Here today, including Perry Sook, CEO, and Lee Ann Gliha, CFO. Thank you both for coming.
Thank you for having us today.
No, it's great. I'm super excited about this conversation just because it seems a little bit different given how much interesting stuff is going on at your firm right now, given the pending transaction. I would just like to start with a high-level question. If I step back and look at the last, I don't know, five years, six years, all of the big media companies went out and did acquisitions. They focused on national assets, didn't really buy any more TV stations so far. You guys took a different tact. You focused on your local assets. Talk about that. What is it that you see that the rest of the media ecosystem doesn't see? Like, what undergirds your strategy?
We built the company from the bottom up with television station acquisitions. The outgrowth of our ownership in The CW and the creation of NewsNation have all been because of the foundation of the local stations. It is, as I said on an investor call earlier in the quarter, the least sexy but most sticky part of the ecosystem. We have 1,800 sellers that have relationships with over 40,000 different SMBs across the country. We have personal relationships with both the viewers and the advertisers. We're a branded entity delivering programming into their home, delivering news and information, delivering other network programming into their home. Nobody goes home to watch a Nexstar station. They go home to watch News 8 in Tampa or JET- TV in Erie, Pennsylvania. We think those relationships are durable. They're sticky, and it's that last mile connectivity.
Networks can't deliver, other networks can't deliver their programming into the home except through our signal now, maybe with a streaming product. We believe that, again, being the company specializing in building local assets, that's the part of the business that will be the most durable. It's really hard to build a competitive product to that when you think of the money we've spent on property, plant, equipment, people, to build a staff and try and replicate what we do. Patch tried it, right? It was kind of a miserable failure. That existing infrastructure, we think, is a competitive moat and an area we just chose to specialize in that part of the pool and become expert at it and to build our franchise and our fortress at the local level.
Do you think that the relationships you have and the assets you have, do you think it's more differentiated on the advertiser side, or do you think it's more differentiated on the programming as it manifests itself with retransmission fees, or both?
I think both. I mean, you know, advertising, we have 40,000 SMBs that we do business with. If you look at national advertising, it's controlled basically by, you know, a handful of holding companies that, you know, spend concentrated amounts of money across national assets, whether they be digital or national. The pool isn't that deep, but the dollars are large. We think that having a longer tail of relationship with advertisers is more durable and potentially offsets, you know, certain categories coming in and out of favor. We're not immune from advertising being a cyclical business.
Sure.
We are somewhat insulated given that a lot of our advertising comes from professional services as opposed to goods that could be subject to tariff or things of that sort. I think on the distribution level, it's an interesting note that our product is and always has been available outside of the Pay TV ecosystem for free. We are called Broadcast Television. We are the original Fast Channel. Cable operators, satellite operators, and virtual MVPDs still pay for our programming because of the ubiquitous reach that it has, the popularity of our local news, and the fact that there's nobody else doing local news in any material way in our markets except for local Broadcast TV. We think that is the last bastion and why it's important and special.
What do you think will, if you had to take a guess at what will happen to local TV station assets over the next few years? There was a, I think it was a Hollywood Reporter article that pointed out that maybe Fox might get bigger, Paramount might get bigger. Do you expect others to sort of follow your path and sort of realize the power of these local assets?
I think there's mulling the idea and actually affecting a transaction. We have been the biggest buyer of broadcast television stations, assuming that our transaction to acquire TEGNA is approved, which we do, we will control in excess of 20% of the local TV station inventory in the U.S. and reach 80% of the U.S. population. It would be hard for any other station-owning entity to build a company of that size and scope with any kind of quality assets that have anything other than de novo news operations or things of that sort. We think there's somewhat of a first-mover advantage. There's also who has the balance sheet to be able to do what we have done and been able to do and will continue to do. I think a lot of those factors go into it.
