E W Scripps Co (SSP) 2016 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Scripps second quarter earnings call.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, Carolyn Micheli. Please go ahead.

Thanks, Lea. Good morning everyone, and thank you for joining us for a discussion of the E.W. Scripps Company's 2016 second-quarter results.

A reminder that our conference call and webcast include forward-looking statements and actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. You can visit www.scripps.com for more information such as today's release and financial tables. You also can sign up to receive emails anytime we disclose financial information, and you can listen to an audio replay of this call.

The link to the replay will be up there this afternoon and available for one week. We will hear first this morning from Scripps' President and CEO, Rich Boehne; then from Chief Financial Officer, Tim Wesolowski. And then Brian Lawlor, who heads our broadcast operations, followed by Adam Symson, our Chief Digital Officer. Also in the room are Radio Division Head, Steve Wexler, and Controller and Treasurer, Doug Lyons. Now here's Rich.

Good morning. Thanks for joining us to talk about our terrific second quarter and to look ahead to the rest of the year. We are now more than halfway through 2016 and past the two party conventions, entering the period that typically marks the heaviest and most concentrated advertising spending in the four-year presidential election cycle.

Over the next 13 weeks we expect to see more than 80% of this year's political advertising packed into our local new shows and other programming. Our far-reaching local TV footprint delivers a concentration of critical audiences in markets across America. As we've seen in the past, TV remains the most attractive platform for sharing messages with voters when it really matters.

While the bulk of the potential spending is still ahead of us, the election has been a television news spectacle for many months now. Colorful politics makes for great television and big audiences. More than 34 million households tuned in for Donald Trump's acceptance speech at the Republican National Convention, and about the same for Hillary Clinton at the Democrats' Convention. That's about a third of US TV households.

Both conventions averaged between 25 million and 30 million viewing households each of their four nights. It's clear the country is deeply engaged in this one. As for the -- as the electoral map has shifted and even constricted, one thing is clear: if you want to be President of the United States, you will need to spend a lot of money in key Scripps states of Ohio, Florida and Nevada.

Additionally for many the path to the Senate, the House and in two states, the Governor's mansion will run through Scripps markets. We're proud to be the point of contact that helps educate our viewers on these elections and content and connects the direct messages of candidates to the potential voters.

Brian is going to talk much more about the political outlook in just a minute. We will also get an update on our digital reporting segments and strategies from Adam. Now here's Tim with a recap of the financial performance and highlights from the second quarter.

Good morning, and thanks for joining us today. The press release contains the details of our second-quarter performance, and we will be filing our 10-Q later today so you can get more details there.

So right now I would like to spend a couple of minutes going through the highlights of the quarter, our balance sheet and cash position, capital allocation and third quarter guidance. And just a reminder that we have nice now cycled through a full year of operating the former Journal TV and radio stations. That transaction closed April 1 last year, so we are no longer using the adjusted combined figures to provide our year-over-year comparisons. All comparisons are now to results as reported.

Other than our political revenue being a few million dollars less than we anticipated, the second quarter turned out pretty much in line with our expectations. Our total segment profit was right on our guidance. Our television group's total revenue in the second quarter was up 15% compared to the prior-year, and expenses were up 13% both in line with our guidance.

The biggest factor driving the expense increase was higher network license fees. Retransmission revenue in Q2 was up 46%. Radio revenue was down about 6% in the quarter, which was also in line with our guidance. Expenses were down 2%, which was better than our guidance.

Our Q3 expenses in the radio division will be up due to damage from a flood at our Wichita stations during a series of strong storms in July. We are now incurring cleanup and restoration expenses at the site. No one was hurt, and only one of the stations in our Wichita cluster, KFTI AM, was off the air for a few days.

Second-quarter results in our digital segment include Cracked and Stitcher, which were both acquired during the quarter. On a reported basis revenue increased 77%, beating guidance. Excluding the recent two digital acquisitions, Midroll, Cracked, Stitcher, revenue was up about 20% and expenses were up about 5%.

Total digital expenses were above guidance due to a successful live tour produced by Midroll that was also responsible for some of the higher-than-expected revenue performance. Expenses in our shared services and corporate segment were $1 million better than our guidance, which helped our total segment profit come in line with our expectations.

Touching on the balance sheet, we ended the quarter with $66 million in cash, which was down from our first-quarter balance of $96 million due to our two digital acquisitions. With net debt of $330 million, we continue to have the best balance sheet in the broadcast industry. While the flood of water in Wichita was not expected, we are expecting a flood of cash over the next 90 days, which should drive our net leverage on a two-year basis well below two times at year-end.

