Good day, welcome to Nexstar Media Group's Q2 2023 conference call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.
Thank you, Maria. Good morning, everyone. Let me just read the safe harbor language. Then we'll get right into the call. All statements and comments made by management during this conference call, other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during the call. For additional details on these risks and uncertainties, please see Nexstar's Annual Report on Form 10-K for the year ended December 31st, 2022, as filed with the Securities and Exchange Commission, and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
With that, it's now my pleasure to turn the conference over to your host, Nexstar Chairman and CEO, Perry Sook. Perry, please go ahead.
Thank you, Joseph, and good morning, everyone. We appreciate you joining us today to discuss Nexstar's Q2 results. With me on the call today are Tom Carter, our President and Chief Operating Officer, and Lee Ann Gliha, our CFO. I'll start with a summary of recent highlights and developments, followed by Tom's operational review and Lee Ann's financial review. Recently, some media executives have made public comments calling into question the future of linear broadcast. We respectfully disagree. What can't be questioned is that literally all of the video profit and 80% of the video revenue of the major integrated media companies are generated by the linear model today. Said another way, DTC strategies are reliant on the profits of the linear model to exist. We don't expect the DTV business to go away. We expect to coexist with them and for broadcast to continue to thrive.
Linear is not going anywhere. Broadcast television continues to reach the largest audience with the highest amount of daily time spent of any video media, and remains the most influential media for consumers' purchasing and voting decisions. Our proprietary news content is widely consumed and valued by our audiences and our content partners, particularly those in live sports, and our advertisers understand the power of the reach of the broadcast medium. Our confidence that the broadcast model will continue to thrive is supported by our financial results. In Q2, we further extend our record of outperforming consensus expectations across all key financial metrics, including net revenue, Adjusted EBITDA, and attributable free cash flow.
Our strong performance reflects the combination of the benefits of scale and our company-wide business relationships and our decentralized local and business unit management model, which focuses on delivering exceptional news, sports, and entertainment for our viewers, and proven marketing solutions for advertisers at attractive operating margins. Our consistent free cash flow generation provides us with the financial flexibility to invest in our future while continuing to return capital to shareholders. In the first half of this year, we returned $414 million to shareholders, or approximately $11.70 per share, in the form of dividends and share repurchases, representing 86% of our first half attributable free cash flow.
We are enthusiastic about our future with a number of organic growth initiatives, including our new in-house sales initiative that will leverage all of the assets of our platforms, the growth of The CW and NewsNation, and ATSC 3.0's broad potential for future monetization. My optimism for Nexstar's continued growth is reflected by my position as a top 10 shareholder of the company and the company's largest individual shareholder, and my recent contract extension, which goes into 2026. As we look to the future, I'd like to take this opportunity to honor Tom Carter, who a few weeks ago announced his retirement at the end of the year after 14 years at Nexstar. The day before Tom started, back in 2009, our stock was at $0.82 per share, and look where we are today.
Tom has been and is, and will continue to be a tremendous partner and friend, and during his tenure, he oversaw a period of unprecedented growth and expansion for the company, including the successful structuring, completion, and synergy realization of highly free cash flow accretive transactions, including Tribune Media and Media General, which cemented Nexstar's position as the nation's largest local television broadcaster. Since many of you know Tom firsthand, it goes without saying that he will be missed tremendously. Always a team player, Tom has already contributed to the one seamless transition we've had so far with our appointment two years ago of Lee Ann as our CFO, and he will continue to support our growth and transition in his capacity as senior advisor to me through the end of this year.
With Tom previously signaling his intention to retire at the conclusion of his contract, the board and I had ample time to identify a successor. Last month, we announced that Mike Baird, former President of Operations and Distribution at Fox Corporation, will join us as President and Chief Operating Officer later this month. Mike's experience over Fox's multi-platform content distribution strategy, affiliate relations, and business affairs for FOX Sports, FOX Entertainment, and FOX News brings the perfect complement of capabilities for Nexstar's forward direction and growth. I and many of my Nexstar colleagues have previously known Mike for a good portion of his 23 years that he spent at Fox in Nexstar's role as the largest Fox affiliate group. Mike's experience, knowledge, and energy are a great match for our team as we look to take Nexstar to the next level.
At the board level, part of our ongoing initiative regarding board refreshment, shareholders approved this year our proposal to declassify our board of directors. Going forward, each board member will be elected annually, beginning in 2024. Standing for election with the rest of the board next year will be our newly appointed board member, Tony Wells. Tony fills the board position vacated by Dennis Miller, who stepped down in October to become president of The CW Network. Tony is a great addition, excuse me, great addition for us. He was the former Chief Media Officer at Verizon and Chief Brand Officer at USAA, and he brings a deep knowledge of the national and local advertising landscape, and experience and insights working within large enterprises. During Tony's career, he deployed $ billions of marketing dollars for some of the country's most high-profile brands.
His experience and firsthand knowledge, which will benefit Nexstar as we grow our national assets of the CW, NewsNation, and The Hill, and further leverage our local broadcasting footprint, which is the largest in the industry. Let's move on to the CW, as our excitement about that opportunity we see is even greater than when we acquired it. As you may know, our CW affiliates are our most profitable in terms of margins. Nexstar CW stations have already benefited from our acquisition through our distribution renewals last year and so far this year, but we also see further opportunities to grow distribution revenue, not only at our stations, but on the affiliate side. Our thesis is straightforward: We believe that as a broadcaster-run broadcast network, the CW represents a better alternative and operator for station operators, just as it has for us.
