Nexstar Media Group Inc (NXST) 2010 Q4 法說會逐字稿

Good day and welcome to Nexstar Broadcasting Group 2010 fourth quarter conference call. Today's call is being recorded. All statements and comments made by management during this conference other than statements of historical facts may be deemed forward-looking statements within the meaning of sec 21 of the Securities Act of 1933 and sec 21 of the Securities and Exchange Act of 1934. The Company's 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 today's conference call. Management will also be discussing non-GAAP information during this call in compliance with regulation G reconciliations of this non-GAAP information to GAAP measurements are included in today's news.The Company does not undertake any obligation to update forward-looking statements reflective of changes in circumstances. At this time I would like to turn the conference over to your host, Nexstar President and CEO, Perry Sook.

Thank you, Mimi, and good morning, everyone. Thank you for joining us today to review Nexstar's fourth quarter and full year 2010 operating results. CFO Tom Carter is also with me on the call this morning, and after our prepared remarks we will be glad to open the call for your questions .

As we entered 2010, we telegraphed everyone that we were positioned to return to growth, and I think it's evident with record results reported each quarter throughout this year and again this morning that Nexstar has exceeded that promised. Nextar's industry-leading growth this past year is directly attributable to our significant revenue diversification initiatives and our focus on free cash flow. And our fourth-quarter earnings represent the highest quarterly level of revenue and cash flows in the Company's history. The efficacy of our revenue diversification strategies and our expense management disciplines has been borne out in a comparison of 2010 fourth quarter net revenue to that of the same period of 2008, which was a presidential election year. Comparing these periods we grew net revenue by approximately 21% while our cash flow growth major by BCF, EBITDA and free cash flow grew by multiples over that same time. We refer to our quadruple play of revenue drivers, and our success in driving profitable revenue growth reflects our strength of our core local contact. It also reflects our initiatives to develop distribution and, as digital extensions for our core content, including the creation of new online, text and mobile content and applications and the benefit derived from leveraging our management team to provide services to other broadcasters. Strength in core television advertising trends which began for Nexstar in the 2009 fourth quarter is continuing here in Q1 of 2011, and we are well-positioned to further grow all of our nonpolitical revenue sources throughout this current year.

Before we dig deeper into Q4, I want to follow up on my statement of a moment ago on managing for free cash flow with a quick review of our phenomenal growth on this metric since our 2003 IPO, taking into consideration the two-year political cycles. For the to the year 2003, 2004 period, we generated a total of $30.9 million in free cash flow. In the '05,'06 two-year period, that figure rose to order $41.8 million, and in 2007 to '08, our free cash flow totaled $54.3 million. And with the results reported this morning, our combined 2009, 2010 free cash flow grew to $79.6 million. That, by the way, is also an average of $1.40 per share. That's a 46.6% growth over the last two year cycle, and looking at it on a compound annual growth basis for these two year periods going back to our IPO, our free cash flow compound annual growth rate is 37%. This of course was accomplished despite the hundred year drought year of 2009, and I'd like to add that we have managed our growth over this period without diluting our equity base, which stands at about 28.4 million shares, which is more or less exactly the same as when we completed our IPO.

Now, getting back to our fourth quarter, Nexstar strategies for building new-to-television local direct billings and the overall advertising recovery job drove a fifth consecutive quarter of core television advertising revenue growth. Our gross local and national television ad revenue growth was 2.8%. That follows 7.2% growth in last year's fourth quarter and was achieved even as we allocated significant inventory to political ad spend. In total gross television ad revenue inclusive of political advertising was up 31.8% to $85.9 million. And that represents 515% growth in political ad spend to approximately $22.6 million as our Nexstar stations continued to garner leading shares of political ad spending in our markets based on the strength of our local news content. The resurgence in automotive advertising continued in Q4 with category revenue rising 16% year-over-year, reaching the highest quarterly dollar total in 2010 in Q4, even again as we managed to manage our inventory to book our record political revenue. In aggregate, Nexstar's fourth quarter retransmission fee, mobile and e-Media and management fee revenue rose 47.7% to $15.4 million, and those high-margin revenue streams accounted for almost 16% of both 2010 fourth quarter and full year net revenue.

Nexstar's television ad revenue strength combined with continued double-digit growth in every element of our revenue quadruple play resulted in a 31.2% increase in total fourth-quarter net revenue to a number of $97 million, reflecting the Company's operating disciplines we are generating significant incremental cash flow from our consistent revenue growth as fourth quarter BCF increased 63.4% to $47.1 million and adjusted EBITDA rose 70.4% to $42.2 million. With diversified sources of growing revenue and continued focus on expense management, we have strong operating leverage in our business model and the combination of the strong increase in operating income and the reduction of capital expenditures led Nexstar's 2010 fourth-quarter free cash flow to increase 126.5% to $29.7 million bringing free cash flow for the year to $59.7 million.

