Hey. Thanks for joining us. My name is John Hodulik. I'm the Media and Telecom Analyst here at UBS. I'm very happy to introduce our next speakers from Nexstar Media Group. We have Perry Sook, the Founder, Chairman, and CEO, and Lee Ann Gliha, the CFO. Thank you guys for joining us today.
Thanks for having us.
There's a lot of changes going on in the media space with the new administration, and given the Trump election and Republican control of Congress, I figure it'd be a great idea to start with deregulation. Clearly, the restrictions put on broadcast ownership, limiting your reach to 39% of the country, seem antiquated in this day and age. What are you hearing about the prospects of deregulation with the new administration?
We think the prospects of actually achieving deregulation are probably better than they have been at any point in the recent past. Confluence of factors. One is, I think that we realize or have been able to articulate that our existential threat doesn't necessarily come from other broadcasters. It comes from big tech. And so we're able to position deregulation on the Republican side of the aisle as pro-business and on the Democratic side of the aisle as pro-consumers under the auspices of maintaining local journalism. The conversations usually start out, "Do you really want your news from a chatbot that you hope is somewhere in America that is giving you what you hope is real and truthful and balanced news?" And that the preservation of local journalism is the last bastion of local journalism is something that is in the national interest.
And so we've gotten traction on both sides of the aisle. We have met with Ted Cruz and his staff, who will be the incoming chairman of the Commerce Committee, who's really the jurisdictional body for deregulation, at least in the Senate. And his focus is on creating jobs. And he's told me directly that the way to do that is through an enlightened tax policy and an enlightened regulatory policy. And he plans to bring forth in the first 100 days an ambitious deregulatory agenda. We've been working with Speaker Johnson in the House to achieve a similar result. And I think at the FCC, and that's primarily around the national ownership cap and some of the ways that the DOJ defines local markets. We don't just compete with local television stations anymore.
And confining us to 39% of the U.S. when big tech can reach 100% of the screens in the country without any content restrictions or fairness requirements. So the argument resonates, I think, in Washington and on both sides of the aisle. And incoming Chairman Carr has called this a break-glass moment for local television. So he sees it. He gets it. We've been in contact with him and will continue to be in close contact. And I think the difference on deregulation is when we attempted this as an industry eight years ago, there was not a unanimous consent around the path forward, right? Some wanted a higher cap. Some wanted no cap. Some wanted restrictions on the cap. Some didn't want in-market deregulation to the extent that they do now.
But I think with the way things have changed, there is now, and I also chair our trade association, the NAB. There's unanimous consent for elimination of the ownership cap, the elimination of the duopoly rule, which would allow in-market ownership to proliferate. We think there's a very good opportunity that those changes will begin to take shape and come into focus here fairly early on, probably in the first six months of the new administration.
Do you think it goes away? The cap goes away? Do you think they change the cap or do you think it goes away altogether?
Well, I think to change it just substitutes one arbitrary and capricious number for another one. The only intellectually honest answer is to eliminate the cap. And I think, again, framed against the backdrop of big tech, it only makes sense. And I've not met anyone in Washington that can defend the current regulatory scheme for our industry with a straight face. It's just, this is the way it's been. And it's been kind of a third rail issue on regulation or consolidation. And now I think those things are changing. When you hear the words break-glass moment, I think that carries some weight. And I think that the administration is in favor of supporting local television. And I think that the FCC, I know the FCC is as well.
And so we'll see from our meetings that are going to take place as early as later this week and on through the new year how far we can get. But I would anticipate if meaningful progress is to be made, it will take root and start in the first six months of the new administration.
Remind me, I don't actually remember, but was the sort of Trump's first administration and the Ajit Pai FCC, did they make any steps to move us sort of along this deregulatory arc at all? I mean, was there any movement in that way in the sort of first round?
