Nexstar Media Group Inc (NXST) 2004 Q4 法說會逐字稿

Good day, everyone. Welcome to the Nexstar fourth quarter earnings results conference call. All statements and comments made by management during the conference call other than statements of historical fact may be deemed forward-looking statements within the meanings of Section 21 of the Securities Act of 1933 and Section 21A of the Securities and Exchange Act 1934. Our future financial conditions and results of operations as well as forward-looking statements are subject to change. The forward-looking statements and comments made during the conference call are made only as of the date of the conference call. We do not have to undertake any obligations to update any forward-looking statements reflective of changes and circumstances.

At this time I would like to turn the comments over to Mr. Perry Sook, Chief Executive Officer. Please go ahead, Sir.

Thank you, James, and good morning, everyone. Thank you all for joining us today as we review and discuss our fourth quarter 2004 and full year operating results. With me this morning are Bob Thompson, our Executive Vice President and Chief Financial Officer and Shirley Green, Nexstar's VP of finance.

I will get right to the numbers and then we'll all make time for your questions.

Nexstar's reported net revenue for the fourth quarter of 2004 increased 19.5 percent to 70.5 million versus 59 million in the fourth quarter of 2003. These results are ahead of the guidance we issued last November. Our core advertising revenue during the period excluding political grew 5.9 percent while our gross political revenues were 12.9 million for the quarter against 2.2 million in the fourth quarter of 2003.

For the full year, Nexstar's total net revenue was 245.7 million, an increase of 14.7 percent from the 214.3 million we delivered in 2003. Our television stations generated an all-time high of 3.3 million in new local direct billing in the fourth quarter of 2004. And of the 14 markets we operate in where the market revenue was audited, our Company gained revenue share in 10 of those markets.

Our top 10 category billing was up for the quarter, which we think is significant, given the amount of political dollars competing for the same inventory. Specifically, automated advertising showed growth for the 11th consecutive quarter with substantial increases coming from Chrysler, Dodge, Jeep, Mercedes, Toyota, Honda and the Lincoln Mercury Dealers Association. Other category increases came from department and retail stores, furniture, infomercials, and legal while fast food, medical, cell, telecom (ph), banks and the packaged good categories showed decline.

On the expense side of the ledger, our fourth quarter reported station direct operating expenses, SG&A and cash program payments increased 2.4 percent to 34.3 million from the 33.5 million in the year ago period. Our corporate overhead, on the other hand, declined 6.8 percent from 4.4 million in the fourth quarter of 2003 to 4.1 million in the fourth quarter of 2004. This resulted in a 61.4 percent increase in adjusted EBITDA to 25.5 million in Q4 of 2004, up from 15.8 billion in Q4 of 2003.

On a pro forma basis, our Q4 2004 net revenues increased 14.3 percent and our pro forma quarterly station operating expenses declined 5.4 percent.

With that information, I'd like to turn the call over to Bob Thompson, our CFO, to review the financials in greater detail and I will return with some additional comments in just a couple of minutes.

A quick disclaimer, Bob is recovering from a bout of laryngitis, so please bear with him this morning. Bob.

Thanks, Perry. I'm going to first review our capital structure and then address some of the income statement items. Our cash on hand at December 31st, '04, was $18.5 million. At the end of December, there was 233.8 million outstanding under our term loans at $21.5 million outstanding under our revolver as Mission (ph) borrowed upon the acquisition of WTVO.

Our debt at December 31st, 2004 consisted of the following balances. As mentioned under our term loan, $233.8 million. Our revolver at $21.5 million. Our 12 percent notes had accreted to $156.4 million. Our 7 percent notes at $125 million, which gives operating company indebtedness of $536.7 million. Additionally at the hotel (ph) level, we have the 11 3/8 notes which accreted to $90.7 million, yielding debt through the (indiscernible) of $627.4 million.

Our corporate overhead costs were $4.1 million for the quarter, compared to $4.4 million incurred in the fourth quarter of 2003. Corporate overhead costs totaled $2.9 (ph) million for the year and was impacted by Sarbanes-Oxley compliance costs which totaled about $1.5 million in hard costs during the year mostly in the latter half of 2004.

Our free cash flow for the quarter was $12.1 million and comprised of the following -- EBITDA of $25.5 million less CapEx of 3.2, giving us total capital for the year of about $10.6 million. Our cash interest costs were $10.1 million and our (indiscernible) fees of approximately $100,000 yielding free cash flow of $12.1 million or approximately 43 cents per share.

Our leverage at December 31st as defined in our senior credit facilities was 5.9 times versus a covenant of 6.5 times at year end. Our operating Company indebtedness as mentioned earlier was $536.7 million, less $15 million of cash on hand which is the allowable deduction of cash on hand and in our credit facility yielding net debt with covenant calculations of $521.7 million.

The last 12 months EBITDA is calculated in the quarter with our senior credit facilities as $88.5 million at December 31st ',04, and the covenant calculations exclude holding company level indebtedness of the $90.7 million.

In January, Mission Broadcast and Nexstar's broadcasting associate closed on its acquisition of WTVO TV, the ABC affiliate serving Rockdale, Illinois, for approximately $20.75 (ph) million. Nexstar entered into a local service agreement with Mission for WTVO and began providing service to the station through its owned and operated stations WQRF TV on November 1, 2004.

Accordingly contributions from WTVO are included in our reported results for November and December of the fourth quarter and the October results are included in our pro forma results for that same quarter.