In June, we announced that our stations in San Francisco, Philadelphia, and Tampa will affiliate with the CW beginning in September. Last week, the CW announced that it had expanded and extended its network affiliation agreement with Hearst Television, which will also launch the CW on Hearst KQCA in Sacramento, California. This is but one example of the interest by leading broadcasters in aligning with the new CW.
To drive the growth of the network, we are making, quote, "Moneyball-inspired investments in content that matters to the broadcast viewer, including live sports, in order to grow our distribution and advertising revenues." In less than 1 year of ownership, we've already secured the rights to a variety of sports properties, including LIV Golf, ACC football and basketball, coming to The CW this September, the NASCAR Xfinity Series, starting its engine on The CW in February of 2025, and sports-related programming such as Inside the NFL, which will premiere at 8:00 P.M. on September 5th, and our sports documentary series, 100 Days to Indy, all of which are expected to accelerate the viewership and revenue growth for The CW ecosystem. In fact, with just these three agreements beginning in 2025, The CW will have 48 weekends per year of live sports programming.
As our sports partners will tell you, broadcast television is the best medium for live sports, as it delivers the highest ratings and widest distribution to their fan bases, while providing promotion and engagement at the local level to drive attendance and ancillary revenue streams. One of the reasons NASCAR was attracted to us was that they know that they generate 40% greater audiences when their races are on broadcast. As we know firsthand at our station in Los Angeles with the Clippers, where we deliver audiences on average 100% greater in the demo than the incumbent RSN. Importantly, in reflecting our disciplined approach to content acquisitions, these new growth opportunities should increase our revenue without impeding our path to reach breakeven in 2025.
If you think about it, over time, The CW is increasingly looking like Fox, with the same number of hours of weekday programming and its growing live sports portfolio. With Mike Baird now on board, we have the team to get us where we want to go. Finally, touching on the writers' strike, while we are confident that it will not hurt our forward progress with The CW, the majority of our fall slate was content that was already developed and/or unscripted. In May, Nexstar and our national properties, The CW, NewsNation, Antenna TV, Rewind TV, and The Hill, had a productive upfront, with the standout being NewsNation, with a 25% growth in volume, driven by its position as the fastest growing cable news network in prime time.
We're very proud of NewsNation, and during the quarter, we marked a major milestone with NewsNation, becoming a 24/5 news network with the debut of extended, expanded daytime programming, the launch of the network's first political ensemble program, The Hill, and the addition of a new evening program called Elizabeth Vargas Reports. NewsNation recently broke the whistleblower story about UFOs, with our news interviews on the UFO topic being entered into the Congressional Record, driving strong viewership of the hearings and afterward. Supporting our large portfolio of assets, we're laser focused on ad sales and measurement that better quantifies the research and the consumption of our content.
On the ad side, we're working under the leadership of Chief Revenue Officer Michael Strober, building an integrated national and local sales force that is capable of leveraging the breadth of the assets that Nexstar brings to bear, both locally and nationally, and including linear, digital, and OTT. We're already demonstrating through our sports rights agreements, how our one-two punch of national reach and local activation is attractive to sports property owners, and the same goes for advertisers and brands. To better monetize our assets, we need to make sure they're being accurately measured. Right now, we believe the current measurement tools under-measure our audiences. To that end, we recently issued an RFP for a next-generation measurement company to help us better measure and better monetize. We hope through this process, we will identify a partner that can help us accurately measure and deliver value to our customers.
In summary, we believe we're just at the beginning of the growth opportunities that we see for a scaled Nexstar. We have a collection of local and national assets that are really a unicorn in this industry, that we believe will continue to generate differentiated growth and tremendous shareholder value. With all of that said, let me now turn the call over to Tom Carter. Tom?
Thanks, Perry. Good morning, everybody. Before I dig into the operations review for the quarter, I want to thank Perry and the Nexstar nation for allowing me to be part of the growth of this tremendous company.
My time at Nexstar, building the business in good times and in bad, and developing lifelong friendships, has been the most rewarding professional experience of my life. I'm very excited Mike Baird, who is joining Nexstar, and I know I leave the company in good hands. I will be here through the end of the year in my role as senior advisor, working to make sure the transition is as smooth as possible. After that, you'll find me on the golf course or in Colorado, sitting by the fire, enjoying a nice, cool mountain air, something we haven't experienced in Dallas in quite a while. Turning to the operating review.
We've generated another quarter of strong operating performance, with net revenue of $1.24 billion, reflecting the benefit of The CW acquisition and strong quarterly distribution in digital revenues, offset by a decline in television advertising due to the absence of midterm political advertising and continued advertising softness overall. The continued impact or the removal of some of our partners' carriage related to continued negotiations with certain MVPDs also contributed to the quarter's decline. For television advertising, which includes both our station group and our national network, but excludes any digital advertising revenue, declined 2.2% year-over-year, 2.2%.
Including The CW, core advertising was down 8.4%, driven by double-digit rates of decline in national spot advertising, which accounts for 27% of our core TV revenues and is responsible for approximately 63% of the decline, and a mid-single-digit rates of decline in local advertising. This performance is consistent with the expectations we shared on our last earnings call. We continue to be impacted by our station presence in large markets, which tend to act more like national advertising market. To illustrate this a bit better for you, if we were to exclude our top 10 markets and include digital advertising revenue, as many of our peers do, our station core television advertising revenue would have declined only 3.6% year-over-year.