From the beginning of the year through the end of July, we purchased 1.3 million shares of stock for about $22.5 million. About $62 million remains under the share repurchase authorization that expires at the end of the year. We provided detailed revenue and expense guidance for the third quarter in our earnings release. We also have updated our thoughts about the likely range of political spending for the year.

As you know, campaigns react to new polls and competitive opportunities on a weekly and sometimes daily basis. Based on what we see today, we now believe the greater than $150 million we have been talking about is probably at the high end of our range and that there could be about 10% of risk to that number.

So to summarize the second quarter, we were busy closing and integrating two acquisitions in the digital segment, which will expand our growing portfolio of national brands, and despite a shift of a few million dollars of political revenue, we were able to bring in segment profit that was in line with our expectations. Here is Brian to talk about broadcast business.

Thanks, Tim. Good morning, everybody. As we've told you before, our sales strategy in the TV division relies on focusing our effort where we see the greatest contribution to the bottom line. In the first quarter that meant reaping the benefits of strong political spending in seven key primary markets.

In the second quarter, with a lighter primary schedule, we saw strong performance in local ad spending, which was that more than 2.5% on a same-station basis, driving core TV advertising up more than 1% on that same-station basis. Helping to drive the increase in local spending was a 6% rise in automotive advertising. In fact of our top seven advertising categories, all but one saw year-over-year increases.

One of the benefits of the Scripps footprint is our association with major sports cities. In the past quarter, two of our markets where at the centerpiece for the nation's sports attention. Our ABC station in Indianapolis served the a host of the 100th running of the Indy 500, while our Cleveland ABC affiliate enjoyed the back-and-forth of the Cavalier seven-game series that brought a major sports championship back to Cleveland.

Local sports can be a great revenue generator for our stations, and it can often bring a community together for something special to share. In the final minutes of game seven, 87% of all the TVs that were turned on in Cleveland were watching our station. It was the largest quarter-hour share we had ever seen and a moment Cleveland will never forget.

On the political advertising front, we are closely watching the fast-moving dynamics of the presidential race, sizing up how the remainder of the year will unfold. As Tim just referenced, decisions can be made quickly based on new polling that can dramatically alter the advertising strategy in individual markets. When we model the 2016 presidential election, we believe there would be 10 swing states, of which Scripps had stations in six.

At one point many thought the map would expand, but at this point it appears to have contracted. As a result, traditionally competitive states like Colorado and Wisconsin are currently playing a much a smaller role in this election. That would mean softer advertising in the presidential sector for Denver, Milwaukee and Green Bay.

With the contraction of the electoral map, our four swing states of Florida, Ohio, Nevada and Iowa become even more important. With the conventions behind us, candidate and PAC spending has picked up significantly in the last two weeks, and we were pleased to see yesterday that Donald Trump had raised $80 million in July and Hillary Clinton had raised $100 million.

The presidential and related PAC spending should account for more than 30% of our total political advertising revenue, meaning that we are also counting on key US Senate races in Arizona, Florida, Indiana, Nevada, Ohio and Wisconsin, to receive heavy spending, as well as our two open governor races in Indiana and Missouri.

We still have a lot of business to write in this historical election year, but Scripps remain well-positioned to capture that business through our dedicated political sales office, our proprietary data-driven targeting tool, and our geographic footprint with strong local news brands.

Political advertising may occupy a lot of our attention right now, but our sales teams have been selling the Rio Summer Olympics for months. We are seeing robust demand in our NBC markets, and we expect our revenue to be up about 10% from the $9.5 million we took in during the last Summer Olympics.

We recently completed negotiations with CBS for a new four-year agreement in Omaha. We now have all of our big four affiliated stations under contracts through 2017. In addition we are now engaged in our next wave of retransmission negotiations for about 3 million subs up for renewal between now and end of the year.

We expect 2017 gross retrans revenue to be up about 20% and net retrans revenue to be about 25%. With the start of the new TV season just a few weeks away, I'm really happy to share with you that The List, which is 100% owned and produced by Scripps, will be seen in 40 markets this year covering more than 25% of US households.

As you know this is the first season we are introducing a show into syndication. The List has been cleared in some very attractive non-Scripps markets, including Atlanta, Seattle, Minneapolis, New Orleans and Jacksonville. This is a good first step in our national distribution of The List.

Now I would like to just spend a minute talking about radio before turn it over to Adam. When we got back into radio a year ago, we shared our optimism that owning radio, especially in the five markets where we have TV stations, could create incremental value for our Company. Our optimism has not wavered a bit, despite a soft revenue quarter. Our revenue declines are isolated to a few markets, and we're working to get those stations back on track.

We are very pleased that we signed a new multi-year agreement with the Milwaukee Brewers last month. Like WTMJ's agreement with the Green Bay Packers, our radio station produces and sells play-by-play programming and delivers it across a statewide network.