On March 2, the Company announced that it called for redemption of all $160 (ph) million in aggregate principal amount of Nexstar Broadcasting Inc.'s outstanding 12 percent senior subordinated notes that are due April 1st, 2008.

The redemption price is $1,060 per thousand principal amount outstanding plus accrued and unpaid interest to the scheduled redemption date which is April 1st, 2005. The Company intends to fund the redemption of these notes from fully committed financing sources.

Thank you, Bob. In 2004, we successfully integrated over 20 television stations into the Nexstar operating model. We more than doubled the size of our portfolio. The biggest pieces of that integration were the former Quorum (ph) stations. I think our results there are indicative of the hard work and focus on successful integration at all of our recently acquired property. Specifically, at these stations -- the Quorum stations -- in 2004, we developed in excess of a $3 million revenue increase in net revenue; and we gained overall market share.

We added a total of 11.5 hours a week of local news and at the same time, we reduced total station operating expenses by approximately $6 million. All this led to an 11 point margin expansion and approximately $9 million of additional station operating income from the Quorum stations in 2004.

Completing the successful integration of so many new stations was a significant accomplishment in 2004 and I feel we're now poised to deliver greater returns from all of our developing stations in the periods ahead.

Our political revenue was the third largest revenue category in 2004 for our Company, comprising approximately 11 percent of our total advertising revenues. We expect to see less than $2 million of political revenue as a company in 2005.

We issued full year guidance for 2005 on December 8th of last year which we reaffirm today. That guidance projected reported net revenue to decline approximately 3 to 5 percent from 2004's levels.

Our first quarter of 2005 outlook is consistent with those full year guidance assumptions. We expect reported net revenue to be approximately 51.5 to 52.5 million against the comparison of 54.2 million or a decline of 3 to 5 percent for Q1 of 2005.

Now to drive our local revenue increases in 2005, we will continue to focus on rolling out and successfully executing on our local sales projects and promotions, like Viewers Club, Infoline, Accuweather Messenger, News Picker sponsorships, Neighborhood Weather Network and others.

This year will be a period of focused acquisition execution for Nexstar Broadcasting group. We will concentrate our time and our resources on our existing portfolio of stations; and at the corporate level, as Bob mentioned, we are pursuing strategies to reduce our cost of debt capital. We plan to use our free cash flow to pay down debt and strengthen our balance sheet throughout 2005.

Before we open the line for questions I want to briefly comment on our current dispute with cable over retransmission consent in four of our markets. As many of you know we have denied certain operators permission to continue to carry our signal on their systems in an attempt to extract consideration for the value that our station content brings to their channel lineup. We feel that the economic model for our business is flawed and that we are not paid uniformly by those who distribute our signal and our content.

We are being paid by the BBS providers, by the cable overbuilders, and by the wireless cable providers but with few exceptions we're not being paid on a subscriber fee basis by the local cable companies. Quite frankly we see this as an unsustainable situation for our industry, for Nexstar and, ultimately, for our shareholders. If we do not pursue every chance to monetize the value of our local content, medium and small market operators like Nexstar will miss a golden opportunity to create long-term value for our shareholders. Value, we think, that our shareholders expect and deserve.

Let me be clear that this is not a fight that we relish. We regret the inconvenience that these disputes have caused to some viewers and advertisers in these markets. However, we feel we have been prudent as a company as to where, how, and why we have engaged in this battle and we plan to see it through.

We are asking for a penny a day per subscriber and we think that is a goal worth fighting for. Our Board is totally supportive of these efforts to create long-term value for our shareholders. As we look out toward agreements that expire at the end of 2005 or in early 2006, along with the rest of the industry, we will valuate each of the agreements in our Company and decide how best to proceed in the interest of our shareholders.

With that said, Bob and Shirley and I will be happy to entertain any questions.

(OPERATOR INSTRUCTIONS) Victor Miller with Bear Stearns.

Couple of questions. First of all, in the quarter, you seem to have the highest level of revenue growth for the year obviously due to political. But you also seem to have the greatest decline in expenses for the quarter. I mean, for the year, which is a an unusual combination. Maybe you can talk to us about what is happening on the expense side and how we look in expenses in '05? Secondly, your political second quarter relative to first quarter is not as wide as most. Some companies have as much as 50 to 100 percent more political in second quarter then they did in first.

I'm just wondering what was the big races in first if you could just remind us because, obviously, that would mean your first quarter relative to other first quarter companies' guidance might be a little worse. And in fact it seems to be, relative to the industry, a little bit worse. Probably because of that extra loaded political, I am assuming. Maybe you could just give us some insights on that?

Q4 expenses for the Company. One of the main drivers in the decline was in the program expense line which was down double digits in Q4, which was primarily the result of negotiation and renegotiation with program contract and selective program buyouts we did with the Quorum, concurrent with the acquisition of the Quorum stations which we began running in September of last year. So that was one of the big drivers that helped and caused our expenses on a pro forma basis to be down proportionately more in the fourth quarter of 2004.

Bob, do you have anything you want to add to that?

Additionally, as we look into Q1 on a pro forma basis we will obviously expect expenses to be down again. Especially given that WTVO we just began operating in November this year. So we will be going on a pro forma basis against cost basis including WTVO in Q1 '04. So once again, we will expect on a pro forma basis to be down in Q1.

