E W Scripps Co (SSP) 2017 Q2 法說會逐字稿

Ladies and gentlemen, we'd like to thank you for standing by, and welcome to the Scripps Second Quarter Earnings Conference Call. (Operator Instructions) And as a reminder, today's call will be recorded.

I would now like to turn the conference over to our host and facilitator as well as our Head of Investor Relations person, Ms. Carolyn Micheli. Please go ahead.

Thanks, Steven. Good morning, everyone, and thank you for joining us for a discussion of The E.W. Scripps Company's Second Quarter 2017 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 can sign up to receive e-mails anytime we disclose financial information, and you can listen to an audio replay of this call. A link to that replay will be up this afternoon and available for a week.

In addition, if you haven't caught up yet during this busy earnings week on the announcement Tuesday about our acquisition of the Katz network, you can find that press release, investor deck and call replay on our website as well.

I also wanted to mention our Investor Day, which is scheduled for Wednesday, September 6 in New York. Tomorrow, we'll be sending out details as well as posting them on our website. We hope to see you there as we talk about our view of the evolving media landscape and our role in developing and capitalizing on it.

We'll hear first this morning from Chairman, President and CEO, Rich Boehne; then Chief Financial officer, Tim Wesolowski; Broadcast Chief, Brian Lawlor; and from Chief Operating Officer, Adam Symson. Also with us today are Radio Division Head, Steve Wexler; and Controller and Treasurer, Doug Lyons.

Now here is Rich for his last earnings call.

Thank you, Carolyn. Good morning, everyone. Thanks for joining us, many of you for the second time this week.

On Tuesday, we told you about the acquisition for our fast-growing, audience-targeted Katz Broadcast Networks. These four networks are distributed primarily through local stations' digital subchannels. We like this opportunity because we see a growing number of viewers turning to over-the-air viewing as a complement to their cable, satellite and over-the-top subscriptions.

The Katz team smartly identified an opportunity for themselves, much like those who launched cable networks back in the early days. Their content strategy is focused on specific audience segments. Bounce TV is the first over-the-air network to serve the African-American audience. Grit is aimed at men 25 to 54. Escape offers dramas and documentaries appealing to women. And Laff is for anyone with a sense of humor, which, as we all know, is not everyone.

Scripps has a long successful history of creating media products focused on specific audience segments and consumer categories. We were attracted to the Katz business because in its short history, it already has been successful in achieving national reach through over-the-air distribution and turning that distribution into revenue and cash flow. Tim talked on our call Tuesday about our growth expectations for this business farther out. This is not a traditional broadcast TV business, and it's not a digital business. It falls into a new forward-looking, fast-growing category with what we believe is just terrific upside.

So today, Scripps is a former newspaper company, that in recent years has more than doubled the size of our local television business, added radio stations, launched 4 original television programs and acquired and built 3 national digital content businesses, now joined by 4 expanding, multi-cast networks. As we have for nearly 140 years, we focus on building value and expanding media marketplaces.

And if you might know, I'll be vacating the CEO's office next week, and from then on, cheering for Adam and his team from my vantage point as Chairman of the Board. I'm not going very far. My commitment and accountability to you, our partners in the business, will remain as strong as ever. However, it is time for the next generation of leaders with long runways ahead of them to take this company forward into its next adventure.

This is my 121st earnings call since we took this company public in 1988. I thought that was a lot until I remembered that many of you log dozens and dozens of these calls each year. So now, instead of feeling boastfully proud of myself, well, I feel kind of sorry for you. I've known many of you for several decades. In addition to these calls, we've traveled together, had beers together, ridden out recessions in bull markets, had some disagreements, and probably most important, we've also made some money together. I deeply appreciate all that some of you have taught me about investing over the years, and I promise that commitment to partnership will remain strong as Adam takes over.

I once had a shareholder, a legendary value investor, hand me his wallet. As he stuck it in my hand, he said to me, "Now remember, this is how our relationship works. I hand you my wallet with complete trust, knowing that while you hold it, my money is out of my control. And I'm counting on you to hand that wallet back to me someday and somewhat fatter than when I gave it to you." That's an old investing lesson, but I'll tell you, I never forget it. And I thank you for trusting me, trusting us here at Scripps, with the precious contents of your wallet, having faith that we will add to its value.

And now here's Tim.

Thanks, Rich. I'm going to miss you, boss.