WTMJ has had a relationship with the Brewers since 1970, and while the Brewers' baseball has seen challenges this season that are affecting revenue numbers this summer, this is a meaningful and mutually beneficial long-term partnership and a key contributor to our radio group. And now here's Adam.

Thanks, Brian, and good morning, everybody. Let's start by touching on our second-quarter revenue results. Our digital segment was up 77% year-over-year, surpassing our guidance in the high 60%s range. The upside was driven by stronger than expected sales in our local digital operations, plus the rapid pace of growth at Midroll.

On the expense side we were a little higher than we had guided because of expenses associated with the higher Midroll revenue for the live tour, as Tim mentioned earlier. I would like to thank everybody who joined us in June for an Investors Day in New York focused on the Scripps digital brands. If you haven't had a chance to listen, the webcast and presentation are available on our website.

We've received good feedback on the presentation and hope the discussion with me, Rich and the leaders of our local and national digital businesses helped you to better understand the industry, the size of the opportunity, and our strategies. As you heard that day, our focus continues to be on building businesses that developed a younger, organically growing and profitable audience.

Today people move seamlessly between on-air and digital platforms, so building digital media strongholds in our local markets is as critically important for the broadcast business as it is for the digital segment alone. Our local digital business is made up of the web, mobile and OTT brands in our TV and radio markets, and we monetize that business through local, regional and national advertising as well as marketing services.

The local business revenue is growing at about 20% year-over-year. At the same time, we are building national businesses with large younger audiences that hold the potential for greater scale. These businesses include over-the-top video news service Newsy, satire and humor brand Cracked, and podcast industry leader Midroll Media.

With the Cracked acquisition in April, we now see the national digital brands accounting for roughly half of the digital segment revenue this year. The integration of Cracked since April is underway, and as we told you at Investor Day we have begun to leverage the relationships we have through Newsy with over-the-top TV providers to arrange for a carriage of Cracked video series. We expect to be able to share more news on that front in the coming months.

Our OTT video news service, Newsy, continues to expand its original reporting, grow audience through wider distribution and brand awareness, and monetize that audience. Newsy delivered more than 300 million video views in the second quarter, an increase of nearly 100% over the same period last year, putting it on track to meet our goal of 1 billion video views this year.

Newsy continues to expand distribution, and we expect to announce a number of new deals soon. As Newsy goes live on new platforms, brings on new advertisers through direct sales and programmatic advertising and grows its brand, we continue to see greater opportunity for it ahead as the overall OTT ecosystem matures.

Let me now turn to our podcasting company, Midroll. During the second quarter, Midroll continued to grow the catalog of shows we create and wholly-owned, as well as the advertising network of podcasts we represent in the advertising market. In fact we recently added business podcasts produced by Marketplace.

Midroll makes most of its money from helping advertisers reach engaged audiences, mostly 18 to 34 years old, across the more than 250+ shows that we own and represent. We also announced in the quarter that we acquired the podcast listening platform Stitcher. That acquisition makes us the largest player in the podcasting business. Though Stitcher does not on its own make a meaningful revenue contribution to the division, it's an important strategic move.

Stitcher is the most widely used podcast listening app on Android and second-most popular on Apple, only behind Apple's own app, and it's very well deployed in connected cars. With more than 8 million registered users, the reach of Stitcher is an important piece of Midroll's strategy and now allows us to lead the industry not just in podcast creation and monetization, but also in distribution.

In fact, with Stitcher's contribution we had more than 750 million add impressions under management in the second quarter alone. Now here's Rich for some final thoughts.

Thanks, Adam. By the time we talk with you all again it will be just days away from knowing the outcome of the 2016 election. It's years like this when we're all reminded of the powerful role we play, both as journalists and as the distributors of strategic and targeted and paid campaign messages.

We've been preparing to best capitalize on this election season by building strong local news brands and broadcast-to-digital platforms. Over the coming weeks this effort will help us get more than our share of political advertising. As Tim and Brian said, the combination of political advertising and continued strong growth in our retransmission revenue will position us to generate lots of cash heading into 2017.

That financial flexibility puts Scripps in a strong position to take advantage of growth opportunities where we see attractive returns on investment. And now, operator, we are ready to take questions.

(Operator Instructions)

Michael Kupinski, Noble Financial.

Thank you, and thanks for taking the question. Good morning. I was wondering, in terms of your political concern or just a question mark that you have around political, you mentioned a couple of the states that you think might have a smaller role. Is it because the dollars are not being booked or you're not seeing the bookings, or is it because the polling numbers are wide where you just don't think the candidates are going to spend money there? Or can you give us little bit more color why you think that there might be a contracted amount of spending in certain of your markets?