There was some. I mean, there were a lot of competing projects for attention in that first Trump administration, if you remember back, right? The first six months or to a year were spent on trying to repeal Obamacare before they realized that that probably wasn't going to happen and pivoted to other regulatory priorities, so it didn't happen early on in the first Trump administration. There were improvements made to the regulatory state at the FCC, not so much at the DOJ, but I think with the focus of the administration on reducing regulation and certainly regulatory overreach, I think you'll see attention paid to it sooner and earlier, and I think that's what will be the key. That and the fact that the industry itself is united around the need and not divided as to what the right number is.
Sure. And then again, from an antitrust standpoint or deregulation standpoint rather, what exactly can the FCC do? Because I agree with you, Chairman Carr, or soon to be Chairman Carr, seems to be very deregulatory focused. Are there some easy things that he can do sort of immediately, assuming he's got the vote, which most chairmen do? And then what do we have to wait for Congress to do? And then any thoughts on, I forget the name, but I think the antitrust head of the DOJ was just appointed. Does that come into play at all? And what do you think of the new appointee?
Sure. Well, first of all, the new head of the DOJ is a fan of NewsNation. So that doesn't hurt our standing in her eyes, our cable network. If you put the national cap aside and say that since Congress last changed it in 2004 as a rider to an appropriations bill, that they are the ones that can change it again, if you assume that that is the only path to the ownership cap, then the FCC could deal with all of the in-market stuff. They could deal with the duopoly rule, which would allow ownership of more than one station in a marketplace, which today, for the combination of two top four stations, requires a waiver, which we're not really forthcoming in the current administration. And even a signaling that waivers would be more liberally granted could be a green light to in-market consolidation.
That could be done by the chairman. The chairman could also speak to virtual MVPDs and how they should be treated vis-à-vis traditional MVPDs and who can negotiate on behalf of whom for those carriage rights. The chairman could also establish or begin a process to eliminate the simulcast requirement for ATSC 3.0 and actually establish a cutover date or a flash cut date further in the future. That could all be done at the FCC level and wouldn't require congressional approval or involvement. So there's a lot that can get done at both. And we are spending time working with both the legislative and the executive branch to try and affect these changes.
If the 39% ownership cap went away and the limitation on ownership of more than one of the top four stations in a market, if those went away, would you foresee that there would be meaningful consolidation as a result of that? And if so, how do you think Nexstar would plan that?
You can speak to that, Lee Ann, if you'd like.
Yeah, sure. I mean, look, I think that if those things went away, I do think there's going to be significant opportunity for additional consolidation. First, we've got some ownership or some opportunities within our existing markets to acquire additional stations that would allow us to generate additional synergy. And then just additional acquisitions of other companies that could create value. I mean, in the past, we've been able to accomplish a lot of value through kind of two different strategies. One has been through application of our retransmission agreements onto the new assets. The other has been through reduction of operating expenses through in-market synergies, but then also just from our scale synergies. And so those things have been able to create a lot of value for us over time. And that should create some opportunity.
The other thing I would say is you have to have a balance sheet that's sufficient to be able to affect consolidations, and not every company in our space, either bigger than we are or smaller than we are, can make that statement, so I think we are fairly uniquely positioned for the right deal, and again, our screens are and always have been, it's got to be meaningfully more creative than buying back stock, and it's got to be a deal that makes sense for the company and where we see it's much more creative for our shareholders than the current course we've on, which buying back stocks is kind of an embedded low 20% return, and so it would have to be substantially higher than that, as our past acquisitions have been.
So all of those stars would have to align, but we are a willing participant under the right set of circumstances.
Makes sense. So keeping with the regulatory theme, incoming President Trump has made some threats about taking FCC licenses away from some of the big broadcasters, ABC, NBC, CBS. What do you make of this? And what is the process for license renewals? And within the process, can he actually do? Do you think there's any teeth to it?
I think there is some animus or frustration with some of the networks for some of their content decisions and things that have happened. I'd say that's primarily with the big three, not so much Fox or CW, which we own. But I think there is some discomfort with certain players there. But as far as taking away, I'm old enough to remember when President Nixon threatened to do the same thing and did not have success there. [He] found out that FCC chairmen can't really unilaterally revoke licenses. Now you can use your pulpit to commence hearings and to designate things for hearings and things like that, make people's life more expensive and more difficult. But to unilaterally revoke licenses is not really in the cards.