Good morning, and thanks for joining us today. The press release contains the details of our second quarter performance, and we'll be filing our 10-Q later today. Right now I'd like to go through some of the highlights of the quarter, our cash position, as well as capital allocation and third quarter guidance.

Our second quarter consolidated results were in line with our expectations, and second quarter revenue in our TV division was about flat compared to the prior year and in line with our guidance. Our $13 million increase in retransmission revenue was partially offset by $6 million less of political revenue. TV expenses were up less than 4%, slightly better than our guidance, driven by an increase in the programming fees we pay to our network partners. Radio revenue was down about 5%, in line with our guidance. And expenses were about flat, which was better than guidance, of up mid-single digits. In the second quarter, digital revenue was up more than 27%, and expenses were up about 18%, again, both in line with our guidance. I also want to touch on the other income of about $5 million in the quarter. The largest piece of that balance is a gain we recognized on the sale of our newspaper syndication rights for some popular comic strips to our long-time partner, Universal Uclick.

Before I turn to the balance sheet, I want to mention our effective tax rate for the first 6 months of the year was 9%. This rate was primarily driven by tax benefits on the vesting of employees' stock compensation, all of which is recognized when the awards vest rather than included in the rate over the course of the year. We expect our effective tax rate for the year to be in the 20% to 25% range, and we do not expect to pay significant cash income taxes in 2017.

And moving to the balance sheet, we closed the quarter with $150 million in cash, up $15 million from our beginning-of-year balance. As you know, in April, we closed an offering of $400 million of new senior notes. As a result of the refinancing, we recorded a $2.4 million noncash charge to interest expense to write off deferred loan costs associated with our prior debt.

As you heard earlier this week, we announced plans to acquire the Katz networks. We'll soon be launching a $250 million term loan B deal to finance the acquisition. Even after this deal, we'll have leverage of about 3x on a 2017-'18 blended basis, and we expect that to decline to about 2.5x on the same basis by the end of next year.

Year-to-date through July 31, we purchased about 400,000 shares of stock for almost $8 million. And you may recall in November of 2016, the board approved a $100 million buyback program that expires at the end of 2018.

We provided detailed revenue and expense guidance for the third quarter in our earnings release; however, I wanted to touch on a couple of things. In addition to our normal practice of providing guidance for the coming quarter, we've also provided some guidance for revenue and expenses related to the Katz acquisition, assuming a close at the beginning of the fourth quarter. As you know, it's not our practice to update full year guidance during the year other than for acquisitions or other major events. You can find that new guidance in today's earnings press release.

Now here's Brian.

Thanks, Tim. Good morning, everybody.

We talked extensively on our call Tuesday about the opportunity for Katz with multicasting, audience-targeted content, and the advertising marketplace, and you can find all those materials on our website. So I'll just say here that we believe we have a significant opportunity to further scale these fast-growing networks and give general market national advertisers a mix of well-known and original programming to reach their desired audiences across very targeted demographic groups. I look forward to working with Jonathan Katz and his team to do just that.

Now turning to our local station group business. We reported results once again this quarter that were in line with our expectations. Of course, we were pleased to see the Cleveland Cavaliers make another NBA Finals appearance. As I think most of you know, we have the ABC station in Cleveland, which was the home of the NBA Finals. We did hope that they would make a 7-game run, and that unfortunately was not the case. While their 5-game series was good news for us, on a year-over-year basis, it fell short of the revenue contribution we saw from last year's 7-game NBA Finals. The absence of those 2 games accounted for more than $2 million less in revenue in Q2. So apples-to-apples, our core for the quarter was down actually about 2%.

Looking ahead to Q3, clearly, comparisons are going to be messy due to our $27 million of political and more than $10 million of Olympic advertising in the third quarter of last year. But factoring out those things, we expect core to be up in the third quarter.

Turning back to second quarter results for this year. Political ad revenue was a bright spot, bringing in about $2.5 million. That's much more than we would expect in the second quarter of a nonelection year. We can thank spending around the healthcare reform issue in several of our markets, as well as early spending on a controversial ballot initiative about drug pricing in Ohio, where we have stations in Cleveland and Cincinnati. We are definitely looking forward to a robust 2018 election.

We continue to see some weakness in our retail and media categories. Cable companies are holding back money right now as they prepare to spend on evolution of their launch of their new over-the-top services, and the banks are spending less at the moment in the face of rising interest rates that are slowing lending. Auto was down 5% percent in the quarter, again, with factory domestic spending pulling down the category.