Mike, it's Brian. I think it's all of the above. We've seen some spending levels decline, but I think more importantly we are having direct conversations with the campaigns and better understanding the polling numbers they are seeing. And in a couple of states that I mentioned, the distance between the two candidates has moved to double digits. And, as you know, typically 5%, 6% is kind of the gap you want to stay within for a race to maintain being competitive, and we see some of that drifting.

Doesn't mean it couldn't come back in, and especially if both parties are quiet in a specific market, then maybe there's an opportunity if things start to get a little bit closer, but right now we see them really concentrating Florida, Ohio, we're seeing very aggressive spending there. Nevada has done very well for us as well, Iowa. Some of those other fringe markets right now, the polling is indicating that it's drifted a little bit, and at least at this point the candidates aren't putting as much money as they have in the past into those markets.

Okay. And, in terms of auto, you indicated it's very strong and it sounds like it's been strong across the board for most in the industry. But was wondering if you could give us some thoughts on how that's shaping up for the third quarter. And in particular I understand that there is at least one -- Florida, I think has been a little choppy on their advertising. Can you give us some thoughts on how things are shaping up for the third quarter for that category?

We had a great second quarter, plus six. We're really pleased with that number. We have still got quite a bit of business to write for September, but I'll say July and August were both up. And even with the Florida, which you mentioned, we did see some cancellations there. We have been able to absorb those with other automotive business.

In the second quarter, some of the domestic dealer groups that I've talked about previously as having disbanded, we've actually seen a couple of those come back. We've lapped ourselves in it, but we also based on some sales in some regions are starting to reassemble the dealer groups, which has brought some money back.

That was a really positive segment for us in a couple of specific markets that drove our plus-six. And as I said, third quarter with anything, depending on the political -- how September lines up for the categories, but July and August has been very strong.

Thanks. And jus one quick question about any M&A activity, any thoughts about -- is everybody pretty much sitting quiet as I would expect, given the political season as well as the spectrum options -- M&A activity pretty still silent or any thoughts on that?

Michael, it's Rich. If not silent, I think we would say it's pretty quiet. As you point out, people are getting through the auction, get to the backside and things will probably pick up then. It has been pretty quiet in the last couple months.

I will get back in queue for additional questions. Thank you.

Dan Kurnos, Benchmark.

Thanks. Good morning. Brian, let me just start with you. I guess I kind of -- I think the questions we're getting this morning really just center around sort of the balance between core and political. I know last quarter you were one of the few companies to call out taking higher margin dollars.

And this quarter, obviously, political came in below your expectations, and core was still somewhat muted versus where we thought it would have come in, in the absence of those dollars. Now there may not have been any crowd-out trends. I just want to clarify if there's really just any geographic or impact or frankly it would've just been incremental dollars from political, and core just performed as you expected?

Actually performance -- I thought local performed pretty well, up 2.5% -- we felt pretty good about that number. Based on some of the other reports we have seen, that was a market-leading number, or an industry-leading number. We felt pretty good about it, and I think that really speaks to exactly the question you are asking.

We're going to go where there's the best opportunity. In first quarter, we had seven big primaries back half of March, we really went after those dollars aggressively, and that did display some stuff. In this quarter, as the primary season dragged on a little bit, most of our relevant markets had already had their primaries in first quarter. We saw a better opportunity on the local side and I think we really took advantage of that. Where there was political dollars, we did well with that, but we just keep an open mind of where is our best opportunity and where's the opportunity for the best and the most high-priced inventory.

I think that's why you see the shift. We seized the political opportunity in first quarter. There was less of that opportunity in second, and I think our local sales teams were very aggressive on new business and we felt really good about our performance there.

Got it. Thank you. And then, just shifting back to political, maybe asking the political question in a different way. It sounds to me like your political is more geographic related than other commentary we have been hearing. Maybe it's because you actually gave a number out there versus others.

Just curious if you would characterize it as being more of a geographic issue for you guys. And, on the flipside, we've been hearing, obviously, whether or not the Republican Party tries to do something to oust Trump as the primary candidate would be a little silly, but it's possible. There seems to be more money being raised on the anti-Trump front, and subsequently the House and Senate races become more important now to maintain sort of that check and balance if Hillary wins. Are you seeing any uptick in the second-tier races as a result?

Yes, I think we absolutely are. So let me kind of start with the backside first. In the second quarter, only 12% of our revenue came from the presidential candidates and only 26% came from anything associated with the presidential. In the first quarter, that number was 60%. In the first quarter, heavy presidential; this quarter, much more about Senate and House.