In Q3 of 2023, we're seeing a slight improvement in the rate of decline of our overall core television advertising to what we saw in the Q2 , due in part to the political displacement in Q3 of last year. Excluding the CW for comparability purposes, our top performing categories in the quarter were auto, home repair and manufacturing, attorneys, air conditioning, heating, and telecom. We're extremely pleased to see automotive, our largest advertising category in terms of dollars spent, maintain its growth trajectory for the Q4 , increasing 10% over Q2 of 2022. While overall automotive spend remains below 2019 levels, we're encouraged by the continued rebound of this category, and recent reports indicate that manufacturers now have millions of vehicles in inventory, which suggests that the category can continue to improve.
The categories most responsible for the core advertising revenue decline were radio, TV, cable, and newspaper, medical healthcare, gaming, sports betting, bank savings and investments, and fast food and restaurants, with about 3 quarters of our categories declining in the quarter. Turning to political, Nexstar generated Q2 political revenue of $9 million, reflecting the cyclical year-over-year decline in election year spending. We remain highly optimistic about our growth prospects for political advertising in 2024 election cycle, with industry projections for $11 billion of spend in 2024 versus almost $9 billion in 2022. Again, we are extraordinarily well positioned to take share and dollars, both locally and nationally. Nexstar delivered another period of quarterly distribution revenue growth with approximately $696 million in the Q2 , marking a 7.7% increase over the prior year.
Revenue growth was driven by the renewal of our distribution agreements in 2022 on improved terms and annual rate escalators, as well as growth in virtual MVPD revenue and the inclusion of The CW. Our growth more than offset vMVPD, I'm sorry, MVPD subscriber attrition and the ongoing impact of the removal of some of our partner stations' carriage related to continued negotiations with certain MVPDs. Subscriber addition was in the mid-single digits and benefited from the increased carriage of our The CW, MyNetworkTV, and independent stations on YouTube TV. Excluding The CW, our distribution revenue was up 6%. As you've probably seen, beginning in July, beginning on July second, despite our efforts to peacefully enter into a new contract, we ceased providing our content to DirecTV in conjunction with our ongoing negotiations regarding a renewal of our distribution agreement with them.
We will provide an update on our next quarterly conference call with regard to those negotiations. Record Q2 digital revenue increased 11.4% to approximately $98 million. Revenue growth was driven by the inclusion of The CW and year-over-year increases in Nexstar's local digital advertising revenue and agency services business, which more than offset some weakness in our national digital advertising and revenues in e-commerce. Excluding The CW, digital revenue decreased 5%. On a consolidated basis, Q2 Adjusted EBITDA was $331 million, representing a 26.7% margin, and Q2 attributable free cash flow was $100 million.
Excluding The CW, Q2 Adjusted EBITDA was $405 million, representing a 34.6% margin, and Q2 free cash flow was $131 million, amounting to 32% of Adjusted EBITDA. With that, it's my pleasure to turn the call over to Leanne for the remainder of the financial review and update. Leanne?
Thank you, Tom. Good morning, everyone. As always, Tom and Perry gave you most of the details on the revenue side, I'll provide a little color on the CW financial results and then jump to expenses. In the Q2 , the CW generated $75 million of revenue and $74 million of Adjusted EBITDA loss, exclusive of $3 million of one-time expenses, comprised primarily of restructuring charges, all of which was in line with our expectations. Moving back to our consolidated expenses. Together, Q1 direct operating and SG&A expenses, including depreciation and amortization, increased $32 million, primarily due to the inclusion of the CW.
Increases in affiliation fees and the expansion of the local news at our Washington, D.C. bureau and other local markets, as well as the expansion of our news programming at NewsNation, were offset by reduced variable costs related to lower revenue, the gain on a depreciated asset for which we received insurance proceeds, and even further offset in our Adjusted EBITDA and free cash flow calculations by reduced programming costs at NewsNation related to reduced reliance on syndicated content. Q2 2023, total corporate expense was approximately $49 million, including non-cash compensation expense of $13 million, compared to $50 million, including non-cash compensation expense of $13 million in the Q2 of 2022. Q2 2023, depreciation and amortization was $262 million versus $143 million in the prior year quarter, due primarily to the acquisition of The CW.
Please note that The CW's programming costs, which are included in our definitions of Adjusted EBITDA and free cash flow, are accounted for in this line item as amortization of broadcast rights. For more information about this amount, please refer to the schedules in our earnings release. Q2 CapEx was $41 million and in line with our expectations, compared to $34 million in the Q2 last year. Last year's Q2 CapEx levels were impacted by supply chain constraints. Q2 net interest expense increased to $111 million from $76 million in the prior year quarter due to the impact of increasing LIBOR and SOFR rates applicable to our floating rate debt. Cash interest expense was $109 million for the quarter, in line with our expectations.
Q2 operating cash taxes were $119 million, as we have two payments in the quarter and reflected estimated tax payment based on expected income for the year at the time the payment was made. We received $25 million in Q2 distributions from equity investments related primarily to our 31% ownership in TV Food Network, which represents a 19% decrease over the prior year quarter. Q2 through Q4 distributions from TV Food Network are tax-related distributions. The reduced amount reflects lower income at TV Food Network, related primarily to lower advertising revenue. Looking ahead, we project corporate overhead exclusive of stock comp and transaction costs to be approximately $35 million in the quarter, and we expect corporate overhead around $141 million for the year, given new executive hires and recent contract renewals.
Non-cash comp is expected to be approximately $19 million for the Q3 but will vary based on stock price and actual grants. For cash taxes, we use a 26.5% tax rate when calculating our estimated tax before one-time and other adjustments. The Q3 includes 1 income tax payment. Please note, for calculating cash taxes, excluding the CW, only about 65% of Nexstar's book depreciation and amortization is deductible for tax purposes. We are currently projecting net cash CapEx of $35 million in the Q3 and $156 million for the full year, including a portion of carryover CapEx from last year. Approximately $9 million of CapEx is funded by insurance proceeds.