Speaking of cable and satellite over-the-top products, we and our broadcast peers continue to make progress on our contracts to be part of those services. We have already completed deals with ABC, NBC and CBS. And just a reminder, we're getting rates that are very comparable to our net retrans rates on the legacy cable and satellite services. As these services get up and running, monetizing their subscribers should be a nice incremental contribution to our broadcast retransmission revenue.

On our original programming front, we're preparing for the launch of our newest show, Pickler & Ben, on Monday, September 18. The set is in, the crew is hired, and rehearsals have started. We told you last Spring about this show, which is a partnership with our -- with country music star, Faith Hill. It stars American Idol sweetheart, Kellie Pickler, and New York journalist, Ben Aaron, paired up in a lifestyle show set in Nashville. Pickler & Ben is a new take on a talk show model and includes viewers' ability to purchase all of the products showcased on the show. This is our fourth original show in production. Our longest-running show, RightThisMinute, is a partnership with Cox and Raycom. It is in its seventh season. And our infotainment show, The List, continues to expand in national syndication. These shows help us build value and drive more profit out of our daytime and access time periods.

And now turning to radio. We've seen mixed results this quarter, with Knoxville and 3 other markets showing growth but shortfalls in 4 other markets, more than offsetting that performance. A better-than-anticipated season for the Milwaukee Brewers is allowing us to continue to add dollars as they approach September, and a pennant race would obviously be very good news for us. And of course, we look forward to the beginning of the Green Bay Packers football season this month, with our selling well underway across the entire Packers radio network.

And now here is Adam.

Thanks, Brian. Good morning, everybody.

I'd like to start first on the national side of our digital division, with our next-generation national news network, Newsy. As you know, Newsy is nearly fully deployed across all of the key over-the-top television services, and it's getting really terrific traction. The shift we made to those platforms more than a year ago positioned Newsy well and is beginning to show meaningful results. We were very pleased with Newsy's revenue growth in the second quarter due to strong advertiser and audience demand for over-the-top news content. Nearly 90% of Newsy's revenue in the quarter came from OTT platforms, with the rest mostly from its legacy desktop syndication video business. Video views on OTT alone increased 25% quarter-over-quarter to more than $130 million.

Our podcast industry-leading company, Midroll, also continued an upward trajectory during the second quarter. The strong revenue growth is coming from increases in both its advertising rates and its downloads under management. Midroll's catalog of podcasts saw more than 1 billion downloads in the quarter, and we added 50 more shows to our distribution and advertising sales network.

The company also continued expanding its owned and operated portfolio, the shows we create ourselves for which we keep all of the advertising revenue. For example, during the second quarter, we launched the O&O show, LeVar Burton Reads. Generations of us know actor LeVar Burton best as the host of the hit children's public television show, Reading Rainbow. In this new podcast, he's reading again, but this time, it's short stories for adults. The show is drawing critical acclaim and strong audiences. It's a terrific podcast you should check out.

Within the Midroll business, we also own Stitcher, a mobile app for finding and listening to podcasts you love. And just a reminder, underneath Stitcher is a sophisticated data play that is helping Midroll establish an even stronger relationship with listeners, podcast producers and advertisers. Stitcher is already off to a good start, #1 on Google's Android platform, the second most used podcast listening platform for iPhone, and already available on the dashboard of more than 50 car models with native integrations. The Stitcher engineering team continues to improve the app's features and design and will release an even further improved version very soon. Midroll is an ecosystem play focused on content creation, monetization, and now, distribution through Stitcher. By offering all 3 of those components, Midroll is very well positioned to capitalize on the industry's growth.

Turning now to the local side of our digital division, the business tied to our television station brands. We saw a recovery in programmatic advertising after a slow start to the year. As you know, we manage our programmatic advertising inventory very closely, focusing on generating the greatest net revenue possible through growth in our rates and inventory. The fruit of that labor was a nearly 40% increase in programmatic revenue over second quarter of 2016. And we're just as focused on expanding to new platforms, where our local consumers can engage with our content as increasing numbers of them fill their homes with devices that deliver over-the-top video, such as Roku and Apple TV, and smart assistant platforms, like Amazon Echo and Google Home.

The continued expansion of our news brands onto these emerging platforms is another indication of Scripp's belief in the near future, where media consumers will turn to many different platforms for the news and information they need and the content they love.