And I think that down-ballot stream that we expected on a lot of the PAC money and other money going to many of those races is exactly what we are seeing. We have now seven really good competitive races, a couple of the Senate races have actually gotten more competitive for us. So I think we're feeling better about that. We've got 12 competitive House races, a couple of them really strong. I think what you're speaking to is, in this interim time, where the presidential candidates are still raising their money, we have been able to mass some of that with the Senate and House, and we think that's going to continue to be the case all year.

In terms of the presidential, it really does -- it comes all down to geography. I think maybe the reason why we speak to it more specifically is because we are only in 24 markets, so some of our peers are in 50, 70 more markets. And they are a bit more leveraged. We are in 24 specific markets. We really like our political footprint, it has served us well. It's served us really well through the primary season. But as polling changes and things come out of -- move in terms of what those polls say, it becomes a market-by-market thing. We probably have more visibility in, just because of our condensed number of markets.

Got you. Thanks for that color. Quick one for you, Adam, can you just give us little bit more color around the live tour and then are you -- is the Bill Simmons situation settled, or are you still dealing with that headwind?

Morning, Dan. Sure. We produced the Comedy Bang! Bang! tour. Comedy Bang! Bang! is one of Midroll's longest standing shows. It's incredibly popular. And at the end of the day, in fact we added more shows, sold out more shows, which drove more revenue and, of course, drove more expense. That was reflected in the performance.

We expect to continue to be in the live tour business, especially with some of our biggest podcasting brands. It not only helps drive engagement and obviously revenue, but it also continues to be able to expose new audiences when we partner with top talent like Scott Aukerman and Paul Scheer, bringing them into markets where we build new fan bases and then get them to continue to download the shows.

On the Bill Simmons show, yes, Bill Simmons is continuing to produce his podcast. We continue to help him monetize that podcast. We've been fortunate that Bill has agreed to continue doing audio programming, despite his arrangement with HBO. I think everything is very good, and right now we continue to see that moving through the end of the year at least.

Got it. Great, thank you. And one last housekeeping question, if I could. I guess maybe Tim or Rich, on the flood in Wichita, are you guys insured there? Are you going to recoup that?

Oh, yes, we are definitely insured. We'll pay up to the amount of the deductible. The reason I brought it out is that expenses were down in the second quarter in the radio group, and they will be up in Q3 as we pay up to that deductible amount.

Just wanted to make sure it wasn't anything incremental. Got it. Thank you.

Marci Ryvicker, Wells Fargo.

Thanks. I just want to make sure we have the political numbers right for the back half of the year. Based on the comments in the release and on the call, it looks like full-year political will be between $135 million and $150 million. With half of that falling in the fourth quarter, we're looking at $67.5 million to $75 million, which means the third quarter -- sorry for the numbers -- is between $50 million and $57 million.

That's right, Marci.

Okay. And then, digging into the third quarter more, $9.5 million Olympics, you are going to go 10% on that, so we're looking $10.5 million of Olympics, which means your core will be down anywhere from 5% to 15%. I guess the question I have is, how incremental is the Olympics and how does it split out in terms of local versus national? We heard on Gray's call yesterday it's like 75% local, so we were able to get a really clean spot number for them. Do you have the same information?

Yes. It's, again, about 75% local. And it's about 40% incremental.

Great. And then, question on the radio side of the business. Are the markets you're talking about soft because of your specific stations, or are they soft in terms of just the general market?

Marci, it's Steve Wexler. It's really isolated, as Brian mentioned in his remarks, to a couple of places. Milwaukee, where we've talked about Brewers being more challenging than it had been in the past. And that's clearly driving some of that second-quarter concern, and a little bit about third-quarter guidance that we provided as well. And then, our Tulsa market is both soft and we've got some rebuild that we're doing down there. It's really been isolated to primarily a couple of places. We've actually seen some local growth in our other markets.

And the last question is more housekeeping. Shared services and corporate came in lighter in the second quarter. The guidance is a little bit heavier in the third quarter. Is this just a timing shift?

Yes. We had some favorable medical expenses and employee benefit expenses that came through in Q2. We're not sure if they're going to repeat in Q3 or not. That's what the slight uptick is in there.

And, Marci, I wanted to just talk a little bit about what you were talking about cores. I think about the guidance that we laid out for Q3 in TV -- the TV revenue's up 35% to 45%. Included in the guidance, as we said, we talked about a range of political and there is a number in there of around $50 million or so. Retrans will be on a run rate pretty similar to what it's been, because those renewals will occur at the end of the third quarter. So right now we've got core pacing up a bit in Q3. And that includes the Olympic money that Brian talked about.

Okay. Thank you very much.

Craig Huber, Huber Research Partners.