We expect Nexstar's cash interest expense to approximate $110 million for the Q3 and $436 million for the full year, reflecting the current forward curve and our expectations for debt repayment. The forward curve now currently shows interest rates peaking in October and falling thereafter. Turning to the balance sheet. Nexstar's outstanding debt at June 30, 2023, was $6.9 billion, down slightly for the quarter as we made mandatory quarterly amortization payments of $31 million. Because we have designated The CW as an unrestricted subsidiary, the losses associated with The CW are not accounted for in our calculation of leverage for purposes of our credit agreement.
As such, our net first-lien covenant ratio for Nexstar, excluding CW, at June 30th, 2023, was 1.79 times, which is well below our first-lien and only covenant of 4.25 times. Our total net leverage for Nexstar, excluding CW at quarter end, was 3.03 times. During the quarter, we and Mission amended our credit facilities in relation to our respective outstanding Term Loan Bs in order to provide for the transition to SOFR from LIBOR on industry standard terms. As is typical in non-political years, we expect leverage, which we calculate on an LTM basis versus a 2-year average, but not our total quantum of debt, to slightly tick up throughout the year, but to fall again in 2024 as EBITDA will grow with the return of political advertising.
Our cash balance was $346 million, including $75 million of cash related to The CW. For the quarter, we generated $100 million of attributable cash flow. We returned $189 million to shareholders, paying $48 million in dividends and repurchasing $141 million of stock.
... which together with first core dividends and share repurchase, Q1 dividends and share repurchases totaled $414 million or 86% of our first half attributable free cash flow. As we move forward, we will continue to strategically deploy our cash in a manner that is consistent with our commitment to creating the highest shareholder value. That concludes the financial review for the call. Operator, please open the line for questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question comes from Dan Kurnos with Benchmark. Please proceed with your question.
Great, thanks. Good morning. Perry, first, let me say, my great hire. You probably grabbed one of the most respected toughest negotiators, negotiators out there. He clearly has some big shoes to fill. Few people in the broadcast landscape are, are as respected personally, professionally as Tom is. I know you've earned your retirement, Tom, but obviously I, I wish you the best. Perry, just can you give us your thoughts on moving up in AAB around content spend? You called it a Moneyball strategy. You know, it's definitely a bigger step up in terms of what we've seen in broadcast from, you know, willing to spend on upfront licensing costs. Could you just kind of talk through sort of your willingness to kind of continue pursuing that and sort of the monetization strategy going forward?
Sure. I think that it's consistent with our acquisition strategy, just generally, is that, you know, we're going to take smart bets and some calculated risk with the thought that if things go according to plan, that these will pay out over the length of the agreements. You know, we know what the market was with NASCAR for the Cup Series, which was out of our reach as we're just now taking over this network, standing up sports on the weekends, and we chose to make a considered bet for the Xfinity Series, which actually, having the whole season gives us 33 weeks of weekend programming that, you know, rates right behind the NFL in terms of regular season versus regular season delivery. The same with the ACC.
That was opportunistic, we moved quickly, and were able successfully to jam it into the upfront selling season and monetize some of those match ups in the upfront. So I... You know, it's just like the entertainment programming that Dennis Miller and Brad Schwartz are putting together. You know, it's got to be something where we can own the back end, we can participate financially in the back end, and not just be a barker channel for content that ultimately ends up on Netflix. So that influences the programming that we go after, the programming we put on the air, the price we pay for it.
You know, we were able to renew some of the incumbent series that have historically been on the CW at substantial discounts to what the predecessor owners were charging themselves or paying themselves. That's because we couldn't get all of the rights that we want. You know, everybody's cognizant this is a 15-year-old network, but now has a startup mentality. The entrepreneurs that Dennis has brought in to run the various divisions, whether it's digital, entertainment, unscripted, I mean, these folks are out there, they, they know the mandate, they're, they're on a mission, they see exactly the opportunity, and they all will participate in the upside. I say it's Moneyball.
You know, we're, we're competing in the same league as the Big Four networks, but obviously, we've got to do it on a budget, and we've got to do it smartly, and we've got to crawl, walk, run.
Got it. That's helpful. Just I know Tom said you're going to update us next call on the ongoing negotiation. The loss is kind of a new tactic. You've got NFL looming. I guess maybe, Perry or Tom, just how do you think about, you know, resolution of these outages? You have a big chunk coming up in the back half of the year, too, of sub renewals. Has, has anything really changed given the environment right now?
No, if you look back, I think it's instructive to look back four years in our renewal with a, a certain MVPD satellite company that we went off the air in July, and we were able to reach agreement by the end of August, which is coincidentally about the time college and professional football kicks into high gear. I'm not going to predict the outcome here. I can tell you that our negotiating team has been in Los Angeles since Sunday, we're having meetings with our counterparties. We fully expect that we'll be able to reach an agreement as we have historically with every other significant MVPD, both past and future, on commercial terms that are acceptable to both parties.
Got it. Super helpful. Thanks, guys.
Our next question comes from Steven Cahall with Wells Fargo. Please proceed with your question.
Yeah, thank you. First, just want to echo my congratulations as well, Tom Carter, and certainly, good luck on the golf course. We'll, we'll miss you a lot. Maybe just first on retrans, to kind of follow up with Dan Kurnos' line of thinking. I think folks are curious what you thought about when you started the year with the retrans guidance. There was always a range in there. I think cord cutting was part of that. Blackouts, both previous and new, might have been part of that. Is anything from your opinion occurring sort of outside of what you would have expected? You know, July and August are pretty light for sports, it's probably not a huge surprise to most of us that you're in a blackout right now.