And that brings us back to our acquisition of the Katz networks. Over-the-air is growing as a key video viewing platform, even as consumers add over-the-top services to their cable and satellite subscriptions. From our point of view, the future doesn't belong to OTT or to cable or to over-the-air. Rather, we believe in pursuing in all of the above strategy. And hey, by the way, check out the article in this morning's Wall Street Journal about the growth in the over-the-air space.

We have solid partnerships with cable and satellite operators. We have an aggressive multi-platform play with Newsy focused on younger audiences, and now we're bringing the Katz networks of national, over-the-air reach into our company. All of these moves are part of our plan to tackle the future of media and find new ways to create growth and value.

Now before we turn it over -- open for questions, I want to thank Rich for his leadership and dedication to this company, and personally, for the wise counsel, mentorship and friendship he's given me over the years. Rich, thank you.

And now operator, we're ready for your questions.

(Operator Instructions) Our first question will come from the line of Michael Kupinski of NOBLE Capital Market.

And first, Rich, congratulations on a great career and an amazing run. I remember you calling upon me for quotes on media companies when you were a reporter. And just a great career, job well done. I'll miss you on the calls.

Thanks, Mike. I circulated a letter from you to some of the folks here that I dug out of an old file, just talking about some of the trips we'd taken and the places we visited. I'm glad we could make some money for you over the years. It's been a great relationship.

It was great. Thanks, Rich. I was wondering if you can provide a little bit more color on the nature of your expense guidance in television, of note mid-single digits for the third quarter?

Mike, it's Brian. I think that's consistent with the expense guidance we've been giving and our execution over the course of the year. Most of our expense increases are driven by network affiliate fees. They're up more than 10% each quarter. We've been doing a nice job of driving down our syndicated costs, our employee costs. Increases are running under 2% for the year. So I think most of our TV expenses, as they've been now for more than a year, are almost exclusively increases in network affiliate fees.

And in terms of the syndication, the syndication expense, you haven't -- that -- the number is still coming down. I understand the cost in terms of the network comp. But is -- have you comped this syndication? Because I know that you -- with your launches and your new programming and you're getting out of some of your more expensive syndications, I was just curious if that comp is actually still lower in terms of revenues or in terms of expenses.

Yes, Mike, it is. When we acquired the general deals -- general stations a couple of years ago, they had a few years left -- it varies by station, on their programming contracts. But we've been able to, as contracts expired, bring The List and bring RightThisMinute on, so that's been able to drive down some syndication expense. And then, obviously, as we look out this fall and beyond, the launch of Pickler & Ben, that's 22 markets where we won't be paying an outside syndicated cost. We'll be controlling that with the development costs that we have for the shows.

Great. And as you cycle into 2018, do have you any thoughts about what that expense line might look like?

Syndicated or total expense, Mike?

Total expense.

Yes, I think you can expect just the network affiliate fees are going to continue to push that line. And so we'll do a really good job of controlling all of our other expenses, music license, our rating services, taxes, news coverage expenses, our employee expenses. But at the end of the day, as retrans grows and our relationship -- our financial relationship with the networks continue to grow, I think you'll continue to see an increase in total expenses inside of broadcast because of the growing affiliate fees.

Got you. And on the Katz networks, you talked about the growth opportunities largely coming from the transition of direct marketing to higher CPMs on national advertising. But does the growth opportunity to Katz also include the prospect of launching additional networks? I know that the company in the past expressed interest in Spanish language and maybe in a network. Does the Katz provide a platform for other growth opportunities? Or do you have -- are we just to look at it from more of a rising CPM basis?

No, I think you're dead on. We're really excited about their leadership team, the big infrastructure relative to the people in Atlanta that have great experience in the network business and everything we can learn from them. I don't think you'll see us stop at 4. We'll certainly have a lot of opportunity to generate a lot more profit out of the 4 markets as they continue to build, expand and mature. But I think there'll be opportunities for them inside of our own company and with -- through other things that we'll launch together that will create additional value.

And I know that a lot of people talk about verticals on television and how things are looking, and I know that auto has been a category that's been a little choppy here of late and showing some maturity. But can you give us some thoughts on how auto is looking into the third quarter, and maybe in another category, retail?

