E W Scripps Co (SSP) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Scripps fourth-quarter earnings call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Head of Communications and Investor Relations, Ms. Carolyn Micheli.

Good morning, everyone, and thank you for joining us for a discussion of The E.W. Scripps Company's 2016 fourth-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 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 a week.

We'll hear first this morning from our Chairman, President, and CEO, Rich Boehne, followed by Chief Financial Officer Tim Wesolowski, Broadcast Chief Brian Lawlor, and finally Adam Symson, our Chief Operating Officer. Also in the room are Radio Division Head Steve Wexler and Controller and Treasurer Doug Lyons. Now here's Rich.

Good morning, everybody. Thank you for joining us as we take a quick look in the rearview mirror at 2016 and then turn our attention to the opportunities of the year ahead.

2016 had some peaks and some valleys. We took in $100 million in political advertising revenue, and while that was less than we expected, political advertising overall was a huge net positive. We also felt the effects of the fully-expected pullback by some core advertisers, local and national, who had already made plans to avoid the flood of campaign ads.

At the same time, we were encouraged in 2016 by strong spending for U.S. Senate and House races in our markets. Looking ahead to 2018, which is now just months away, we expect political spending to remain a highly profitable revenue category, especially given our attractive geographic footprint.

The strength of a broadcaster's political footprint depends upon the dynamics of each individual election, but our overall long-term opportunity to capture these political dollars continues to strengthen. The best recent example is the addition of our Las Vegas station, which we added through the Journal transaction in 2015 and which then immediately hit the jackpot by attracting nearly $20 million in political ad spending last year.

Looking behind the cyclical nature of our political business, we are building significant value through other TV revenue streams and we are building whole new and valuable enterprises in our digital segment. In the TV division in 2017, the tough comparisons resulting from the near-absence of political spending will be somewhat offset by the benefit we will receive through the recent renewals of about 3 million retransmission households. And with most of our network contracts in place for the next several years, we will see good flow-through of that retransmission revenue to the bottom line.

Over in the Digital segment, where organic revenue growth was up 30% in the fourth quarter, we're looking forward to continued profit contribution from the local digital businesses in 2017, as well as aggressive expansion of our national digital businesses. Adam is going to discuss both in a few minutes, but let me talk for just a moment about the opportunity we see.

Through our investments in local digital brands we are increasing our overall local revenue share, boosting our on-air results, and simultaneously building new audiences and new revenue streams that are essential for the long-term success of these local brands. At our national video network, Newsy, we are among a small group of emerging news brands focused on younger audiences and operating under very different strategies than the incumbent news brands.

High-quality content is developed in real-time based on a data feedback loop, resulting in a linear video brand that is constantly curated for the needs and desires of that younger audience. We see an attractive opportunity for Newsy as the video distribution channels and the consumer video platforms are seeking more and more content for these attractive younger viewers. Expect to see additional expansion of the Newsy audience as we move through the next several years. This is an important opportunity and investment for Scripps.

The same goes for Midroll, where we are among the leaders in over-the-top audio, including for the car through our acquisition of Stitcher. Our end-to-end podcasting solution continues to attract talent and advertisers of the highest quality in this growing marketplace.

Cracked, while newer to the portfolio, will continue to grow as one of our key content providers for both our OTT video and audio businesses and it will continue to be my daily source for biting satire about all the absurdities of American life. I even enjoy when they pick on poor beleaguered CEOs like myself.

Despite investments to expand these businesses, we will continue to maintain a balance sheet that lends us tremendous financial flexibility.

Looking ahead, we welcome the opportunities afforded by a new pro-business climate and a repositioned FCC. Local broadcasters could benefit from a federal government that understands how to spur the growth of these established industries.

Finally, we at Scripps look forward to the promise of new leadership here at our own company. The day after the election in November we announced that I would be stepping down as President and CEO in the second half of 2017, remaining though as Chairman of the Board. At the same time, we announced that our Chief Digital Officer, Adam Symson, had been appointed to the new role of Chief Operating Officer with a path to becoming my successor upon my transition. Adam now oversees the Company's broadcast TV, radio, and digital media businesses.

Adam has worked for Scripps for 15 years, beginning at our TV station in Phoenix. Much of his work for us and more than half of his career has been in the broadcast television business. He has been an investigative producer, director of TV news strategy, head of operations for the TV division's interactive businesses. He took over the company-wide digital businesses in 2011 and he is going to do an outstanding job.

Now here is Tim Wesolowski with a recap of our fourth-quarter results and a look ahead at our 2017 guidance.

Good morning and thanks to all of you for joining us today. The press release contains the details of our fourth-quarter performance and we will be filing our 10K later this morning so you can get even more details there. Right now I would like to go quickly through the highlights of the quarter, our balance sheet and cash position, as well as capital allocation, and then spend the bulk of our time on the 2017 first-quarter and full-year guidance.

Our Q4 results were generally right in line with the guidance that we provided in November. Our Television division's total revenue for the fourth quarter was up 37% compared to the prior year, driven by $56 million of political advertising and $60 million of retransmission revenue. For the full year we delivered political advertising revenue of $101 million.

Q4 television expenses were up 6%, significantly better than our guidance. The increase was driven by higher programming fees we pay to our network partners.