Now let me review more of our quarterly and recent highlights. For Q4 retransmission consent fee revenues were $7.6 million, that represents a year-over-year increase of 19.9%. Q4 e-Media revenue finished at $3.9 million, which was a quarterly record for the Company, surpassing last year's fourth quarter by 16.1% and markeing the 17th consecutive quarter of growth for Nexstar's community web portal and mobile media strategies in terms of revenue.

In the fourth quarter we recorded $3.9 million of fee revenue from our management services agreement with Four Points Media Group. This is based on the $500,000 quarterly base management fee and incentive compensation of $3.4 million in Q4.With incentive comp also earned in Q3 this revenue bucket grew in total for the year to $5.7 million. This is a business we started less than two years ago. Nexstar generated $5.1 million in new local direct advertising in Q4 of 2010. That represents 11% of our local billing, and we improved this metric by 18% relative to what we did in Q4 of '09. Our special project focus and our high-priority focus on strong managerial oversight to individual business development efforts were all contributing factors in achieving these results for Q4 and the year. The over six-fold increase in fourth-quarter political revenue to $22.6 million was the highest political billing quarter in Nexstar's history, and it reflects a pretty even distribution among gubernatorial, party, issue, state, local, senate and congressional spending. We saw significant activity on our stations in Pennsylvania, New York and Illinois, and we have the largest number of different political advertisers that we've ever had in this category in Q4. Nexstar's total 2010 political revenue reached $39.3 million. That's also an annual record and represents a growth of 19.2% over 2008.

Looking now at other category data, Nexstar was up double digits in three of our top ten advertising categories in Q4. Four were flat, and three were down. For some details, automotive, as I mentioned, up 16%, insurance up 13%, attorneys up 16%, restaurants, department stores and retail stores as well as medical healthcare and service were flat, furniture was down slightly, and radio and cable and furniture were down as was paid programming. Overall, the top 10 categories generated a slight increase in billing over the prior year, led by, as I mentioned, a 16% year-over-year increase in automotive spend. The auto add gains were across the board from both local dealers and corporate as well as dealer group spending. This is our sixth consecutive quarter of improvements in this category, just as in the first nine months of 2010 in Q4, automotive represented 20.5% of our core ad spend. The category strength remains broad-based with increases from both domestic and foreign brands, local dealers as well as the dealer groups. For the full year our top four manufacturers of Toyota, Ford, Chrysler, Jeep and GM increased spending on our stations by an aggregate 24%. I will now turn the call over to Tom Carter who will provide further details on our financials as well as our debt reduction initiatives, after which I will come back with some brief comments for outlook and then we will open the call for your questions. Tom?

Good morning, everybody.

I will start with a review of Nexstar's key Q4 income statement and balance sheet data and then spend a minute updating you on our debt reduction progress and our capital structure issues. Again, net revenues increased 31.2% to $97.1 million for the quarter. Core revenue was up 2.9% to $63.3 million for Q4 2010, driven by a 7.1% increase in local revenue, partially offset by a 7.7% decrease in national revenue. Both of those core revenue figures were impacted obviously by a 515% increase in the political revenue to $22.6 million for the quarter. And as Perry mentioned, that was the driving factor behind our record $39.3 million in political revenue for the year. Retrans and e-Media revenues were both up approximately 20%, continuing their growth trajectory. All of this resulted in broadcast cash flow increasing 63.4% to $47.1 million, adjusted EBITDA increasing 70% to $42.2 million and an important metric for us, free cash flow of $29.7 million for the quarter, an increase over the same quarter of 2009 of 126%-plus.

Nexstar's fourth quarter 2010 corporate expenses totaled $4.9 million inclusive of $332,000 for non-cash options expense. This compares to $4 million of corporate expense in the year ago period, which included $382,000 of non-cash option expense. As with prior quarters, this increase relates exclusively to the bonus accrual in 2010 which was not present in 2009. Our control with fixed and variable costs continues to bring leverage to our financial model as the free cash flow and profitability metrics demonstrate. Station direct operating expenses consisting primarily of news, engineering and programming, selling, G&A expenses net of the trade expenses were $42 million for the three months ending December 30, 2010, compared to $36.7 million for the same period in 2009, an increase of $5.2 million or 14.2%. Over 50% of the total dollar increase during this period was attributable to higher variable costs related to the significant rise in advertising revenues. In addition, property taxes and one-time charges accounted for another $1.8 million during the quarter. Absent these variable costs, real estate and one-time charges, station direct operating expenses were up 3.3% over the previous year.