Gotcha. Okay. That makes sense. Maybe sticking with Spectrum, there have been some comments about the government reclaiming broadcast spectrum or auctioning it off. Obviously, you guys did not participate. You've been vocal about not participating in the last spectrum auction, given the opportunity to use the spectrum for ATSC 3.0. Any thoughts around these rumors or alternatively how the new administration might help accelerate the deployment of ATSC 3.0?
Sure. I think that Chairman Carter could accelerate the elimination of the simulcast requirement, which would give us more spectrum for ancillary uses. He could establish a cutoff date for 1.0 transmission to 3.0. He could give us 3.0 licenses that were other than experimental. There's a lot of things. I think all of those would be positive signals to the set manufacturing universe to begin to put chips and receivers in their sets, which right now Sony is the only manufacturer that puts 3.0 chips and receivers in all of their sets. But I think if they felt there's going to be a time at which that is the market, then that's a catalyst to design and build to those specifications. So those are the things that could be done.
We did not participate in the last government-run auction that was primarily conducted for the benefit of the Treasury and didn't feel that that was going to be the highest and best return. I think attitudinally, we still feel the same that a recurring revenue stream through a 3.0 deployment of technology is much more preferable to shareholders than a one-time capital gains event that we used to either buy back stock or pay down debt, and then nothing changes the day after that happens, right? You have no different prospects, and so our bias is still toward recurring revenue rather than lump sum distributions.
Makes sense. Makes sense. Okay. Keeping with the governmental theme, we heard from Fox earlier today that 2024 was a record political year for advertising versus what we saw in 2020. One of the big beneficiaries of growth and spending was CTV, the first election where CTV appeared to really be a major player. Can you talk a little bit about this outcome, how you fared and the benefit of the broadcast medium to the campaign?
Yeah. Look, I think for us, for 2024 versus the comparable election year, which was 2020 presidential election, through the election, we achieved a record number. We had $492 million of revenue. That excludes there was a large runoff in Georgia in the 2020 election, which obviously we didn't have this year. So on a like-for-like basis, we did achieve a record number. The benefit of the Nexstar footprint is that we are in a substantial percentage of the contested election markets and are able to really capture the political dollars wherever they fall. And so our guidance for the street was that we would capture, we thought, a low teens % of the political advertising revenue that would come in. And we did achieve that.
I think overall, if you sort of look at the overall numbers that we have seen so far, we've seen overall television broadcast improved its total advertising take in the political year by just a little bit during 2024 versus 2020 with the lion's share going to CTV. We'll have to really see how this kind of all plays out in the after-action reports. There's been all sorts of commentary about people that were spending a little bit more on social and maybe more on CTV that wasn't as effective, especially coming into the election, and so we'll look. I remind everybody, I don't have the number for the 2024 election, but in the 2022 election, 60% of the people that voted were aged 50 and up.
So it is the prime media to be spending on is television broadcast because it is really where the electorate is and it's really where it's proven to generate wins. If you want to win, you spend in broadcast.
Even with the rise of CTV as an inventory class, that came primarily at the expense of wired cable broadcast. Local broadcast television was still by a factor of more than two the largest category for political expenditures in terms of advertising.
Right. And I think this points to the whole sort of positioning of broadcast within the linear TV ecosystem, right? And I think when people think of linear TV, they think, "Oh geez, broadcast and cable, cord cutting, lower advertising, sort of all the sort of drivers there." But it does seem to be that there's sort of a bifurcation that's happening, right? And I think you see that most explicitly with Comcast, right? Comcast is selling off their cable nets, not their broadcast networks, right? So I mean, could you just talk a little bit about how you think sort of the broadcast model is positioned in this new world when there is cord cutting and there is sort of migration to in terms of viewership to streaming? But how do you think that the broadcasters in general are positioned?