Radio revenue was down 1.4% in the fourth quarter. The Radio group took in $1.4 million in political revenue for the full year and expenses were down more than 4% and that's a bit better than our guidance.

Turning now to our Digital businesses, fourth-quarter results include Cracked, which was acquired during the second quarter of 2016, and on a reported basis, Digital segment revenue was up 42%. Excluding the impact of Cracked, total revenue was up 30%. Total Digital expenses were up 27%, again better than our guidance. And excluding the impact of Cracked, expenses increased 13%.

Expenses in our Shared Services and Corporate segment for Q4 were $11.5 million and our guidance was for about $10 million. There were some year-end adjustments to benefits and a settlement of a tax audit that pushed that expense line up over our guidance a bit.

Touching on the balance sheet, we ended the quarter with $134 million in cash, which is up from $94 million at the end of the third quarter, and with net debt of $259 million we continue to have the best balance sheet in the local TV broadcast business and a net leverage ratio of 1.8 times on a two-year blended basis. During 2016 we purchased 2.7 million shares of stock for about $44 million and that share repurchase authorization expired at the end of last year and in November, our Board of Directors authorized a new two-year $100 million share buyback program.

You will see we provided both first-quarter and full-year 2017 guidance in our press release. I believe we gave you all the information that you need to feed your models. I want to focus on a few highlights.

First, looking at the annual guidance, we told you in November we expected total 2017 retransmission revenue to increase 20% over the $221 million we booked in 2016 and that's still our outlook. We also said we expect a 25% increase in net retrans and again we should track real closely with that. For the full year, we expect Digital revenue to be up in the high 30% range and Digital expense to be up in the low 30% range.

Our 2017 guidance also includes full-year Shared Services and Corporate spend moving up a few million dollars. And we expect our Syndication and Other segment -- and that's one we don't often talk about -- will have a small loss there, in the $3 million range or so, as a licensing deal has ended and the newspaper syndication business has lower revenue.

A couple things for guidance in the quarter I want to point out. We are guiding for Television revenue to be about flat and keep in mind that's a comparison to the first quarter of 2016, when we delivered $9 million in political advertising. We expect first-quarter Digital revenue to be up in the mid-20% range and Digital expense to be up in the mid-40% range as we invest in our national content brands to maximize their opportunity for growth.

Please take a look at our press release for our full guidance. Now here's Brian to talk about our broadcast businesses.

Thanks, Tim. Good morning, everybody. In 2016 we delivered record revenue in the TV division, fueled by the second-largest amount of political dollars in our history, just over $100 million. As you know, the large majority of those dollars drops right to our bottom line, so that's a significant contribution to our 2016 results.

As Rich just said, we are really encouraged as we look ahead to 2018. The Democrats will have every reason to put up a good fight for the Senate with 33 seats up for grabs; 10 of those races fall in Scripps markets.

In addition, the midterm election offers 16 governors' races across our markets. Those races are especially significant next year, because whoever takes the governor's mansion will hold the pen on redrawing the congressional district maps after the 2020 election. Obviously there's a lot at stake for both parties. It's too early to put dollars around our expectation for 2018, but we are optimistic about robust spending for this midterm election.

Turning to the fourth-quarter TV results, heavy political spending caused a 12% decline in our core advertising. Just a reminder that's just local and national. Don't read much into that number though; that amount of displacement is to be expected in a fourth quarter of a big political year.

What I can tell you is that when all the dust settled in December, core was down 1% versus December 2015, so I was obviously pleased to see the core business bounce right back.

The Scripps retransmission revenue story remains strong. As Tim said, we will see nice 20% growth in total retrans in 2017. That is driven partly by our successful renegotiation of our 3 million cable and satellite homes near the end of 2016, as well as the upcoming renewal of 1 million households over the course of this year.

Moving on to our original programming strategy, we continue to be pleased with its traction and success. Our infotainment program The List can now be enjoyed by viewers in 45 markets, covering nearly a third of US TV households. We are proud that The List continues to be a top 20 ranked show in syndication.

Our viral video show Right This Minute already reaches most of the country and is on track to enter its seventh season this fall. The ABC O&Os have renewed the show, which is a partnership with us and Cox, Raycom, and it remains very profitable today.

Now I would like to touch just for a moment on the Federal Communication Commission's actions yesterday regarding ATSC 3.0, our next-generation transmission standard. Scripps has been highly involved in the development of the technology and we are eager to begin testing 3.0 alongside our current 1.0 broadcast delivery. We are pleased to see Chairman Pai and the commissioners moving forward quickly on this technology, which holds promise both for consumers and for our industry. We anticipate gaining full FCC approval later this year.

Finally, I would like to comment on the FCC's broadcast spectrum auction. As we told you in a press release three weeks ago, Scripps will not be receiving proceeds from the auction. Although we pursued several channel-sharing arrangements with ourselves and with other broadcast partners, none of the spectrum we offered was selected. The prices available in the auction fell well below what we thought it was worth.

We believe having a full 6 megahertz capacity in local markets will provide the foundation for new business opportunities in the ATSC 3.0 world.