As Perry mentioned at the outset of the call, we remain actively engaged in deleveraging the balance sheet. During the fourth quarter, Nexstar further reduced total debt as we repurchased or called for redemption approximately $16.9 million of our 11.375% senior discount notes which are due 2013. This remains the most expensive piece of our capital structure. Additionally, we repaid approximately $1.7 million of the 7% senior subnotes and another $300,000 of the 7% senior sub PIK notes during the quarter. Our fourth quarter deleveraging activities follows other debt reduction initiatives throughout the year including the elimination of all of the 13.5% senior sub PIK notes due 2014, which was accomplished in April.

In total, Nexstar reduced total debt adjusted for outstanding redemptions in 2010, by approximately $40 million from year end 2009 levels. So with improvements in our capital structure throughout the year, I'd like to review key balance sheet items at 12/31/10. Total average at December 31, was 5.65 times, down from 6.6 times at 9/30/2010 and versus the total permitted leverage covenant of 8 times. First lien leverage at 12/31/10 was 0.9 times, down from 1 times at 9/30/2010 again, versus a covenant of 2.5. Reflecting the repurchases, redemptions and tender offer and financings in 2010, Nexstar's total debt at 12/31 consisted of the following, approximately $99.5 million outstanding under the term loan, the second lien notes 8.875% coupon on the balance sheet at $317.4 million, the senior debt of the 7% cash pay was $44.8 million, the 7% PIK was $135.5 million, and again, note that that went cash pay on January 15th of 2011. And remaining outstanding debt on the 11.875 at 12/31 was $45.9 million. We had $23.7 million of cash on the balance sheet at 12/31, that high level of cash is partially associated with the fact again we had a $12.7 million redemption notice which was issued on December 15, for the 11.875, which was fulfilled on January 15th of 2011. Net of this reduction, I'm sorry, this redemption, our net debt was $630.4 million at year end, which represents about a 5.5 times leverage multiple.

Deleveraging continued throughout Q1 of 2011 with an additional $2.2 million in reductions including a $1.8 million on the 7% PIK, $300,000 on the 11.875%, and $100,000 on the 7% cash pays. Total interest expense in the fourth quarter 2010 was $14.1 million, of which $11.8 million -- I'm sorry, $10.9 million was in cash. This compares to $11.8 million in total interest expense in the same period of 2009 with $7.3 million of that being in cash in Q4 '09. With the elimination during the year of the 13% PIK notes and the significant reduction in the 11.875% notes as well as other indebtedness, we will start the year with a cash interest expense run rate of approximately $12.5 million per quarter and for the most part the total interest and cash interest will mirror one another going forward given the conversion of the 7% PIK to cash pay.With expectation for a solid cash flow year during 2011 and our continued focus on debt reduction, we expect the total cash and cash interest expense -- I'm sorry total interest and cash interest expense to continue to decline throughout the year. Our nearest maturities is 2013 which is on the remaining $33 million of the 11.875% notes. We have them in our sights and we continue to focus on them and will so over the course of the next several months in terms of debt reduction. Nexstar's Q4 CapEx at $1.9 million compares to $4.7 million in the same period in 2009. Total CapEx for 2010 was $13.8 million, and we project total CapEx for 2011 to be in the $13 million to $14 million range. Overall, we were successful in managing the top line, our fixed and variable costs and the balance sheet for cash and remain focused on further actions that can enhance value. And we plan to continue to deploy another solid year of free cash flow in 2011 to debt reduction. That concludes the financial review for the call, and I'll turn back over to Perry for some closing remarks before the Q&A.

Thank you, Tom. Just a few closing words related to 2011 in our expectations.

Obviously we continue to demonstrate that the growing diversification of our business model has yielded strong year-over-year revenue, margin and cash flow growth as each of our noncore revenue channels are growing in the solid double-digit range. Our e-Media revenue stream will continue to grow at a good clip in 2011 based on its expanding base of new revenue applications and the further penetration and monetization of our mobile marketing initiatives. Nearly all of our apps now have been ported over to the mobile side and our monthly mobile page views are reaching new record levels each month. As for our core revenue, we are seeing positive local and national ad pacings continuing here in the first quarter of 2011 against that last year's comps, which did include the Olympics. We said we think mid-single-digit core revenue growth in 2011 is very realistic and attainable, and with our gross non-political revenue in 2010 amounting to about $236 million, that type of growth will help to backfill a nice portion of the $39 million of political revenue we did last year, the bulk of which will not recur in 2011. That's not to say though that political will go to zero, as we are headed into a contested presidential election year in 2012. We have a special election just called for an open representative seat in Rochester, New York, and that election will be held on May 24. And the 60-day political period will actually begin on April Fools' Day, and political revenue for issue advertising as well as candidate elections in Kentucky and Louisiana will also roll in throughout the year.