Your political question -- obviously, this is going back a year now, but we had a number of the Super Tuesday -- both the early Super Tuesday as well as the March Super Tuesday states that were contested for the presidential elections and we did see a fair amount of money in the first quarter of 2004 for those reasons.

One follow-up. On the buyout, how much money did you spend in the buyout of the programming and how much did that clip out of the film payment?

Buyouts last year were approximately $1.1 million between buyouts and some accelerated payment catch-up from the Quorum stations.

And that was just from fourth quarter or that is the entire year?

Just in fourth quarter last year.

Sean Hudson (ph) with Legg Mason.

Couple of questions. I suppose the first one is, on the retransfer front with cable, how much revenue impact do you think there has been in the first quarter from your advertisers? Then, also related to that, from what I've been seeing -- we have been checking around -- it looks like the satellite guys have been seeing a significant increase in their subscribership. And I just wanted to confirm that. Also have there been any improvements in the negotiations or is there pretty much still a standstill? I see that at least I think that some of the cable guys are offering HBO free to their customers which, if that is true, then they are paying HBO a lot more than a penny a day per sub per month. And just wanted to check on that as well?

Sorry to give you a laundry list here but I also read something about one of the cities that you are in, the local official is suing the cable company, because they are saying as part of their franchise agreement they have to offer this contact. And do you think that is likely to stick? And sorry to give you a laundry list here but it is all related to retrans.

Let me comment on everything that you've asked. Here is what we have learned in the first two months of the fight. And, again, this affects four of our 27 markets mainly Shreveport, Texarkana, Abilene, St. Angelo, Texas and Joplin, Missouri.

Our cumulative advertising losses due to the cancellation in the 4 affected markets is a low six-figure number in total and then -- by the way, that is less than a third of what we had forecasted with our Board and the forecast that is embedded in our 2005 guidance. We don't think that is a significant number relative to the approximately $.25 billion dollars in ad revenue our Company built last year.

But, we understand that the cable operators and these 4 affected markets have lost between 10 and 20 percent of their subscribers on these affected systems in the first two months of the fight. You are correct that we have been a boon to the DBS providers in these markets. Just anecdotally, we understand that the installation backlog for Dish Network in Joplin, Missouri, is now into mid-April.

There is a situation in the Bossier City, Louisiana cable system that all of that what you said is true. The city of Bossier City has filed suit against the cable operator there, saying they are in violation of their franchise agreement and -- because they are not offering the local ABC affiliate with our station. We'll see how that plays out. There is really a mixed bag of local regulation and federal regulation when it comes to franchise agreements vs. federal regulations.

But it is obviously an issue that the cable operator will have to deal with and respond to; and it is that same system that is offering either 20 percent off your cable bill or a free premium channel for customers that stick with the cable operator every month that we are off the system.

Anecdotally, I have a friend who owns a business and is a subscriber of that cable system. And he came up to me at a charity function not long ago and said, "You realize that they are paying me $20 a month because my cable bill is $100 a month. The 20 percent absolution so they don't have to pay you 30 cents a month." He said, "I don't who is making those business decisions but I'm laughing all way to the bank."

Can you -- yes, it is interesting to see what the cable guys -- what lengths they will go to not to pay you a penny a day. Can you maybe just comment on the potential? It sounds like the impact is maybe $100,000 a month or something like that to your revenue.

Can you just talk about how big the potential could be for these stations and then also for the total Company if they do pay you a penny a day?

Yes. The impact in the first two months has been incrementally higher than the number you added. Not significantly, but it's been a little bit higher than that. However if we were to garner 30 cents per wired home in our universe of wired homes in our 27 markets, uniformly that would add approximately $20 million to EBITDA.

Obviously that won't come all at once if we are successful; but that also does not count the wireless, the overbuilder or the DBS subscriber payments which are already coming into the Company.

David Bank with RBC Capital Markets.

Two questions. The first is, Perry, can you give us a quick review of your current perspective on the regulatory landscape as looking at a new FCC chairman and all that and how that impacts what you see as the future of TVD reg or Re reg?

And then for Bob. Can you just give a quick reminder of what the annualized expense savings is from the call of the senior subnotes?

I'll go first, David. Thanks for your question. Our -- it is only our Company perspective on the FCC, but we would expect that Commissioner Martin is the odds-on favorite to become the new, the next FCC chairman. Obviously, if that happens it would have the cascading effect of -- with Commissioner Abernathy leaving that the administration would be in a position to appoint two new Republican commissioners to the FCC.

We would expect one of those most likely would be a Texan.

So, incrementally, we think that as dereg matters might affect our Company that we might be in a slightly better place. However, we don't expect that this will necessarily move swiftly.

We support the efforts of Sinclair and Tribune and Media General to attempt to force the Supreme Court to hear the case and resolve the differences between the Third Circuit Court and between the D.C. Circuit Court. We wouldn't want to handicap whether the Supreme Court would actually take that case or not. But we support the efforts obviously to try and bring these issues to a head.

We've said all along that we expect the impetus for a rewrite of the regulatory rules and, hopefully, deregulation that would level the playing field for small markets to catch up with the dereg that has already been offered in the big market would most likely come through Congress or the courts. We don't expect much activity at the Company, quite frankly, in 2005 and think that it is more 2006 and beyond that this would receive a fresh look.

Just as an aside, we are meeting -- as a Company, we have tapped each of our 27 General managers to meet with every one of the Federal legislators that are touched by their signal to basically make the case for small market and medium market television. That is the current regulatory landscape favors the larger companies, we feel, at the expense of the smaller companies that have to compete with and do business with them.

