I'll start with the company introduction while we get them up on the screen. Here we go. Nexstar Media Group, which is headquartered in Irving, Texas, is the largest local broadcast television group in the U.S. Following the acquisition of Tribune in 2019 and the landmark acquisition of Tegna, which closed in March 2026, the company now owns or partners with broadcast stations reaching approximately 80% of all U.S. television households, which is subject to the current hold separate order, which we'll get to. Nexstar also owns NewsNation, a national cable news network, and has a 75% majority stake in The CW Broadcast Network. The company has around 30.5 million shares. It's trading just over $181 when I last checked for a $5.5 billion equity market cap, $11.8 billion of net debt, $17.5 billion total enterprise value.
We have Nexstar's President and Chief Operating Officer, Michael Biard, and EVP and CFO, Lee Ann Gliha, with us virtually. Thanks so much for joining us.
Thanks for having us.
Kicking off with the Tegna acquisition, can you please start by walking us through the rationale for this transaction, as well as the litigation, an overview timeline, and path to resolution?
Yeah, we could probably all that. The feedback here. I'm not sure if you can hear me all right.
We can hear you.
All right. Let's get into that, but I'll [audio distortion] . Lee Ann, can you hear me all right?
I'm getting all the feedback as well.
Yeah. Hanna, can you hear us okay?
We can hear you pretty good.
Okay. I'll try and [audio distortion] on here. I mean, right now we've talked quite a bit about the rationale for the acquisition. I won't spend a ton of time on that. I think the market understands that we're in a business where scale matters, both in terms of operating scale across our station footprint as well as negotiating scale and dealing with both suppliers of programming and distributors of our programming. I'm seeing notes saying it's terrible in terms of the feedback. I'm not sure if you want me to continue like this.
I think whoever's running the show needs to delete the 18th Annual Gabelli Sports & Media Symposium box.
We're hearing you okay still.
You are? Okay, well.
For anybody that's on virtual, it's not going to work.
Yeah. Yeah. Terrible feedback. I've muted that one. Maybe that makes a difference. There we go. Okay. All right. I won't repeat myself in terms of the justification for the Tegna transaction. I think we've spoken publicly about that. I think the market understands that. Why don't I get right into where we are today? I think that's the question that we hear most often from folks, which is: Give us an overview of the litigation status, timeline, path to resolution, so forth. Briefly, we're in federal court in Sacramento, and we're also in front of the Ninth Circuit Court of Appeal, which covers that trial court. Essentially, I have two separate tracks right now for the litigation. We have an appeal that's pending, that's an appeal of the preliminary injunction that was entered by the trial court.
We have the underlying trial on the merits. The appeal, even in success, won't resolve the case entirely. It will, in success, materially reduce the scope of the preliminary injunction and/or eliminate the state plaintiffs for a lack of standing. We feel pretty good about both sets of claims there, and where we are in that process is we have filed our opening brief. The plaintiffs have a responsive brief that will come in the next couple of weeks, and then we'll have an opportunity to reply. We're looking forward to an oral argument, hopefully in August, maybe as late as September. It'll be in front of the court, and we'll get a sense of, hopefully in the oral argument, what their timeline is. That's a matter of probably months, not weeks, for sure, going forward.
In terms of the underlying trial, I guess the path to how that proceeds will, at some level, and probably materially so, hinge on what happens with the appeal. If we're left with just DirecTV and a much narrower preliminary injunction, I guess the antitrust claims by DirecTV will be seen much more starkly for what they are, which is, in our point of view, just a commercial dispute where DirecTV has leveraged the courts to improve their position at the bargaining table. If the states remain, that will probably be a very different animal. As you've seen probably from some of our comments, we think the states' involvement here is largely political performance.
I'm not sure what the path to resolution like that or in that context will look like other than prevailing on the merits, and we feel really good about our position on the merits, and we're looking forward to actually the discovery process where we can get an opportunity to go through that procedure and make our case in the trial court. Either way, [audio distortion] level or otherwise, we expect we'll be preparing for trial. That will probably come sometime in mid-2027.
Can this mic be unmuted for the virtual? Are we good?
We can hear you.
Okay. Sorry about that. I was hoping we can start on the business on the core ad environment and pacings. Q1 saw non-political ads flat, slightly positive. Q2 is tracking down a bit, flags some macro-driven caution around gas prices and consumer sentiment. Is this a cyclical air pocket or something more structural?
