from the fact that these ads are more likely to be seen by audiences because they are placed closer to the content that a viewer is actually intending to watch. As a result, being able to programmatically sell the first and last ad slots separately through pod bidding means that streaming services would be able to set higher prices for those positions.
Then there is the option to specify whether a pod is the first or last pod in an episode or video — similarly premium positions — combined with the ability for streaming services to construct dynamic pods. While a service would need to set a fixed length for the pod, they can adjust the makeup of the pod on the fly in accordance with advertiser demand.
As an example, let’s say that a lot of advertisers are bidding to have their ads air in the first pod, which is two minutes long and configured to carry four 30-second ads. If it’s set up as a dynamic pod, the streamer could reconfigure it to carry two 30-second ads — one in the first slot and the other in the last — and break up that middle minute into four 15-second ad slots if doing so would accommodate more advertisers and accrue more ad revenue.
“It’s the best of both worlds. I should be realizing higher CPMs for these two spots because they’re just more valuable and then, [for] everything else in the middle, I can get what I want out of it,” said Nigam.
What that boils down to is that a streaming service could use pod bidding to set a target ad revenue threshold for a piece of content, like an episode; manage the makeup of its pods as well as the number of pods needed to hit that mark; and then potentially remove ad breaks once that target revenue number has been reached in order to avoid annoying audiences by overloading them with ads.
“That’s a very exciting aspect where you’re going to see dynamic monetization from the sell side where we’re going to be optimizing to the best experience as well as trying to achieve the maximum CPM,” said Markey.
Adoption status
At this point, you may be wondering what’s the catch. IAB Tech Lab released support for pod bidding eight months ago, but for all the enthusiasm and excitement evinced above, all these executives are talking about it in the subjunctive tense as if it’s some Web3 technology waiting to become a reality. And that’s because it kind of is.
“I’ve had no SSPs, no DSPs, no publishers even come to me and say, ‘Hey, this opens up a new path for better CTV,’” said Mike Fisher, vp of advanced TV and audio at media agency Essence, which is part of WPP’s GroupM.
“I think there would be interest [in pod bidding]. It’s just that not a lot of people know about it from the buy side,” said an agency executive. “And then obviously it has not been adopted from the sell side. There’s no capability right now for buyers to do this until it’s adopted on the sell side.”
Support plans
That’s starting to change, though.
Roku — which not only owns a connected TV platform but also operates its own ad-supported streaming service The Roku Channel as well as demand-side platform OneView — is internally working on adding support for pod bidding. But Markey declined to provide a timeline for when the company expects to roll it out.
Meanwhile, Index Exchange is currently testing pod bidding in its ad exchange and plans to “deploy podded requests across as much supply as possible in Q1 2023,” said Hazan. He added, “We’ll continue to test and monitor buy-side adoption to determine when to start sending podded requests to DSPs.”
Tremor International’s Tremor Video DSP and Unruly SSP currently support bidding on the first slot in a pod and plan to roll out full support for OpenRTB 2.6 in the first quarter of 2023, according to a company spokesperson.
And Beachfront already supports pod bidding in its Unified Decisioning ad management product and plans to add support for pod bidding in its SSP in early Q1 2023. “The adoption levels are low, but the interest levels are definitely higher than average,” said Nigam.
“We have 3 million subscribers on Snapchat Discover, but revenue-wise, it’s nothing. It doesn’t cover the cost of publishing. At this point, it costs us money to publish on Snap.”
— Entertainment executive
34%: Percentage share of immigrant characters on TV who were Latino as of June of this year, shy of the 44% real-world share for U.S. immigrants.
$1,200: Maximum amount of money an Instagram Reels creator could earn in the past month after their cap had been $8,500 in October.
49%: Percentage share of top news publishers that regularly post videos to TikTok.
IAB’s David Cohen teases updates to trade group’s standard terms and conditions:
Listen to the latest Digiday Podcast here.
Why broadcast and streaming TV are key to Modelo’s World Cup strategy:
Read more about Modelo’s TV and streaming ad strategy here.
Publishers prime their YouTube Shorts strategies ahead of next year’s revenue-sharing program:
Read more about publishers’ YouTube Shorts strategies here.
How The Wall Street Journal hopes to reach young news consumers on TikTok:
Read more about The Wall Street Journal’s TikTok operation here.