Okay. So let me start with auto. We reported -- after auto was roughly flat in the first quarter, we reported it's down 5% in the second quarter. I would just ask you to keep in mind that with the NBA Finals having 2 less games, we talked about the fact that was more than $2 million of revenue. Automotive would be the largest category in the NBA Finals. And so that loss of $2 million, a good bit of that would be automotive as well. So that minus 5% is not a true apples-to-apples minus 5%. Third quarter is going to be choppy too. I can tell you that we're seeing -- we had a good first month of the quarter, but then we'll go against the Olympics in August. And so I think you -- again, 17 days of heavy automotive, we expect it to be down for September. But I think just because of that comp alone, you can expect automotive to be down in third quarter.

As for retail, retail is struggling. We didn't have a great quarter. We spoke a little bit about some of the categories there: Furniture, medicine, bedding, appliances, electronics were all down. I think one of the biggest issues was, a year ago, we had a couple of advertisers, I'll speak specifically to Amazon and eBay. They targeted a couple of markets to do a test, and it was more than $0.5 million. They kind of slugged it out with each other, and now they're completely non-returning this year. We -- hhgregg is out of business, so there's some pharma move-around. So it's not like all the areas of the categories as much inside of retail that's up and positive. But when you get almost a $1 million of non-returning accounts from just 4 accounts, that's hard to overcome.

Our next question will come from the line of Craig Huber of Huber Research.

Yes. Just a couple of housekeeping questions first. This other line or other syndication line, now that you've sold one of your assets in there, what's the quarterly run rate for revenues, maybe even profits on a go-forward basis in that line, please?

Yes, Craig, this is Tim. We will probably have revenues in the -- bouncing around, depending upon the quarter, as high as $2 million, down to short of $1.5 million to $1 million. And we would expect this syndication and other this year will operate at a loss of a couple of million dollars.

Okay. And then, can you just update us on what your budgeting as a company is currently configured for your CapEx for this year?

Yes, we should be coming in somewhere in the $25 million range, maybe a little bit less than that.

Okay. And then, Brian, just back on retail, would you mind just quantifying for us the retail advertising category in the second quarter? How much of that was down? And I know you mentioned auto down 5%. But maybe 2 or 3 of the other top categories, what the percent change there was to add revenue in the second quarter?

Yes, the retail category was down 12%, Craig. And again, retail represents just a little bit over 10% of our total revenue. Furniture, medicine were each down just a little bit over double digits. I think the others, appliances, clothing, jewelry, single digits. Electronics was obviously down big with hhgregg going away. And then I referenced a couple of big -- a couple of bigger accounts that, again, added up to almost $1 million between 4 or 5 accounts of non-returning. So I think that was a really big factor there.

And then when you say retail's 10% of the total, did you mean 10% of total broadcast revenues or 10% of ad revenues?

Of ad revenues.

Okay. And also, what's your updated thoughts, Brian, where you think the TV station ownership cap may or may not be going here in the next couple of years? Do you expect any change there? Or do you think it's going to be status quo for a while?

I'm not sure exactly where the 39% cap will go. I am expecting that between now and the end of the year there will be some changes to the end market rules, which potentially could be softened to allow less than 8 voices or certain broadcasters to be able to maybe own 2 or even 3 Big 4 stations in a particular market. So I think that -- I expect that to come before the end of the year, and I think that'll be a significant event that -- between that and the reinstatement of the UHF discount -- have dramatic change in ownership, even if the 39% cap stays intact.

Did you guys sort of think out here? I know you did this recent article -- the acquisition you announced earlier week. Are you in a position right now where you're feeling the debt load? You can't do any significant TV station acquisitions until you get the debt load down? Or are you willing to stretch here?

Craig, it's Adam. We actually don't think we're out of the market at all. I think I said on Tuesday earlier this week, nobody should read the acquisition of the Katz networks in any way as a signal of ours to stay out of the market or to be not taking a hard look at all of the opportunities, particularly as Brian said, if there are changes in the regulation that allow us to potentially go deeper in the markets where we already operate.

We have a question from the line of Barry Lucas of Gabelli & Company.

Rich, let me add my best wishes as well. Don't want to get too maudlin, but it has been a good ride.

All one for you and I. Barry and I have worked together since -- like Mike, even really before this was a public company. So it's been a great run.