It doesn't surprise me that CBS and Fox might express an interest in expanding their distribution of their network asset. Again, that's from the top down. Let's find a way to control more of our network distribution rather than building a fortress of local television stations, which, again, whether we distribute over the air, through a pay service, through a CTV app, or digitally, our mission is the same. We're a local service business that produces local content. That's our product. That's what people want to see. We pass through other products that we rent. We also help local businesses sell stuff. I think that will always be a business regardless of the distribution technology, which is why we put so much money into it.
Okay. Remind me the year that you started in this local TV business. What year did you own the company?
My first company I started in 1991, but Nexstar started June 17, 1996.
Ninety -six. Okay. There were two big transactions that you did, right? You did Media General and Tribune. This would be the third big one, at least. What have been the lessons that you've learned in terms of the power of scale? Because clearly your North Star is scale. Does that manifest itself in lower operating expenses? Is it negotiating leverage? Is it some advantage that you feel like you get on the advertising side? What is this? Because clearly you see a big benefit, but just unpack it a bit.
I would say all of the above, but I'll let her color on it.
I mean, yeah, we've seen the benefits over the years. You've seen it in our numbers. You've seen the growth in our revenue really driven by distribution revenue growth. We've seen our ability to rationalize corporate costs. We've seen our ability to implement best practices across our markets, you know, and really kind of become a bigger player in an ecosystem that's, you know, filled with really large companies. If you look at us, you know, we are the largest local broadcaster today at about $5 billion of revenue. We are a fraction of the size of a lot of the people that we do business with, a lot of the larger media and telecom companies. We're a fraction of a fraction of the size of these big tech companies that are out there that we increasingly compete with.
We think we bring something to bear that they can't bring to bear, right? We have this great ability to provide the broadcast distribution model to these big networks, to the sports organizations that are looking for ubiquitous coverage and the broadest reach that they can have. We also bring really phenomenal local news programming that's incredibly important that people watch. If there's a tornado in your city, a flood, any breaking news, you want to be tuning into our stations. We feel like the benefit of the scale is really sort of being able to bring all of that together and really provide a better platform for us, a better ability for us to negotiate. You know, you saw this in our investor deck. We are still underpaid relative to the value that we bring.
We estimate based on the Kagan data that we have about, you know, broadcast in general provides about 41% of the viewership for these distributors. We are only, in comparison to cable, getting paid about 29% of the content expenses that the distributors are paying. There's upside with respect to our ability to continue to monetize that. We think with this TEGNA transaction, this will continue to really grow our reach, solidify our local news organization, really enable us to continue to benefit from those same sort of scale synergies that we've had in the past, continue to implement the cost cuts, continue to be able to drive our revenue figures. On a pro forma basis, we're going to have an EBITDA that will rival, you know, be in the sort of same ZIP Code as a Fox and a Paramount.
That's going to hopefully open up a whole new slew of opportunities that we haven't even really started to think about yet. Now with that scale, what can we do to streamline the ability for agencies to buy our advertising? What other programming opportunities are there out there? There's a whole other set of opportunities and possibilities in addition to what we've been able to accomplish and see the benefit of the scale historically with the three areas of corporate operating expense and retrans synergy.
I would say distribution is totally about scale. We come to the market with a scaled offering of channels and content that people actually want. It is evident even in discussions that have taken place since the transaction announcement that the increased scale gives us increasing leverage for either parity in negotiations, or it makes the nuclear option just that much more untenable for distributors, networks, and other things. It is a symbiotic relationship. We all need each other. I think the bigger we are, the more those conversations are constructive, and we can think about other things that we can do on a going forward basis with one another rather than fighting against one.
You used the word parity when you gave that answer. You mean parity in scale relative to the Pay TV firms or the networks?
