Gray Media Inc (GTN) 2010 Q2 法說會逐字稿

Good day, everyone, and welcome to the Gray Television's second-quarter 2010 earnings release conference call. Today's call is being recorded. For opening remarks and introductions and I would like to turn the conference over to Mr. Hilton Howell, CEO and Vice Chairman. Please go ahead, sir.

Thank you, Katherine. Good morning, and thank all of you very much for joining this teleconference reviewing Gray Television's second-quarter operating results. Bob Prather, our President and Chief Operating Officer, and Jim Ryan, our Chief Financial Officer, are also on this call, and after our respective brief comments on the Company's results this quarter we will have an open Q&A session to address any issues that any of you may have.

We released our earnings this morning, and they are posted on our website and available on the Internet as we speak, and we are very pleased that our operating results for the second quarter exceeded all of our initial forecasts. All of our major revenue classifications, local, national, Internet, political retransmission consent, and production and other revenue increased significantly, most by double digits, while our consulting revenue has remained approximately the same.

Total revenue for the quarter and year to date has increased by 16%. Although our corporate and administrative costs were up slightly in the quarter, year to date they are down by 12%. These trends have led to our operating income increasing 102% for the quarter and 119% year to date, and our broadcast cash flow increasing by 49% for the quarter and year to date. Obviously this year is a political year and year to date we have recorded approximately $8.4 million, with the great bulk of political expenditures yet to come.

As you might expect, we are very confident with regard to the balance of the year. Although we covered this in great detail in our last earnings call, on April 29 we issued $365 million of senior secured second lien notes due in 2015, which gave us a great deal more operational flexibility, and we plan on using the free cash flow generated by our stations to continue to reduce our total debt going forward.

I would also like to publicly note some of the achievements of some of our stations for their broadcasting and commitment to their communities. WKYT in Lexington has won three Edward R. Murrow awards; one for breaking news, another for continuing coverage and then a third for its website for outstanding on-line journalism. And then the Kentucky Associated Press Award has awarded WKYT.com the best TV website in the state of Kentucky. Further, WMTV, NBC 15 has also receive two Edward R. Murrow awards for best continuing coverage and best feature. And the Wisconsin Broadcasters Association has named it the station of the year and the best news operation of the year. We are very proud of this recognition of our station, as it is a strong reminder of the quality of our local news coverage and our commitment to serving our local communities.

In summary, it has been a good and solid quarter, with improving fundamentals across the entire spectrum, and we are looking forward to a strong finish in 2010. Bob, your comments?

Thanks, Hilton. I want to thank everybody for being on. As Hilton mentioned, we had a good quarter. I think the TV industry in general obviously has had a strong year. I think it's a testament to our industry that we bounced back faster than most of Wall Street and probably a lot of us predicted and I think we, obviously, are all riding the auto coming back stong into television, which I think is good for us in the long run. We're bound at the hip with the auto industry. It was down tremendously last year, it's back up, getting close to 2008 levels right now, I think. We're proud of the fact that we're running pretty much even with 2008, which was a very strong year for us.

So we feel very good about the future of our business in the short term and in the long term, and I think an affirmation is that we pretty much across the board have had good category increases. Probably the two main areas that we're down, one of them we can explain, communications. We had -- we were a big Alltel confirmer, and Alltel, when it was bought by Verizon, Verizon virtually shut off all the Alltel advertising in those markets, and they really have not picked back up the slack. They usually spend several months of assimilating phone companies when they buy them, so we expect that Verizon will be coming back strong at some point in our markets, but that's been the big difference.

One thing we're concentrating on right now -- and Hilton and I were talking earlier -- I think it's been a quiet quarter, which I think is good, as we've got a lot going on the last couple of years, but we're really working hard on local HD news. We've got -- virtually over half of our stations will be local HD by the end of the year. I think this is extremely important. I think it's a competitive advantage. If you are local HD news, I think it's a disadvantage if there's a competitor in your market that has it and you don't. We've been proud to have 24 number one stations for a long time, and we want those stations to stay number one, and very frankly, local HD is an important part of that. It's -- people are watching more and more HD, and they want to see their local news in HD. It's just a matter of fact.

I think something else, some of you probably heard me over the years in conferences talk about is that when advertisers realize their product looks so much better in HD you're going to see so many more HD commercials, and that is, in fact, absolutely happening right now, even on a local level. We're getting tremendous demand for local HD commercials in most of our markets. We're working hard to make sure we can -- we have the capabilities to do this in the stations we're upgrading to local HD, but I think you're going to see continued demand by advertisers for local HD advertising, so I think this is extremely important.