On the expense side, we're watching our cost closely. As Tom mentioned, our interest expense will come down as a result of our continued to deleveraging. In addition, on programming expense with Oprah's move to her cable network, our syndication costs will start to trend down, and Oprah's programming represented about 25% of our total programming cost on an annualized basis. We will reinvest a portion of that expense into additional local programming to fill the vast majority of those time periods with local news and lifestyle type programs and other local programs of interest. The rest of that savings will go straight to the bottom line. All told, we believe that Nexstar is well positioned to generate record odd year financial results in 2011. And I want to highlight this, we are on track to deliver flat net revenue in Q1 of 2011 which would replace both the Olympic and the political revenue from Q1 of 2010. Looking at this current two-year cycle of 2011 and 2012, we believe that through the end of next year we have the potential to generate a nine figure amount of a free cash flow. As I said earlier, our combined 2009, 2010 free cash flow grew to $79.6 million, so when we talk about not low nine figures for '11, '12, we are expecting a continuation of the free cash flow growth trend that we have had in the same periods prior as reported earlier.

Nexstar generated $60 million or more than $2.00 a share in free cash flow over the 12 months of 2010. We have an ad environment that is the healthiest it has been in the last several years. Brand managers have recognized that TV is number one for building awareness for brands, and we are a must buy for any serious marketing program. Couple that with our local business development efforts, our noncore revenue streams, which are now both robust in size and growing aggressively, we also plan to further reduce our leverage. All of this will innure to the benefit of our shareholders.

So thank you again for joining us this morning. And now, Mimi, let's open the call for Q&A to address specific areas of interest.

Thank you. (Operator Instructions) Our first question comes from Bishop Cheen of Wells Fargo.

Hi, Perry. Hi, Tom. Great color. Thank you for all the detail. Tom, I think you answered it. You focused on 33.2 would be the balance of the whole code notes.

Yes.

Okay. So you are focused on that and -- let's say a cheap offer, you'll be on it.

Obviously, we've been focused on the K, we still haven't filed that, that will happen early next week. We have got some other housekeeping items, but yes, clearly we have got some free cash flow. We have got some availability and from our perspective we think we have some borrowing capacity.

Right, you could take those out at par, actually, right?

Correct, starting April 1, we can take them out at par.

Okay, so that takes care of that one. That would simplify your structure.

I'm all for simplification.

Yes, indeed.So, why was national business down in Q4 and do we care going through -- what does it mean as we look forward to 2011?

Generally, national revenue is, because it's sold purely on a commodities basis is a generally lower rated than local revenue so when we start preempting to accommodate almost $23 million of political revenue, national was the first to go. I would say that was displacement. In both the first and the second quarter, national revenue will finish in the first quarter, and it's pacing to substantially be up in the second quarter of 2011, so I think at the end of the day you probably don't care. I think it was displacement, Bishop.

Okay. And then, on auto, I think you said in the Q, it was back to 24.5% of core revenue?

No, 20.5% is what it was in the fourth quarter and what it will average for the full year. As a percent of our core local and national ad spend.

Okay. Where do you think it's headed? Do you think it's going to go back? I mean, we used to have this bogey if auto was 25% of the revenue base. Is that realistic to expect or want that anymore?

Well, I think that was based on a SAR that was north of $16 million, $17 million. I think most experts seem to indicate that the SAR will grow from $11.5 million, or high $11 million to somewhere in $12.5 million to $13 million range. So I think that 10% growth is achievable, and as we reported, we are continuing to see double-digit growth in the first quarter of 2011. So, that would lead us to a 22%-ish range. Most folks seem to think that $13 million to $15 million, and I realize that's a wide band range, but is a sustainable SAR, assuming available credit and things of that sort. So, I think 25% was a high watermark. Could we get back there again? Perhaps. I would like to continue to diversify our revenue base so that we are not dependent on one category for 25% of our revenue. But I think -- we figured it would probably settle out somewhere in the low 20%s on a steady state going forward basis.

Yes, that's great color. Last for me, and there's no wrong answer. It's the leverage question. You have over levered, you have been moderately levered, you've been around for more than a decade in this market. Where would you like to see your leverage range be as we look forward into this recovery and ahead?

Well, I think that if you look at the basically 5.5 times total leverage, and I haven't done the historic work on this, but if it's not the lowest leverage in the Company's history it is -- it is near the lowest leverage in the Company's history. And again, I think we feel, on a steady state basis, if we're levered somewhere in the 4s in an even year and the 5s in an odd year, that's probably appropriate for a Company of our size. As Tom says, a Company of our size will never be investment grade, but I think that obviously we have shown a disciplined and an aggressiveness in not only reducing outstanding indebtedness, but also opportunistically buying in debt at below par and as those opportunities present themselves, that's number one on Mr. Carter's hit list to continue to do.