In the traditional ecosystem, as Lee Ann mentioned, with a company that has EBITDA the size of Fox or Skydance Paramount, and distribution at the owned and operated level that is a multiple of what they produce for themselves, those discussions themselves, I think, will become a lot more level, whether it relates to virtual MVPDs or other things over time. Where we are still a flyspeck is in relationship to big tech and those counterparties, and their media pieces that we interface with. We still have problems getting the attention of big tech for certain discussions we want to have. Again, they care much more about engagement than accuracy. That is why they're not good stewards of local information and why we think there is a unique and vested interest in maintaining a free and independent press at the local level, primarily provided by local broadcast.
Understood. As you pursued scale, I assume there were a number of TV station assets that you could have considered other than TEGNA. Can you just spend a second and talk about what was it that put TEGNA at the top of your list? What was it that was unique about that collection of assets?
I mean, we looked at, you know, we looked at everything. We looked at the general landscape. I think the things that were very attractive about the TEGNA acquisition were, you know, TEGNA's got 51 markets. 35 of them overlap with our markets. We felt like that was a great opportunity from a synergy perspective and ability to really, you know, enhance our local presence from that perspective. They also have a significant concentration in sort of larger size markets. The larger size markets are, there's more opportunity in those markets. There's a lot of work that goes into running a business. Just as much work at a smaller size DMA as there is in a larger size DMA. It's just a much more efficient process to have larger markets in general. That was very attractive to us.
I think the scale of the business, I mean, it was a, you know, it's a large-scale business that we were able to kind of piece it together. All of those things kind of came together. It really made a lot of sense when you looked at the overall landscape of what was out there. I think the other piece of it is it's also, you know, you kind of have to, as I always say, you know, you can have an ideal list of things that you want to go for, but there also has to be a willing counterparty. This was an opportunity where there's a willing counterparty.
That's great. What about integration lessons? Have there been things that you would have done differently as you integrated, you know, I don't know, Tribune, whatever the last one, you know, where you said, wow, we could have done that a little bit better that you think will go smoothly? Or do you feel like, no, we execute, we set out a plan, we execute against that plan, it's the same plan every time, and this is more cookie cutter than we might imagine?
I think the way I would think about that is the company has done literally 40 acquisitions in the almost 30 years we've been in business. Are we better at it now than we were 30 years ago? Have we learned along the way? I think we have. I think what we have developed, though, to your point, is a pretty well-defined playbook of how to do this, how to manage the interim period while you're waiting for regulatory approval. I had a four-hour meeting with folks yesterday on that. It's the communications process, management, the coming together of stations and markets where, historically, we were trained to compete against each other, and now we're supposed to play nice in the same sandbox. How am I going to do that? Help me think about that.
It's redefining the market and the opportunity and the opportunities for growth, realizing and maintaining that there will always be room for exceptional performers, right? Not so much for marginal performers. We find that oftentimes they will call their own number before we get to that stage of the integration. I think people are attracted to our company and what we offer and what we've been able to do, not only within the industry, but for the industry and our vision of growth in the future. I think it's an attractive place to be. I think that we do have a pretty well-worn, I mean, Lee Ann has a team that performed a desk review on every one of the individual TEGNA business units. That's phase one of the diligence, enough that we could announce and finance the deal. We now will go deeper during dependency of the regulatory approval.
That's when we'll get down to line item detail specific, even more specific than we have today, and get into things like real estate. Okay, we each own property in Dallas. Where are we going to move? What are we going to sell? What are we going to keep? We haven't even talked about real estate synergies or proceeds that we potentially could realize because we're still in discovery of that. I think we, having done it so many times, we don't take any step of it for granted. I think it is, we have that muscle memory that it has become a real strength of our company that we can actually announce acquisitions, actually close on acquisitions we announce, and successfully integrate and achieve the synergy number, or in most cases, exceed the stated synergy number at the time of the acquisition.
Okay. As you sit here today, prior to TEGNA, you're sort of at the cap. The FCC has this process underway where they're going to change the rules as it relates to the cap, but we don't know what the final number is. You guys have been very clear that you would be willing to execute or announce M&A before the paint was dry on these new FCC rules. Here we are. Can you just paint a roadmap for investors of how you see this playing out between the interplay between whatever the FCC is going to do, when you think those rules might become final, and what your response might be for this pro forma entity?