A couple other here as I know all of you are interested in retrans. As you know we'll have about $18 million in retran revenue this year. Fortunately, all our affiliation agreements are out until we start NBC in 2012 and then ABC in 2013 and CBS at the end of 2014, so we've got some time. We pretty much know what the landscape looks like on retrans at that point, so I think we're going to sit back and watch and -- but I think we'll be in a strong bargaining position when it comes around to talking to us about retrans in the future with all our strong stations.

But we're very proud of the quarter so far and the year. And like said, Hilton mentioned political. I think we should be having close to a record political this year. It seems like there's a lot of tight races all over. I think congress -- the control of congress is in a ballot so both parties are raising record amounts of money, so I think we're going to see real strong political. But at this point, like to turn it over to Jim Ryan and then we can -- we'll open it up for questions after that. Jim?

Thanks, Bob. Good morning, everyone, and I'll keep my comments relatively brief. Again, we were very pleased with the second-quarter revenue results that were up 16%. The real boost we got during the quarter, which we were very pleased to see, was national trending upward sequentially month over month in the quarter more than we had expected, and I think as Bob and Hilton had alluded to already, that's somewhat reflective of the disproportionate weight of auto in the national numbers, but very good to see those trends. We were also pleased with the Internet growth of about 15%. Strong political, as expected for Q2, and, as Bob said, we're tracking well so far for the year.

As far as categories that were up, we've already mentioned them; the main ones in the actual text of the release, and also in the text of the 10-Q, which will be filed momentarily, but auto was up about 48%, 20% of our total business. That would compare to about 15% of total business in 2009 and looking actually relatively healthy to the 23% of the total business for the quarter in 2008. As Bob already mentioned that the big down category, just as in first quarter, was the communications with the Alltel merger. The rest of the trends, as far as things being up or down, were pretty consistent with first quarter, most things being up. We're very pleased to see that. We're pleased that the operating expenses came in better than we had expected a little bit. Primarily the increase of about 2% is attributable to the variable sales costs. We had some very favorable experience with bad debts in our health expenses during the quarter, and that brought us in a little under expectation. Six month results, again, we're very pleased with.

Turning briefly to guidance for third quarter, again, we expect to be up on the high -- the range of 18% to 20% on the revenue, with $11.5 million to $12 million of that being political. Moderate growth in expenses again in Q3 of 3% to 4%, and again, mostly attributable to the variable sales costs as the revenues continue to increase. And just as in second quarter and first quarter we'll work hard on the expense side in Q3 to hopefully deliver a little bit better number than that, if we can. Obviously, the revenue growth with the moderate expense growth in Q2 gave us very strong broadcast cash flow year over year. It was up about 49% for the operating cash flow, which would be after you deduct the corporate overhead. It was up about 56% strong ups year to date. [Broadcast] cash flow was up 49%, again, and operating cash flow of about 62%.

Turning briefly to balance sheet and credit facility, our -- when we issued the new notes and paid down the senior credit facility at the end of April, we went to a first lien leverage test with the senior credit facility, and based on that defined leverage calculation, we were at 5.35 against a seven times covenant, so lots of cushion there. Total debt on the balance sheet was $880 million, cash on hand was $15.7 million, cash taxes for the quarter were about $225,000, and year to date we're tracking at about $300,000 and expect cash to be actually $500,000 or less for the full year. CapEx for the quarter was $3.3 million. Year to date it's $6.1 million. We're still tracking to probably $15 million, and as Bob said, the focus with the CapEx spend is to rapidly deploy local HD news, as well as commercial production capability at our stations as rapidly as possible. As this point, Bob, I'll turn it back to you.

Thanks, Jim. Operator, we'd like to open it up for questions at this point.

Thank you, gentlemen. (Operator Instructions). And we'll hear first from Bishop Cheen with Wells Fargo Securities.

Hi, everyone, thanks for taking -- .

Bishop, I'm glad to see you're back at the front of the line.

Well, you hit the high yield market, I can't stay away. So let me just focus on a couple of balance sheet stuff real quick, and then I'll pass it on.

All right.

The facility fee, can you remind us again, Jim, how that fee works? It is a pick accreting fee?

No, Bishop, that one switched to a cash pay on April 30, so we will be paying the interest on that in cash. The balance itself at the end of the quarter was -- bear with me just a moment -- $26.1 million, and that'll just roll into a cash interest computation. And just for simplicity's sake, any free cash flow we pay down -- generated this year that we use to pay down debt more likely than not would be used first to pay off that accrued fee, just to keep things simple going forward.