Good morning. Wanted to start off on the digital front. Your press release talks about, excluding the acquisition, that digital was up about 20%. I'm just curious, first, the local properties, how much were they up, please, in the quarter year over year for digital?

Local was up about 20%, Craig.

Okay. And then as you think out -- it might be tough to pin this down, but when you think out long term in the digital front, looking at your budget there, how long out should investors expect -- assuming the economy holds together here and things hit your budget, what's your best guess when you think you hit the profitability on how you report things in your digital line?

I would say to start, when you look at the first six months of the year, we're pretty happy with the revenue growth we are seeing and we think that's going to continue on track. Standing firm on our guidance, and you see the third-quarter guidance there. You have to remember I think that spending in digital is very much an intentional investment. We're making an investment only where we expect to create value and see return.

I think we're in a period of investment right now, especially with those national brands -- Newsy, Cracked, and Midroll -- because we are expecting greater return down the road. Return that we think shareholders will appreciate. It's tough to put a number on it right now, because I think it all depends on how things evolve over the next 18 months.

Craig, it's Rich. And we should say it's tough to put a date on it, too. We continue to put investment into that digital group. If you stand back and think about it, we're building large, organically growing brands at a very low cost.

If you look at, let's say, Cracked and Midroll, and Newsy, for example, in each case the investment in those individually was about the same as a very small market TV station. But the opportunity, especially the scale opportunity, we think, is much, much larger -- investments in Midroll, as the podcasting industry leader; we just added on Stitcher which gives us much deeper reach; Newsy with its OTT carriage opportunities; and then we are going to leverage those for Cracked. So, again, we look at as we're making investments with very large-scale potential at very minimal cost. I personally am not very eager to get a date on when we try to turn the segment profitable. I think it's more important that we keep investing to build out the opportunity that we see today.

Okay. Let me switch over to TV if we could, please. Just look at your national number there in the quarter, down 2.9%. It was down roughly 2% in the first quarter, pro forma for the large acquisition. Brian, I'm just curious your thoughts on the better broadcast network TV ad numbers that we've seen in the last two to three quarters. At the network level obviously, you're not spilling down to the national ad bucket at your TV stations and some others as well. I'm just curious what your updated thoughts are on why that is?

Craig, I've spent a lot of time digging inside of national and, to be honest with you, it's really one sector of one category, and it's the insurance academy -- the insurance category. A year ago, there were a couple of big insurance wars in a few of our markets, and we've talked about what we call our desert region, being Phoenix, Las Vegas, and Tucson.

A couple of major insurance companies kind of duked it out there a year ago. And, the first half of this year, they signed up all of the insurance they were targeting because they've really dried up -- to the tune of several million dollars. That is really -- and all of that stuff gets booked nationally. So, these are the big -- the Geicos and the State Farms and the people like that, it's all national spending. But that segment of our services category is almost exclusively responsible for the decline in our national over the first half of the year.

Obviously, so you take that out, you're saying you would be up slightly, maybe 0% to 1%?

I'm saying it brings us much closer to flat to up.

Okay. And then, Brian or someone, your retrans subs up for renewal, just update us on that number -- the number this year, next year, maybe 2018 as well? How is this looking here?

Between now and the end of this year, we will still negotiate another 17% of our subs. Next year, in the year, it will be 8%. And then in 2018, in that year, we'll negotiate 36% of our subs.

I wanted to just ask you, for full-year 2016 what is that number, please? And what is it for 2019, if you have it?

I think for full year it was 19% this year.

Okay, what about 2019 if you have it?

39%.

Okay. And then, when you look at your -- we've talked about this in the past, the margins on your TV station group, if you think out long term here, obviously the Comcast contract when that kicks in late this decade, that will also really help on the retrans front, especially free money for you -- but what else, other than just raising ratings, is it just as simple as that to get the work in, block in tackling the ratings up and the ad dollars will fall over time to get those margins up higher to where I know you really want to get them?

Yes. Look, I think we've made major progress here in the last couple of years. I think we've been very proactive since the split of the Company focused on that, number one, in terms of growing ratings, and I think we've had some success there. But, to your point, that remains our biggest opportunity. We've done a significant amount of centralization, hubbing of traffic and graphics and master control and many services there that have created efficiencies.

I think one of our most aggressive innovations has been on the programming side, where we've taken $40 million, $50 million just out of our core stations in terms of programming costs, and now that's become a major opportunity for us as we continue to scale our margin, as we've acquired all of these new stations. We've got three shows in daily production that we scale across our group. And I talk about the success of The List, that will expand into a couple more markets -- Scripps markets this year, and we still have a few more to go. Every time we expand that we pay -- there's zero incremental cost, and we save all of the syndication fees that we've been paying. I think that's a continued big opportunity for us.