It has been fun. Let me come back to kind of capital allocation question. And I don't want to say echo Craig's inquiry, but you think about investing, I guess, total north of $400 million in new businesses and looking at the P&L, it's really hard to get a grip on just how successful it's been or where it adds value. So if you take a look at the existing digital businesses that you acquired, what -- if you can drill down a little bit more, I know you had video views and stuff like that, but what's underlying that in the economics that provides enough confidence for you and to investors that you're succeeding enough there that you can go out to the next new thing, if you will, into Katz? So some of the detail or color on what's going on kind of behind the curtain would be really helpful.

Sure, Barry. First of all, as you know, anytime we do an acquisition, we use sort of the standard view of making sure that, like a value investor, it's going to provide us good cash-on-cash returns. So whether it's a digital acquisition or an acquisition of an additional local television station, and even in the case of our most recent acquisition of the Katz networks, we're sort of modeling things in the same way. When we think about what we've done on the digital side, I think the thing that we're very focused on is ensuring that these businesses are on track to create value for the shareholders. The -- during the third quarter, and I think the same -- or during the second quarter, and I think the same remained true during the first quarter, those acquisitions came in with a growth rate of around 60% on the revenue side. So we're very confident that today we're continuing to see those businesses move in the right direction, understanding that we're making a conscious decision to reinvest the profits those businesses are spinning off back into those businesses to fuel continued growth. And I think that's all in the pursuit of the real value we know we're creating. So it's really around the same thesis. It takes some time with these businesses in order to ensure that they grow to a critical scale. We're on our way there with Newsy at this point, with distribution contracts for carriage with most of the major OTT platforms. These are contracts for carriage. They're modest barriers to entry. Not everybody is getting those carriage contracts. And by the way, we continue to see the OTT space grow and evolve as people are adding those services, the new streaming services and subscription services, to their complement of media platforms that they use. The same is true with Midroll. We continue to see growth both in the overall podcasting ecosystem, and in line with that, we continue to drive up the number of downloads we're managing and the number of -- and the number -- and the net effective CPM that we're getting for the advertising. I think it's just as important to share with you that where Midroll once upon a time served mostly direct response advertisers, which a new generation of direct-response to advertisers is different than the one that Katz depends on, has built their business on the back of podcasting, today, nearly 50% of the advertisers Midroll is serving are actual brand advertisers. And I think that's a harbinger of really good things to come as we see this marketplace evolve. And big brands, like Procter & Gamble and Dell and AT&T, moving dollars into podcasting because they know they need to go where younger audiences are. And so finally, I think that gives us -- watching those businesses evolve and tracking very carefully the growth on the top line gives us also the confidence to understand what we expect of a business like Katz. Of course, Katz is profitable today, and we expect that to continue, as we shared with you the guidance earlier in the week for Katz. But all of these things follow sort of the same path. And, Barry, as you described earlier, you've been along for this ride for a long time with Rich, having probably followed this exact same playbook earlier when the company launched HGTV with probably some skepticism, and we all sort of know this week how that turned out for shareholders.

Right, Adam. Maybe if you can drill down just a tad more. And you mentioned HGTV. So we had at the time probably a metric that was, I don't know, $50 million cable households was kind of critical mass. So when you think about the critical mass issue for those new businesses, what are you looking at? When do you get there?

Sure. We're looking at much the -- in much the same way, the Newsy platform. So we're moving today, right now, in the OTT space, where subscribers is something that we track very closely, and yet at the same time, most of those OTT platforms are owned by major MVPDs. And they themselves aren't disclosing those subscriber numbers, and we're sort of precluded from disclosing them too. But as we continue to move into the platforms like Sling TV, Comcast's Watchable, we anticipate at some point, YouTube TV, at the end of the day, their growth is going to be critical to our growth. And we believe that growth curve is there, and we're following it very closely. At the same time, we're not satisfied to just merely depend on the OTT space. We launched our first couple of cable deals, traditional MVPDs, last year with some regional MVPDs, and we'd expect to pursue more of that as well.

From a product perspective, we also really keep a close eye on the amount of engagement the consumer is having with the product. And today, on our linear service, Newsy is being consumed at about an average of an hour and 7 minutes per engagement. So that's incredible engagement, particularly for a younger audience, around 25 to 44, that is turning Newsy on, on these OTT platforms and using the Newsy service to engage and get their news of the day. And on the On-Demand side, we're looking at an average of about 37 minutes. So again, really high engagement for digital platforms. And with Midroll, it's much the same, continuing to look at the downloads under management, how much are the shows that we own and operate being consumed. And Stitcher, by the way, gives us very specific and unique insight today into the amount of content that our consumers are actually consuming. And I would say, Carolyn mentioned earlier, our September 6 Investors Presentation in New York, I think we'll be able to give you a much fuller look at some of those key metrics when we're together in New York. And we hope you'll -- Barry, you'll join us.

