Nexstar Management Of CW Is Immediate

No cash is exchanging hands as Nexstar Media Group acquires a 75% controlling stake in The CW Network. In a conference call with investors and Wall Street analysts Monday morning, Nexstar EVP-CFO Lee Ann Gliha said it is “no secret” that The CW is not profitable and Nexstar expects to change that by 2025 after investing “a low nine-figure amount” to turn the network around.

No regulatory approval is needed for the deal, so Nexstar is immediately assuming corporate oversight of The CW. Formal closing is anticipated in the current third quarter.

“Nexstar’s ownership of The CW solidifies and creates better revenue opportunities for Nexstar’s CW stations, as well as other CW affiliates,” said Nexstar Chairman-CEO Perry Sook. He emphasized later in the call that Nexstar will take a “broadcast-first” approach to CW operations, rather than the current consideration of post-broadcast content monetization under the current studio owners Warner Bros. Discovery and Paramount Global. Both will continue to produce content for The CW and remain as minority owners (12.5% each). But the network’s approach is changing.

“As you’d expect from Nexstar, our first goal is to improve the profitability of The CW and more fully realize its potential as a broad-reach entertainment provider and marketing solutions platform,” said Nexstar President-COO Tom Carter.

“In the near term, Nexstar can leverage its infrastructure to reduce costs in areas such as corporate overhead, digital infrastructure, advertising sales and content and programming acquisition at The CW. While reducing costs is one path to improving profitability, there is significant opportunity for value creation by focusing on building the broadcast audience and driving new revenue,” said Carter.

As the nation’s largest station group owner, Carter said Nexstar will have a different approach than other network owners — and the previous CW ownership — in not focusing on programming “capable of crossing over to an SVOD service.”

“We will make decisions for the broadcast network based on what’s best for the broadcast audience, which we believe will strengthen ratings, drive increased advertising revenue and affiliation fees and create new revenue opportunities. When combined with our synergies, cost-savings and efficiency initiatives, we believe this strategy will create a foundation for new levels of profitability for the network,” Carter said.

“As many of you are aware,” he added, “The CW is currently the lowest-rated broadcast network, which we believe largely reflects the fact that its programming is targeted for an 18-34 audience demographic, while the average of The CW broadcast viewer is 58 years. So, over time, we will be taking a different approach to our CW programming strategy and we will leverage our experience in spending approximately $2 billion a year on programming, attracting and monetizing viewers, as well as our experience transitioning NewsNation — our national cable news network — from WGN America, while maintaining a strict focus on cash flow,” said Carter.

With news coverage of the transaction, Carter said Nexstar is already receiving inbound proposals from content producers. He said the reworked The CW will save money by increasing the mix of lower-cost unscripted programming, along with “high-quality syndicated programming appealing to a broadcast audience.”

Carter noted SNL Kagan data showing that the percentage of CW programming spend currently dedicated to original programming is almost twice that of other broadcast networks.

“We have reviewed our plan and operating strategy with our partners — Paramount Global and Warner Bros. Discovery — and our partnership resulted in them continuing to provide content, transition services and capital as the Nexstar-led CW can drive value for [their] 25% ownership,” Carter said of the new partnership.

Sook said The CW acquisition will diversify Nexstar’s portfolio of original content. “Nexstar produces over 290,000 hours of original video content per year, the majority of which today is local and national news. This transaction will increase our mix of non-news content, further diversifying our revenue streams and strengthening the appeal of our combined offering to advertisers,” he said.

He noted that Nexstar will now be a participant in advertising-based video-on-demand. Sook said The CW app is available on all major platforms, with almost 90 million app downloads and over three billion digital impressions served in the broadcast season through the end of June. “We will continue to grow this platform by adding content and leverage Nexstar’s content and other programming assets,” the CEO said.

According to Sook, acquiring The CW insures that “Nexstar has a seat at the table regarding any future changes in the network affiliate ecosystem.”

“Owning proprietary network content provides us with additional negotiating leverage and monetization opportunities for our stations,” Sook told the analysts.

The CW also expands Nexstar’s access to the national advertising market. “The CW almost exclusively sells its advertising nationally. The transaction enhances our existing national advertising revenue and presents Nexstar an additional opportunity to bundle or separately offer our network inventory with our local inventory, given the near-nationwide reach of our television assets,” Sook explained.

Nexstar did not take any questions from analysts on Monday’s call.