And while we don't begrudge the larger companies two networks, two stations in virtually all of their markets, we also think that that same regulatory team should allow us to own outright two UHF television stations in Rockford, Illinois, or Erie, Pennsylvania. So we will be making that case in our newsrooms, in our conference rooms when every one of the Federal legislators are back in the district, and obviously talking about the value that we provide local service and that we would like to continue with that. And it will only be through help from deregulation that we will be able to continue to enhance our level of service to our local communities. Bob.

Given the current interest rate environment and markets, I think you can very conservatively assume and interest rate in the 7 3/8 to 7 1/2 range and I expect refinancing to be better than that. But that would obviously yield you a free cash flow pickup of better than a 7.25 million on an annualized basis. And, once again, I think our opportunity is better than that. I think that will give you a conservative estimate.

Bishop Sheen with Wachovia.

Just a couple of housekeeping questions. Did you give us any guidance on your CapEx going toward for this year? And where are you on digital compliance for all of your upgrades?

In our December the 8th release, we did give CapEx guidance for 2005, that the CapEx would be approximately $11 to $12 million for the year. That compares to the 10.5 that we spent this year. Our ongoing digital conversion for our television stations will consume a much higher percentage of that number in 2005 than it has historically. And we are on the air and compliant with all current SEC regulations. We just received construction permits for the two stations that are not on the air with additional signal yet. We are constructing those even as we speak.

And obviously, as we move throughout this process, embedded in that number is the beginning of the migration to full power and high-definition capabilities for 40 of our television stations that we have yet to build out to that level. That will be done in the normal course of these kind of CapEx numbers over the next several years.

On the corporate overhead and I know that you have historically done a very good job out of expense control but we look back through quarter by quarter and we saw the corporate overhead not just (indiscernible) but grow in leaps and bounds.

As we enter the first quarter which tends to be a lower corporate overhead number, are we closer to that traditional 2 million area or are we forever higher in this new more expensive age?

Let me comment first and then I will let Bob say a few words. Again we gave corporate expense guidance for 2005 of between 10 and 11 million. And that was compared to the '04 level that we obviously in November guided to a year-end finish of between 10 than 10.5 million. So, obviously, corporate expense is higher in the last quarter of the year than the first quarter of the year just because of the expenses that you incur to close out the year. Bob, do you have other comments you would like to make?

Certainly. The ramp you saw in Q3 and Q4, Bishop, was primarily driven through SarbOx-related cost with respect to compliance. And I'd say this would be more evenly disbursed as we look at 2005.

That is helpful. Finally, the capital outlay in January. In early January I think you completed two acquisitions. You referred to I think the total price for TVO of 20 and change. Was that a full number outlaid in January?

It was only the remainder. We made a $15 million initial payment, Mission did at the time they committed the TDA (ph) so it was 5.75 million was the remainder of the purchase price that was paid out in January.

Then in regards to any other significant outlay for acquisitions, cash filing of the year end '04, for the balance sheet. Has there been any other significant outlay or inflow in the capital?

On the acquisition front, no. We closed obviously on KLSP (ph) in November. We closed in January on WTVO and we did close in January the final payment of $7 million to close the acquisition of KFTA and KNWA which are the NBC affiliates of Portsmouth/Fayetteville and that cash outlay, that transaction was closed on January 7. So that would have been a subsequent event from the end of the year.

The last thing, Perry. On the guidance of the 3 to 5 percent of the net national and local revenue for Q1. That is really off of the actual number and not off the pro forma number vs. Q1 '04 if I'm not mistaken.

Yes, Bishop, that is correct. We gave in guidance obviously on a recorded basis of net revenue minus 3 to minus 5 with local and national advertising revenues excluding (ph) political flat to plus 2 and change, but the guidance that we gave for net revenue minus 3 to minus 5 is consistent with the full year guidance that we gave back in November. And they are reported numbers and not pro forma numbers.

Jonathan Jacoby with Banc of America Securities.

This is (indiscernible) instead of Jonathan. Nice disclosure. Very helpful. I have two questions. I know cash taxes are really small, but can you give some guidance for '05? Also, can you quantify some of the special initiatives that, Perry, you mentioned like (indiscernible) club etc.? How much do you think you can settle for against the loss from political in '05?

With respect to cash taxes we pay next year, I would expect that to be probably somewhere between a $.5 million, $1 million in total. So it will be a small amount.

I will speak to the initiatives. A number of projects that we bring out as part of each station's budget, projects we didn't talk about, the carrying Company's initiatives which is basically sponsored public service announcements. We are doing a thing in some of our Midwest markets where we are actually building a house in Springfield, Missouri. We call it Building the Ozarks and it is a way for us to basically tap into the DYI craze and also show these houses as they are being built and showcase the vendors that everyone from the plumbing contractor to the electrician that aren't not normal advertisers get paid to participate in this project. These projects on a per station basis usually vary anywhere from $100 to $300,000 of additional revenue; and it is not something that we just do in odd years. These are ongoing -- part of our vernacular in every year, one of the other things that we put in place particularly since we are in a pitched battle with cable is in all of our markets for advertising that is not on our air but on cable that we convert to our air, I've developed an incentive program for salespeople that is very meaningful so that we can go at cable from an ad sales perspective as well.

