EXECUTIVE SESSION WITH PERRY SOOK

Digital A Growing Force In Nexstar’s Future

CEO Perry Sook believes there is far more potential for growth in digital than in spot advertising so his company has been expanding its digital footprint through acquisitions. And more are likely to come. He’s on the lookout for specialized or "vertical" websites and tech companies that would help Nexstar exploit social media and native advertising.

Nexstar Broadcasting Group’s various digital businesses accounted for about 7% of the company’s 2014 total revenue of $691 million. That’s a higher percentage than most station groups, but far less than Perry Sook intends it to be.

The Nexstar CEO believes there is far more potential for growth in digital than in spot advertising.

To that end, he and digital chief Tom O’Brien have been expanding their digital footprint through acquisitions. In the latest deal, in February, they spent $33 million on Yashi, a Toms River, N.J.-based supplier of programmatic and targeted advertising technology for digital media.

And, Sook says in this interview with TVNewsCheck Editor Harry A. Jessell, more deals are likely to come. He and O’Brien are on the lookout for specialized or “vertical” websites and tech companies that would help Nexstar exploit social media and native advertising.

At the same time, he says, Nexstar will make the most of what it already has (a long string of community-branded websites that complement the 107 TV stations it operates and a well-established content management system business obtained through a series of acquisitions), while experimenting with the broadcast networks in the OTT business.

An edited transcript:

BRAND CONNECTIONS

So, why all the corporate attention on digital?

My dad used to say hunt where the ducks are. Well, the ducks in the digital pond are growing at a rate of 20% or better per year and the ducks in the television advertising pond are growing like the GDP — 2% or 3% a year. While TV is still a much bigger pond, you can’t ignore the growth factor in digital, which is why I think you need to be involved and you need to be thoughtful and you need to participate and you need to try.

What’s the thinking behind the digital acquisitions?

What we have done with all of our digital acquisitions is run them through a couple filters. First, do the companies give us additional capabilities to serve our local markets? And, second, do we have the ability to white label the technology or services and sell them to publishers outside of the Nexstar portfolio?  We have been able to do that with every one of the businesses that we have.

Everything is locally focused. We’re not looking to build a national platform or a national website or even go after national dollars to any large extent. We want the ability to go into a local market and talk about things other than advertising. Can we talk about design and hosting of a website? Can we talk about retargeting through programmatic video?  Can we talk about search engine optimization and a larger share of wallet than just the advertising budget?

All of our digital businesses on a standalone basis and taken together are profitable and have been from day one and that’s important to us as well.

Your last big buy was Yashi. How does it fit?

Yashi is into digital programmatic targeted video delivery. They have got a nice business that they have built serving midsize agencies, which can mark up the services and sell to their clients. Taking programmatic video into Group M, it’s a very crowded waiting room, but if you go to the midsize agencies, they may not see these services on a regular basis.

Bu the thing that was the most appealing about Yashi is being able to leverage our 600-person local sales force to basically take its product into communities. They would never have been able to do that, given the size and scope of their existing sales operations.  So, again, it gives us additional things to talk to people about locally. At the same time, Yashi has a very fine existing business serving customers outside of the Nexstar portfolio.  So, it passed through our filters.

You have accumulated three CMS companies, Inergize, Internet Broadcasting and The Enterprise group.  What was the thinking behind those buys?

When we started this process of acquiring and building a digital services business, we saw the CMS world almost as fragmented as the station group world. There were a number of companies all doing the same thing, virtually using the same technology,  just with different name brands. So, what we did was consolidate three of the companies  into one. Now we have one company and the fastest growing part of that business is the SaaS-based business, software as a service.

Can you explain?

SaaS is software as a service. SaaS-based businesses have a completely different economic model. Think of it as kind of cloud-based versus server-based or direct labor intensive.

Your websites are unusual in that they are branded according to the locality rather than their parent stations.

Right. Our community-oriented websites are about the TV station, but are about so many other things. It just gives us a wider space in which to build these hyper-local verticals.