Sure. Well, I mean, we were the original FAST channel, right? Local television stations have always been available over the top for free. So we were doing that before it was cool. But I would say that what we've seen time and again, particularly from the sports leagues, we have on good authority that NASCAR turned down more money for the Xfinity package that we have, the Saturday races starting this coming February, turned down more money from a streamer because they wanted the reach of broadcast because historically those races resided primarily on cable. I think if you look at the new NBA deal, there's been a dramatic migration from cable to broadcast via the network and their affiliates. So I think we see it time and again that people want to reach the largest reach vehicle. And that's what we do.
That's what we do best is we offer superior and unparalleled reach. So I think that we're well positioned as the fulcrum piece of even the skinniest of bundles. In fact, most MVPDs, traditional MVPDs, have franchise agreements that require the carriage of the local TV stations. So that's always been the basis for our negotiations. So I think in the food chain, I like our position from an advertiser preference from a distribution perspective. And so I think that we're very well positioned with our local assets. We're the last mile piece. We're the piece that touches the consumer directly and not through an intermediary. So from our perspective, that's why we've stuck to that and invested more than anybody else in local television is because we believe in the medium and we believe in its place in the ecosystem.
So sports is an interesting topic. And again, we touched on it a bit with the Fox guys. You've seen some migrate to streaming services with the NFL games and the Tyson-Logan fight and a little bit maybe with what Amazon's done with Thursday Night Football and incoming with the NBA. How do you see sort of sports consumption in the future? Is it sort of a hybrid model or do you think it continues to migrate or just how do you think that plays out?
I think that most league owners and most team owners realize that they need a mix, right? You look at the deal we did with the Clippers in Los Angeles with our station KTLA. We have a broadcast package of 15-20 games, call that the welcome mat package or something that is distributed to the entire marketplace of fans, not behind a paywall necessarily, but part of our pay TV offering that helps recognize the players as personalities, helps us sell season tickets, maybe tickets, individual games, merchandise tied with public appearances, things like that. So we think that there'll be a broadcast component, which is the reach component.
There could be what I'll call a super fan component, which could be something looking like an RSN that's on a tier that's way more expensive than it is now, but it's for the fan that absolutely wants to see every game. And some of that was done historically even with colleges through pay-per-view. That's a novelty. I don't think you can build a season on pay-per-view, but I think there'll be that. And then I think there'll be a direct-to-consumer piece that the teams will control, again, to sell in other offerings, whether it's merchandise or whatever. And I think you're going to need all of that as part of your media mix. I don't think it's a zero-sum game. I think you'll see listen, the NFL said, "Listen, $100 million-plus for six hours of programming on Christmas Day?
Yeah, we'll take that." But Roger Goodell's also been on record saying at no time in his professional lifetime would the Super Bowl ever be on anything other than broadcast television. So I think you'll see these one-time events or novelty-type products on streamers where they're willing to pay an outsized premium to get them. But I don't think you'll see a migration. If anything, what we've seen from NASCAR and the NBA and others is putting a portion of their assets on broadcast TV to get that market-wide and nationwide exposure.
Makes sense. So we've seen the CW move aggressively into sports under your ownership. Can you talk a little bit about what you've accomplished there already and what are the goals for the network? And do you think that the CW can grow to be as powerful as one of the big four networks?
Maybe I'll take that a little bit. Since we bought the network in September of 2022, we've actually increased the number of hours that we provide to the affiliates by over 40%. We have changed the composition of the hours to be about 46% now sports or sports-related. And we've done all this by reducing the programming costs by more than 50% since before we acquired the group. So we've done quite a bit to transform the business. And we're very excited about the results that it's having so far. We've significantly reduced the operating losses. We're going to reduce the operating losses by over $100 million just in 2024 alone. And all of the new content that is coming on board is just doing really well. We're seeing tremendous results as we've been taking over the WWE. We've launched NASCAR Xfinity races.