Accuweather Messenger is a project that we use to basically put branded weather content and push it to your cellphone. There is a subscriber fee revenue pieced to us on that as well as we are able -- those are highly sponsorable. Viewers Club is $.25 million revenue ad every market we roll it out in. In our Midwest and our Texas markets, we are producing not only severe weather specials in March at the front of hurricane and tornado season, but also severe weather calendars.

Again, this is all -- these are all ways that we attempt to stimulate demand to backfield to counter the churn to cover the loss of political. So in any given quarter, our project revenue as part of our total revenue will represent a midteens percent of our local revenue.

This is not really add-on or tack on. It is a way of doing business and the way we have been doing business in these markets.

Bill Meyers with Lehman Brothers.

Could you update us on your progress with respect to any asset sales and what you are projecting for year-end '05 debt? And also if you have any updates in terms of the Amis (ph) Consortium in terms of your side partnerships? If there has been any discussions of the technology? When this actually could move forward? Lastly, following up on Bishop's question if you have the first quarter of '04 pro forma basis that we could look at in growing the revenues for first quarter '05?

On the asset sales issue, we are -- we continue to be in discussions on potentially modifying non-strategic assets of the Company. I think probably the best way to characterize that is whenever we buy anything from start to close is usually at least a year. I would say that on the development of monetization of non-strategic assets of the Company, that is probably the same time line. The discussions are ongoing.

With respect to year end '05 debt, I would say to take the current '04 balances and take a projected free cash flow and apply that to your debt balances. That will obviously be our focus during 2005 to apply all our free cash flow generated to reducing leverage.

Bob, what is your comfort level from the debt leverage standpoint?

Comfort level obviously in an '05 year we will see that peak up. And we have had that cycle occur probably four or five different times in the history of this Company where operating Company leverage will go into the mid sixes range. And once again, during the even (ph) year coming '06 and with the incremental EBITDA that's driven through political and Olympic revenue we use the incremental free cash flow to further delever and then as a multiple obviously that will come down substantially in '06.

I'd like, Bill, to invoke a couple of other company names. If you go back and look at where Hearst Argyle leverage was right after they closed on Pulitzer where Lenslever (ph) was right after they closed on Sunrise. We are in a very similar range it's just obviously those companies have had between two and five years to pay down their debt and we are just starting on that. We are not uncomfortable with our current leverage, but we are focused on bringing it down more in line with the peer group over time. We didn't give guidance specifically in 2005 on free cash flow. But I think if you do the math of the numbers that are in the December 8 as well as today's press releases, you can get to a mid to high 20s number and that obviously would be used to pay down debt and continue to strengthen the balance sheet.

Bob, do you have a covenant at the Holt (indiscernible) level?

Yes, I don't have those right at my fingertips, but obviously they will be beyond the opto (ph) level.

Lastly in terms of the pro forma basis for the first quarter of '04. Just trying to reconcile that with the actual results for last year.

What numbers are you looking for specifically?

I was looking at the -- in your first quarter outlook I think when you are comparing first quarter of '05 to 50 51 million of revenue to last year's actual 49.9. So if you had the actual on a pro forma basis?

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Amerigo Cosello (ph) with Eries (ph) Management.

I'm sorry, before we take that, I want to get back to Bill. If you are just looking at the local national political revenue, I believe that is about 55.7 on a pro forma basis. And those schedules are attached to the back of our press release.

A couple of questions relative to the fight with the cablers. Do you have infinite discretion to carry that fight on under your programming units with the networks? Or is there a point at which the networks will, you think, will lean on you? Either at your renegotiation or by some other way to say "Wait a minute. We no longer have distribution," while you are out trying to garner additional revenues? Second question on the same front is, do you think that that type of fight with the cablers is possible in all of your markets? Or is there something unique about those specific markets in which each of those four markets you've chosen to ask for some payment in?

Lastly, relative to DVRs. Now that we have had much more penetration of DVRs, is it something that is scarier than it was a year and a half ago? Is it less scary? Can you give us some color on how you think about it as a broadcaster?

Sure. Thank you for your question. Let me start with the network issue. The networks have all been very supportive of our efforts and the efforts of others to increase the value and the strength of their stations. We've basically had for lack of a better word a franchise agreement for NBC, ABC, CBS, Fox in these marketplaces. And the networks and particularly Fox came out at the affiliate meeting they had in January and said that for any station involved in a retransmission consent dispute Fox in their agreements retains the right to deliver the NFL via other mechanisms. That they would not do that. They would support the stations and would not backdoor with an NFL feed.

And the other networks have been supportive as well in that we have the network affiliation agreement, network exclusivity, syndicated exclusivity for the products that we buy for those marketplaces. So there is no way at this point in time for the cable operators to import a distant signal that would be in violation of our agreements.

As far as expanding our theater of battle, obviously, we feel that we are in about the third inning of a doubleheader here, in terms of this discussion with cable and in answer to an earlier question discussions are ongoing. They have just not been productive or conclusive at this point; but we are continuing to talk. But beyond that, there are -- where we have markets with significant DBS penetration and strong local content we think we make the case for sharing in the value that cable operators extract from their consumers in a package offering when we are part of that package.

As I said earlier in the call, we will not be reckless, we will be prudent in the way that we expand this theater of battle. But the end position of the Company and our philosophy is that we at the end of the day will not be granting permission to carry our content and our signals to folks unless they pay for it. We think the entire media model ultimately is moving more toward a subscription base consumption model and we are not going to be granting exceptions just because that is the way it has always been done. We don't think that the business as usual is an option on a going forward basis; and we can find no good reason why cable operators would pay for every other channel of their video offerings except for the ones that are most watched which are the broadcasters.

