iHeartMedia is a mass media company that owns iHeartRadio, which is a free broadcast and internet radio platform. iHeartMedia aggregates 850 local iHeart radio stations across the United States and it is the biggest US radio station owner. In 2008, iHeartMedia was taken private by Bain Capital and Thomas H. Lee Partners through an $18bn leveraged buyout. At this point in time, Spotify was only a small two-year old company and hundreds of millions of Americans listened to the radio. With the rise of rivals such as Spotify and Pandora, as well as the negative trend in terrestrial radio, IHeart has been struggling to generate enough revenue to pay its debt of $20 billion. According to a study by Musiconomics, terrestrial radio presence will largely vanish by 2027, and iHeart’s massive debt load points to this fact. iHeartMedia filed for Chapter 11 bankruptcy on May 15, 2018. The giant with 117,000 employees and 850 radio stations is currently going under a restructuring process led by Moelis & Company and LionTree Advisors.
The restructuring process will enable holders of iHeart’s term loan and other debt to get equity and warrants in the new company. Bain Capital and Thomas H. Lee Capital will own around 1% of the new common stock. The post-bankruptcy capital structure will include $5.7 billion in new secured debt and a new asset-backed loan. Apple Music is also in talks to acquire a stake in iHeartRadio.
Apple Music has been trying to compete with its rival Spotify, and the new move of looking to acquire a stake in iHeart could be Apple’s latest move to outplay Spotify. Apple Music has more than 50 million subscribers and free trial users which gives it a bigger market share in terms of users in the US compared to Spotify; however, Spotify is still the leader globally, with more than 80 million paying users around the world. This year, Apple acquired Shazam for $400 million in order to improve Apple Music's listening recommendations. At a time when Apple’s core business is not doing very well, and iPhone XS sales have been lower than expected, Apple is trying to gain a foothold in other areas such as on-demand streaming via Apple Music.
Apple rarely takes minority stakes in other businesses but some of its biggest deals have been to boost its music ambitions. Despite its early lead with iTunes, in 2014 it paid $3bn for Beats to reboot its music services, at a time when download sales were slowing. It has also made a series of smaller acquisitions in digital music, including radio app Swell and Semetric, a data analytics company.
Apple’s move to acquire a stake in iHeart will strengthen its hold on listeners in the US and allow it to penetrate a customer segment that belongs to the radio-era by allowing Apple Music’s Beats 1 radio station, which is only available through its apps, to make its debut on broadcast radio. This might make the adoption of Apple Music by older generations easier. Acquiring the stations on iHeartRadio gives way to the possibility that it may help significantly grow Apple Music’s user base. iHeart has substantial influence within the US - it reaches more than 270 million people a month on the radio and 100 million users through its streaming radio and music service. This is more than any other media and tech company including Facebook and Google.
Despite iHeartMedia’s financial difficulties, it remains the largest radio broadcaster in the US, operating more than 850 stations across the country. That makes it valuable to the music industry and its promoters, especially when it comes to breaking new acts or building awareness of the latest releases. Thus, Apple’s initiation could also be described as a power move. iHeartRadio is known to have very good relationships with artists and labels, and Apple aims to persuade more artists and labels to strike exclusive or early releases for its streaming service instead of its biggest rival, Spotify. Thus, Apple will be able to leverage iHeart’s network in its continuing competition with Spotify.