Okay, and then the last housekeeping. On the preferred, would you -- you restructured and paid off, and so that's -- I'm rounding -- $37 million, but the footnote in place, on a liquidation basis or to pay it off, remind us again what your obligation is with the dividends and anything else on the back end?

The dividend on the preferred is a 17% annual rate. It accumulates, it does not compound. That will continue until we're in a position somewhere in the future to begin to service all accumulated dividends and future dividends on a cash basis, which is still a little ways -- it would be a ways down the road for us yet. The total amount of the preferred, the liquidation value currently outstanding is $39.3 million. The total amount is -- currently outstanding, including the accumulated dividends, is $47.6 million, and the dividend number, Bishop, will show up on the balance sheet in the long-term section on its own line item that just says accrued long-term dividend.

Okay, and then the last question. As I look out to this year, other than operating, are there any chunky cash outlays, or chunky cash inflows that we should be anticipating?

Well, first of all, as far as inflows, you can have the natural cycle of the political, so that will bring a lot of cash in September, October, and the first week or so of November, because the political is all cash in advance.

Right.

So it'll be a very, very strong cash accumulation period for us. And that matches well, because we will have the first semi-annual payment -- interest payment on the new notes November 1, I believe is the date. I know it's early November, and so that'll be a nice way to match up that first interest payment there. We also -- .

But there are no tax -- .

No, the tax is -- .

--tax inflows and taxes, big chunky kinds of things coming --.

Yes, taxes -- cash taxes are $500,000 for the year, and we're at roughly $300,000 now, so that's pretty smooth. And really there's nothing else of any big consequence running through the second half of the year that would be chunky, other than the -- as I said, the obvious political and the obvious interest payment on the new notes. We will probably target some of our CapEx spend in the second half of the year, as far as the payments go, to also try to match up with the cash inflows in late September and October, just because it's a good time to pay that sort of thing when the cash from the political is coming in.

Okay, thank you. Very helpful, I'll pass it on.

Thanks, Bishop.

Thank you, Mr. Cheen. We'll continue on to Larry Schumacher with Oppenheimer.

Hi, Bob, how you doing?

Larry, good, how you doing?

Not too bad. Just basically, how much debt are you planning to pay down this year?

That's a -- we're hoping in the $40 million to $50 million range, based on political. If we hit our political numbers, we should be $40 million plus.

And did you talk about political ads, and how weak or strong they should be maybe in comparison with this new -- corporations can now buy as much stuff as -- ad time as they want and support --?

Well, they've been -- I would say we've been experiencing pretty normal so far. We're expecting probably much bigger ads going forward because of -- it looks like there wasn't as many primary battles as you would think, but the general elections are obviously shaping up to be extremely strong. There's 37 governors races. We have a good many Senate races, and we're in, obviously, some real battleground states in Nevada and Colorado and Wisconsin, Florida, West Virginia. And we're expect -- and West Virginia has to have a special Senate election to seat Robert Byrd, so we're thinking it's going to be a big political year for us.

Terrific. Great, good luck.

Thanks, Larry.

Thank you. We'll continue on to Marci Ryvicker with Wells Fargo.

Thanks, good morning.

Hi, Marci.

I have one financial question, and then two bigger picture questions. The first one is that given that local was up 6% in the quarter versus national, which was up 11.5%, and your guidance for Q3 I think includes local, again up 6% but national up 14%. I guess the first question's what is causing the gap in performance between local and national, and is it specific categories? I know, Jim, you did say that auto was up a lot in national, but is there a difference in local?

Marci, I'll -- let me take that. There's two issues there. One, national auto was down tremendously last year overall. We were not down as much in local auto as the national was, so national auto has come back strong. I think I mentioned Katz, our national rep firm, they were up -- their national auto was up 70% in the first quarter, and up, I think, 60% plus in the second quarter, so they bounced back. The national went down a lot more and it's bounced back strong, so I think that's the big difference is auto nationally went down a lot more and it's come back stronger and faster than anybody thought. So I think that's probably -- Jim may have a more thorough explanation, but I think-- .

No, Marci, I would say that in large part I think that's the primary driver. Also on a relative scale, in the big picture, our local held up relatively well last year as the national dropped, so you would have some natural differences in the percentages, as well. But to give you a feeling on just auto pace, if you look at the national business in July -- and this is again pacing, so it's just business on book, so far -- obviously July's done, but we were up plus 49% for July as of last week in national auto. We were already plus 49% for August with a couple of weeks left to maybe sell something, and pacing like plus -- or pacing at 90% of last year for September, with six weeks left to go. And the local, again, because it didn't -- the local guys are buying a little tighter in. July's plus 20, August is at parity, and September is trending well, but at about 60% -- call it 68%, 70%.