Necessity is the mother of invention because you've seen the good times and the bad times. Thank you very much for all the color, guys.

Thank you, Bishop.

Thank you, our next call comes from Jim Boyle of Gilford. Your line is open.

Good morning. Perry, before the recent harsh recession, Nexstar had typically achieved adjusted EBITDA margins in the off political, off Olympic years of about 28% to 32% in '05, '07. Now that the economy is slowly ramping, plus Nexstar has added material amounts of retrans and e-Media revenue, can Nexstar in 2011 hit the high end of that prior range or can you potentially beat it?

I think that we can achieve -- the bias would be that we can achieve or over achieve that metric.

What was that again?

We will do as well as or better than the high watermark of that metric.

Okay. Along those lines, you kind of talked about a variety of components. If we looked at the overall revenue, you had a much better than expected revenue growth in 2010 by our estimates by about 400 basis points. Certainly aided by political and Olympics but also by your core advertising, as you pointed out. That does suggest you now have a tougher encore this year with higher comps than last year. Does that mean 2011 overall revenue could look like 2005, when revenue was down 8% or is it going to be more like 2007 which was flat to slightly up?

Well, we don't obviously have visibility for the entire year on every one of our revenue streams, but I think one of the more important things that I said in my prepared remarks is that we are on track to deliver flat net revenue in Q1 of '11 to Q1 of '10, which would mean that on an all-in basis, we replaced all of the Olympic revenue, which was approximately $4.5 million, and all of the political revenue, which was approximately $3 million. We did have some political revenue in the first quarter but it was de minimus.I can tell you that we feel very confident about our retrans and e-Media growth continuing at double-digits. We had projected a core revenue growth in the mid-single digits. The wild card is political. That could be 10% of last year or perhaps 20% of last year going into a presidential election year. We don't know. I do know as I mentioned that Governor Cuomo in New York announced yesterday that Chris Lee's vacated seat will have a special election in May and that affects Rochester, New York for us. We did not count on that or budget for that. So, the wild card would be political. If the year unfolds according to our plan, I think you would see a mid-single digit net revenue decline on an all in basis versus 2010.

Mid-single-digit all in. Okay, and in Q1, Perry, it used to be, and correct me if I'm wrong, that Fox affiliates at Nexstar comprised the larger share of your revenue versus the other network affiliates. Therefore, how did the Super Bowl do in 2011 versus years past?

Super Bowl was incrementally ahead this year. We have a few more Fox affiliates then we do CBS affiliates. However, if you look at the median market size of our Fox affiliates it's a little bit smaller than our CBS affiliate base in terms of households reached. So, we were incrementally ahead on Super Bowl. Where I think we did a great job is we generated a couple hundred thousand dollars of e-Media revenue for the Super Bowl this year in Q1 that we did not do last year just by virtue of the fact that we deployed some e-Media products across our entire platform that stations could sell and participate in. Virtual tour of Cowboy Stadium, and you pick 'em contest and those kinds of things. So I think we've begun to spread those kind of events even beyond the stations on which they are telecast and I was very pleased that the incremental growth in e-Media revenue related to the Super Bowl, which was 100% incremental versus 2010 on our CBS stations.

Okay, so it sounds like it was just up incrementally. It's not like that was a major reason why you replaced the political and Olympics from prior year. You did it on the other fronts.

That is correct.

And finally, on this quarter, how's auto doing?

Automotive continues to pace ahead of Q1 '10 comps, and I think we are projecting something on the order of a double-digit increase for Q1. And I think that's a pretty good proxy for the rest of the year based on what we see.

Okay, thank you.

Thank you Jim.

Thank you. Our next question comes from Aaron Watts of Deutsche Bank.

Just a couple of questions. First on the national side you said it's going in the right direction here earlier in the year, how should we think about that relative to local? Is it your expectation that this year local maybe out-paces national or national out-paces local? Just curious what kind of trends you think we see there.

It kind of varies month by month and January national outpaced local in terms of growth. February/March it looks like it goes the other way. The first quarter are both going to be up mid-single digits as advertised. In the second quarter, early results with a very small sample size, you must realize, both are pacing double digits ahead of last year, but they are not statistically different at this point. So I think that in our business case for this year and our actual plan, we have both pacing basically on top of each other with perhaps national pacing marginally ahead because it has got a smaller denominator. It's a smaller dollar base, but I think we both feel they're going to be up mid-single digits and probably within a point of each other either way.

Okay. As you compare the national auto advertising relative to maybe some of your individual dealerships, are those individual dealers sort of the tier 3? Has that come back a lot less than the dealer groups and the OEMs on a more national scale? Can you maybe tell us about that ?