All of these things have had good uplift when they've moved from cable onto broadcast, so that's all exciting. Now I think we've got the opportunity to sort of even further grow that and try to get to the profitability benchmark, which we're looking to achieve sometime in 2026 by really monetizing that new programming that we've got, both from an advertising perspective and from a distribution perspective. We have about a little over two-thirds of our affiliates that are up for renewal in 2025, which will set the stage for 2026. 2025 will be the first year we have kind of the lion's share of our sports program for the full year, so we'll really start to see the benefit of all of this kind of coming together, and then we'll fine-tune and kind of go from there.
I think the other thing I always like to add this on to the network side of things because if you look across the universe, you really see a strong station ownership with the network owner, and that's not a mistake. You do that because you can also benefit from your stations from a distribution perspective and maximizing that revenue. Since we've bought the CW network, we've moved over about 17 affiliations onto our footprint, which has been significantly profitable on the station side of the ledger, so we're excited about the opportunity and to go for a basis.
Makes sense.
The goal is to be competitive with the big four networks, but realizing that will take some time, right? We have a larger station portfolio of owned and operated stations than any of the other networks. Our distribution, we're fully distributed just like all the other networks. Now it's just building up the content and building up that viewership awareness and habit of tuning to us. That is the ultimate goal, but realizing that it wasn't built in a day, so.
Makes sense. Industry-wide, we've seen a significant amount of rebundling of content either at the DTC level, increased DTC prices, and rebundling of DTC services with pay TV subscriptions. We've also seen pay TV distributors drop or reduce or stop paying for sort of the long tail of the cable nets. Why do you think this is happening and what do you think the implications of this trend are for Netflix?
Yeah. I mean, look, we think this is happening because you've had a long history of seeing these cable networks that have lower ratings be overcompensated and broadcast networks that had higher ratings be undercompensated. So you're now seeing sort of a rectification of that paradigm. At the same time, you're also seeing the distributors kind of come and say, "Look, hey, if you were providing a DTC service that is impacting my subscriber base by causing a cord cutting, that needs to come back into the portfolio in order for us to continue to have a good relationship going forward on continuing to pay you for your traditional networks." So all of this we think is a positive thing for us in our model because we've got the content that is literally the most premium content of all the content out there.
We've got the broadcast networks. So when we are going to go and talk to any distributor, it's from a positive point of view because we're representing the content that their customers are really watching. Now they have freed up some additional spending capacity by restructuring these other contracts to allow more money to be available for the premium contracts. The other thing we think it does is it really should have the benefit of helping reduce the rate of attrition because now if you're a Charter customer, you're getting all of this additional benefit by having all of these DTC services that are now rebundled into your portfolio of content that you have available to watch.
That should be a big benefit to us if we start to see sort of a rate of the reduction of attrition because that's beneficial to our business model on both the top line and cost side.
Two important things that I think people should be aware of. One is, you mentioned it earlier, you can't put all of linear TV into one bucket. I really think you have to separate broadcast TV and cable TV because the characteristics going forward are decidedly different in terms of the growth opportunities, the sustainability. The second thing is, I think streaming has gone from being, by and large, a business that was never a good business that when all of the new inventory came on the scene last fall, went from being a bad business to a much worse business in our view. But I think you have to think of streaming now not as a business, but as a distribution technology, right? I think Charter's actions and DIRECTV's actions have kind of demonstrated that, that we will offer this as part of a bundle.
If you want to take it this way or you want to take it through the Spectrum linear offering. I think John Malone was really on to something when he talked about people want in the bundle, they want sports, they want news, and then they want a random access layer to be able to view things that don't necessarily have to be viewed on a time-sensitive basis, which is the entertainment programming. I think that we agree with that and saw that coming with our pivot to sports with the CW from 100% scripted entertainment and our investment in news and even the one cable network we do own is a news network now. I do agree with his view of the world.
I think when you think about it as one big bundle again, just with different delivery technologies, I think those are both very important developments that will play out as time goes on.