I think the other part of it is, in the local-national split, as we go into the third quarter, a little bit of national being stronger in July, August, I think is maybe a little bit of trend of buying -- starting to buy around the political season on a national level. And also, as we get into September and the bulk of the Q3 political revenue of about $12 million really lands, that's going to impact our local, as well, just from an inventory standpoint. And also the local advertisers are somewhat used to the strong political seasons, and will start buying around -- meaning scheduling around the political window. Not buying around us, but scheduling around the political window, I think, as we go into September and October, as well.

Did you have any impact last year from cash for clunkers?

I'd say it's very little, Marci, in most of our markets. We didn't see that much of it.

And then the two big picture. One, we just heard that CBS and Comcast signed a 10-year retrans agreement, which is, I think, the longest agreement we've heard of. As one of the largest CBS affiliate groups, do you have any thoughts on what this means for the industry, and why it was such a long agreement?

Marci, that's a great question. I don't know the details. I've heard some details on the O&O side that don't sound very good to me, but we're trying to find more information. But the networks have traditionally had a habit of favoring their cable networks over the broadcasters, and I don't know what happened here, but we're trying to find the details. But once we find out, I guess we'll know better, but I don't have a great feeling about it right now.

Okay. And the last question is Qualcomm seems to be abandoning its mobile TV service.

Yes.

I've been reading low adoptions for subscription services combined with other ways of watching mobile TV, like wireless Internet, so how does this impact what the broadcast industry is doing with its own mobile video initiative, specifically the open mobile --?

That's a good question, too, Marci. I'm a little concerned. There's been a split. We had a coalition called the OMBC that most all the broadcast groups belong to and about -- at the NAB I think it was 10 or 11 of the broadcasters announced they were forming a separate group called [PERL] and it was mainly the old newspaper families that owned television that went out on their own. And because of that, there's now a split between those guys and the rest of the group of stations that were out there, and I'm not sure what that's going to mean. I think it has delayed us coming up with a plan overall, and I'd say at this point, the mobile TV is in flux on what will happen there.

We're testing in Omaha, and getting ready to test in Lincoln. Technically, it's doing great, I don't think there's any doubt of that. But I think the key to that business is obviously getting devices out there that can accept live mobile TV, and whether these are mobile phones or separate devices, I think it's important that mobile phones are able to do it, because a lot of people do not want to carry around two devices. But I'd say that mobile TV is up in the air right now, as far as the future for broadcasters. I'm still optimistic, but it may be delayed a little longer than I originally thought of it actually getting implemented.

Thank you so much.

Okay, Marci.

Thank you. And we'll now hear from Aaron Watts with Deutsche Banc.

Hi, guys.

Hi, how are you doing?

Good. So two questions from me. On the network side, and I guess the cable operators as well, continue to hear talk about them thinking about putting their shows on-line, making them available for purchase, streaming, charging, not charging. Could you just talk about how you think that ultimately ends up impacting your broadcast model, if at all?

Aaron, that -- here again, that's a question for -- probably a lot of discussion, a lot of things can change. I frankly think that we have-- here again, my goal is to make us more local and more local-centric, so we're not impacted by that stuff. We get 19% of our revenue from prime time programming right now, so it's important to us, but it's not critical. But, by the same token, the prime time programs brings a lot of viewers to our station, so my goal, frankly, is for us to have more local news, more local programming, get the best we can out of our network programming. And if we do our job locally, it's going to be hard to dislodge us in our markets, because everybody out there in the media world, from Google on down, wants to try to get more local.

And we have a -- thanks to many years of excellent broadcasting in our markets, we have a lock on most of our local markets, and it's up to us to keep that. And I think we have to constantly be tweaking our news, tweaking our product, make sure we're giving people what they want, and as long as we do that, I think we're going to be in good shape. But I do think you're going to see more and more of the HULU-type things, and more and more cable trying to download programs in on the Internet and sell to people. But I think the free broadcast model is going to be around for a long time, and like I said, I think as long as we do the job locally we're going to be in good stance in most of our markets.

Okay, that's helpful. And the other one I had, just your big picture thoughts on -- I listen to your guidance and your outlook and your comments about how healthy things are, and then on the other side of the coin I look at the stock market the last couple of days and the fed's stance. I'm just curious, have you heard anything from your local team, your sales guys, on hesitancy in your local markets? It doesn't sound like it from your guidance, but is it --?