Our next question will come from the line of Marci Ryvicker of Wells Fargo.

I hope this is not asked, just have a lot going on this morning. So Brian, I just want to understand, in the second quarter, when we got the guide, you were guiding to flat revenue. I thought that was without the Cavaliers going to the finals. So then when the Cavaliers got to the finals, I know 5 games, less than 7 games, would be a year-over-year decline. But then it would have stopped and you would've gotten incremental revenue from that. So would you be misunderstand the Q2 would've been flat only if the Cavaliers went to the Finals? We're just trying to understand the core actually decelerated in the quarter.

Yes, I think if we go back and look, the comments I made were that we would need the Cavaliers to get to the Finals in order for us to get flat.

Okay. All right. So I think that was the misunderstanding. So it did not weaken. And then the -- I don't know how much you can really tell about the underlying environment in Q3. I know that there's a lot of moving pieces, but we keep hearing from companies that things are getting better. But as we go through earnings, the numbers aren't showing us that things are getting better. I think you said excluding all the noise, that core is up. Is it up a tiny bit? Is it up 2%? How do you feel about Q4? Just anything to calm, I guess, investors so that they have something to hang their hat on with the ad environment.

Yes, good question. Obviously, we spent a lot of time looking at that. We do see core improving through the year, so let's just kind of walk through it a little bit. So in first quarter, our core was up 4.5%. This quarter, when we reported that it was down 4.4%, there was a couple of million dollars in NBA Finals that we left on the table that we had booked, that we had to return because the game -- the series stopped at 5 games instead of going to 7, which was comparable to the year before. So we left a little over $2 million on the table. So at the end of the day, if you just normalize the NBA, our core was really down about 2%. So it was down 4.5% in the first quarter, it was down 2% in the second quarter. It will be up in the third quarter, and it will be up in fourth quarter. So -- and I think, obviously, with the political displacement and all, it should build starting in September and increase in its percentage as we work all the way into November. So I -- we clearly see a path by which each quarter on core is improving this year, with the entire back half of the year up.

And then a strategic question again. I hope this was not asked. I apologize if so. But with Scripps Networks Interactive selling to Discovery, I think we're getting the question: Has anything changed at E.W. Scripps to perhaps think about being a seller rather than a buyer? I mean, my sense would be the answer is no, you just bought some more assets. But if you could comment on that.

Yes. Marci, it's Rich. One thing is important, we don't speak for the Scripps family here at the company. I think as you pointed out, we're just, sort of heads down and working for the shareholders, as evidenced by the deal earlier this week. However, I don't believe the SNI decision by the family should be read as any early indication of a path for E.W. Scripps Company.

Next question will come from the line of John Kornreich of J.K. Media.

I really don't have any questions. I want to congratulate Rich on a great career. We've been together for a few decades. But I know why you're really retiring, and I'm going to reveal it right now. You just can't get enough of those exciting Cincinnati Red games.

Yes, that's right. It's a rebuilding year, John. I've heard it on our newscast almost every night.

We have a question from the line of Kyle Evans of Stephens Inc.

Brian or Tim, maybe a brief update on your subcount and retrans.

Yes. So, Kyle, thanks for the question. We haven't seen a meaningful change in the number of our subs this year. And as far as our retrans goes, we had given guidance that we expected this year about 20% increase in gross and 25% increase in net, and we don't see any change in that at all.

Great. From a high level, Rich or Adam, when was the last time you guys had a network take your affiliation from you?

I don't -- this is Rich. I don't recall it has ever happened to us. We were obviously somewhat affected bystanders in '89 when New World moved all the Fox affiliations at that time, but that was a different sort of transaction than what we've talked about today. But we've been -- over the years, we've not had any one-offs happen.

Rich, get on that tractor and ride off into the sunset.

(Operator Instructions) We have a question from the line of Dan Kurnos of Benchmark.