How big is the basic online business?

We’re on about a $75 million run rate for total digital revenue this year. About half of that comes from advertising and services generated in our local marketplaces. The other half comes from white labeling the technology or services and selling them to publishers out of house.

The networks have put a couple of things in front of you. In the case of ABC, NBC and Fox, they offered you a chance to participate in TV Everywhere, where you would have to go to your local cable operator, get another nickel or two out of them to monetize that. Is that basically it?

I think so. We support TV Everywhere conceptually in that if you are a paying customer of Comcast or Time Warner or DirecTV or any other MVPD and can prove that, then you ought to be able to consume those offerings on any device that you own anywhere that you want.

Do you believe ultimately they will be money makers for you? How about CBS All Access? How much of the $5.99 per sub per month do you get?

It would be less than $1.

I guess that’s not bad, but we don’t know how big the business is. Taken together,  will TV Everywhere and CBS All Access amount to a material business for Nexstar?

No. I don’t see anything replacing the cable bundle because you take CBS All Access and Hulu and Netflix and something else and all of a sudden you are at $30 a month and that’s about what it would cost you to get basic cable in a lot of America with many more choices. 

So, I think these are, at this point, experiments. They are trying to find ways to serve the consumer where and when the consumer wants to be served. As a service business, we need to be doing that, but I am not sure there is any seminal moment here. A number of applications may turn into ancillary businesses, but I don’t at any point see them replacing the existing businesses anyway.

But will the ancillary services ever become important source of revenue?

All of these things, including digital subchannels, are interesting, but each one individually is not yet meaningful and I just can’t tell you which ones will or will not be meaningful five to 10 years from now. But I think that you have got to try.

What are the next steps for you and digital?

Tom O’Brien EVP of digital media] has a telephone and a hunting license. His phone has been ringing off the hook and there are plenty of ideas that have trouble figuring out a monetization strategy. There are some ideas that in our opinion have passed the peak and are on the downside of the mountain. The last thing we want to be doing is chasing last year’s trends, but there are areas that we would like to continue to acquire in to build out our portfolio.

So, what’s missing in your digital portfolio?

Well broadly, we don’t do much directly in social media. You might say, well, you don’t need to. Facebook does a fine job and that’s true. But are there ways that we can amplify that locally either through technology or some other means.

Native advertising means a lot of things to a lot of people. We are not really in the native space and then there are companies that have built nice content verticals that may have application. You could drive additional growth locally across 18% on our platforms.  So those are just few of the areas.

We get pitched three different companies a week. You sit down and you listen to what people have to say and you try and figure out if it has applications, if it can make money. You do that on a continual basis until you find things that make sense and all the dots come together.

For more on Nexstar’s digital agenda, read NetNewsCheck’s May 2014 interview with Nexstar’s Tom O’Brien.


Comments (4)

Leave a Reply

John Turell says:

March 30, 2015 at 11:10 am

What a joke. The stations are bottom dwellers. Their community content – mostly meetings – is stuff users especially millennials don’t care about. The only way they will get numbers is “buying” them through company purchases…short term gain, long term loss

Dannette Tobin says:

March 30, 2015 at 12:19 pm

If Perry wants to expand their digital footprint through acquisitions, he needs to replace his EVP Digital Media & CRO with someone that communicates more effectively with investment bankers.

Roger Lyons says:

March 30, 2015 at 3:47 pm

Nexstar is clueless on digital. They buy these CMO companies, then still apply their confusing “find a domain name long enough that no one can remember it” attitude. “Local8News.com” may work, but something like “TriStateHomePage.com” or “ArkansasMatters.com” is just too confusing.

Amneris Vargas says:

April 1, 2015 at 1:15 pm

I think Perry will stumble on a few winners at this acquisition pace. AzObserver–URL strings, in a mobile world, aren’t as important as they once were. Also, most modern browsers autofill if you’re a type-in desktop customer. Just like a TV channel number, URL string becomes less important, while URL aesthetics become more important, including article descriptions and favicon.


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