We'd just love to get, your context around how we should think about the current retrans guidance.
When we put the guidance together, we take into consideration the facts that we know at that point in time, and I wouldn't say a whole heck of a lot has changed other than, you know, now we are in, in a blackout. You know, when we look at our guidance, we only take into consideration what we know at that point, and at that point, I think we thought we would, you know, be able to come to some kind of agreement. We'll have to, you know, provide future updates on that as we go forward. There's nothing that's sort of materially changed other than dark.
Thanks. Then on the Food Network Group distribution, I know it's a little choppy quarter- to- quarter. That's been a really stable provider of cash flow and EBITDA historically. It maybe does face a little more cord-cutting and advertising risk as a cable network. Just curious, from what you're seeing, do you expect it to sort of remain at prior levels for the next year or two, or any, any change you're seeing there?
Well, I think they're, they're not immune to some of the same factors that our national business is most, most notably, direct response. I would say, you know, generally speaking, that they're having, you know, having not any more luck than we are in that regard. You might see a modest deterioration. I think the good news is, Warner Bros. Discovery has started to really prove themselves out with regard to the operating strategy that they have and specifically deleveraging, which doesn't necessarily affect us because there's no debt on the partnership. Just in terms of their ability to continue to allocate resources to new programming. We believe, and they have told us, that the Food Network is one of their three most important channels, at least from the discovery side, maybe not including HBO now.
They're very bullish on Food Network, and we are as well. You may see some variability in the results, but nothing material from our perspective.
Thanks. Then just lastly, some of the media conglomerates have suggested that there may be linear networks, national linear networks, up for grabs. That can include ABC, that could include some cable networks. I certainly won't ask you to speculate on, on anything specific, but just based on the possibility of a lot more coming to market, and after having done The CW, do you find national networks to generally be a good fit, given the strength you have in, in distribution, or just any way to think about kind of bigger long-term M&A? Thank you.
Well, I think we start with the, the, supposition or, or position that, you know, there, there are only 5 English-language broadcast networks, commercial networks, that operate and reach virtually 100% of the country. That's a scarce resource and something that is special. Obviously, we feel, you know, as the local distribution partner, you know, our link in the chain is obviously the strongest. You know, I would say it would be totally situational, you know, what was available at what price, what other assets come with, you know? I will point out that as it relates to The CW, it is not considered a Big Four network for purposes of the Big Four network exclusion rule at the FCC, which means you can't own 2 of the top Big Four.
legally, technically, it would be possible, but it would have to be the right deal at the right fit for us. you know, and we would, we would do what we do with everything else. We look at everything.
Thanks a lot.
Our next question comes from Craig Huber with Huber Research Partners. Please proceed with your question.
Great, thank you. Perry or Tom, can you just update us, if you would, on your long-term plans for alternative uses for your spectrum?
Well, we are in two different business development arrangements. One with Sinclair called BitPath and one with Scripps that is unnamed at this point, but both are going after different applications and uses of the spectrum. I think, you know, it's worth saying that, you know, particularly if you look at Scripps and its spectrum assets and Nexstar with its spectrum assets, we reach 92% of the United States population on an unduplicated basis. We think that holds great promise. We are in, you know, are in tests and in discussions with HPE. We have had discussions with a Hollywood studio, as well as a major automotive manufacturer regarding uses in the car.
We also are involved in, with BitPath, and trying to develop a technology that currently exists in South Korea, that is enhanced GPS, which think of anything, any vehicle that needs to know where it is, or you need to know where it is, from a news fleet to a truck fleet to UPS trucks, that we can provide 5G-like location-based services at a fraction of the cost of the current 5G proposition. That's just a handful of things that we're involved in. As an industry, I think one of the more interesting things to follow is there is a mandate out, primarily from the Department of Defense agencies, to develop a GPS backup for the country. If GPS goes out, you know, not only do navigation in your car doesn't work,...
The gas pumps, pumps don't work because they rely on GPS to put that timestamp on your receipt. The ATMs don't work. I mean, all kinds of things. It is, it has been deemed to be in the national interest to provide a 5G backup. Our industry, because of its ubiquitous reach, has the ability to provide that service, and we are in very preliminary, as an industry, informal discussions about trying to fill that mandate as part of our transition to ATSC 3.0. A lot of moving parts. I don't want to say there is one killer app, but I do think it is, you know, an opportunity for us to, as we continue to build out 3.0 presence around the country.
Nexstar is the leader in terms of percent of the population reached with a 3.0 signal under our own power. We will continue to be that and continue to put markets on the air. You know, we, we hope to have an announcement about New York City before the end of the quarter. That would go on air before the end of the year. We think that's important to both regulators, set manufacturers, and investors to understand that we're, you know, committed to 3.0. A lot of things in the works, Craig, but those are some of the current thoughts on monetization.
Perry, what are you thinking on that front? When you might see the first significant or material slug of revenue, and when does it get really large for your company, at the end of the decade, if all goes according to plan?
I, I think it will, it... You know, I've been saying, you know, 5 years. 5 years takes us into, you know, toward the end of the decade. I think we will have proof of concept and revenue from counterparties as early as next year, but I don't think I would characterize it yet as significant. I think again, it'll be kind of a crawl, walk, run scenario, where those that have deployed 3.0 spectrum will be the first beneficiary, which I think will encourage others to move quicker to get to that point. Obviously, if we can do away with the simulcast requirement and not have to have 2 substantially similar signals on the air, one in 3.0, one on 1.0.