Before I close, I would like to discuss our Radio results. Political revenue of $550,000 helped drive better results in Q4 than previous quarters. We were encouraged by local radio revenue of flat or up in four of our key markets and we saw a bright spot in Milwaukee as we rode the wave of the Packers playoff run through the fourth quarter and into Q1. Now we look ahead to Brewers baseball and an improved season and with a sure sign of spring upon us, our Brewers broadcasts with Bob Uecker begin next week from Arizona.

With that, here's Adam.

Thanks, Brian. Good morning, everybody. First, I would like to review some highlights from the Digital segment results from 2016 and then take a quick look ahead at 2017. Then I will say a few words about the leadership transition later this year.

Tim hit many of the performance results for the Digital reporting segment, so I will just say that I'm very pleased with the revenue growth we saw as we ended the year, 42% over fourth quarter 2015 including the results of Cracked and a 30% increase without Cracked. I'm also pleased to share that in 2016 we drove the local digital side of our business to profitability a bit ahead of our expectations.

As you will recall, our local digital business is the part of the Digital division that is tied to the digital operations in our TV and radio station markets. This business delivered well on both revenue and expense last year, driven by gains in programmatic and passive revenue streams. As we've discussed before, we have cultivated a strategy for growing passive and programmatic through inventory control and rate management. This strategy continues to pay off as we command among the highest programmatic CPMs in the industry.

We have also been aggressive about pushing our respective local television brands onto fast-growing, new platforms such as OTT video and smart assistant platforms like Amazon's Alexa service. And during the past year, we released no fewer than 10 updates to our mobile apps. These are good examples of how we are anticipating where the media consumer is going and then are there to meet them with relevant content and advertising.

2016 local digital revenue grew 20% over 2015. Looking ahead to 2017, we expect our local business to grow at a more moderate pace, in the low double-digit range. And it's likely to make up less than half of the Digital revenue as the national content brands will grow at a much faster clip.

Turning now to those national content brands, let's start with Midroll, which showed strong fourth-quarter revenue growth. Midroll's results benefited from our ongoing investment in sales operations and the expansion of our catalog of both the podcasts we create and those high-quality shows we represent in the advertising marketplace.

During the fourth quarter, Midroll held its first large-scale live event, the Now Hear This festival. Fans from across the country traveled to Anaheim, California, to hear 30 podcasts recorded live on stage and meet popular podcast hosts such as comedians Marc Maron and Scott Aukerman and NPR's Guy Raz. It was a terrific event and we are pleased to share that the Now Hear This festival will be back this September, this time in New York City.

In the fourth quarter, the number of podcast ad impressions inside the shows we create and manage also hit another high, 980 million. That compares to 900 million ad impressions in the third quarter of 2016 and rates for advertising continue to grow as well.

Cracked finished the quarter and the year with steady audience growth on both its web and video platforms. Video views were up 30% quarter over quarter as Cracked shifted to more content based on current events. You'll remember we bought Cracked with the strategy to leverage our relationships with over-the-top video providers and we have now launched it on Apple TV after earlier launches on Roku, Pluto, and the connected TV platform Xumo.

Newsy made strides in the fourth quarter as well. Newsy has continued to rapidly shift its business to over-the-top television distribution. These platforms accounted for almost half of the video views Newsy delivered in the fourth quarter. For the full year, they were about a third of Newsy's total of 1.3 billion video views.

As you know, Newsy has shown tremendous resonance with audiences on these platforms. Our live linear news programs are drawing long durations of viewing, more than an hour per session, and they have proven popular with millennial-focused services that are now seeking us out as an alternative to traditional cable news networks. Although Newsy has competitors, none is focused on the same kind of video storytelling, produced in digestible amounts with thoughtfulness and objectivity.

As you know, these national content brands are in the building stage and we are investing in them to best capture their opportunities for growth. The local digital business is a good example of making investments and building a profitable and valuable business.

In the local markets, we stuck to our plan of building incremental audiences and new organically growing revenues. Today we are in a strong position to capture even more value in the local markets.

At the national brands, our investment falls into a few buckets. At Midroll, we are investing to bring on the people we need to accelerate the development of our distribution platform, Stitcher. We are also growing our content development staff to create more podcasts for our owned and operated catalog.

At Newsy, we are adding to our editorial and sales staff to further enhance the product and keep up with the demand we see in the advertising marketplace. And at both businesses there's investment in the plan to market the brands and grow audience.

These kinds of strategic moves are the only way to spur meaningful growth and receive a meaningful return. That's why, despite significant revenue growth, you won't see much change in our guidance for the segment loss from 2016 to 2017.

Before we move to your questions, I would like to say how humbled and truly honored I am to have the opportunity to take on a bigger role here at Scripps. The media industry is in a season of rapid evolution, fraught with new challenges and opportunities. As we navigate, our strategies for long-term success will continue to adapt, but there are two things that definitely will not change as we transition leadership of the Company.

The first is our devotion to our journalistic mission. Ever more important in these times of political upheaval and cultural angst, we are committed to, as our motto says, shining light on the most critical issues facing our communities and the nation. The second is our commitment to building attractive economic value for our owners through an entrepreneurial culture. Those two have been the foundation of the successful Scripps playbook for nearly 140 years and some things need not change.

And now, operator, we are ready for your questions.

(Operator Instructions) John Janedis, Jefferies.