Again in markets where -- take Springfield, Missouri, as an example. The DBS penetration is roughly equivalent to the wired cable penetration in that market. That is one of our largest markets. We own the Fox station and operate the CBS station that Mission owns through our service agreement there. And Mission, as you know, has outsourced negotiation of their retransmission consent rights to Nexstar as one of the services we provide.

So we think we have a credible story to tell there and there is a credible threat of a viable alternative.

We will only expand the theater of battle if you will as franchise agreements or retransmission consent agreements expire; and we look to renew those on more favorable terms.

As it relates to DVR penetration. Our take is that we are in the local content business. Our Company today produces 529.5 hours a week of local news. We will be adding a 9:00 news on our UPN station in Champaign Springfield IL, the market's first 9:00 news here within the next month -- which will take us up to 532 hours a week of local content. Which, by our count, is more local news than any other television broadcasting company out there with the possible exception of those that are tied in with 24 hour cable network. But in terms of local broadcast news we don't think any company in the business produces more local content.

We think that that is naturally DVR, TVR, Tivo proofed. People want to see their local content, local sports in real-time and that that will be a natural hedge. While it is not as much of an issue in most of our markets as it would be in the early adoptor markets, the major metropolitan areas. The research that we have seen that has been produced are saying that people are watching with these devices perhaps more television, less of it live, but more television -- and noting scores of the commercials has not gone down at all.

They are either watching them or fast forwarding through them; but they see and get the message.

We do not expect in our Company and our universe that DVRs are going to be a revolutionary change. We think it was part of a natural evolution of the business which is ongoing.

Victor Miller with Bear Stearns.

On the public relations battle, in the (inaudible) in the case of Time Warner, Time Warner actually took off ABC in both New York and Houston and it wound up being a public relations disaster for them. In this case did you remove yourself from their cable systems? Did they take themselves -- did they remove you? Secondly I think in one market or maybe a couple of markets, you have actually produced a video which you have aired to tell broadcast TV's side of this retransmission consent story. I'm wondering whether that is resonating at all?

Again, on the political stuff. Obviously second quarter political is 22 percent higher than it was in first quarter. 71 percent higher than it was in the first quarter for third quarter. Fourth quarter's 270 percent higher than it was in first quarter last year. Yet the first quarter out of the box revenue seems to be in line with what you'd expect for the entire year. What do you expect to accelerate during the rest of the year so that you maintain the type of guidance you provided for '05's levels for the rest of the year?

To try and take those in order. We asked the cable companies and in fact demanded that they remove us as the retransmission consent agreement expired. And so it was not -- it was their choice to keep them on while we continued to negotiate. We said in essence, we have been negotiating since what we've been negotiating for twelve years since 1992. And we have not been able to resolve this. So we think that the only thing that you'll understand is if you have loss of service and so that is where we ended that up in these four markets.

We have produced a 30 second -- I'm sorry, 30 minute infomercial that has aired in each of the four markets. Affectionately titled "The Cable Fable" where we tell our story and talk about the origination of cable as the utility that it, from the very beginning has been a service to provide local broadcast station reception into the home, and when you are paying for that, and that was in cable's early days, that was all you were paying for. So you have been paying for it all along.

People get the argument. I liken it to water, basically. You can walk down the street and take a drink out of a public drinking fountain and that is free just as our over the air service is free. But if you buy your water in a package or a bottle, you are going to pay for that. We take the same facts here. If our signal is being packaged with others that viewers may or may not watch but it is being sold to consumers in a package.

I can't think of another business where you take our raw product. We are the manufacturer. Package it and resell it to a consumer and never pay us anything for it. That doesn't sound like a business at all and that is why we are so adamant that this has to change for local broadcasters and all local broadcasters.

As it relates to the guidance. Embedded in our 2005 guidance was that we thought that local core advertising revenue, local national, excluding political, would be up 3 to 4 percent. That was one of the assumptions embedded in getting us to the minus 3, minus 5 on net revenue. Obviously, you can see from our first quarter that the local national revenue in our press release this morning, the guidance is for slightly above flat to slightly above 2 percent.

So the first quarter, we think, has started off a little slower than we had expected. It is first quarter. It is certainly not wildly out of the bandwidth of what we would expect. Automotive spending for the quarter we see that coming in at flat. We see fast food potentially being down a little bit again; but that has been down now for almost two years. There will be very little political. The telcom category will be down in 2005 and certainly was down in the fourth quarter and down again here in the first quarter, due to the mergers and due to the fact that that is such a product based advertising campaign. If there is new feature or product, they advertise. If not, they don't. But that is a category that we don't.

We would hope that if Chairman Greenspan continues to talk about inflationary pressures and building momentum in the economy, that that would manifest itself in retail sales, which would manifest itself in advertising sales. As the year goes on we would expect and hope that the momentum would continue to build. And again, that is kind of embedded in the bandwidth of the assumptions that we made.

Obviously as the quarters go on and we have more political comps that we are up against, that's that much more inventory that comes back into play for regular sales. So it is obviously not a zero sum game but will have increasing amounts of inventory to sell for other advertisers. I would say the cumulative effect of these projects, promotions, new station kind of maturing through the growth curve, we see that improving on a market-by-market basis throughout 2005.