Well, we really haven't, but it's been interesting to me. I try to look at things on the big picture, and I know Jim and I have talked about what the economy looks like, and frankly, we're all nervous, but we have not seen it in the broadcasting area, as far as advertisers go. Advertisers seem to be positive, they seem to be optimistic about the rest of this year, for sure. I think it's too far to look into 2011 yet, but I think because auto's come back so strong, both on an advertising basis and a sales basis, that we're feeling a lot better. As I mentioned earlier, virtually all of our categories are up. I think the two categories that we have down are communications and restaurants, and we explained communications. So we feel real good about what's going -- how things are looking.

But I'm nervous at the same time. I was talking to [Mario Gabelli] the other day and Mario pretty much says the same thing. He thinks that there's a lot of good things happening out there, but people overall are nervous about the world situation, about the US political, about the deficit, all the things that you hear in the headlines and the news every day. But so far advertisers feel pretty good about things, and are putting their money where their mouth is, which has been good for us and good for the industry.

Okay, good. Thanks.

Sure.

Thank you. We'll continue on to Larry Haverty with Gamco.

Larry, how are you?

And Mr. -- we lost him. We'll continue on to Mr. Barry Lucas with Gabelli & Co.

Thanks, I'll sub for Larry, but I'm sure he has some -- .

All right, Barry. I don't know if anybody can speak for Larry, but go ahead.

Yes, I think you're right, Bob. Thank you. Not to carp too much, either about the second quarter performance, which was pretty good, and third quarter guidance, but it's still a little bit below some of your peers and -- .

Barry, I've been waiting for you to call. Let me give you the number, just so you -- it will make you feel better.

Okay.

If you take last year's second quarter, we were down -- Gray was down 17.1% in the second quarter last year, the industry from to TVB numbers was down 24.9%, so we didn't drop as much as everybody else. So while we haven't come back quite as strong as some of these other guys, we didn't go into as deep a hole. So we're not digging out as quite a deep a hole as most of the other groups that have reported. So I think that's the main explanation for why we're showing 16%, and other people are 20%, 21%, we didn't drop as much as the rest of the industry. And here again, I think that goes to the -- our state capitals and university markets just hadn't been hit as hard as the rest of the country I think in most cases, and number one stations also, I think, have held up better in most cases. So I think that's your -- that's my explanation. I hope that makes sense, but -- .

Thanks for flushing that out and for anticipating the question.

Okay, thanks. Thanks, Barry.

Thank you. And we have Mr. Haverty back. Your line is open.

Hi, Bob, I got cut off. I was just curious as to what your thoughts were on your utilization of spectrum, and how you think this FCC thing is -- quest for spectrum is eventually going to sort out?

That's a great question, Larry. And I will say I'm proud of the fact that I think we have more digital channels on the air than any other group in the country. We have 39 digital channels on the air. They're profitable, they're growing. I think -- and as I mentioned, we're testing live mobile with our spectrum out in Omaha and Lincoln. So we're using our spectrum like the FCC intended it to be used when they -- we worked out the deal to go digital and spend -- we spent, I guess, over $75 million now going full digital. And a lot of the bigger groups spent even more than that. So when people say it was given to us, it wasn't really. It was given to us, but we had to write a check at the same time to make sure we were able to put it on the air.

But we feel very strong about multi-cast. We think there's a lot more local programming we can do with our multi-cast channels, down to the high school football, basketball level, other local events that go on that would not only not be on a network station. And so we think we're a poster child for the right use of the spectrum. And I've been told that they -- once they have some hearings on this, that they'll probably want to hear from us on exactly what we've done, because I think we've done what Congress intended when they gave us this spectrum. And I don't believe they'll ever take it away from us involuntarily. I think they will probably, at some point, offer to buy spectrum from people who want to sell it, and I'm sure there'll be people who want to sell it, but I don't think we'll be in line to do that. We feel very good about our use of spectrum, and want to continue to grow it in the future.

Great. Thanks, Bob.

Okay, Larry, thank you.

Thank you. (Operator Instructions). We'll continue on to Harry DeMott with Knighthead Capital.

Hi, Bob, just a quick question for you.

Sure.

On your digital side, on the Internet side, you guys keep ramping that up nicely, which is always good to see. I was wondering, if I just take a look at all the impressions that you deliver, and bring it back to a CPM basis, it looks like you did, like, 540 last year, 486 this year in the first quarter, roughly about the same in the first half last year and this year, both around 480. Are you selling a lot of these ads on a CPM basis, or are you selling them on more of a sponsorship basis--?