Yeah, I mean, look, I think the whole purpose of this process is really, we've seen lots of good news coming out of the FCC, lots of support for reviewing the cap. The commissioner put out the, you know, refreshing the record on the cap. The comments were due on August 22nd. There's a path to that cap being eliminated through that process. We saw that the Eighth Circuit came out and basically said, hey, those rules with respect to not being able to own two of the top four rated stations in a market are really not valid. We saw the FCC come behind that and say, yeah, we actually agree with that. We feel like we're pushing on an open door a bit. We're really just trying to meet that regulatory moment where it is. This is time is of the essence, right?
We've got a favorable administration here that is focused on, you know, pro deal. We've got the FCC that's pro, you know, pro deregulation. We think that, you know, bringing this deal can help kind of push that door open. We think we'll have a good outcome with respect to the national ownership cap by the process that's ongoing. It is within the FCC's rights to waive existing rules that they have on the books. To the extent that we have two of the top four rated stations in a market, they could provide a waiver if they so chose. We think that there is a path to being able to get this through. Time is of the essence here in terms of, you know, the changing, you know, the midterm elections coming up. Let's try to, you know, make this transaction happen, you know, as quickly as we can.
Are you I've spent a lot of time in D.C. talking with regulators, politicians, and key functionaries in the administration about the need for deregulation, the need to maintain a free and independent press at the local level, the need to be able to compete with big tech on a level playing field, at least in the domestic U.S. It's amazing. The change in the administration and the attitude toward competition, free markets, and deregulation couldn't be more stark. As Lee Ann says, we're meeting this regulatory moment where it is right now. It's the Trump administration and Brendan Carr at the FCC that are pro-deregulation, pro-competition. We think it's a unique moment in time where we're all working together towards a common goal. Time is of the essence because as time goes on, we begin to think about the next election and people get distracted.
We think there's a sense of urgency to try and affect meaningful change before the end of next year and the midterm elections have happened. That's why we're very focused on this outcome. I think that you will see NPRMs coming out of the FCC perhaps as soon as this month.
Oh, really?
Dealing with first the national ownership cap and then subsequently the local ownership rules. I think both of those NPRMs should be in the public domain certainly before the end of the year.
Okay.
I think that, you know, as Lee Ann says, we're pushing on this open door and we're hoping to give folks in the regulatory community both reason, but now motivation to examine these rules. I can tell you that to a person, there is no one that I have spoken to in D.C. that can justify the current regulations with a straight face.
Right.
Yes, these World War II era regulations serve the public interest, and nothing has changed.
Right.
The last time the national ownership cap was addressed was in 2004. No one with a straight face could say nothing has changed in media in the last 25 years or 22 years. I think there's an obvious window that we're going to attempt to step through together.
Understood.
I would just add this is sort of quintessential Perry Sook and Nexstar in terms of, over time we've tried to evolve the business. Back in the 1990s, he was the first to use JSAs and SSAs to improve our operating expenses. He was the first to get real payment for retransmission revenue. Here we are again, I think with another calculated risk here on this transaction.
That makes perfect sense. Can I drill down and talk about synergies for a second? I think you identified $300 million of synergies under the TEGNA deal within the first 12 months. I think under the last big transaction you did, you sort of upsized the synergies maybe about 10%. I know everyone's going to wonder if, you know, the $300 million is going to move up. Can you just give a little bit of color about what that, what the $165 million, I think, that moved to $185 million under the Tribune? Was that sort of conservatism originally? Did you discover some stuff along the way? It's not a proper read across to say, oh, Ann just always, you know.
Yeah. Look, we put out a number that we think is a valid number. It's based on the 2025 synergy estimate.
Okay.