We are very focused on margin. You're well aware that we've had some challenges on the retrans front, but we've overcome all of those except for Comcast. We continue to see what we think are becoming very competitive margins. And as we look out a couple years, I think with the programming initiatives that we have underway and the level of profitability that those drive, every one of those is very profitable for us. We have the potential to perhaps even outpace some of our peers as we capture 100% of our retrans.

When you were talking earlier, when it came up about July and August TV ad pacings, I heard you say the number 6%. I wasn't quite 100% sure what that was referring. I'm also curious what the month of July looked like. It was obviously not influenced by the Olympics, so can you talk about what the core is up or down in July?

So the 6% number I referenced was the second-quarter automotive. And it was an automotive question I was responding to relative to how July and August did pace. We don't give out specific numbers now, but I can tell you that July's core was up year to year.

Okay. Great. Thank you.

Kyle Evans, Stephens.

Thanks, I've got two for Brian and then a follow-up for Adam. Brian, just wanted to double check on some of the presidential contribution to total political numbers that I think I heard you say earlier in the call. I just want to double check. Did I hear you say 60% in 1Q and 12% in 2Q?

Actually, the number in 2Q was 26%; the 12% was just presidential. If you combine presidential and PAC, in Q2 was 26%, and in first quarter that was 60%. But, Kyle, that really shouldn't scare you. That's the number we were really kind of expecting as a result of just -- we had a bunch of primaries in Q2 -- in Q1 where you had multiple, right? Back then, you had six Republican candidates, you had Bernie Sanders spending and all that. And then, in Q2, we had very few primaries that garnered much dollars.

Obviously, Hillary started spending towards the back half of the quarter. Trump had not yet spent, so you can see the dichotomy there. Those numbers were not alarming to us. They were kind of what we expected. I think it will grow, as we said, we expect the presidential to settle in and probably represent 30% or a little bit more than that percent of our total political spending this year.

Great. Just to be clear, I wasn't alarmed, just making sure.

That's okay.

On the retrans side, could you give an update on subscriber volumes? Has it historically been flat to flattish? Any update there?

Yes. I think that we are not seeing any declines. We continue to negotiate deals and, obviously, true up numbers at the end of each quarter. We remain very consistent to where we've been.

Great. And then a follow-up for Adam, you talked about 20% growth in local digital. I was wondering if you could comment on what the drivers are there and how sustainable you think that growth rate is? Thanks.

Morning, Kyle. We don't necessarily think that abates, at least in the near term. Right now, we are continuing to see very strong growth in programmatic advertising, particularly on the national side, with strong rate growth as we continue to hone our strategy there. Our rates have grown -- I think I mentioned this in New York a couple weeks ago -- about 250% over three years.

From $0.90 at this point to just around almost $3.00 is an effective CPM on display advertising. And when we talk about video -- which is where we put a lot of our focus -- we've driven our rate up to $11.50 on programmatic. And that's before we really talk about the effort we have in every one of our markets, with our integrated sales teams and our digital and re-sales teams, to service our local advertisers. Obviously, a huge focus of ours. We think local is very healthy and continue to see it growing.

Thank you.

Barry Lucas, Gabelli and Company.

Thank you, and good morning. If I could just start with a little housekeeping, Tim, what was CapEx in the quarter, and what would that number be for all of 2016?

CapEx for the quarter was -- hold on a second -- was about $7 million for the quarter. And for the full year, it will be in around $30 million or so.

Great. Thanks. Brian, I wanted to go back to The List, and since you've mentioned it several times. But, originally the programming initiatives were largely to drive costs lower to eliminate expensive syndicated programming. And if you're sort of breakeven on that and now have 40% clearance, how big can that be, and what does it take to -- in terms of clearance -- to really make that a positive contributor as opposed to just a cost offset?

The List is very profitable for us now, across our group. And, obviously our ability to scale it just adds more revenue to the bottom line. What's the potential? I guess it depends on how good a show we produce. RightThisMinute, which was, as you know our first foray into the programming space and its partnership with us and Cox and Raycom, is now in 94% of the United States. It has national distribution, national sales, did very well in the up fronts. It's clear on the ABC O&Os this September.

So I think we look at The List, The List's ratings in this last season, if you take the 100-plus shows that are in syndication, on adults 25 to 54, The List was ranked number 11. We've got a really good show here. You can see from the quality of the cities that we've cleared early that this is a program that we expect is going to continue as we move into 2017 sales and when we take it out to [nappy].

