Background and challenge
The digital audio space has faced a great deal of change in the past 10 years due to shifting consumer preferences for streaming audio.
Our client was a private equity firm looking to invest in a major digital audio advertising player that was seeing declining revenue and many near-term competitive threats. The private equity firm enlisted L.E.K. Consulting to independently validate management’s growth forecasts. The client also asked L.E.K. to forecast the growth of digital advertising revenues for terrestrial radio and pure play ad-supported internet audio services. Additionally, we were asked to validate the target’s position with customers and noncustomers to identify share gains or losses, and to determine the robustness of the target’s “digital currency” and whether they have advertiser lock-in.
Approach and recommendations
L.E.K. assessed the target’s competitive positioning across three distinct digital enablement solutions, determining the likelihood for the target to gain or lose share. We also assessed potential additional upsides and downsides to the plan and investigated opportunities that existed within the terrestrial radio space for consistent revenue streams to supplement the company’s movement into digital products.
Then, L.E.K. utilized primary and secondary data to compile a topline revenue forecast for the business, and developed a detailed forecast of the growth of U.S. digital advertising revenues for terrestrial radio and pure play ad-supported internet audio services. In addition, L.E.K. scoped the growth potential in four international markets.
L.E.K. provided the private equity client with a customer-by-customer detailed revenue forecast and variance assessment versus the management plan to inform the client’s bidding strategy.