Nexstar Media Group’s desire to own or control stations that are affiliated with the CW Network plays a large factor in which stations the company targets for a potential merger, the broadcaster’s chief executive confirmed on a conference call this week.
On Thursday, CEO Perry Sook said the company continues to be encouraged by signs that the federal government will reform and relax certain media ownership rules, which currently limit how many licensed TV and radio stations a single broadcaster may directly own.
Like some of its peers, Nexstar has effectively sidestepped a federal rule that caps the number of broadcast stations it may own by using local marketing agreements (LMAs) and shared services agreements (SMAs) with shell companies, including Mission Broadcasting and White Knight Broadcasting.
In the past, Nexstar has bankrolled the efforts of its shell companies to acquire more licensed TV stations, then executes LMAs and SSAs to control the finances and operations of those outlets. The move allows Nexstar to exert control over TV stations that reach more than 39 percent of the American viewing audience.
Such was the case two years ago when Mission entered into an agreement to acquire WADL (Channel 38), a family-owned, independent TV station in Detroit. The sale, which faced opposition by some industry groups, was premised on Nexstar moving the market’s CW Network affiliation to WADL on a full-time basis. The FCC gave conditional approval to the sale last year, but the strings attached were too onerous for Mission and Nexstar, and the deal was eventually terminated.
But that was under a different administration. Now, FCC Chairman Brendan Carr is calling the shots, and broadcasters have requested a number of reforms through his “Delete, Delete, Delete” initiative, which aims to take a sledgehammer to the agency’s burdensome and outdated rules.
Many in the broadcasting industry are optimistic that Nexstar and others will get their way — that, when it comes to erasing the ownership rules, it is more a matter of “when” than “if.”
Nexstar is already developing its mergers and acquisitions strategy — it isn’t clear if the company will be a buyer or seller of assets, but it will probably involve a mixture of the two.
“As many of you know, Nexstar has a well-defined M&A playbook,” Sook told investors on Thursday. “Once we identify attractive assets in strategic markets, our focus turns to evaluating synergies across these three key areas.”
One of those elements involves whether a station targeted for acquisition will be a good fit for the CW Network, Sook said. The broadcaster owns a controlling 75 percent stake in the CW Network (the network’s founding joint venture partners, Paramount Global and Warner Bros Discovery, own the rest), and executes all of its programming, financial and affiliation strategies.
Allowing Nexstar to own or control more CW Network stations will give the broadcaster greater leverage to seek higher distribution fees from cable, satellite and streaming pay TV platforms that carry the company’s local TV stations already.
Retransmission consent revenue is the second element in Nexstar’s M&A playbook — whether the company can generate a return on its programming and resource investments by charging pay TV companies more for the distribution of its major network affiliates and CW Network stations.
The third element involves acquiring TV stations in larger markets that “overlap with our existing footprint,” Sook said.
On Thursday, Nexstar said earned $1.23 billion in overall revenue during the first three months (Q1) of the year. Distribution fees drew $762 million to the company, while advertising revenue decreased 10 percent to $460 million, Nexstar affirmed.