We try not to sell CPM. We try to sell sponsorship and try to sell -- we try to sell Internet and new media, because mobile and Internet both is part of an overall marketing strategy. I think there's very few companies out there in America today that don't think they need a new media strategy, and so we try to integrate it into our overall marketing strategy for people. And one of the things we've worked on real hard is going after people who are not traditional TV advertisers, and convincing them to advertise on our websites. They're all mobile, and also ideally big TV spots, too, but I think the mobile especially is going to continue to grow like wildfire.

I think you're seeing Google, Yahoo, everybody out there in the business is pushing mobile more and more. Google announced a few months a ago that over 35% of their searches come on mobile devices now, and they expect it to be over 50% in the next year or two. And I think with the social media things going on, those are mostly mobile oriented, seems like with Facebook and twitter, obviously, so we're pushing hard on our mobile strategy. We're working hard on a mobile couponing venture right now that we hope to get started in the next couple of months. We have a new mobile venture that actually one of our managers pretty much started an initiative of his own, related to mothers and going after moms, has done real well in some of our markets for testing. So we think new media is going to continue to grow, continue to be a bigger part of the advertising pie, and we want to make sure we get more than our share of it.

Got it, and just one follow up on that. Who -- what would you say the percentage of advertisers who advertise either digitally or mobiley are actually just exclusive to digital or mobile, as opposed to already being customers who are on the TV?

That's a good question. I don't know the answer, but I'll try to find out. I don't -- that is a good question.

All right, I appreciate it, Bob.

No, we've probably got the data with our Internet people, I just have not -- I'll find out, though, and I'll know the answer and get it to you.

Thanks so much.

Okay.

Thank you. We'll hear from Steve Carboni with GE Capital.

Hi, two quick questions, one on BCF margins, I actually expected them to be a bit higher given all the cost take-outs that you guys had last year, and then the rapid growth in sales. Could you just give me an idea of -- do you expect margin expansion as we get into the year, or do you see margins remaining consistent?

No, you're going to get, definitely get margin expansion -- significant margin expansion as you continue to progress through the year. The political is going to come in, and really you can think of those, especially in the peak political season, other than paying the national sales rep commission -- or if it happens to come through locally, although most of it's national sales rep, their commission, those dollars are coming in on the margin at about somewhere between probably $0.85 and $0.90 on the revenue line. So you'll definitely get expansion as you go forward.

Okay. So you figure maybe another three or four points?

Jim?

Yes?

He asked you another three or -- .

Yes.

Okay.

One thing I might mention on that, there's a little bit -- we probably ought to figure out a way to break it out better, but we have what we call our legacy stations, and then we have our digital channels, and our -- we have three new stations we basically put on the air over the last three years, four years, that are still maturing. So I think if you take our digital channels out and those new stations out, with our traditional legacy stations, our margins are 3% plus higher right there than -- so we probably ought to break that out so you can see it better. But we continue to think we have right near the top of the industry in our margins, and we think we've done a real good job holding our costs down over the last few years. And so we're proud of the fact that we try to keep our margins right at the top of the business. But as Jim mentioned, as the year rolls on -- we give raises at the beginning of the year, that affects us a little bit, but as the year rolls on, that rolls off and by the end of the year our margins, usually-- and especially in a political year, are right at the very top of the industry.

Raises? Are people still giving raises?

We actually do-- we have good employees who have been around a long time and we feel like -- .

Sure, just kidding, just kidding. And one bigger picture question. Looking at -- you've made the point over several calls that your local revenue has been more resilient than the industry, and definitely more resilient than national, and obviously, more resilient than auto. Now, as we see auto start to ramp back up, is there an effort here, is there a strategy here to prevent that 30%, 35% auto exposure from coming back and continuing to grow at local non-auto, or is --?

Ours traditionally been around 25%. We dropped down to around 17% in 2009. Frankly, it's hard to replace that. The auto business is good business for us, so we would like to be less dependant on it, but we haven't found anything that we can readily jump on that can replace it. So as I mentioned earlier, we're pretty much joined at the hip with the auto world. I think that 2008, 2009 was a real aberration for the industry. I think you obviously had a huge shakeout in the American auto industry with Chrysler and GM. I think Ford was a great example of a company that stayed the course, and it's paid off for them, without any federal money. And GM had a big profit, as I guess you saw, $1.3 billion for the quarter and getting ready to go public. So I think there are a lot of good things going in the auto.

Toyota had their problems, although probably actually helped to advertise them, because they've had to do a lot more image advertising than they've ever done in the past, and do a lot more specials and deals to get people back in the showrooms. So all those things probably -- we saw a good bit of pop in Toyota, which I think will continue for a while. But we are dependent on auto, and we -- like I said, we'd love to find something we could replace it with easily, but it's the good news and the bad news for us, I guess you'd say, but we want to get as much -- it's kind of like political, too. Political's great every other year, and we don't turn any down, but it obviously makes the numbers jump up and down between the years, but it's good money when it's coming in.