You know, if that, if that and the whole 1.0 can sunset at some point, which will give us free-up spectrum for, you know, more ancillary uses. We're, we're working the, the, the legislative and the, and the regulatory front there as well. I do think that this 5G replacement could motivate a lot of folks to move faster, quicker.
My last question, if I could, just more near term. Just go through for me again, just so I'm clear, your 2Q core ad revenue, excluding The CW, what was that % change year-over-year? More importantly, what are you expecting it to be for the Q3 , core excluding The CW, please?
I think it was in Tom's commentary that the, the, I, I believe the Q2 revenue, excluding CW, was total, total revenue was what, down? You're talking about core advertising?
Yeah.
Core advertising, yes.
Core advertising was down 8.4%, that was primarily driven by double-digit decline rates in national spot. Also, we are also impacted by the fact that we've got a lot of, you know, CW affiliates in those big markets that tend to be more, you know, national type focused. You know, I think for the, for the Q3 , we're seeing a slight improvement to the rate of decline of our overall core television advertising revenue related to the Q2 , that is due in part to the fact that there's a lot of displacement in the Q3 of last year because of political.
Great. Thanks a lot, guys.
Our next question comes from Benjamin Soff with Deutsche Bank. Please proceed with your question.
Hey, guys. Thanks for the question. I was wondering if you could elaborate a little bit on the issues with current measurement tools and how much you think they undercount your audience. Then you guys are standing up a national advertising platform. Just wondering if you could elaborate a little bit more on how that initiative is going and, and where you see that opportunity going. Thanks.
Sure. Well, it, it depends on what service you want to use as your baseline. If you use Nielsen and compare that to Comscore, the audience undercount is north of 20%, almost across the board. It's interesting when we look at our NewsNation national numbers, and then we look at NewsNation delivery in the individual markets that we're in, that we get overnight numbers, they often add up to a number, just in the metered markets, that's greater than the number reported for the whole country. Obviously, the, you know, there is an issue in undercounting. We, we, with The CW, measured sports on the weekend using the iSpot technology, which, you know, was a completely different measurement experience to what, what, the incumbent provider would have provided.
We have decided, as all of our measurement contracts expire at the end of this year, that we put out an RFP to the measurement community saying, "This is what we want you to design for. We'd like to see what you can present along these lines to bring measurement into the 20th century." You know, we're currently operating with such outmoded and limited data that the, sometimes the margin of error is greater than the number we're, you know, we're discussing. We'll see what comes from the RFP. It's a pretty quick turnaround, and it may be that we go with more than one measurement service to try and, and right this, one for our national assets, one for our local assets.
We will negotiate with our incumbent providers of Nielsen and Comscore, but they're invited to submit under the RFP as well, and, you know, may the best, best company win. In terms of standing up this, this, One Nexstar is what we're calling it, which will be a unified sales force selling all of the assets of the company. This, this is basically a three-year project that started last year. We architected this in 2022. We are implementing the national piece of this, as we speak, this year, and then we will fold in the local piece of it, next year. What it's meant to be is that, you know, totally, totally focused on the customer.
You know, whether we go to the agency holding companies, the local customer, or, you know, clients, national clients directly, the focus is on, you know, we, we could do local activation at scale better than any other company out there because we reach approximately 70% of the U.S. population. You can do a network buy on news. You wanna do a local news overlay in the states where your business is concentrated. You know, we can do a deal as we did with the Clippers, you know, so we're into the NBA telecast. You know, because of our local relationship with the team, you know, if you wanted a player to show up for an hour to sign autographs at a store opening or appear at a charity function, those are the kinds of things that we can deliver.
Again, local activation at scale. We really feel that we're a unicorn in that regard, and that we reach more direct consumers with our brands than any other company in the media. Our, our, our, our view is we wanna train everybody to sell all of the assets of the company. It's interesting in that in every one of our markets there is a top 100 national advertiser that is, that is headquartered there. Our local people can have those relationships, bring in subject matter experts to help develop a unified pitch. Our goal, obviously, at the end of the day, is just to qualify for and earn a larger share of wallet, digital, OTT, traditional broadcast, national broadcast. You want cable, you want broadcast, you want diginets.
Putting all of that together, that everybody has the same focus for going to market. Michael Strober is our CRO. He has hired a head of national sales. He is in the process of hiring a head of local sales and activation. We're standing up our national, our national sales force, even in the middle of doing all of that, delivered a very good results for NewsNation in the upfront. 25% increase in dollar volume, 15 new advertisers, in a not very supportive market. I mean, the market is pretty rough out there, we're selling a story of growth, there are precious few other folks out that are selling that. The good news is, is the advertisers are responding.
All I can ask for with The CW and NewsNation now is take what you've had and grow it, and we're doing that on, on both fronts. You know, I'm often pleased, but never satisfied.
Great, thanks.
Our next question comes from Nick Zangler with Stephens. Please proceed with your question.
Hey, guys, congrats on the results and, and congrats to Tom on a great run here. You know, thinking about your initial plan to shift The CW from scripted to non-scripted content, did your original plans account for all the sports content that you've accumulated thus far? Or has the shift to sports been a more favorable outcome post that acquisition as a result of, of acquiring The CW, which, which may potentially lead to a faster and higher profitability assumptions for The CW in the coming years?