Thank you. Two quick questions, I guess. One is there has been a lot of discussion since your last call about virtual MVPDs and how the affiliates fit into the rapidly evolving ecosystem. Can you talk about how you envision Scripps' participation with the new entrants, given the relative absence of affiliates to date and maybe how the economics look?

Then quickly on M&A with the auction done and likely some disappointed smaller private players, are you seeing an uptick in stations for sale? And does that, in theory, impact or help the bid/ask spread? Thanks.

John, it's Brian; I'll start with regard to the virtual MVPDs. Scripps is already participating in the first one that is out there that most affiliates are part of, which will be the CBS All Access. We've been up and running with them for about a year and that has been a very successful model.

As you are now seeing as just a consumer, there's three or four new entrants into the space that are beginning to put together programming that they will ultimately launch. We're engaged in conversations with all of them. We are engaged with our networks and likely would be with a normal MVPD and just understanding who has the rights and who can negotiate those rights.

But I think everyone of these virtual MVPDs has interest in having the local channels and having our live stream on their platforms. And so I think discussions are happening with us through our networks as well as us directly with some of these virtual MVPDs to get our channels launched on those. I think you'll see really positive momentum in the industry in the next couple of months as many affiliates will be launching on all sorts of these new platforms and looking forward to a nice open marketplace with good commerce there.

Do you want to take the M&A?

John, it's Rich. I have to say we are not seeing much heat up yet. There's an awful lot of talk and auction has ended, a lot of talk at the FCC, but we are not seeing a lot of -- we have not seen an uptick in activity at this point.

I'll just jump back in; it's Brian again. I would add I think a lot of people waiting for clarity around the end of the auction, which obviously we just got in the last two or three weeks. And obviously with a new Republican-led FCC deregulation is a theme that seems consistent now with Chairman Pai's administration and so we are expecting to start to see changes sooner than later relative to reinstatement of the UHF discount.

Beyond that, we think this year that there will be -- the in-market ownership rules will be addressed, having to do with eight independent voices and the potential on two big fours in a market. And we even think that by the end of the year just the market cap, the 39% cap, could be addressed and reviewed there.

So I think the timing all of this works really well and I do think that now with the auction behind us and positive momentum and probably some regulatory changes, I think we are anticipating a flurry of activity that begins this year; some of it small, some of it significant. But I think that timeline is now lining up for the beginning of an event.

Thanks, guys.

Michael Kupinski, Noble Capital Markets.

Thank you. I just have a couple of quick questions. The TV guidance to be flat is pretty impressive. I would imagine that a large portion of that is coming from the retransmission revenue growth.

I was wondering; Brian, can you give a little flavor of the tone of the first quarter on a core basis: local, national?

Sure, Mike. Just a reminder, when we talk about core, our core is pure core, local and national. We don't have digital or retrans in that number.

But, look, first quarter started slow. January was very slow to develop. We actually had anticipated that. We'd gone back and looked at the cycle after new presidents are elected and traditionally January into February have been relatively soft in that environment. And I think as people are waiting to see what happens, that was consistent this year.

Let me tell you a couple things now that I have some visibility are becoming clear to us. As I said, January was just slow to develop. February has more money booked than January. March will have more money booked than February, so the quarter is growing appropriately as we would expect it would.

Really, as I look at it, we are kind of right in the middle of the quarter now. Because January was so slow to get started, we still have I guess five-plus weeks of business to write and so we are expecting positive momentum and a strong close to this quarter as it continues to grow.

I'll just give you a little insight. We are seeing some positive stories inside the categories. Auto was up in February after being down in January, so that has bounced back. A couple other key categories: communications has been up for January and February; home improvement has been up January and February.

So I think we're getting momentum we expected. The quarter was slow to start and it is a little hard for us to at this point call how we think categories will finish or core will finish just because there's a lot of business to write. But I think the quarter is shaping up with the momentum that we had expected.

Thanks, Brian. On the digital guidance for Q1, up mid 20% and then expected to show accelerated growth, can you provide more color around that expectation?

I would've thought that the second quarter would've been your toughest quarter, although I recognize that the first quarter had some spectacular growth of last year. But I think you bought Cracked in the second quarter, so I would have thought that the tougher comp would've been in the second quarter. Can you just give a little color on what's happening in the first quarter in Digital?

Thanks, Mike; it's Adam. The first-quarter losses increases is a result of, I think, first of all, the normal seasonal impact of revenue in the first quarter. We just see the same sort of seasonality I think that the broadcast business sees as people aren't placing their buys until they are really almost into January.

We also had a particularly strong fourth quarter and so I think that's part of it. Then there's the annualization of 2016 hires and continued new investment in these businesses, which we think is really important to not only achieve full-year guidance but also get after that long-term strategy that we have talked with you about for so many times. So that's really what's behind that first-quarter guidance.

Okay. Then on the Shared Services and Corporate, just my last question, Q4 had a little bit of a jump from Q3 and then guidance is for an increase year over year. Can you just give a little more color on the nature of the increase?

Yes, sure. If you're looking at what our guidance was it's higher than 2016, so there's a couple of things.

In 2016, Michael, some of the performance-based comp didn't fully pay out in 2016 due to what happened in political. Our political guidance earlier in the year was for $150 million; you know it came in around $100 million and targets were based off of that. So in 2016 there was not -- the performance-based comp did not fully pay. And when we put our 2017 budgets together, we assume that they are paid out at 100%, so that is one bit of the increase.