Dealer ad spend for us represents about 40% of the total, and then dealer association ad spend represents the bulk of the remainder. Both showed strength in Q4 and throughout 2010, so I think on a going-forward basis there is not -- the local dealer advertising out-paced the category performance slightly. For the full year 2010 our Q4 results, our local dealers, were up about a little over 30%, and we reported 16% growth in the category. Again that represents a third to 40% of the total, and the dealer associations represents the bigger amount. So, I think that from our perspective, the local dealer ad spend continues to be robust.

Okay, good. And then one follow-up on the football. Heaven forbid I actually have to plan something for Sunday afternoons later this year, and there's no football on? Can you give us a sense for how much impact that could have on you if the football season is let's say canceled in the whole?

First of all, from where we sit here in Dallas, we think that's a very low probability item that that would happen. I can tell you that there are a handful of our markets that are adjacent to NFL franchises, whether it's Rochester, New York adjacent to the Buffalo Bills, or Scranton, Pennsylvania, adjacent to both the Giants and Eagles territory, where football is a bigger deal than it is if you're in Rockford, Illinois with an ABC affiliate and the Fox affiliate, and it's Bears territory. Football is not all that meaningful to you in terms of your Sunday afternoon. So, again, we've not put a number on it because we think it's a low probability event that it would happen. But that's something that we can look into if we have more clarity on the labor situation. But, as I think you know in a typical NFL football game we get 9 30 second commercials to sell. So, if you're in an adjacent market to an NFL team you can sell those at a premium. If not, not so much. So, it's not as big a deal to the affiliates as it is to the networks unless you're in a home market.

Okay, and last one for me, just bigger picture . Thinking about your affiliate agreement, I think you have got some NBC is coming up at the end of this year, kind of a mix handful next year, and maybe more CBS in 2013. As retrans becomes a more important revenue stream for you and your peers, obviously there's going to be focus on those renegotiations. Heard from several of the network heads this week. They clearly have a belief that their reverse retrans from their affiliates is going to be growing over the next several years. Could you just give us your updated thoughts on where retrans is going to be for you relative to where it is today? Is there enough room for you to continue to grow what you keep versus what you have to give up?

I think the short answer is, yes. I think that we see continued opportunities for robust growth in retransmission. When you look at the viewership that we bring to the MVPD household in aggregate as an industry versus the percent of the distribution revenue that we garner, there's clearly an imbalance. So I think that we have the ability to grow. We think that our retrans revenue over the next half a dozen years will probably be twice what it is today as contracts come up for renewal and as we have the chance to have those discussions. We have paid the networks at various times for various things in varying amounts going back to the '90s. So, the fact that the networks would like for us to pay more is not really new or newsworthy, but I do think that they are correct that they will see more payments from us as affiliates over time. We bake that into our -- that will run through the programming line for our Company and we've baked in our assumptions there as well as our assumptions for decreased payments for syndication.

So, I think if you boil this all off, and you run the model five years out, it's a couple of points on the margin potentially, but there's no real market established for any of this business, Aaron, as you know, yet. We are at the top of the first inning and not a lot of business has been transacted. So we will treat it like every negotiation and I assume the networks will as well which would be A, out of the public, and B, we will negotiate to a point that both parties can agree. We fully expect that would be the outcome. As we have opportunity to enter into those discussions.

Great. Thanks, Perry.

Our next question comes from Marci Ryvicker of Wells Fargo.

I'm going to hit onto a few you've already talke about, auto.There is an investor thought out there that the amount of advertising being spent suggest that SAR is trending at $17 million. So, I guess at the end of the day, auto advertising is at an unsustainable pace. Can you comment on that?

Yes, Marci, I think when auto SAR was $17 million, auto was 26% of our business. And the fact that it's 20% of our business and that DVD tracks and other industry analyst outside of the broadcasting industry have tracked, the dollar spent for new car sales have remained basically the same. So, 20% growth or 10% growth on 20% of our business -- industry analysts outside of the broadcast industry have tracked, the dollar spent per new car sales have remained basically the same so 20% growth or 10% growth on 20 million -- or 20% of your business is 2 points of growth and that's what we are forecasting so that would indicate something in the $13 million range in terms of SAR, so we don't believe it's unsustainable. And again, our individual dealer ad spend has been, on a percentage basis, the most robust for us, and that is retail selling. That is a door-to-door selling at the local dealership level. And, to me that's where the rubber meets the road.

Okay, and then, we have heard a couple of operators say they are a little bit nervous about gas prices and how that can impact auto advertising. Have you heard anything from the people advertising on your stations about this?

