Retrans Accounts For 50% Of Nexstar Revenue Mix

Nexstar Media CEO Perry Sook says he likes to read his financial reports from the bottom up, but there was still plenty of talk about at top of the reports — revenue — during the station group’s call with analysts following release of first quarter earnings.

Total revenue inched up 1.8% in the quarter to $626.6 million with robust growth in retrans fees offset by ho-hum performance in spot and digital.

Retrans was up 13.8% to $314 million in the quarter. As it is for other station group’s now, retrans is the main revenue driver at Nexstar. It accounts for 50.1% of total revenue, while spot and digital contribute 40.4% and 8.4%, respectively.

Spot revenue dropped 6.1% to $253 million in the quarter. With political backed out of the comparisons, spot (core) was down 3.3%, which Sook blamed on revenue in the first quarter of last year being pumped up by the Olympics on NBC. NBC affiliates account for 27% of Nexstar’s total revenue.

Sook said that core will probably end the second quarter in the low single digits, even though it now pacing in the mid-single digits.

According to Sook, auto, which accounts for 23% of spot sales, was down in the second quarter, although it was better than the first quarter just as the first quarter was better than the fourth quarter of 2018.

“We are seeing growth from Chevrolet, General Motor, Suburu,” he said. “The only one that is down significantly is Chrysler-Dodge-Jeep. “That’s been a recurring story.”

The stations are focusing on increasing revenue from local auto dealerships, which account for 36% of the auto spending, Sook said. “Dealers are somewhat less profitable than they used to be so they are spending less on advertising.

“Our pitch is you don’t have to buy five auto intender sites because of duplication. Buy one and put the rest of the money into local TV, not only to build your brand but to create awareness for the auto intender site you are on.”

Turning to other ad categories, Sook said attorneys, cable, home repair and banking were up in the second quarter, while furniture, pay programming and retail were down and medical/health care and fast food were flat.

Sook said again that retrans should continue its double-digit growth for the foreseeable future, based in part on the stability in the number of pay TV subscribers on which retrans payments are based.

Subscribership is flat, Sook said, with loses by the MVPDs (cable and satellite) offset by gains by the virtual MVPDs (the likes of YouTubeTV and PlayStation Vue).

Sook reminded the analysts that Nexstar also expects retrans revenue to grow when it applies its more lucrative retrans deals to all the MVPDs carrying Tribune stations. That is expected to yield $75 million in extra revenue.

Nexstar is in the process of merging with Tribune in a deal that will make Nexstar the largest TV station group with more than 190 full-power stations in 115 markets. Sook expressed confidence that the $4.1 billion deal would win Department of Justice and FCC approvals and close, as originally promised, by the end of the third quarter, if not sooner.

According to Nexstar CFO Tom Carter, Nexstar will also benefit from renegotiating Tribune’s network affiliation contracts when they come up for renewal.

Nexstar should be able to get a better deal on reverse compensation, the fees affiliates pay to the networks, he said.

“We think this will be the first real benefit on the scale of the combined businesses,” he said. “We think that will allow us to maximize the net retrans margins for those new agreements.”