The other is, of course, the appointment of our Chief Operating Officer and where those costs hit in the P&L. Then there's a variety of some other things in there as well.

Okay, that's all I have. Thanks.

Marci Ryvicker, Wells Fargo.

Thanks. A couple questions in TV, then one in Radio. For the full-year TV revenue growth is down mid single-digits. Can you talk about what you are assuming for underlying core for the year?

It's Brian. We're not breaking out core for the year. I think our guidance for full year is down mid singles. Obviously, there's a lot of different elements in play, but I think we feel good about the category.

As we talked last year about automotive having been strong really the last three quarters of last year; we see that continuing. We see services and retail. Retail had a good year last year. It's been a little soft in first quarter.

But I think our categories are lining up that we are expecting to have a pretty good core year, but I don't think we are breaking out exactly core to a specific number.

Can you at least say whether it's going to be up or down?

It will be up, Marci.

Okay. And then on the expense side for TV, what's driving the variable between being up mid single-digits and high single-digits? Is that reverse comp or is there something else?

No, it's reverse comp. That has been -- in fourth quarter our network affiliate fees were up over 50%, so that's driving all of our expense increase.

Okay. Then the last is Radio. It sounds like things are picking up, but what gives you confidence it's not going to be down again? We've seen a couple down years. I just want to understand what's driving the flat for 2017.

Marci, it's Steve Wexler; I'll give you a little bit of color on radio. We've got a couple things that are working slightly better for us in this year. Some of it is the expected and necessary improvements in some key markets, places like Tulsa and Omaha where we are starting to see a little bit of improvement based on investments that we made in 2016 to get a better top-line performance.

Our Knoxville market is beating the market and beating last year and so we are feeling good about that. The NFL schedule gods have been really good to us. We have a couple extra football games in 2017 and that's beyond the playoff games that we enjoyed in January.

So while we are trying to replace -- we had to replace $1.4 million in political in this Radio group, right now as we look at the year, we believe that flat is an appropriate guidance for the Radio group.

Marci, it's Brian; I will just tack on. Steve talked about the opportunity relative to sports on both baseball and the football side and that's real.

Look, we have said before we are very enthusiastic about the radio business. We didn't have a great last year. There were a couple of markets that were a little bit softer than we would've liked. We made some leadership changes and I think we are much better aligned to take advantage of those opportunities this year. So we are expecting a bounce back year in Radio this year.

Then I have one last one for Adam. I know there's a lot of investments going on in the year. Is there any way to parse out what's investment spend in Digital and what's like a more normalized OpEx growth, if there is one?

I guess I would say this: the expense -- some of the expenses of course are tied to the cost of goods sold and we have some pretty dramatic revenue growth there. But the revenue we are reinvesting back into digital businesses on the content brand really follows into just a very few buckets.

On the national side with Midroll, after the acquisition of Stitcher we see a much greater opportunity to really control much more of the ecosystem. In fact, the more we can control the distribution side and grow our direct audience there, the more leverage we have in the business out in the model.

So what we are looking at in this first year is adding some staff to our tech team, as well as developing our content development team a little bit further to own more of the big shows that we know we can command high rates for in the marketplace. That combined with marketing to grow the direct Stitcher audience as well as the audience for the podcasts that we monetize. So that's on the Midroll side.

At Newsy, we continue to see really terrific demand by both the audience and then, therefore, these new platforms that are trying to build audience. So we are continuing to invest at Newsy in the content development, the editorial folks, as well as with sales teams so we can actually capture the opportunity, the monetization opportunity that we are feeling.

There's a lot of demand in the advertising space with OTT audience. Our rates are high, somewhere around $25 to $35 depending on the platform and the provider. At this point it's a matter of growing audience and continuing to drive those rates up.

Got it. Thank you very much.

Dan Kurnos, Benchmark.

Thanks, good morning. Just a few for me. First, Brian, since you brought up the UHF discount and obviously, Rich, feel free to chime in here. Your footprint is already just slightly sub 20%, so that would certainly be a meaningful delta to where you sit today. Does it change your thinking at all on buyer versus seller or how aggressive you would be in the market if it were reinstated, say, March?

Let me start. I'd have to tell you today we don't see any evidence of being disadvantaged at our current size. A lot of that has to do with having strong network affiliates in mostly large markets.

So from here we will see if there are opportunities to improve the portfolio, but we are still not obsessed with -- we weren't obsessed with moving to 40% so we would be obsessed with moving on up from here. But we will see what kind of opportunities develop to strengthen the portfolio. I have to tell you, we absolutely see no disadvantage to our current size financially. Go ahead, Brian.

I would completely agree with what Rich said. Obviously we have shared with you and others our comfort in being 18%, 19% of the US. As Rich said, only in 23, 24 markets. But we do have strong affiliates in really important markets, big markets: Detroit, Phoenix, Denver, Tampa, Baltimore, Cleveland, Cincinnati, Indianapolis. These are big, meaningful markets.

They are meaningful to the networks. They are meaningful to the MVPDs. If we were to go dark with somebody, you're talking about major cities going dark and that has a dramatic impact. They are important markets to programmers.