No, not yet. But we had prices at this level in 2008, and then there was the shift in production from trucks to hybrids, and we heard from dealers in Texas that they couldn't get enough trucks. The farmers and ranchers needed new trucks and they weren't -- I know that the plant here in Arlington, Texas that produces the Yukons and Suburban is running at capacity. So, I think there is a lead time to those kinds of things but it has not entered the conversation other than, hey it cost me $40, or I drive a hybrid and it cost me $70 to fill up the tank of my vehicle. And obviously there's one pot of money so I would think that may put stress on other areas of people's budgets, maybe eating out or going to movie. But again, I think consumers have found a way to do what they need to do with the money that they have. I think if it continues long-term, and continues to grow long-term, that obviously would put pressure on consumer spending in areas other than paying for necessities. And we will see how that plays out, but I think gas prices like television station ad revenue are cyclical businesses.

Okay. And then one last question just following up on a reverse comp topic. What leverage do you have in your negotiations with the networks, first of all, and also Fox has threatened to go elsewhere for distribution. What are their other options?

Well, I think our option is that we provide eyeballs to the network that they sell on a national basis and they don't have an affiliate in the network. Or don't have an affiliate in the local marketplace then they don't get credit for the eyeballs that we would bring to the table, so a network without affiliates is not a network or perhaps it's a cable network, but I think we know what the top line ad revenue looks for a cable network versus a broadcast network. It is unfortunate that certain elements of discussions have gotten spilled over into the public domain because these discussions go on all the time. We talked to the networks about various and sundry things and affiliate negotiations. It's just the normal course of doing business. But I would say, if one party becomes irrational or illogical, that may be newsworthy, but since I started the Company almost 15 years ago, it's not been my experience that that has happened. Stations provide eyeballs to the networks, networks provide programming to the stations. My experience over 15 years is that ultimately people find a way to work that out.

Okay, great. Thank you so much.

Thank you. Our next question comes from Edward Atorino from Benchmark. Your line is open.

You had a pretty big jump in management fees in the quarter. Was that some seasonal issue or is that a new level of management fees?

Our agreement with Four Points calls for -- obviously we get a percentage of BCF above a threshold. I think in our Q3 financials we reported the first element of a management fee -- incentive management fee income. If I remember correctly, it was around $800,000 or so during that quarter. Obviously that means we hit the threshold in Q3 and all of the BCF for Q4 was subject to the incentive fee, and with political in those stations, obviously it was substantial in Q4. We expect to receive incentive management fees on a pretty consistent basis going forward. It's just that those incentive fees tend to be back end year loaded from an accounting perspective. We only accrue them once we have actually exceeded the incentive threshold, if that's responsive to your question.

It is. I'm trying to forecast, so just take the quarterly number and run it out or make some guess on next year's fourth quarter?

I think you have to estimate what those stations, BCF would be for a nonpolitical year.

Okay.

And then, again, the $500,000 quarterly incentive -- quarterly management fee is fixed and then the incentive fee will start to show up either in Q3 or Q4 or both.

And you said double-digit retrans for this year over last year?

Affirmative.

Okay. On the cost picture -- Oprah falls out, so is it mostly fourth quarter or you get a little third quarter help there?

Little bit of third but mostly fourth.

And without Oprah, will you be down in the second half?

From a programming perspective, yes.

And programming is what, 25%?

No, programming is probably mid-single-digit percentage of total station operating cost.

Okay. Thanks.

Thank you, our next question comes from John Evans of Edmond White Partners. Your line is open.

My question got answered. Thank you so much.

Thank you. Our next question comes from Barry Lucas of Gabelli & Company.Your line is open.

Thank you, and good morning. Not to beat the Oprah question to death, but if I look at program payments, and think about 20% to 25% number that you threw out, how much of that do you think you retain, if you will, by replacing her with less expensive programming?

Our internal mandate, Barry, was that a minimum of 50% of that savings goes to the bottom line and a maximum of 50% can be reinvested in local programming and additional news programming. I can tell you that in virtually all instances we spent substantially less than 50% of that license fee on reinvestment in the news product.

And just to put a point on it, it will be coming out of the program line and some of it will be going back to the news line. So it's a little bit difficult to track apples to apples but overall, Perry's comments are spot on.

That's helpful. CapEx staying level in an odd year, what's left, any big products in -- does it tail off a bit more later on?

We are spending a seven digit amount on our e-Media platform, investing in a new video player as well as some other technological upgrades. That's a steady state. We want to invest to drive that growing revenue stream. We are converting two of our markets to full HD news capability this year to learn that side of the business. That's a couple of million dollars total. The rest is basic M&R and reserved for things that break, but I think that that $13 millionish number seems to be a good steady-state number going forward. We are also building out our Little Rock hub for both master control and traffic and accounting and that will be more one-time in nature this year. So we tend to think that 13 issue is probably a good sustainable number going forward and probably a bit conservatively high

Thanks, Perry. Two more if I may. One, on Washington, and that would have actually have two pieces. Broadband initiatives, spectrum, any movement there in 2011? And on the flip side, the cable operators complaining about retrans, anything that you think is likely to come out of the FCC in terms of mandated settlements or stuff that would not necessarily be good for broadcasters?