It is, you know, we did say it was going to be substantially all we expected to be achieved in the first year. I think with the Tribune transaction, as Perry said, what we typically do is we put together what we call a desktop analysis. It's very, very detailed. Let me tell you the number of line items we have on this desktop analysis where we identify the synergies and we sort of say, okay, here's the plan. You don't really get the opportunity in these public transactions to go and sit at the local markets and actually do that detailed work. In the next phase, we'll be doing that. That's how we were able to find additional synergies in the last round.
Okay. You said you're going to use, once this deal closes, all of your free cash flow, ex the dividend, to pay down debt. What about the free cash flow in the, you know, before the deal closes? How should investors think about your?
I think we're not going to, we're going to, part of the sources and uses of the transaction is to use that cash flow that we're going to generate between now and close to fund the transaction.
Okay.
That's part of the sources and uses. We'll likely just accrue cash on our balance sheet until close.
Okay. That's great. Can I ask about NewsNation?
Sure.
You've made some big hires. I mean, I watch NewsNation a fair amount.
Bless you. Tell your friends.
Yeah, exactly. Tell us about NewsNation. What was your original ambition with the creation of NewsNation? How do you think it's going so far? What do you think comes next?
Interesting that you asked that because two days ago was the fifth anniversary of the launching of NewsNation, which started as a three-hour-a-day, seven-day-a-week primetime newscast and obviously has evolved now into a 24/7 bona fide cable news source. It started as a counter-programming strategy. When we bought Tribune, we inherited WGN America, which had reruns of Blue Bloods and a couple of original shows, which were, you know, financial flame outs. I talked to distributors at the time of renewal of distribution contracts for the stations, which included WGN America. They're like, you know, WGN America is one of 99, there are 99 general entertainment basic cable networks that I carry. I was told on more than one occasion, there's nothing really special about this that I can't get somewhere else. I don't really want to carry it, but I sure as hell don't want to pay for it.
Right.
What could we generate? What we had was retrans revenue tied to a cable channel that was fully distributed, basically on the basic tier because back to WGN America was the superstation that had the Cubs games. It had favorable channel positioning and universal carriage. What can we do with that asset, right, that we're not doing today? I said, we employ 5,500 journalists around the country that produce local news in all of our markets. We could use that as the backbone to launch a national news service. It became apparent to me that the lane that was available was potentially the largest lane of centrist opinion, centrist views, balanced news coverage. By the way, that's what we do in our local markets every day. There are no opinion pieces on local news.
It's just getting the information, getting it right, verifying its accuracy, and reporting it to the public, whether it's weather, news, or sports. Taking that ethos and building a cable channel on top of it, we started by taking what was the storage room at WGN Television in Chicago, the second floor, and turning that into the headquarters, the news nerve center for NewsNation, built out a functioning newsroom, and built out a studio for broadcasting from there. Hired, I think, 200 people at the outset. We now have over 600 people that work just for the cable channel, NewsNation, supplemented by now these 5,500 journalists across the United States. It has worked exceptionally well. We have been profitable from day one because we had a distribution revenue system and an embedded ad sales team. It wasn't a startup, even though the programming was new.
Last month we were the fastest growing cable network of all cable networks, fastest growing cable network over the previous 12 months. We currently have an awareness that hovers right around 40% of the U.S. know what NewsNation is, which is why I say tell your friends. Of news viewers, that awareness is greater than 50%. It's clear that half the country really doesn't know who we are or where to find us. We use our local television stations. If you watch ads, whether they're on PIX here or at Tampa or in Dallas, they'll list the channel numbers for the various distributors, how to find us. There's an app. You can go to the NewsNation app and it'll say how to find NewsNation. We are growing awareness and we are growing the product. I'm very proud of what we put on the air.