How much of the -- what kind of expectations do you have on retrends in the guidance that you provided in December?

We entered (MULTIPLE SPEAKERS) projected for 2005 was from the DBS company and embedded in that number is better than a 50 percent increase of where we ended up in 2004 from the DBS companies. And again we made a presentation to our Board which -- I don't want to go into details here but quantified a kind of best-case worst-case revenue loss for each month that we are in this situation. These four markets with cable and in the first two months, we have come in at less than half of the revenue we have projected that we would lose.

What we're seeing in some of our markets is that advertisers who had an initial knee-jerk reaction have started to come back to us now slowly but come back to us in February and March, realizing that either they or their customers have found a way to get the signal either through Dish or rabbit ears or maybe are watching it on another set that was not wired to cable to begin with. And that we are selling products and services.

Anecdotally, we had an advertiser signed on with us in San Angelo, Texas the day after we'd went off the COX cable system there which is the majority cable provider in the marketplace. And his business -- the only place he advertised was with KLSP and his business was up 38 percent in the month of January. And again the inbound viewer calls to our office here in Texas have literally stopped.

So we think that there is a newt norma that people have found a way to get the signal in alternative means or have moved on to other things. We are hopeful that we will be in a position to resolve this situation with cable. But if not we think that if you're moving to Joplin, Missouri tomorrow, and you're looking for a video provider you have got two choices. You have got Dish network and Cable One, regardless of who is more expensive or who is cheaper. Cable One does not offer the NBC or the ABC affiliates.

So we think that is a permanently inferior option and the lost opportunity costs to cable to sell broadband -- pay-per-view movies, telephony, ancillary services not only when customers leave -- we think they're probably gone for good -- but we don't think new customers come in. And we know in one of our markets that one of the cable providers has put all of their installers on part-time status while, in another market the DBS backlog, as I think I've said is sometimes in mid April because they just can't get enough installers to keep up with the demand.

Perry, do you think -- I mean is the issue in your mind the fact that they don't want to pay the ABC NBC affiliate as opposed to -- don't most contracts have most favored nation clause in them so the issue may be the fact that they pay you, they're going to have to pay everybody else?

I would expect that that could be the case, Victor, although we don't know that factually. Because we don't know what other people's contracts would say regarding MFNs. We have given some thought to a potential industry standard. We have given some thought not only to that but maybe how we could additionally monetize this boon that we've provided to the DBS providers on the front end as well as the downstream subscriber revenue.

We have got a lot of thoughts but not at this point are we ready to propose anything to the industry beyond -- but we would like to settle this dispute. Use that as a basis to try and forge something on a more grander scale but you have got to have the cooperation of a lot of other folks, all of which may have different agendas. So we are trying to get it right for our Company first of all. And then we would be happy to try and create more of an industry solution.

We think one exists but we are just, not at this point, ready to share it until we socialized it a little bit more internally.

Bill Meyers with Lehman Brothers.

I just wanted to go back to a question I had asked earlier. If you could just update us on the progress of the Emmis (ph) Consortium in terms of your partnership interest? The progress with respect to the partners, technology. Anything like that? It has been pretty quiet on that front so just wanted to see if there are any updates you could share with us.

Sorry, I forgot to cover that. We obviously are in conversations with Emmis and continued to lend our name and support to his efforts to develop a consortium. Our personal perspective on that is that the consortium probably does not get legs until it has a network partner bring the O&Os in the major markets to give it more national scope and depth and weight. We also think that it's a modest business model; and there are some issues regarding the capitalization of the enterprise and who is going to pay for the set-top box subsidy and all of that.

I think it's slow-going and I think Jeff Samoyan (ph) would tell you that. It is slow-going but it is not easy to be an innovator; and I applaud the efforts of trying to find an application to monetize or seek some return on investments that we are all making in this conversion to digital. Whether this is the killer app or not, I would reserve judgment on that, but it's a better alternative than anything else that I've heard thus far.

Bishop Sheen with Wachovia.

Bob, you talked about the 7 3/8 to 7 1/2 target incremental funding on picking up the 12 and replacing it with committed financing. That would imply some sort of Term C? Or are you talking about issuing a new senior subordinated fixed piece of paper?

At this point, we are not prepared to discuss the final terms of this. But the alternatives range from complete bank deals to some portion of banker Sarb (ph) or all Sarb. All that is in the mix. But I think the interest rate I gave you would speak to the high end of that.

I don't mean this to be like tossing out red meat but you are a younger man than I but most of us still the last three trends Armageddon of the early '90s when broadcast TV walked away with start up cable networks as sort of the settlement. Do you see some sort of non-cash way to bridge this battle this time around?

I was around then Bishop, obviously, not in an ownership capacity but I think that two things have changed. First of all, DBS is a viable alternative and/or a credible threat. As I mentioned, in many of our markets DBS penetrations over 30 percent in markets like Springfield Missouri and some other is over 40 percent of the non over-the-air universe. So I think that is a credible threat and a viable alternative that is somewhat of a game changer here.

I would say that we are open to a range of negotiations but we are not Disney. We don't think we can launch ESPN2 with less than 10 percent U.S. penetration as a company. We are not big enough to launch a national cable network and don't really have much interest in having a weather radar channel where the radar just goes round and round for 24 hours. We think that in medium and small markets and medium and small broadcasters in general the alternative is cash. We have heard from a dozen and a half other companies -- private and public -- that all have evident support for our position and said they would be taking a similar tack with cable as their agreements expire.