I, I would say, that we had sports in our mind's eye when we bought The CW. We were the only top five network that didn't program on weekends, and we knew through our experience with the Clippers and in, in a larger context, with the NBA, that because of the collapse of the RSNs, there was a thirst for wider distribution. I would say that the deals we made were opportunistic contracts that were up at the right time, that were the right size for us. You know, we began, you know, we a long cultivation of relationships at NASCAR that began literally at the time we closed The CW. Obviously, LIV Golf was very opportunistic for us. They wanted a partner. We wanted to introduce sports on the weekends.
The simple fact is, the first weekend LIV was on the air, our prime time, on Saturday and Sunday, live telecasts, our prime time ratings, those nights were up 20%. I told our team, I said, "Well, that's one of the reasons you buy sports, so you can recirculate audience and new audience into your other products." I would say that it was like a lot of acquisitions we've made, opportunistic, but I feel good about the deals, you know. On paper, both ACC and NASCAR make money for The CW over time, you know, we feel good about where we will end up, and now it's all just about getting, getting to the starting line with both of them, literally and figuratively.
Understood. Thanks. Then just on, on the core revenues here, you know, obviously down 80%, excluding The CW. I'm wondering, in your view, if there's an element to this softness recently that could, could potentially reflect an acceleration of national spending to alternative channels, such as connected TV in particular. If so, obviously, maybe that would potentially limit what's available for the broadcast channel and, and really resulting in what could be, you know, a secular, just secular pressure, I guess, for core revenues for you going forward. Just, just your thoughts on that, whether, whether you think that, you know, national advertising in particular is, is accelerating to-
... I, I wouldn't, I wouldn't try and read too much into it. Advertising is a cyclical business. We're in an economic downturn, and national is the most volatile piece. I mean, if you went back and looked at 10 years of, of our earnings reports, I think you'd hear us talk about national being the most volatile. So I don't see a sea change. I just see, you know, an economy and cautious advertisers, and national are the first to pull the budgets. Those that are closest to the cash register still see customers buying. They may be buying different things, but they want to capture that share of wallet. Tom, you want to amplify something?
Sure. I was just gonna refer back to the category information that I kind of quoted in my comments with regard to the top declining categories. Radio, TV, cable, newspaper, obviously, we've been in a dispute and been in disputes with various other media companies for some period of time, and that's reflective of that. Medical healthcare, obviously, we're coming out of a couple of years of heavy government and medical spend from a COVID and a post-COVID perspective, and that has started to return back to more normal levels. Gaming and sports betting, again, a big rush to the door early on in the process on a number of large markets, and now we're seeing a more measured approach going forward in those markets where sports betting is already the case.
There are fewer large states left outside of Texas, Florida, and California. When those hit, I think you'll see sports betting take off again. Bank and savings and investments, obviously, it was a tough Q1 for banking in general, and I think that showed up in some of our numbers as well. Really, if you look at the categories, you can see why those categories may not be performing up to prior years', dollar levels, relative to some of the particular sequencing and situations that they're in as well.
Yeah, I would just say, I think also we're starting to see like, slight lessening in terms of the rate of decline on the national side. That just kind of goes back to, you know, what you're seeing in the overall economy, which is, you know, everything seems to be getting better.
Really appreciate the color there. Thanks, guys.
Our next question comes from Alan Gould with Loop Capital Markets. Please proceed with your question.
Thanks for taking the questions. Let me give my congratulations to you, Tom, on the terrific job and on your retirement. First question: there was no comment on the annual guidance, the 2023, 2024 cycle. Is that because of the lack of visibility due to the distribution agreement, or can you re- reiterate that guidance? I'll, well, I'll take a few more, but I'll stop here.
I mean, look, I think we obviously have a situation here being dark on one of our MVPDs, so we will kind of revisit all of this in the next quarter, as Tom indicated.
Okay. In the wording, the ongoing negotiations, that was specifically with that 1 MVPD, correct?
Yes.
Okay. On the CW, this investment in sports, does that have any impact on your near-term profits, or do you think the incremental ad revenue and, and affiliate fees potentially will offset the incremental sports costs?
There's no material change in our near-term expectations for the CW with respect to the sports, business. You know, I think that, you know, we've made those decisions, I think, as Perry mentioned, in a Moneyball type fashion and are looking to, to generate more revenue to, to offset those costs.
Okay, last question: How was the CW upfront this year?
CW upfront, I think, was, was, was pretty good in terms of the, the overall performance. Dollar volume, basically flat with the prior year. Unit rates were up, mid-single digits. And, and again, the, you know, the, the, the money, the absolute dollars, are not gonna change our style of living, but, you know, it's an important, marker, I think, for us. The reaction to the new programming, and, and the sports obviously, you know, with sports, dollar volume was up. Lee Ann, if you want to provide any more, more color on that, go right ahead.
Yeah. Look, I, I think that the, you know, the, the overall upfront market was, you know, was down overall. I think that, you know, The CW fared, you know, in line with what our expectations were for, for that business. I think, you know, I also think that there's, there, you know, a little bit less sold in the upfront than, you know, in a calculated way, because then that'll provide us more opportunity with the scatter market. As, you know, we're seeing. Hopefully, the economy will continue to increase and the national market will come back, and that'll benefit us on the back end.
Okay. Thanks for taking the questions.
Our next question comes from Barton Crockett with Rosenblatt Securities. Please proceed with your question.
Okay, great. Thank you. Tom, your retirement plan sounds great. Congratulations, thanks a ton for all the help. I wanted to ask a question about just beat a dead horse, you're not, at this point, saying anything about your former guidance on retransmission. You're gonna wait till you kind of get clarity on the distribution deals. Is that correct?
That is correct. Yeah.
Okay. All right. Then, in terms of the sports, the new commitments, are you thinking about the recoupment being, you cover the sports rights costs on advertising alone, or, or is there also an idea that this can give you leverage on affiliate fees or, you know, yeah, retransmission fees?