I will take that, but if we could put you back on mute, that would be great. Okay, great. Here we go. Yes, we did see flattish non-political advertising in the first quarter, which was good. We were aided by the benefit of having the Olympics in the first quarter, which was good for Nexstar, but really good for Tegna given their extensive NBC portfolio. We did see, in the first quarter, a sort of shift in terms of the number of categories that, we track all of our categories and just look at which are up or which are down. In the fourth quarter, we had about half increasing, half decreasing, and in the first quarter we had more like 2/3 decreasing.
When we see that sort of uniform decline, there wasn't anything that was particularly standing out. To us, that reads more economic and macro. The other piece that you have to sort of make sure that you are focused on here is that we do have a crowd-out impact as well. The first quarter had very good political advertising, which I know we're going to get to in a minute. Second quarter, obviously, we expect to be good as well. There's a component of this in addition to just macro that is related to crowd-out, which is a very real impact on the go forward basis. We do not see this as something more structural. This is a place that we've been before when we see some macro headwinds, then we also are seeing the impact of crowd-out from a political perspective.
On political, which you alluded to, ad impacts projecting full year 2026, broadcast political slightly below 2024, but ahead of 2022. Can you talk about how you're thinking about Nexstar's share and the range of outcomes for this cycle? Also potentially address the Supreme Court's ruling on the lowest unit rate access for PACs, and how you plan to address that.
Happy to do that. Yeah, first quarter, we saw really good political spending. We had the first quarter on a pro forma basis, including Tegna. We were up 89% over 2022 and 19% over 2024, and that was driven in large part by the Texas primaries, which attracted quite a bit of political spending. We are seeing good continuation of the political trend into the second quarter. The benefit of Nexstar is that we have a pretty broad portfolio and when you look at just in general, we spend a lot of time every single political year going through and looking at every single market and really kind of drilling down into what district is being contested for what election, and how do we cover it.
When we look at that, and we look at the different types of elections, whether it's a local race or a Senate race or a gubernatorial race, we kind of look at how many of these elections are going to be contested, and how does our footprint overlap with that. Typically, Nexstar's footprint overlaps with north of 80% or 90% of the contested election markets. That's beneficial to us because what happens is inevitably you'll think a race is going to be hot and strong, and there's going to be a lot of political spending in it, and it turns out it's just not. There'll be another race you didn't think was going to be contested, and then it is contested. Usually when money moves around in the system, it hits Nexstar in some way, shape, or form.
Historically, when you look back, we've had a pretty consistent market share of broadcast political advertising spending. That really ranges from low double digit to low teens market share. This year, based on how we stacked up versus what we see as the contested election cycle, we think it's going to be a low double digit market share of what gets spent on broadcast television. Tegna, historically, if you look back, it's kind of been in the high single digit range as well. Together, we should have a pretty good political season this year. We're feeling good about the trajectory and what we've been seeing so far. As we all know, you can't really take what you're seeing in the first quarter or the second quarter and extrapolate that for the rest of the year.
Really, the bulk of the spending comes in the eight weeks around the election. That really is dependent on what comes to bear at that point in time. I know you asked about the lowest unit rate. This is a question that gets asked, which the Supreme Court is potentially going to be looking at, who that lowest unit rate applies to right now. It just applies to candidates, and there's a request for that to expand out to cover parties and PACs and make sure that everyone that's spending money from a political perspective, election perspective, is guaranteed that lowest unit rate.
Really, we feel like this is going to have not really any kind of materially negative impact on Nexstar or the industry in general, because really it comes down to a supply-demand calculation, and as you get closer and closer to that election, there's just more demand than there is supply. We just need to make sure that we are actively managing our rate card and doing what we need to do best with respect to, do we allocate a slot for commercial advertising or is it allocated for political advertising, and what's going to generate the most money? We don't really necessarily see this being a problem, more so just we need to make sure that we're managing it actively.
Digital's on track to surpass national TV ad revenue this year. Can you talk about the key drivers of that and how you think about the longer-term mix shift here?
Yes. When we think about our business, we think about the great relationships we have with the local advertisers and the fact that we've got television stations that have been in these markets for decades and decades and decades. So that provides us a special relationship with a lot of these local advertisers and enables us to not only talk to them about how they can be spending their money on local television and local news, but are there other things that they can be spending their advertising dollars on that Nexstar can help them achieve.
Whether that is, "Hey, we want to spend money on the local news, but we really would like to also have some entertainment content," or, "We want to have more sports content," or, "We want to do a digital campaign." Those are things that our local sales force can sell to these local advertisers, and really, it's been a nice growth area for us. We've seen, from a local perspective, our digital services businesses grow kind of in the high single-digit to low double-digit range. We see that continuing. It's really about kind of that audience extension and trying to create more of a value-added campaign for these local advertisers.