We think we are the tip of the spear in this battle and we plan to see it through. We think that, again, and I don't want to pretend to speak for the cable industry but if we -- if my business was under siege from DBS (ph) providers who were taking subscribers away, the telephone companies were knocking at the door. I don't think I'd want to be in the market and with the added impact of cable over builders and wireless cable and everything else out there. But I don't think I would want to be in the market with an inferior offering to the competition. We think that is what it ultimately comes down to.

Again as we said earlier my friend in Bossier City, Louisiana is very happy to take the $20 a month so cable doesn't have to pay me 30 cents a month. But I'm not sure that that is sustainable business model long-term.

Every point you make, obviously, is valid. And you have perspective and certainly Victor nailed it exactly. As I have been writing and saying a long time, this is once again all about Pandora's Box for the cable ops. It is not just your 30 cents. Don't please don't mistake me as a spokesman for the cable industry either but, clearly, it is a Pandora's Box kind of consideration, I think, on their part. Once again, just like it was 13, 14 years ago.

It is not just your 30 cents a month; it is all the other important local channels in their markets. That is what this I guess high drama comes down to.

I fully appreciate that. It may be problematic for cable but I think it is a problem they are going have to deal with. They seem to be under -- I will tell you that the cable operator in Abilene and San Angelo pushed through in January approximately $1.50 per subscriber increase to basics here without the benefit of having the full complement of the local television stations. So it seems to me that in the past cable has not had a problem of passing along increases in subscriber fees to the consumers. And it seems to me that while it may be a problem for cable today it is certainly a solvable one. It is one I think they're going to have to deal with.

When Lawson Murdoch stands up in a meeting and says we should be asking for cash for our Fox O&L station, that obviously would carry more weight than the next of our broadcasting, making the same statement but by the same token in markets where we operate and negotiate retransmission consent or perhaps two of the four local commercial television stations. We think on a market-by-market basis, our story has merit as well.

We don't expect this to resolve quickly. But we also think that it is short-term pain for long-term gain. And the good news is that the pain has not been anywhere near what we expected that it could've been.

Well you are as articulate as ever. Do you think you are going to see any wind at your back, any companies so you don't have to be just the tip of the spear?

I talked to two yesterday that said they will be in exactly the same place when their agreements are up at the end of this year. As I said there are a dozen and a half or so companies that have said they are behind us and that's -- that certainly is encouraging and I would say that talk is cheap and everybody is behind us but there is nobody alongside us right now.

I think that that may be in large part due to the fact that we -- we specifically constructed these agreements to two-year deals when the industry standard was three years. But we would learn how to engage in this negotiation and discussion before it became a discussion on a larger scale.

Victor Miller with Bear Stearns.

With the multicasting thing going down in flames with the Commission, what does that mean in terms of the impact Bill had asked before about this, but the multicasting impact on something like Samoyan (ph) where the revenue stream coming out of multicast may not be as obvious. Do you think that could actually reinvigorate an effort to do something else with the signal then? The other thing, too, is -- I'm struck by the cable operators. You would think one would actually reach out to your multicasting models because of the bandwidth capacity of DBS is infinitely smaller.

I am surprised there is not cooperation between the two industries; and this would be -- may have placed a bridge the retrends of problems where you might get paid on the new services you provide and at the same time you are providing competitive advantage relative to DBS's capacity.

The other question, the other thing that what Bishop just said, the other big change that has happened since the original retrends of plans was the fact you have got this thing called Duopoly, which began in 1996. Obviously the original retrends was in '91. So what markets -- of the duopoly markets do you have? What percentage of revenue and audience share do you take out of those markets? That obviously would be leverage for you in negotiating this and next year.

I'll start with the last question first. Our Company revenue. Approximately 63 percent of our revenue comes from markets where we derive an economic benefit from more than one television station. That, today, is in 15 of our 27 markets.

What do you average there in revenue? What -- of those markets what's your average revenue and audience share of those markets?

I will speak to revenue share specifically. We, on average, we take approximately 44 percent of the revenue in our multistation markets compared to about 33 percent of the revenue. I'm sorry. 47 percent of the revenue in our multistation market as opposed to about 33 percent revenue share for our single phase in markets currently. That's the number that I would have top of mind would be the revenue share.

The multicasting is interesting. We probably take a different view than most of the industry in that we did not hold out a lot of hope for multicast. Again, our position is that we have not given our digital signals to anyone, licensed them to anyone for carriage. We feel that if someone is going to develop a digital or an HD tier using our signal as content, that we ought to be paid for that.

We were not as interested in digital must carry as we are in being paid for the service that we provide. We think that we provide a service that people want to watch, that people will pay for it. So we prefer to let the market decide. So ironically enough we are probably on the side of the cable company, but we are more on the side of the free market setting the value for these things, because we think there is value.

Our focus there was not so much on multicast, I think that is kind of fraught with First Amendment issues as well. But in any event we are -- we would like to be paid for what we provide -- these packages of offerings and feel that that is the way. We are more concerned with getting our primary signal compensated for that and then we will develop ancillary businesses. I think to do it the other way is putting the cart before the horse.

Let's take care of the core business first and then see what we can develop beyond that. As far as multicast offerings, I think that we are going to have to offer something unique and compelling for it to have an add in viewer base. I don't think more channels is necessarily the answer.

That is all the time we have for questions and that does conclude today's conference call. We do thank you for your participation and have a nice day.