So we've been very comfortable where we are at and we've been able to very effectively use leverage in each of those negotiations and build scale amongst our group, which has really benefited the group, like our programming initiatives and others. We do think that reinstatement of UHF discount and some of the other things that have happened, the end of the spectrum auction, are going to open up the market and provide opportunity.

And as we have multiple times since 2011, we will have our heads up and looking and trying to identify are there ways to better align our portfolio to our long-term strategy as a company? I think this is a good window of opportunity for us.

I guess I wasn't really asking about disadvantaged perspective, but given the fact that your footprint would be smaller, it would be easier for maybe one of the larger guys to possibly look at you. Especially with the very attractive, let's call it, MVPD overhang that you guys have with 2019 there is some instant synergies that a lot of these guys would expect. So I expect people might be knocking on your door if that changes, but it sounds like you guys would be rather net buyers.

So let's move on I guess then. I don't know if this question is really relevant, but for Radio does the CBS merger with [Viacom] impact the landscape and how you guys think about radio at all?

Dan, it's Steve Wexler. Not really; we think it's a terrific vote of confidence for the radio industry. We are obviously watching it and interested in what they are doing, but we are very focused on our local markets and our portfolio and improving our performance where we are.

Dan, look -- it's Brian -- we are a small player in the radio business. Our radio assets are strategic to us. Five of the eight markets that we own radio stations we also have television stations, and so in those markets we want to be the leading media company.

And so you've got one or two big television stations we own, four or five radio stations we own. We own all these digital assets. And so I think we are more focused on how significant and how big can we be in a local market versus how big a player can we be in that industry? There's already much bigger players. That's a good merger there for those companies, but it's not going to have any impact on us.

Great. Then just one last one from me. Adam, you answered kind of a lot of this with Marci already, but -- first of all, it is nice to see the digital margins improving, even if the dollar loss is staying flattish. It's also good to see you starting to get that normal tech tailwind into Q4 when you have a combination of seasonally high CPMs and a few other things the way that advertisers ramp.

So I guess maybe is there any -- can you just give us some more color on which channels you are pressing near term to drive audience; where you are accelerating that spend? Have there been any changes to your expected ROI, either in terms of expected return or timing of payback?

When we talk about the different levers to pull, obviously the programmatic advertising lever across the entire portfolio; our rates on the local side, for example, just a hair under $2, but at the same time we've been optimizing over the course of the year for net revenue. We served about 87% more inventory in our local markets and that's what really accounted on the passive and programmatic side for about 70% growth. So you can see we are constantly pulling the levers there to make sure that we are bringing in more money.

Newsy, the average CPM is $20 to $60 on OTT. We continue to push very hard the business into that space. The lever we are pulling most there are new distribution deals, looking at new ways to get in front of new audiences. Got to keep the product where it needs to be; expand the distribution in order to develop those new audiences and then market the brand. I think that is sort of, simply put, where a lot of the investment is with Newsy.

When it comes to podcasting, the average CPM continues to be around $25. Can be as high as $100 and there again it's all about continuing to grow the audience. So that's being done right now through developing new shows that we completely own and operate.

We launched a show in the fourth quarter, Stranglers, which was a smash hit. Rose to the top five in iTunes and sat there for quite a long time. That was a 12-part series. Now we continue to develop new content that we will put in the true crime genre there.

We've done a partnership with another company to launch a show called Missing Richard Simmons, which -- just a plug -- if you haven't heard it, it's a terrific show. Believe it or not, an actual investigation into what happened to Richard Simmons. Also right now I think it's number one in the iTunes Store. So developing these shows is critical to developing out that audience, owning more of the audience.

Finally, as I said before, Dan, Stitcher, this is where we think we've got that long-term leverage. The more folks we get into our distribution ecosystem, the better off we're going to be in order to both grow the number of downloads and monetize the audience.

Stitcher is the number two most well-distributed spoken word audio app for iOS for Apple and number one for android. We're in at least 50 models of different connected cars. This is a critical place for the audio ecosystem right now. We are proud to continue to invest more money in order to make sure that we maintain that leadership position.

All right, great. Thanks, Adam. Thanks, guys.

Kyle Evans, Stephens.

Good morning. I will start with retrans. How should that phase across the year? Does it ramp; when and how much? Then I have some follow-ups.

Good morning. Thanks for the question, Kyle. The retrans is roughly flat quarter to quarter. Q4 will be up a little bit. Q1, 2, and 3 will be pretty much the same and a very small uptick in Q4.

So you can assume most of those deals that we have up this year are hitting right at the end of the year, Kyle.

Almost everything is put to bed in 2017. We have very small contracts that we will be negotiating, as Brian said, in Q4.

Could you give an update on your retrans sub count as of the end the year?

Yes, sure. We will be filing our 10-K here very shortly after this call.

First, we have seen no meaningful change in the number of subs that we've got and our 10-K will be reporting approximately 17 million subs. In the past we've reported approximately 19 million subs.

Again, we haven't seen a meaningful change in the actual numbers. What has happened is we have been using estimates for certain MVPDs for which we were not getting paid in the past, so we were using estimates. Now that we are getting full market rates on this, we are getting accurate sub counts for all the MVPDs that are paying us.