As we continue to focus on that and we grow that piece of the business, we have seen that more transactional-based business in our national advertising has become a little bit more transactional based, and it's just based on kind of the advertising cycle. As we see digital kind of overtake national, we think that that should provide some more longer-term stability to the top line, which we think is going to be very beneficial to the company over time.
Moving on to the retransmission and reverse comp dynamics. Sub-trends have improved for the last several quarters. On a combined basis, the year-over-year declines are looking better than a year ago, driven by Charter's rebundling strategy and some early skinny bundle growth. How does it change your view of the distribution revenue trajectory from here?
Yeah, I'll take that one. I guess, let me give you our view of kind of what's happening with some of those trends. I think we see two factors contributing to the flattening rate of erosion. One is what you mentioned, the Charter approach to rationalizing the bundling and packaging of both linear and direct-to-consumer products that are out there. I think also what's happening is there's a continued distillation of the pay TV universe to subscribers that really care about what's on linear programming, which is largely dominated now by sports and news. There are folks out there who don't care about that programming. I know it's hard to imagine that they exist. Our view is those folks are largely gone from the system, and so pay TV is much more sticky for the cohort that remains. Backing out, we're obviously heartened by the trends.
We wish they were a little bit more widespread. Right now, what we've seen is green shoots certainly from Charter, and we wish others were as aggressive in pursuing that model as Charter has been. I will comment as an aside, I wish DirecTV would spend as much time focusing on their product as they do elsewhere. They probably would see performance that's closer to Charter's. They've chosen to spend their time fighting broadcasters on retransmission consent, opposing every form of broadcaster M&A at the FCC, and then pursuing litigation rather than negotiation. A bit of a digression. I think it is relevant to the trends that you're seeing and some of the disparity in performance amongst different pay TV distributors. We're not totally surprised by the subscriber trends.
We commented, I think as early as fall of 2023, that we thought Charter's approach made good sense both for consumers, and if it was widely adopted, it would be a favorable trend for broadcasters and others on our side of the table. We're gratified to see that starting to play out, and I hope it continues. You were muted a long while there.
We can hear you now. Apologies.
All right. Ask the question again.
Oh, apologies. Just on network comp, in your view, has this line stabilized, or where are we in terms of that trajectory?
Yeah. Hard to know. I guess the expectations on that trajectory, I think, are questions that are probably better put to the networks, right? I suspect the answers you would get from them would not necessarily be uniform because I don't think they're all aligned in their approach to their affiliates or the appreciation for our contribution to their business. Right? I think that the disparity in their respective approaches is evident, for instance, in how they treat their streaming services. Do they look at the network as sort of their primary product and the streaming service as a complement to that, or does the network exist to sort of feed the streaming service, and their streaming product is their first priority? I think how they answer that question says a lot about how they expect to deal with us, right?
The more the network sort of leans into their streaming product and treating the broadcast network as a de facto barker channel for the streaming product, then the less value that network's going to have to us, and I think the less we're going to be willing to pay for them, and I would expect the less that they would expect us to pay. On the other hand, if they're going to lean into their network more and understand that a broadcast affiliate base, a healthy affiliate base, is really the special sauce that distinguishes them in the universe right now, that will be a good thing for both of us. I'll just comment on that last point a little bit more. I think, and I've said this to each of the networks directly.
If they look at the affiliates as really a critical part of expanding the reach of their network, right, in a way that makes a broadcast network unique, that's really a good thing. The alternative is they want to be a pure play streamer. They can go compete directly with big tech. If they want to be a cable network and go direct to distributor, well, that model's pretty clear as well. I think that the really unique aspect of a broadcast network that gives them a leg up when they're at the table competing for rights is the fact that they have reach over the air and combined with localized products that only a broadcast affiliate base can bring to that product.
I think, we'll see how it plays out. We like our position. I will say that this is an area where scale is important, and it's another rationale for the Tegna acquisition.
You tracking towards Q4 profitability and new partnerships with ESPN and Roku. If you can talk a little bit about what you're anticipating for The CW through the remainder of the year and moving forward, as well as the longer-term margin structure of The CW in your portfolio, that would be helpful.