Twitch streamers burn out:
Twitch streamers are pulling back from the platform after overexerting themselves by trying to attain and retain large audiences on the Amazon-owned livestreaming platform that incentivizes streamers to spend a lot of time on Twitch, according to Every.
Esports orgs flame out:
Esports has yet to live up to its promise as the next major sports category — at least financially — and the economic downturn and crypto crash are exacerbating esports’ money woes, according to Bloomberg.
David Zaslav calls out Netflix:
Warner Bros. Discovery’s CEO is bucking up against Netflix’s infamously unfavorable payment terms with producers and has told the company’s teams to temporarily hold off on selling shows to the rival streamer, according to Deadline.
If 2022 is the year of commerce media, then 2023 might be the year commerce media ups its game to break down internal silos and improve its measurement.
IPG’s UM has quietly been active in the shopper marketing space since 2013, forming UM Shopper with one employee: Amie Owen. The media agency is now morphing the unit into UM Commerce, a reflection of the growth in commerce media that has spurred its media spend growth from $125 million in 2019 (before the pandemic) to around $1 billion today.
Owen, officially head of commerce at UM, now oversees a staff of about 50, and attributes three things to creating the right market conditions to evolve into UM Commerce:
* Technology advances such as the re-emergence of QR codes and out-of-stock technologies
* Consumer habit changes spurred on by the Covid pandemic
* A better data trail to track the consumer journey, including access to Acxiom data
“Those three things really coming together enabled us to really accelerate what we’ve been doing in the space for over a decade,” said Owen. “All different facets of technology really created a different way to shop [and generate] discoverability from a consumer standpoint.”
Owen pointed to internal changes including improved access to data giant Acxiom, which IPG owns, as well as the formation of an internal council that includes representatives from all corners of the holding company, including Kinesso and Matterkind, two tech companies that help agencies access Acxiom’s data more efficiently. Other council participants include performance agency Reprise, IPG’s content studio, IPG Media Lab and cross-agency strategists.
“The council empowers us, as much as we’re empowering the greater picture to make a really big integrated story,” said Owen, who noted the importance of breaking down internal silos for more effective work. “We brought it all together for a one-stop shop for our clients.”
Those clients include EJ Gallo Winery, Johnson & Johnson, bug repellent Thermacell and candy firm Storck, among others.
“The UM Commerce team not only evaluates who to reach and with what message, but also considers when we should reach them, and going a step further, where we should drive them when they engage with our ads,” said Lila Gilstein, integrated media manager at E&J Gallo Winery. “This allows us to reach our consumers when they are in the shopping mindset, and when we want to ensure a seamless consumer experience.”
“Our onboarding with UM served as a fast track to engage in the retail commerce space,” added Kelly Cook, Storck’s president. “We’ve been able to increase our investment across key retailers’ media networks to strategically meet our shoppers in new and relevant ways. Whether our consumers are seeking us at a given moment or not, we’re reaching them in relevant ways and increasing basket sizes to drive candy purchases.”
The news of UM’s commerce expansion doesn’t surprise Jeffrey Bustos, vp of programmatic+data center at the IAB, given the broader elements that are powering commerce media’s growth.
“We’ve seen significant growth in the activation and targeting across retail media networks and we’re continuing to see the emergence a lot of new retail media networks,” said Bustos who declined to comment specifically on UM Commerce’s evolution but spoke of what to expect next year.
“What we expect to see in 2023 is that there is going to be a significant shift in measurement and efficiencies that retail media are driving,” he added. “The focus next year is going to be on the ability to get to viewability standards and look at cross-retailer performance.”
Attribution to viewability, understanding attribution windows and understanding the attribution difference between a click vs. an impression in retail media are three areas Bustos feels need improvement across the commerce media spectrum.
Although Owen points to the decade UM has been in the shopper, and now commerce media business, it’s clear the media agency world is taking this exploding area of media seriously, including Omnicom and independents alike.
And why not? As Chad Engelgau, Acxiom’s CEO, told Digiday last week, everything’s becoming an ad network.
Looking ahead, the IAB Europe’s chief economist Daniel Knapp is cautiously optimistic about the ad industry’s prospects next year despite headwinds from a hampered economy outlook. There are, however, caveats. Ongoing inflation, higher interest rates and lower stock prices to name a few. So while this year has been a rollercoaster, Knapp doesn’t expect the next one to be any less bumpy.