Okay, understood. All right, thanks. Good quarter.

Yes, thank you.

Thank you. And we'll now go to Matt Swope with Gleacher.

Good morning, guys.

Hi, Matt.

Bob, could you comment on what you think the impact of the Comcast-NBC situation might be for you guys ultimately?

I think it's going to be good for the industry. I think Comcast is committed to probably spending more money developing programming than GE had been. I think this new management coming in is probably going to be good for NBC. They've been kind of wallowing around at the bottom of the network pile for a while now, so I don't think it could be anything but good in the near term. Long term, I'm not sure, but I think over the next five years it'll be very positive for our stations and for the industry in general. NBC's very important to us. They're -- we have 10 NBC stations, but they're pretty much close to equal cash flow-wise to our CBS, because they're some of our bigger markets and some of our best stations. So NBC is very important to us, and if they're doing good things there, it's going to be good for us.

Are there any early indications through the regulatory process of what their programming strategy might be? NBC has obviously struggled the last couple of years, and the Leno experiment didn't go very well, and is there any early indication what they might do?

I think they're going to do better than that. Here, again, I think one of the things they want NBC for is to create programming for NBC, and then to go on to cable networks afterwards. So I think you're going to see a big push, both spending money and developing new programming, so -- and they can't do much worse than NBC's done over the last two or three years, so I think it has all upside to it.

That's great. Thanks, Bob.

Okay, thanks, Matt.

Thank you. And we'll take a follow up from Bishop Cheen.

All right, Bishop, you like to be first and last usually, so what you got?

Book ends. Okay, so it was a very sappy answer you had for Barry on why you guys, on the rebound, seem to be less compared to the peers, but you weren't down as much. So as we look out at Q3 -- and I'm just rounding here, but I think you were down something like 19% in Q3 on total net revenue, and like, 18% in Q4. When you -- .

Hold on -- .

I don't mean to sand bag you.

No, no. Q3 we were down -- .

Total net in Q3, Bishop, we were down 20%, and in Q4, I believe we were down about 17.5%.

Okay. So when you look at the same principle of buoyancy, do you -- how do you look at that? Was that a bigger hole, should your rebound be more or less, et cetera?

Here again, fourth quarter came in better last year than we thought, so we probably won't have as big a jump in fourth quarter, although political's obviously a key factor of all this. But if you take political out, just core business, I think third and fourth quarter are looking both real strong right now.

Okay.

And national seems to be holding up real strong, and our guys tell us that they're seeing pretty strong indications through the end of the year right now.

So three months from now, you don't feel like you're going to be parred with a, gee whiz, our rebound was different -- .

No, I do not.

-- from the peer group. Okay. And then one other question on retrans. I know you do keep track of it, and you indicated that again, although as I remember, you don't face any big negotiations for a couple of years?

No, 2012, 2013, and 2014, NBC in 2012, ABC 2013, and CBS the end of 2014.

Right, okay.

Now that's on the network side. On the retrans side, we'll be negotiating again with the cable guys at the end of next year, so we'll actually have a second round done with the cable guys before we have to deal with any of the networks. So we hope to get a nice increase in 2011 going into 2012.

Where I'm go with this is, when you think about it coming up on the retrans, and then you have your network partners, how much of retrans do you think you're going to get to keep a year, two years--?

We're going to plan on keeping a lot of it, all of it right now. But here, again, I think one way or another we're going to -- at that point, the die is going to be pretty set. Most of the big groups will have done deals with the networks at that point. ABC's top 10 groups are negotiating with them since December, and it's still at a stalemate. First Belo, Cox, Allbritton, they're all in a -- Meredith is stalemating with ABC on retrans right now. But I think we're going to emphasize how strong our stations are, and how important that we bring viewers to all of these networks and not vice versa. They -- we are 50% higher, sometimes even higher than that, audience on our local programming over the network programming, so we're going to emphasize that we're just as important to them as they are to us. And I think that's going to be the key to our negotiating.

So you're not -- you don't sound fearful that the die will already be cast by the time you get down to --?

No, I think it's -- there's going to be some die cast, but I think individual groups, we need to make our own points of why we think we -- here again, like I said, I think we can prove to all three of the networks that we bring a lot more viewers to them than they bring to us, and that we -- our local product is extremely valuable to them in the long run.

Okay, may the wind be at your back. Last question, Young Broadcasting and your consulting business. Is there any -- I know you have -- I think, as I understand it, you would get a piece of upside as it continues to find upside, but that may be many moons away. Is there any reason to think differently?