Obviously it has a proven history in syndication. We think there's a lot of growth still for the show. And, as I mentioned, it's very profitable and we expect it to continue to be. It is produced out of our facility in Phoenix. We've built out some space there. We're able to control that. It's not produced in LA or New York. That's very much by design. When we were building our shows, we wanted to try and control the costs of the production. I think we've been able to do that.

I think we're producing a very successful national show, quite frankly, at a fraction of the cost of what you see some of the big shows produced by the networks or the big studios. I think our business model is intriguing and I think that's why you see a lot of our peers following our footsteps. And, quite frankly, I think you see some of the production studios even trying to learn more about how we do what we do at such an effective cost.

Great. Thanks. If I could switch to Adam for a second. As I recall, at the Investor Day, Adam, there was a fair amount of conversation about moving traffic away from either social media sites or Google and going direct to the websites like Newsy. I'm just wondering if you had an update there. Some other people have mentioned the changes at Facebook have contributed to reduced traffic. Wondering if you could share some observations there.

Sure, Barry, and just for everybody's benefit, let me get everybody up to speed. We talked in New York about distributed content. Going and distributing our content directly in relationships with Facebook through their instant articles program, using Google AMP to get preferential treatment from Google. We are just in the beginning of those experiments.

Barry -- I don't have any results yet to report back on. The way we defined that experiment was sort of a math problem. When you have audience click over to our site, the site does naturally load a little bit heavier, a little bit slower. There's some drop off there, but we're able to monetize that audience with three, four, five different advertising opportunities. Whereas inside of Facebook's environment, with instant articles, the site -- our stories load instantly, blazing fast, especially on mobile. But there is a limited opportunity to monetize them.

So our experiment, really, what we're doing is we're beta testing whether or not we are going to make more money doing it directly with and in partnership with Facebook -- where we know that Facebook is giving you a little bit of extra juice, a little bit of favoritism there -- or if we're going to continue to use the model we have used thus far. What everybody is referencing, relative to the algorithm changes, is really the impact of not doing the work we are doing with Facebook.

Publishers who have relied on -- or over-relied on social media in the past are seeing a little bit of a negative reaction, because Facebook's got that control over how much audience flows directly back to you. They are able to decide how much they want to showcase, publish content -- news content to consumers. Really the work we are doing is, in fact, a hedge.

The other thing I would mention, though, and why local media is a lot less -- and, quite frankly, even our national brands, a lot less subject to what you've read is about brand loyalty. You know, we still have a lot of people -- the vast majority of our audience is still coming to our local news sites, Cracked, I've mentioned this before, directly because they have an affinity to our brand.

If you live in one of our local markets, and you and your family have relied on us as a leading news and information provider for years, we are absolutely connected with you on Facebook and Twitter and Snapchat. But, at the same time, you know that you can come directly to us on the web, and that continues to be something that we work very hard to maintain.

Great. Thank you.

(Operator Instructions)

Tracy Young, Evercore.

Two questions on the TV side. I don't know if you discussed this, but could you mention the retail category, how that performed in the quarter?

Hello, Tracy, it's Brian. Retail was up, low-single digits.

Low-single digits? Okay. And then, I know we are all asking questions about political. I think there are some concerns -- obviously, this year hasn't formed the way that people would have expected, but I think the guidance you provide for Q3 provides some acceleration versus others. Can you give us some kind of sense as to what percentage of revenues you have on the books versus 2012, what kind of confidence you have on your Q3 number?

Are you talking about our political number?

Yes.

Let me take a look here. I don't know off the top of my head the percentage we have on the books. Can we get back to you on that, Tracy?

Versus 2012, I don't have the 2012 numbers in front of me.

I'm just saying, I think people are concerned that you're expecting a big ramp-up in Q3 that others aren't really seeing. I don't know if it's in a market that people aren't in that you really have a competitive advantage, or what it is that you can give people confidence about that.

Yes, I think if you look at a lot of the -- what's been reported relative to where are the critical states and where we've seen quick ramp-up in terms of spending. There's really been three primary states reported: Florida, Ohio, and Pennsylvania. And our footprint's really favorable in those, and those markets are active right now.

We've got two big Ohio markets in Cincinnati and Cleveland. And there is spending going on now and it's ramping up with new buys being placed on a regular basis. And then you get to Florida, and that's a great footprint for us, being in West Palm Beach, Tampa, and Fort Myers.

We think that a lot of the focus is going to come down to those three states, and we've got five good stations in two of those states that the spending is happening now, and since the conventions, quickly ramping up there. And we think Ohio and Florida are going to be two of the battleground if not the battleground states, and we think we're going to remain very consistent with spending through all of third quarter there.

Okay. Thank you very much.

We have no further questions. You may continue.

Thanks, Lea. Thanks to everyone for joining us today and we will talk to you soon. Have a good day.

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