Nexstar believes TV station owners like itself should be in control as it forges distribution relationships in the evolving virtual MVPD (vMVPD) space, with executives saying Tuesday that the broadcaster won’t accept terms that under value its local stations and content offerings as deals are renegotiated.
The comments came during Nexstar’s fourth quarter earnings call, where Nexstar CEO Perry Sook and COO Tom Carter took time to weigh in on a CBS affiliate agreement dispute. The spat saw local CBS stations, including those owned by Nexstar, pulled from vMVPD FuboTV earlier this year.
Nexstar is among broadcasters who want to have a place at the negotiating table in the virtual MVPD landscape, where some suggest regulations have yet to catch up.
“We firmly believe that we should control our own destiny with regard to the virtual MVPDs, instead of allowing the network to negotiate on our behalf,” Carter said. “Given the lack of regulation in the digital world, it’s important that we remain united as an industry.”
When it comes to distribution agreements, station owners typically negotiate retransmission deals to broadcast local affiliate signals for traditional MVPDs such as Comcast and Charter. In the vMVPD world, individual network affiliate boards head up discussions with networks on behalf of their respective affiliates, including station groups like Nexstar, to decide whether to not they should opt-in or out of vMVPD agreements (with networks like Paramount negotiating directly with the vMVPDs on behalf of the CBS affiliates).
This approach played out recently between Paramount and CBS affiliates regarding terms for distribution on FuboTV. In the case of Fubo, the CBS affiliate board recommended that stations not opt-in to the agreement’s terms – which Carter on Tuesday’s call said were “below market value” – a direction Nexstar and others took. Since local CBS affiliate owners rejected the deal, their respective stations were pulled from FuboTV and the vMVPD has been offering a national CBS feed.
Carter noted that there are many moving parts in agreements with networks, particularly CBS where there are also linear distribution and Paramount+ agreements, which are also up later this year.
As to what the dispute between Paramount and its CBS affiliates over FuboTV means for negotiations with station owners and other virtual MVPDs like YouTube TV, Sling TV, and Hulu with Live TV, remains to be seen.
“The actions we have taken with FuboTV may or may not be representative of what we do elsewhere when other virtual contracts come up for their renewal in 2023,” Carter commented.
Nexstar “will not accept any deals that discount the value of our content our stations deliver to these platforms,” he added, noting that vMVPDs want local news and content because it’s a sought-after category from viewers.
In terms of what leaving vMVPDs off the table could mean financially, he noted that virtual MVPDs account for less than 10% of Nexstar’s gross distribution revenue. In the fourth quarter, Nexstar distribution revenue of $615 million was flat year over year. Around 40% of Nexstar's subscribers are up for renewal by the end of 2023 - including agreements with several vMVPDs - which is expected to benefit the 2024 financial year.
Sook said that when it comes to the Fubo dispute there are two main issues at play: money and governance.
“I think you’ll see affiliates continue to press the point that we should negotiate our own agreements, and that no one else should be negotiating on behalf of our content,” Sook said.
In conversations with those at the likes of Fubo, Roku or other virtual MVPDs, Sook noted providers are telling Nexstar that viewers are watching local content. “So we know we have value, individually and collectively we’ll recognize that value, and are not willing to sell at a discount or to sell on an a la carte basis,” he continued.
Nexstar is just the latest station owner to call out a desire to have a hand in vMVPD negotiations. As NextTV has pointed out, executives from Sinclair, Gray Television, and E.W. Scripps have also made comments in recent weeks. On Sinclair’s quarterly earnings call, CEO Chris Ripley suggested that while the situation with Fubo was not very financially impactful, it was indicative of change needed in the vMVPD negotiation landscape.
“I will say that there’s a growing consensus within the broadcast community and also within D.C. that this situation with the virtuals, it needs to change,” Ripley said, adding “that it really is not consistent with the way the industry is set up and the way market power should be used.”
As for Fubo TV, the vMVPD held its own earnings call just yesterday where the topic also came up, with management pointing to it as really a dispute between Paramount and its CBS affiliates.
“We have negotiated pricing with CBS, and you know, it’s their job to secure the deals with the local broadcasters,” said Fubo CEO David Gandler, while acknowledging that it’s great to have local programming.
Gandler somewhat downplayed the loss of local CBS content pointing to readily available local news on FAST platforms and the ability to find it quickly elsewhere, saying “under no circumstances is this programming required for us, given the retention levels that we’ve seen.” He said the problem “is that everyone is looking to double dip” and noted Fubo is currently in a bit of a holding pattern to see how things play out.
Still, Fubo is interested in getting the local CBS affiliate content back. “It’s certainly something we would love to return,” Gandler added.
Nexstar Q4 revenue climbs, boosted by political ad spending
For Nexstar's financial results, the broadcaster for the full year 2022 surpassed $5 billion in revenue for the first time, with this up 12.1% year over year.
In the fourth quarter, net revenue was up 19.3% to $1.48 billion, including $743 million in TV ad revenue. Nexstar saw core advertising revenue drop 3.3% to $477 million, citing softness in the national ad market, partially offset by the inclusion of The CW and a more stable local ad market. However, the period was bolstered by strong political ad revenue which reached $265.9 million thanks to the midterm election spending.
Half of Nexstar’s fourth quarter revenue was driven by distribution, digital and other revenue sources. Distribution revenue of $615 million in the period was flat, and Nexstar said it was impacted by MVPD subscriber attrition and negotiations that saw temporary removal of Nexstar and partner stations from certain pay TV systems, along with a dispute settlement. Digital revenue of $112 million was up 10% year over year, driven by The CW and bumps in Nexstar’s local digital ad revenue and agency services business.
Fourth quarter net income of $178.1 million was down from $262 million in the year ago period. Adjusted EBITDA climbed nearly 20% to $598.2 million The full year saw record non-presidential year political advertising of $505 million - $2 million less than what Nexstar generated in the 2020 presidential election year.
In a statement, Sook said 2023 will benefit from renegotiation of distribution contracts in 2022 that represent more than half of Nexstar subscribers. Next year will see a boost from the presidential election year political advertising and additional distribution contract renewals.