I do feel that we have balanced coverage. There are these independent services, whether it's Ad Fontes or NewsGuard or whatever, that rank us as high in original reporting, most balanced coverage. We do have opinion shows or anchors in primetime who state their opinion, but they'll also say it's their opinion and try and give balance to their opinion. Chris Cuomo is forever saying to guests, tell me why I'm wrong, and we are trying to build on that franchise that balance doesn't have to be boring. I think our stock and trade, where we are at our best, is during breaking news, like the LA wildfires and the floods in Texas. We have people that are on the ground before any competing news organization can charter a plane to get a correspondent there. We know the names of the streets. We know who the public officials are.
I think that's where we are at our best. I'm often pleased but never satisfied at the progress that we've made. We continue to grow. We just concluded a very successful upfront, and granted, we are growing share in a contracting wired cable universe, but we are still growing share and that will carry us through the middle of the ball game. I think the product is on point, on mission for what we want it to be. Now our job is to just grow it and bring in additional voices and additional interesting programming that we can build on our foundation along the way.
Okay. What about The CW? You got majority control of The CW. You did a big pivot there as well.
Exactly. I mean, you know, I still think broadcast networks are special, right? That was our thesis with The CW. This is beachfront property that is kind of underdeveloped. It's a two-hour a day. It was five days a week and then six days a week. We actually caused them to go to seven days a week with programming. It was primarily scripted entertainment, comic book shows, if you will, had a very loyal audience, but also a very small audience. I said, you know, what can we do with this asset that reaches as many households as ABC, Fox, NBC? I said, what are people watching on live TV? They're watching live TV. They're watching live news, live sports, live events, live awards, those kinds of things. We made a very quick pivot to live sports programming. There had been zero hours of live sports.
Now it's over 40% of the schedule. We spent $1 billion on sports rights in about six months. NASCAR, ACC, Pac-12, now WWE NXT. The move from cable to broadcast is pretty exciting. NASCAR, our season to date numbers, we're averaging over 1 million viewers per race and individually doing the best numbers that any of those telecasts have done in the last seven or eight years. Think of the fragmentation in media that's happened over the last seven or eight years. We're beating numbers from the good old days, if you will. It's because we're on broadcast. One of the things that proved to me that I think we're right about this superior distribution, back when Mack Brown was the head coach at North Carolina, we had an early ACC game on and we flexed it into primetime. He was interviewed as he's running on the field.
I said, "Mack, how do you feel about tonight's game?" He said, "We're on network television in primetime. It doesn't get any better than that." Bill Belichick might feel differently now after last week's North Carolina game, but we, you know, we've talked to all the sports leagues. They all see broadcast being superior. Many of our rights deals were won, even though we weren't necessarily the highest bidder, but people wanted the broad reach and distribution. We still have room under the tent for more of that. I can also tell you that I think everybody now has realized, you know, oh, you know, televised sports maybe trumps scripted entertainment. There is the competition for rights deals, it is a little bit more intense.
We're still playing money ball and we'll continue to play money ball and play within ourselves to make sure that we can see a return on our investment in sports. It's already paid big dividends, not only for the network, but for our owned and operated stations that never had sports to sell that now have, you know, you imagine KTLA or KRON in San Francisco with Pac-12 football on a Saturday, where before it was reruns and movies and infomercials.
Right. Do you think there's more sort of sports that are out there that you could acquire the rights to?
Yes, you know, they're all special situations. A lot of the major franchises are spoken for, but there also are holding company deals, if you will. You know, we acquired eight races from NBC last year in the Xfinity Series because they had the Olympics, they had no room for, right? There are those kinds of conversations, whether it be baseball or basketball or hockey or things like that. I think that everybody knows that we're open for business. The first sports deal we did was with LiveGolf, which ended up not being a great product the way it's constructed for television, but it let people know we had a shingle open, hung out and open for business, which begat all of the other deals we did literally in about a six-month period of time to establish The CW.
That's great. Lee Ann, Perry, thank you so much.
Thank you.
It was great. Yeah, absolutely.