Sure. For everyone's benefit, just to make sure we're not talking past some folks who may not be aware of the deals that we've struck. We've struck two partnership deals for The CW. One, with respect to our live sports programming and ESPN. ESPN, starting in August, will have essentially a CW vertical inside all of their digital platforms, whether that's on apps or websites and mobile apps, connected TV apps, you name it. CW vertical will exist there, where all of our live sports will air simultaneously inside the ESPN digital portfolio. Super excited about that.
It expands the reach of our programming in a way that allows us to not only sell the advertising to a broader base but also reach subscribers to the ESPN products that may be outside the pay TV system today or outside the over-the-air distribution system that all of our affiliates have. The other deal we struck is with Roku, that is both a library deal and a current season deal. All the entertainment programming on CW will air inside a CW vertical on Roku, starting next day. Right? Again, just like the ESPN deal, it allows us to expand the reach and broader digital inventory, frankly, for our sales team to sell.
Backing out of both of those, I think to your question on the sort of future of The CW, listen, we're incredibly bullish on the long-term potential of The CW, not only as a standalone business, but just as importantly, maybe more importantly, for how it complements our broadcast portfolio. Right? The reason we got into The CW business to begin with is because we were the largest CW affiliate. We have dozens of CW-affiliated stations out there. The growth of The CW programming, and the conversion of it from largely scripted programming to now almost 50% live sports, is a great thing for our stations, and it complements perfectly with iconic news brands like KTLA in Los Angeles, WGN-TV in Chicago. The marriage of that local market-leading news combined with The CW national programming is just a great blend for us, and we're super excited about it.
I think we will continue to be creative and nimble as we have both with the Roku deal and the ESPN deal. I think our portfolio allows us to be probably a little bit more opportunistic than the other major broadcast networks. What we've seen is rights holders who may not be able to get a deal done with one of the other major broadcast networks are thrilled to find a home on The CW, and we've seen growth of the programming really for every franchise that we've brought there.
Helpful. Just expanding on that a little bit further, with the RSN model continuing to unravel, local sports rights are increasingly up for grabs. Can you just talk about Nexstar's view on broadcast role in local sports distribution, and if the Tegna station footprint changes that at all?
Well, I guess I'll answer the last question first. I think that given the fact that we're under the hold separate order with respect to Tegna and can't operate those stations, there's really nothing in their footprint that changes the way we're thinking about anything right now when it comes to actually managing those stations day to day. Outside of that, in terms of our view of the local sports, yeah, I think, listen, local sports rights continue to evolve in, I would say, an uneven, almost unpredictable way. I was struck by MLB proposal to labor, last week, where they're proposing to pool all of the local rights, and then divide up the revenues pro rata. That's a radical change, right?
When you think about sort of the disparities that exist in the regional rights and the monetization of those between teams like the Dodgers on the one hand, and pick a small market team out there that you want to. I don't want to pick on anyone in particular. That's a huge issue. And those disparities, I think were significant in contributing to some of the rapid demise of the RSNs. As we think about it, I guess I'll start by saying we have no interest in trying to recreate the RSN model through retransmission consent.
We've said that publicly, we don't think that, for several reasons, that makes a lot of sense for us at all, to start with the fact that in most of our stations, trying to carry a full season of a team, let alone multiple teams in a market, would be hugely disruptive either to the programming that we have on our Big Four affiliated stations or the programming that we have on our CW stations, right? There's not a lot of shelf space for us to carry full seasons of teams. Secondly, the economics of that don't make a lot of sense. We don't have any interest in writing big checks that we then have to go pay for through increasing retrans. We've seen others try and do that. I'm not sure how well that's going to work out for them, but that's their business.
We have a slightly different point of view. We think that broadcast is a perfect complement to a multi-platform, regional approach. You can see that in deals that we've struck with, say, the Clippers in Los Angeles, where we have 15 to 20 games of the Clippers on, kind of a game-of-the-week approach, that complements perfectly with the Clippers both regional RSN business, to the extent they have that going forward. That deal, I think, is over now. Their direct-to-consumer product, right? We've done the same thing in Dallas with the Rangers, where we have a game of the week that complements their pay TV approach and their direct-to-consumer approach. We think leveraging broadcast for that top of the funnel sort of brand building is really critical for teams, right?
I think if they want to go strictly to RSNs or D2C, it's hard to grow their fan base on those platforms. We've seen teams who understand that are really interested in leveraging broadcast for that brand building. We'll continue to be disciplined and we think opportunistic at the same time in terms of how we approach the local sports space.
Yes, we will be moving on to our next session that Alec from my team will be hosting, with Manchester United. Thanks.