So the number of subs have changed. There's been no change in the retrans dollars that we've been expecting. As you know, we gave out guidance to be up 20% in 2017. We've been on that same number for a while; still expecting a 20% increase.

And so, again, we were using estimates before. We have gotten some numbers as we are getting paid and we've seen no meaningful change in our number of subs.

Okay. It sounds like you are not feeling pressured to go out and grow via station M&A. In the event that you should go out and start looking at one-offs or station groups, in the past you have at the Company shown a willingness to buy what I guess I would call fixer-upper stations, three-ranked, four-ranked stations. Is that -- has your thought on that front changed at all?

Kyle, it's Brian. That's something we spend a lot of time talking about here. We really probably have spent more time looking at buying into markets versus buying into stations, recognizing that if you can get markets with stable workforces, markets that have either state capitals or big university towns that have a stable footprint that remains healthy even with an economic downturn. We've looked at political states that have been really important.

So we've probably spent more time looking at the opportunity to get into markets that are healthy and can remain healthy versus focused on we've got to have a number one, we've got to have a number two. And as a result of that we've picked up a blend of stations that included some fixer-uppers.

I don't know that our strategy is completely changed, but we do recognize that now with a much larger portfolio of stations you can't fix everything. And so we probably have to continue to be selective as we look at -- if we take on a bunch more, we have to be probably realistic amongst ourselves of how many fixer-uppers you can do at once.

We are a company that originally started Fixer-Upper, didn't we? (laughter)

I think we did.

But maybe this is a little different.

Got you. One last one for Adam on Midroll. Is there any potential conflicts in the long run in terms of owning shows and acting as the marketplace? You sound like you have an unfair advantage in terms of the crystal ball in knowing what's working and what's not, and that allows you to buy and develop. Does that create a marketplace conflict going down the road? Thanks.

Oh, heck, I don't think that's a conflict. I think that's potentially an advantage. I look at the way things work now from a data perspective; the more we can understand about what the consumer wants, in many ways the way Amazon or Netflix does with streaming television or with even e-commerce, I think the better off we are going to be making decisions to create content that the consumer wants. So I look forward to that and I think that's core to our ecosystem play.

Thank you.

Craig Huber, Huber Research.

Good morning. Thanks for taking the questions. My first question is on the costs within your Television group.

Putting aside the reverse retrans, I'm curious what's embedded in your cost outlook for TV for the new year just ex that. Particularly I'm curious what your syndicated programming; how you think those costs are going to trend this year. Thank you.

Craig, it's Brian. Obviously, as we talked about earlier, network affiliate fees are really what's driving our expenses. Beyond that syndicated has been a declining expense line for us and it continues to decline, and so I think you'll see a net positive in syndicated costs this year.

Our employee costs we are managing to about flat. So really -- and our other expenses. There's a whole lot in that: music license, Nielsen, news coverage, helicopters, bad debt. All that kind of stuff is flat, low single, something like that.

So I think we are doing a really nice job of managing the side of the business, except the network affiliate fees throw visibility on a big number, but it is exclusively that that is driving our expense.

Brian, on the political side, for the full year 2016 how much was it up if you exclude the presidential piece of it?

If I exclude the presidential -- I don't have that number exactly in front of me. We can get that.

Just a couple of anecdotes I guess. In 2012 our presidential was about a quarter of our total political and last year it was less than 20%. It was around 17%. Our House and Senate money grew from a little over 10% to almost 20%.

The non-ballot stuff was about 50%, whereas in the past had been 35%. And a lot of that has to do with that's the PAC money that goes after the senators as well as the presidential. So the money is moving around a lot; I don't have it exactly broken out by dollars, but I can certainly get that for you.

Then also, Brian, what's your updated thought here? You already talked a little bit about this. But the 39% household cap, where do you think that ultimately goes? Do you think it goes away or do you think it gets moved up to, say, 45% or 50%? What do you think is going to happen here with Congress?

That's a hard question to answer, right? You're asking me to just totally guess. Look, I think a lot of things that are going to happen before that probably lessen the importance of that.

I think the reinstatement of the UHF discount clears a lot of running room for a lot of folks who are already at the cap. And so, even without a change to the national cap, it opens up their opportunity to buy a lot more stations. The in-market stuff is the thing that's probably most important to us, the ability to get deeper inside the markets we have based on our strategy.

Remains to be seen whether the FCC decides to go to -- leaves it at 39, goes to 45%, goes to 50% and, ultimately, who will have the decision-making ability on that. Right now the FCC has kind of said that they think that would need an act of Congress to change, but I think it's really a legal interpretation that will finally identify that.

So, Craig, your guess is as good as mine. But I think a lot of the things that will happen before that probably diminish the importance of the overall national cap.

Brian, before I switch over to Digital, what is your outlook for TV auto advertising this year? Are you feeling better about it now versus a year ago, about the same? Just what's your outlook right now?

Look, I think we felt pretty good about it a year ago and we wound up having a pretty good year. I feel like all the SAARs estimates and everything, they're going to need to do a lot of advertising to move the number of units that they are projecting this year.

And I think -- I don't see a lot of money on the auto side moving to any other platform. In fact, I see the opposite. We've had one or two of the big groups, or manufacturers actually, move some money back to television. So I think we are expecting a positive auto year this year.