I think the short answer to both questions is no. I think that in this budget climate there would be a faction of Congress wholly interested in sharing any auction proceeds with broadcasters. Mostly what we hear and we have a pretty good line into some of the ranking members on the commerce committee, is that they are pushing for a full spectrum inventory of all spectrum that are being held currently by the wireless and cable companies, that being held by broadcasters across the board, and developing a cogent and comprehensive spectrum management plan rather than just saying let's take some of this from the broadcasters and rebate them some of the money. So, again, the short answer is, I do not expect any movement or anything to happen there that would be deleterious as it relates to comments filed at the FCC regarding retrans. I think the FCC Chairman has said its beyond their delegated authority to mandate arbitration or to do anything, really the only thing the FCC can do is fine either the broadcaster or the MVPD operator for not negotiating in good faith. But that really is their only standing. Anything else would exceed their delegated authority. So I don't expect anything to happen in that proceeding either.

Okay. Last area. Broadly speaking, M&A, I think the Freedom bids are due today. Cumulus finally put a real bid on the table for Citadel, credit availability seems to be loosening up. You've got a private equity partner invested in Nexstar that -- kind of long in the tooth at this point. Other private equity groups are around. What do you see happening, if anything, on the M&A front and in particularly, in the small to midsize broadcasters?

Sure. Well, I think all of what you said is true. And I think that the environment is more conducive and the fundamentals of the business would be more conducive to more M&A. And, we have consistently said that on balance sheet we would only consider acquisitions that are at worst leverage neutral and at best a deleveraging acquisition or event and something that would be free cash flow per share accretive to our existing shareholder base. But, I think it would be -- suffice it to say that the strategic conversations have increased, heated up certainly over where they were over the last 18 months or so. And, I think you will see that continue. I continue to believe that the several dozen midmarket broadcasters in this space should consolidate into half a dozen or less. I think that size matters. And strength matters when dealing with networks or MVPD operators and it's in an inefficient business to have all this disparate corporate overhead and overlapping stations running around. That's not inconsistent with anything I've said for the past five years, but I do think that the intersection of where we are today are the art of the possible is we are coming closer to that intersection. And as I said, the consolidation does need to happen in my view, and the strategic conversations of all types that you mentioned, the dialogue has increased.

Thanks very much.

Thank you. We have a follow-up question from Jonathan Levine of Jefferies & Company.

Thanks. Most of my questions have already been answered. I just was wondering if -- what retrans agreements do you have or do you have any coming up this year and, when you talk about the double digit growth, is this just step up?How exactly are you driving that growth.

I think it's a combination of not only escalators on an annual basis in our card agreements every year we do have a new agreements up for negotiation. Again, we believe that those are private negotiations, and we don't put out press releases when we execute a renewal of an agreement because that's normal course of business. But we have 213 separate agreements with 213 separate MVPDs.So there are always agreements coming up every year, some years are heavier than most, this year happens to be one of those. And, again, the vast majority of those agreements expire at the end of the year which means the dialogue will begin in the third and fourth quarter of this year.

Okay. That was it. Thanks.

Thank you. We have a follow-up question from Edward Atorino. Your line is open.

I might have missed this, the growth in local in 4Q is that mostly auto or is it broad-based?

It was pretty broad-based, Ed. Auto was up as we said 16% so that was a point or two of the growth but we were up about 7%. It was new business development, which for us was new business was 11% of our core ad revenue in the fourth quarter, and those are new-to-television advertisers that we have incented our station managers and salespeople to go out and get. So, that drove a fair amount of our growth as well. And that's a continued business. But the short answer it was a broad-based driving the increase.

And did I miss, you said, mid-single-digit decline you're thinking for total revenue this year?

If the business plays out according to our internal plan and forecast we would have a mid-single-digit decline in net revenue driven by mid-single growth in core ad spend, obviously a substantial decline in political, 80% to 90% decline and then double-digit growth in retrans and e-Media, and you mentioned the management fee revenue, and while Four Points is a private company and I don't want to discuss their business here, they were not very impacted by political with stations in Texas and Utah and then CW affiliates in Rhode Island and Florida. So their political numerator over there net revenue denominator was a small amount and most likely will back fill and create an ability for us to deliver on the order of the same BCF which could lead you to a similar incentive fee payment at the end of this year in 2011.

Okay, thanks.

Thank you. I'm showing no further questions in the queue. I will hand the call back to Mr. Sook.

Thank you all for joining us. We look forward to reporting our first quarter results in about 45 to 60 days time, and we will gather back with you again. Thanks for joining us this morning.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect. Have a great day.