Digiday caught up with Knapp to dig deeper into his outlook for ad spending 2023, the factors that have shaped it, and how it all could net out.
This conversation has been edited for length and clarity.
Knapp’s outlook on 2023 is as pragmatic as it gets. Indeed, it’s somewhere between the more downbeat forecasts doing the rounds from the likes of Arete and the more upbeat ones from the agency holding groups. That’s the only way to describe a forecast that expects digital ad spending in Europe to grow by 2.4% next year. In short, things are going to get worse before they get better for the industry. “I would love to be proven wrong,” said Knapp.
“But as it stands I can’t see any factors that would allow us to say something else,” he continued. “There will always be pockets of growth, whether that’s spending from luxury rises or as a result of net new money moving into areas like retail media, but the impact of all of these won’t be equally felt.”
In other words, all this slowdown is really going to do — at least in the short to medium term — is stretch the gap between the haves and the haves-nots. That’s why Knapp is conservative but not dystopian in his outlook for ad spending next year. “If you tally up the factors there are more negatives than positives in the short term.”
That’s about the gist of it. There are just way too many structural issues to think otherwise. From a slowdown in advertising from SMEs who have matured to the e-commerce boom of recent years crashing into reality, a tech correction from growth to profitability to the crypto market crash, a lot of ad dollars are being redirected, paused or cut entirely, said Knapp. And that’s before the bigger, macroeconomic issues are factored into things. The energy crisis has knocked Europe’s ability to compete in manufacturing and ratched up concerns around deindustrialization, Knapp added. Hampered with overwhelming fiscal and employment pressures, the continent is wrestling with unprecedented inflation and economic recession, he continued. Look to the changing fortunes of the platforms for proof, said Knapp.
“If you look at the growth of Meta’s revenues in the last quarter, a higher proportion of its revenue came from APAC than Europe for the first time ever,” said the economist. “Future growth for this industry is going to come from countries like India, Indonesia and Brazil where there are large populations, with rising middle class societies.”
Yes. Don’t be surprised to see the creaking, ads behemoths of the big platforms turn their attention away from Europe. Rather than continue to try and milk the region of revenue through layers and layers of services, they’re going to focus on places where organic reach isn’t so costly. “These markets are still experiencing some of the structural issues that have slowed down advertising in western markets, but they are nowhere near as pronounced,” said Knapp.
In some ways that’s correct, said Knapp. The ad spending surge over the last two years is a case in point. But ad dollars and the economy have never been completely divorced. It was just a matter of time before the two crossed paths again. The same thing happened back at the climax of the subprime mortgage crisis in 2008. Despite the financial crash, the ad market was still positive, said Knapp. The advertising crash only happened later in 2009 he added.
“It’s a drama foretold that we will start in the second and third quarters of 2022,” said Knapp.
It’s one of the more interesting sub narratives of this tumultuous period: the shift in momentum among the biggest platforms. Google and Meta aren’t going anywhere, of course. Nevertheless, the momentum in ad spending isn’t necessarily in those businesses anymore, said Knapp.
He expanded on the point: “We’re moving into a world where the players to succeed will be the ones who can provide full funnel solutions with their own first-party data and subsequently measure the effects of advertising on their own platforms.”
Simply put, the growth engines of online advertising, or scaled web 2.0 platforms, from video platforms to social networks are reaching the end of the line. They’re not outperforming total digital ad growth anymore, said Knapp. This was always going to happen. Big, maturing economies don’t grow fast. But the signal loss caused by Apple’s privacy policy and a slowdown in e-commerce sales have brought the inevitable ad slowdown in ad spending into sharper focus, said Knapp.
“There’s a changing of the guard when it comes to the ad market based on overall economic growth but also due to rising consumer classes,” said Knapp.
Unlike the last growth cycle, success in online advertising won’t be predicated on having enough scale in media and audiences. It will also be what media owners control or have a disproportionate influence over the pipes that help monetize content and the viewers of it. It’s why there’s such a scramble to monopolize the behind around online advertising through product development, M&A and partnerships.
“Those companies who don’t do this will lose out,” said Knapp. “It’s going to be a world of exclusivity.”