Yeah, look, I think absolutely the focus is not only on advertising, it's on retransmission fees, distribution fees or affiliate fees, is what you would characterize that. It's difficult to compete for sports rights without having a distribution revenue stream.
If you think about it, the timing of this has worked out really well because ACC sports begins this fall, September ninth. We've proven to the affiliates that we can deliver on this, and NASCAR starts in early 2025. We've got some time from a NASCAR perspective in order to prove out sports with ACC and then be able to take that to the affiliates with a value proposition that we think is appropriate at that time to include sports. Let's, let's be honest, we're, we're going from, on sports weekends, something, or on weeks where we have sports, something like 14 hours of programming from The CW to 25 or 30 hours of programming from The CW, given a Saturday and Sunday. There's a significant value proposition improvement that we want to put forth to the affiliates.
I'll just add, as it relates to guidance, we haven't been this specific, nor will we be, but The CW is in affiliate negotiations with a number of sizable affiliate groups, and there will be affiliation fee revenue upside to that, which is in our current guidance. A lot of things. Lee Ann and I sat down yesterday and listed all the things that will happen between now and our next call. We may buy a business, we may sell a business, we've got the affiliate negotiations, you know, we hope to settle the MVPD and virtual MVPDs that we're that we're off, and, you know, increase our distribution. There's opportunity for increased distribution of NewsNation as a byproduct in a not not insignificant way. There's a lot of ingredients that go into baking the cake.
You know, our thought is, is if, if there's an update to guidance, let's know as much as we can. Right now, we don't know enough to, to change our guidance, and don't expect it will change in a material way. In any event, there's a lot of things that go into running this company and a lot of things that go into, you know, the guidance that we deliver. It's a multivariable equation, not a single variable equation, I guess, is the point I wanted to make.
Okay, I appreciate that, and, and that's good for me. Thank you.
Our next question comes from Jim Goss with Barrington Research. Please proceed with your question.
All right, thank you. I'll be the broken record and thank Tom and congratulate you for a successful career and your important contributions to Nexstar. I might ask about NewsNation. Going into the political year, I wonder if you might talk about any particular things you might be doing incremental to the network. Are you going to be doing a number of debates again? Will these be economic or reputational? Do you have plans to take that path to the next step of 24/7, now that you're 24/5?
Sure. I don't want to give our playbook to any of our competitors, but we do plan to be as active in debates as we were last year, and those that have national implication and national interest will be offered to the cable channel as potential programming, as those were wildly successful in 2022. We will expand. We will be 24/7 by September 1 of 2024, because that's when the last of our syndicated programming commitments contracts will run out. Those plans have, have already been made, and we will begin to execute those here, staffing up for 2024 in about another month. Yes, that's already in the model that we use for guidance.
I think you'll see our, our panel show, The Hill, expand to the weekend, probably weekend mornings. That will allow us more access to the movers and shakers in Washington. There's a comprehensive plan that includes more debates. We're doing town halls. We did one with Kennedy. We're doing some with the Republican and Democratic candidates as time goes on and, and, and opportunistically as they make themselves available to us. Those will be, you know, prime-time events, well promoted. As far as debates go, we don't make any money on them.
Those are all, you know, at, at the local level for, as a public service to our voters and at the national level, as a service to those that, again, might be interested in the national implications of such. Because the debates, unless we find an underwriting sponsor, are offered with no commercial interruptions for, for the full hour or more. Expect us to be as active, if not more, in 2024, on the political side.
Okay, thanks. One other one. Regarding CW, maybe, maybe, the actors and writers strikes have come at a good time for you because you're just redefining what your programming should be. Are there any strategic implications or workarounds you're going to need to do with regard to the strike?
We, we have 4 shows that were planned in the 2023, 2024 season that we renewed from Warner's and from Paramount, that are all scripted shows that currently appear on the network. All of those are pushed, at least now until 2024, and the farther, the strike goes on, they get pushed further and further into 2024. And, and so those, those are the only 4 shows affected. Everything else on the schedule is acquired programming that has already been produced or reality programming that is being produced. We'll have the most, scripted, as a percentage of our schedule, with the commitments that we've made of any, of the Big Five broadcast networks going into the fall.
We also have a lot more high-profile and noisy reality shows, which, you know, I think will bring attention to the Network as well. We kinda like our chances in this chaotic environment, and, and, you know, when, when others are afraid is when we tend to take some big swings. I think that, you know, we'll, we'll do well vis-à-vis our expectations, and hopefully, that will help us prove in the scatter market that, you know, the, the tack that we're on is the correct one to grow the Network.
All right. Thanks very much.
There are no further questions at this time. I would now like to turn the floor back over to Perry Sook, Chief Executive Officer, for closing comments.
Thank you, Maria. Nexstar posted another strong quarter of financial results. We continue to execute on our strategy, focused on levering our linear, digital, mobile, and streaming assets in new ways to drive increased monetization and growth across our entire portfolio. While we are performing well now, we are very optimistic about 2024, as we will have the wind at our backs with what we anticipate to be an economic recovery, the full year impact of our 23 distribution contract renewals, moderating losses at The CW, and what is expected to be a record-breaking political year, also in a declining interest rate environment. Our strong free cash flow allows us to return a significant percent of that to shareholders in the form of dividends and share repurchases, while maintaining very modest leverage and pursuing strategic opportunities to further enhance shareholder value.
Thank you, everyone, for joining us today, and we look forward to speaking to you again in November, when we report our Q3 results. Maria, I'll turn it back to you.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.