Okay. Then my last question on the Digital side. You threw out a bunch of numbers on the CPM side in your Digital segment. Just curious those ranges -- what's your general sense, CPMs within digital, where they were a year ago versus nowadays? About flat, are they up meaningfully?

That's a good question. CPMs on display really have been, I think, growing for us. From an industry perspective, I think there's a number of things happening.

The marketplace is really focusing on visibility, so are we. The marketplace has really been focused on ensuring that there is efficiency. We've been doing the same thing and that's why we've been able to grow our CPMs really over the last three years, three or four years by about 250%.

On the digital video side, more demand is putting pressure, I think, on pricing. We've seen OTT video going up by a fair bit, especially as we headed into fourth quarter. It's not unusual for us to be basically sold out on the OTT video side.

Then, frankly, we focused at Midroll on driving the CPMs up for our shows. In many ways, the strategy has been focusing on big premium shows where we can command higher rates and that's really core to our strategy. So if you were to really look at the industry overall, I think the CPMs have basically been the same. Our strategy has always been, across video and audio, going for the products that would command higher CPMs and moving them up.

Great, thank you.

Barry Lucas, Gabelli & Company.

Thank you and good morning. Just a couple of questions for Brian about ATSC 3.0. I think you mentioned and have said in the past that you've been deeply involved with the development process. Just wondering, Brian, do you have any intellectual property that potentially could be monetized?

Barry, it's Brian. By the way, we're an hour into the call and we are just hearing from you? I thought you forgot about us.

No, at this point we don't have any IP yet in the space, but as we have said, we are spending a lot of time in the space. We are part of an organization called Pearl, which was a group of like-minded broadcasters who are working, developing opportunity inside of the broadcast space.

We've been probably the largest driver of advancing the ATSC over the last couple of years, both on the technical side and now a lot of work on the business side. We are very involved in that and we remain very optimistic about the opportunity.

And if the Commission grants full approval sometime a little later this year, what does deployment look like and what does it cost?

Look, a deployment will be a gradual build because it's voluntary and it's going to require a lot of cooperation within the broadcast business. But the beautiful thing is that cooperation is happening amongst many broadcasters and we will be looking at it a market-by-market basis -- market-by-market opportunity.

So, look, I think you'll start to see some markets light up as early as the end of this year, beginning of next year. And as each one lights up there will be more opportunity to understand the technical as well as the business opportunities. I expect that this will be a gradual build.

Much of this will look to take advantage of the repack, because much of the equipment that will be financed by the equipment that we get in the repack will be ATSC 3 compatible and so that will drive down a lot of the costs associated with this. The cost is a hard question to ask because much of the funding for it may actually come as a result of the repack. We have 17 stations that will be repacked, which will be a lot and it's a nuisance, but on the flipside, a lot of the equipment that we'll need will be taken care of.

In terms of trying to build out models on this, Barry, it's going to take a couple of years to get to scale. And by a couple I probably mean three to five before you get deployment to an appropriate scale where advanced advertising and data casting and other things can have full national implementation. So this is going to be a process.

Great. Thanks for that, Brian.

[John Corrick, JK Media].

You've had a wild ride in the market this morning, by the way. You were down 4% in the opening and now you're up 1%.

Anyway, two quick questions. When is -- remind me when was the last ABC affiliation agreement renewal and when is the next?

John, it's Brian. We've got a couple different deals with ABC. For our legacy stations, which is obviously the biggest one, that deal was done two years ago. We got the end of 2019 maybe, something like that, that one comes up. We do have our --

It comes up at the end of 2019?

That's right.

But that would make it more than a three-year agreement. I thought it was all three years, no? Five years?

No. That was a five-year deal.

Okay, end of 2019.

Yes. And then we've got some -- like our Journal ABCs come up at the end of this year. I think we've got Buffalo, which we acquired from Granite; they come up in the middle of next year or at the end of 2018. So we've got a couple of piecemeals, but the biggest one takes us out still a number of years.

John, I think there's a chart -- if you look at our investor deck on our website, there's a chart that lays all that out.

Thanks. One last one for Tim. You did mention, didn't you, that net retrans would probably be up a little more than gross, right?

We did, yes. We said that gross (multiple speakers).

Just to go back to the 2016, gross up 60%. What was the net up? Less than 60%?

I don't know that number off the top of my head. It will be -- if you look at the total of program and program licenses, the lion's share of that number is network comp. By far, the lion's share of that. I don't have that number off the top of my head, but if you look at that total that is a pretty good proxy.

The net probably was up a little less than that 60%?

I don't know that off the top of my head.

Okay. Why would the net be up more in 2017? Just the way it works or --?

These contracts used to be really simple in terms of you take your retrans, you multiply it by 50%, and then you send the check in to the networks. They're a lot more complicated than that now. Some of them have fixed rate, some of them have minimums. There's all sorts of different structures for these contracts.

It really just depends on market by market, contract by contract. We are pleased with the way that it turned out with the 20% increase in gross and net being up higher this time.

Okay, thanks a lot. See you in Florida.

No further questions at this time.

Thanks, Brad. Thanks so much to everyone for joining us. Have a good day.

Thank you. That does conclude the conference for today. The conference is available for replay after 11 o'clock this morning and running through Friday, March 10, at midnight.

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