Nexstar’s Fox Retrans Talks Still In Neutral

Nexstar Broadcasting’s nearly year-long standoff with Fox Television over divvying up retransmission fees continues, Nexstar President-CEO Perry Sook acknowledged during this morning’s first-quarter earnings conference call.

“Of the four networks, we have transacted with two and we’re in meaningful discussions with a third,” Sook said in response to a question from Gabelli & Co. analyst Barry Lucas. “Our conversations with Fox have not progressed but that’s no change since the second quarter of last year.”

Fox is taking a hard line in retrans sharing negotiations. The network is seeking 25 cents of every retrans dollar an affiliate collects in year one of a contract. The amount ratchets up to 50 cents in year four. Sources have said those amounts pertain to Top-10 markets.

While Nexstar has one station in a Top-10 market — WHAG Hagerstown, Md. (technically in the Washington, D.C. DMA (No. 9) — most of its stations are in mid-size to small markets. The group’s 34 stations include seven Fox affiliates.

After failing to reach a blanket agreement with its affiliates, Fox threatened to “pursue different distribution channels.” It may have already signaled how it would do that. Of the Big 4 networks, Fox boasts the most D2 affiliations, with 35.

It’s unclear whether Nexstar is challenging Fox to follow through on its threat to pull its affiliations. Sook’s comments this morning were diplomatic but supportive of Nexstar’s position.

“I think at end of day both parties need each other,” he said. “I think it is a symbiotic relationship. They provide us with programming, we provide them with eyeballs and a superior distribution platform to cable and I think the ratings validate that day in and day out.”

On another front, Sook said that Nexstar’s recent acquisition of two stations from Liberty Media — WFRV Green Bay-Appleton, Wis. (DMA 71), and WJMN Marquette, Mich. (DMA 179) — may be harbingers of future M&A for the station group. But only if the economics hew to Nexstar’s strict standards, Sook stressed.

“The stations in Green Bay and Marquette were kind of a clean-up trade for Liberty Media,” Sook said in response to a question from Wachovia’s Bishop Cheen. “They fit perfectly with our strategy of bringing them under our group umbrella, applying best practices, overlaying our retransmission contracts. For all of those reasons it was immediately accretive for our company.”

Sook projected the stations will average $5 million to $5.5 million free cash flow per year. The $20 million purchase price works out to about a five-time multiple of average cash flow for 2010-11, he said.

“It’s a very high bar for us,” Sook said. “All acquisitions must be immediately accretive on a free cash flow per-year basis. Green Bay and Marquette fit that.

“I would not say the landscape is littered with opportunities like that, but there might be selectively one-off or two-off opportunities that we would evaluate.”