No, that's a three-year deal. The bank group obviously could sell Young anytime during this period, and if they -- we'd get a piece of the upside on the sale. We hope to be having our regional vice presidents actively involved in Young in the next -- near future. I don't want to give any timeframe, but we're basically waiting to hear back from the consultants to the bank group on setting up some meetings, hopefully soon, to start getting involved with their budget process for next year, and start visiting the stations again. Young's having a good year, and like I said, we've been fortunate, we've been getting paid and we appreciate that, but we would like to be in there because we -- there is an upside. If we can make those stations run better, upside on the local -- on a yearly basis and on a long-term basis. So we're looking forward to being actively involved in helping manage those stations.

All right. Robert, pleasure to listen to you and Jim. Thank you.

Always, Bishop, thanks.

Thank you. We'll take our final question from Stephen Weiss with Banc of America-Merrill Lynch.

Okay. Hi, good afternoon.

How are you doing?

Good. I guess my question's really on M&A. I know, Bob, when we spoke last, you said you didn't really see things happening as fast as maybe some of your peers in the industry have suggested it might transpire. I was just curious, now with EBITDA coming back toward peak levels pretty quickly, financing costs low, and all the money that we know about sitting on the sidelines in various buckets, do you still see that being the case?

Stephen, I still don't see much. There's a log jam there around the banks. The banks still don't seem to be anxious to loan money on deals, especially, most of the broadcaster's are still fairly highly leveraged. And for example, if you put two of the big groups together right now, one of those group's bank debt has to be refinanced, or both of them a lot of times, and I'm not sure banks are really ready to do that, and I'm not sure the companies are ready to do that. Most everybody refinanced their debt over the last 12 months and got pretty favorable terms, and so I think people would be reluctant to bust those deals up unless they felt they'd get better terms, which I'm not sure are out there. So there may be some smaller deals get done and some deals -- maybe some station trades or duopoly type deals, but I really don't see a real push right now for a large-size M&A transaction.

That may change -- that can change tomorrow. As you know, the bank windows open and close pretty fast, but right now I don't see them being open for what I would call traditional M&A deals in the media business. Like I said, that can change tomorrow, but I think we still have a while before you see big deals done, even a stock deal. Here again, you have to change the control where one of the bank groups usually has to -- has a bank debt paid off and refinanced, and I think that's the real sticking point in a lot of cases.

Okay, that's helpful. I guess my last question is on -- I know it's very early to think ahead to 2011, but I guess just conceptually, historically there's been a pretty vicious swing between the even and odd years in this business. I guess I'm just curious, theoretically if there's reasons to believe it could be less severe on the down turn this time around, just for sheer reasons of the depth that we've come out of here on the downturn, as well as the development of the retrans and digital and other revenue streams. Is there reasons to think it could be less severe going forward?

I certainly hope so. I think that's a big $64 question for everybody. Right now, we're pretty positive about the business. I think, here again, a lot of it depends on how people feel about the economy after the election's over. I think what happens in November, the election's going to have a lot of things to do with people's psyche as far as the economy goes.

I think we're still vulnerable to what happens around the world. I don't -- I never thought I'd live long enough to wake up in the morning and be worried about what was going on in Greece, but as you can see, it had a pretty dramatic effect on the markets earlier in the year. And I just think we're in a global economy now, we're subject to a lot of factors that we hadn't been subject to in the past. So I'm cautiously optimistic about 2011 right now, and I think most people I talk to feel the same way. I just think the key is how the American consumer feels after the election, and going into next year.

Hello?

Yes. No, that's helpful. The only reason I ask is, it seems like if you look at a lot of the forecasts on the Street at the individual company level, you don't see the severity in the forecast for next year on the downside that you would have typically seen in years past.

Well, here again, I think most people are pretty optimistic right now, based on the big come-back in auto and the come-back in the general advertising market overall. So I think that's probably -- and we had such a dip in 2009, that I think everybody feels like that we won't have anywhere near that kind of dip in 2011.

Okay, I appreciate your comments.

Yes, sure, Stephen.

Thank you. And, gentlemen, we have no additional questions. I'll turn things back over to you for any additional or closing remarks.

Thank you very much, operator. I want to thank everybody for being on the call, appreciate all of your support. As we always say, we're easy to find, so if you have any further questions don't hesitate to call us anytime, and we'll look forward to hearing you -- talking to you on our next quarterly conference call. Thank you, everybody.

Thank you.

Once again, ladies and gentlemen, that does conclude today's presentation. Thank you for your participation, and have a great afternoon.