EARNINGS CALL

Sook Sounds Positive On Revenue, Retrans

The Nexstar CEO tells analysts the third quarter looks good for auto advertising, continuing growth in mobile and Internet-based revenues. He also says retrans negotiations are underway with Fox and NBC and “no network … has asked for more than 50%.”

The underlying causes of current gyrations in financial markets aren’t the same as those that ushered in a recession and delivered body blows to broadcasting, Nexstar boss Perry Sook observed during Tuesday’s second-quarter earnings conference call.

While acknowledging that today’s economy remains challenged by high unemployment, and domestic political infighting over debt and budget issues, Main Street appears to be taking it in stride, Sook said.

“The pullback in 2009 was driven by a lack of available credit,” he said. “I don’t think the stock market affects Main Street as much as the availability of credit.… When you tell me people can no longer get car loans, or loans to buy furniture or a refrigerator, I’ll tell you that will affect our a market.

“Main Street is where we live. People are concerned about Wall Street but it’s not their life. We have not heard anything to date that we would consider alarming.

Life goes on. Traffic was just as bad coming in to the office today as three months ago. I don’t want to be Pollyanna, but the slowdown in 2007-09 was driven by lack of available credit.”

When that downturn came, it was clearly signaled by an abrupt slowing in ad pacings and delays, often until the last moment, in ad buys.

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Nexstar’s third-quarter projections, while cautious, indicate that’s not the case now. Those projections are consistent with sector peers: namely, improvement in auto advertising, possible fluctuations in other ad categories, continuing growth in mobile and Internet-based revenues.

“Again, not to be Pollyanna, but we think this is a pretty good time to be in this business,” Sook said.

One indicator that Nexstar’s bullish on broadcasting: the recently completed $20 million purchase from Liberty Media of WFRV in Green Bay, Wis., and WJMN in Marquette, Mich.

And just yesterday, the group announced plans to purchase WEHT, the ABC affiliate in Evansville, Ind., for $18.5 million.

Acquiring WEHT gives Nexstar a Big 4 network presence in Evansville after a year of negotiations with Fox failed to yield an affiliation agreement for WTVW in the same market.

Other than acknowledging the company’s recent disclosure that it’s working with Moelis & Co. in exploring “strategic alternatives,” including a possible sale of the company, Sook did not discuss broadcast M&A in any depth.

Nexstar’s well-documented contretemps with Fox arose during today’s call. Sook and Tom Carter, Nexstar CFO, referred to the “group of eight” — its eight remaining Fox stations where affiliation negotiations continue.

“Those (stations) are parts of existing virtual duopolies,” Carter said. “We think we have a strong position in those markets. We have an ongoing dialog with Fox regarding those.”

Carter indicated that a failure to reach agreement with Fox would have a “nominal effect” on overall broadcast cash flow, reducing it roughly 3%. Nexstar and Fox have been unable to reach agreement on three stations so far and the loss of the Fox affiliation on those stations so far has diminished broadcast cash flow less than 1%, he said.

At the Fort Wayne station where Fox pulled its affiliation, Nexstar has exceeded its August budget by increasing local news, adding a high-school sports package and, later this year, deploying the market’s first high-def broadcasts, according to Sook.

That said, “Our goal is to try to make agreements with all our network partners,” he added. “Conceptually, no network … has asked for more than 50% (of retrans),” Sook said. “Anything at the 50% margin is pretty profitable. We just did a new agreement with ABC for 10 affiliates, we continue to have discussions with Fox and we’re now having discussions with NBC.”


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