It seems to fit with what Charter's doing, right? You said that they've got their bundle and then they've got the DTC services on top of that. If more distributors move to that type of a model, and I think Dave Watson from Comcast alluded to the fact that they may be able to do that. He definitely talked up the new flexibility they had. He didn't say because they just signed their deal with Warner Bros. He didn't say, "Yeah, we included Max with everything." But he said, in my view, he sort of said, "No, it was really the flexibility that we worked into the new contract." I mean, if more distributors follow what Charter's doing, would that be good for you guys? I mean, it seems like it would create more value, potentially not really raising the price for customers.
Again, we think the more that distribution revenue is distributed via value contributed to the service via time spent viewing rather than vertical integration of the holding company, that's better for us because we have the most watched content on our local stations with both the network programming and our local programming. And yeah, I think that, again, this bundle is now, if the streaming services are "being offered free with purchase," that highlights that it's a distribution, it's a technology choice and not a content choice per se. And in Lee Ann's vision of the perfect world, there would be one price for content, right? Whether it was distributed, regardless of the way it was distributed, that would be a rational marketplace. We don't have that. We have a huge disparity between legacy content and streaming prices and value adds and things like that.
And it gives us heartburn when services get offered on Black Friday for $20 a year. And the broadcast surcharge on my Spectrum cable bill is $26 and change a month, right? And so if it were kind of à la carte pricing and you could choose your distribution technology, that's an efficient and rational marketplace. We're not there yet, but I agree with Lee Ann. I think that's ultimately where we're headed for this market to make sense.
Makes sense. Maybe we can talk a little bit about pricing. For the first three quarters of the year, you posted record quarterly distribution revenues despite the fact that cord cutting is continuing to pace and depending on who you talk to is accelerating a little bit or sort of stable. I mean, how have you been able to do this? And do you think sort of maintaining these distribution revenues and not growing them? Is that sustainable going forward? That's private for you, Lee Ann.
I think, look, I think we've done a good job of being able to monetize the additional viewership at a continuing higher price that has been able to outstrip those rates of decline. I think we believe as a company, we feel like we should be able to continue to do that for at least another cycle. Then hopefully by that point in time, we'll have a rate of attrition that is much lower. If you look at SNL Kagan came out with some attrition expectations that would show in the next three years, we'd be down kind of in low single-digit land in terms of the rate of decline, which would be fabulous because that would sync up with sort of where we think we may end up in sort of an annuity land.
Gotcha. Maybe we talk a little bit about capital allocation. That's definitely been a strong point for Nexstar. 4% dividend yield. You're buying back about 9% of the stock every year. And you're still paying down debt. So first, I would say, do you think that this is the sort of appropriate capital allocation going forward? And if we are, the way we're just bringing the whole conversation full circle, if we are heading to a period of deregulation where there might be some opportunities for consolidation in M&A, is this the right, A, I guess, capital structure, but B, sort of capital allocation strategy to put yourselves in a position to pursue the opportunities that may be created?
Yeah. I mean, look, up until the changeover in the administration, we were doing M&As of our own stock that we've been buying back, right? It's been north of a 20% free cash flow yield, and we've been liking that yield, right? Because we believe in the future of our company. I think that's the most creative thing to do. I think if we start to see really this dereg start to take hold and we see some actionable targets out there, we will have to sort of relook at our capital and sort of look at, do we take some of that share repurchase and pay down a little bit more debt in the interim while we're waiting for those deals to come to fruition?
But until then, our focus is really still in the same vein that it's been, which is a combination of dividend, share repurchase, and debt repayment. This year, we are planning on paying down a little bit more debt than what we've done in the prior years with the excess cash flow from the political revenue. And that's really just because we have some shareholders out there that still like to value us on an EBITDA multiple basis. And because our debt to cap is almost 50%, it's just about as accretive to pay down debt as it is to buy back stock, even though it's much more accretive on a free cash flow basis.
Great. I think it's a great place to leave it. All right, Lee Ann. Thank you, guys, for joining us.
Thank you for having us.
Appreciate it.
Appreciate it.