I apologize. I missed a little bit of the beginning here. Obviously, a crazy day for everyone. Just, Adam, high-level, it's actually a digital question. Q3 is kind of sequentially a little bit better than Q2. And last year, you also had seasonally high expenses in Q3. Can you just talk about sort of a going out? And as we head into '18 generically, again if I missed this in your prepared remarks, sort of pays to play with growth in digital, how you feel about sort of Newsy still leading the way, distribution versus CPM increases? And I guess, why don't you just start with that, and then you can get to the expense stuff afterwards.

Sure. So you're right, we saw the same seasonality last year in third quarter. We don't think it's much anything other than that. I think Newsy has an incredible opportunity both to continue expanding distribution. Just yesterday, we announced expanding onto another nextgen platform, which actually is a pretty impressive play in major markets now. Level 3 TV. Level 3 is another sort of DirecTV Now, a Sling TV-like approach. And Newsy is actually the only next-generation news product that Level 3 is carrying, and we'll continue to expand distribution. So I think there's significant growth ahead for Newsy from the distribution, and quite frankly, from the growth of that space as more and more people continue to add OTT services to their complement of media platforms that they use. CPM is on the OTT side, continue to be very strong, and Newsy continues to be at sellout levels, selling advertising anywhere between $30 and $50 CPMs. So we think we've got the makings of a very good business as we continue to go through distribution, brand building and the natural course of things with the market continuing to move in this direction.

Did you touch on, in your prepared remarks, what's going on with Cracked and Stitcher? Because I don't know if we've heard an update on them in a little while.

Yes, sure. So I did talk a little bit about Stitcher. Stitcher is doing the work right now. The engineering team is doing the work right now to continue to develop a new user experience and some changes to the service. So just as a reminder, when we acquired Stitcher, it spent about 1.5 years on the shelf under the French music streaming service, Deezer. And what we really acquired, what we think was a very, very good deal, was about 9 million registered users, the #1 service on Google's Android platform, #2 on Apple, and those 50 car integrations. And actually, we continue to do new integrations with OEM that position Stitcher right in front of the consumer native on the dashboard. We've since also been expanding into the new connected home platforms. We were actually featured in Apple's announcement of HomePod during their WWDC Keynote, and we're in the midst of integrations with Alexa and Google Home. So we're really positioning Stitcher as the podcasting app and service we think that will sort of ride the wave of the fast growth that podcasting is receiving. Young people are constantly listening with earbuds in their ear to both music streaming and podcasting. And Stitcher makes Midroll a content creation, monetization and distribution service. We believe Stitcher actually injects a lot of leverage into those first 2 components. So we're going to share a lot more about the role Stitcher plays with respect to Midroll's growth in September at the Investors meeting.

Cracked continues to focus on serving that loyal audience with humor and satire. It was impacted in the beginning of the year with slower-than-expected programmatic advertising. That's the same programmatic advertising, Dan, I think you and I talked about. But that's rebounded since. We're on target now to launch 3 new podcasts later this year. One of them is focused on the personal experiences space, and I feel really good about those shows. And we've recently relaunched the e-commerce business and Cracked's loyal consumers buying now merchandise. I think that for a little while that we had sort of taken that down; it's been recently relaunched, and that's beginning to get traction. So we continue to see a lot of upside ahead for Cracked as well.

Our next question is a follow-up question from the line of Craig Huber of Huber Research.

Just want to get some better clarity if I could on the digital segment in the second quarter. Could you just kindly break out the percent change in revenues, for the local websites first and then the national?

Sure. Our local businesses grew around -- sort of above 10% on the local side, and the national businesses grew around 60%.

And then within that -- you said 60%, right, since the acquisition? Okay.

6-0.

If you -- within the national piece, can you just -- I don't know if you're willing to do this, but just give us some sense on the percent change of revenues of your 4 main digital properties there?

Yes, Craig, I mean, as you know, we don't break those out for sort of obvious reporting reasons.

Would you mind just rank ordering them? Who did the best and who did the worst?

I would say that we were -- that the growth, the 60%, that growth was pushed furthest ahead by growth at Midroll and Newsy, with Cracked rounding out the other side.

Okay. And then over in the TV side, Brian, what is your outlook for your TV retrans subs here in terms of the growth, or lack thereof, let's say, the next 2 to 3 years? Do you expect -- putting aside the OTT offerings, do you think you'll be able to hold that flat? Or are you guys forecasting down 1%, 2%, 3%? What are you budgeting, I guess?

Yes, so as we've said before, Craig, we haven't seen any meaningful change in the number of our subs, and part of this is due to the geography that we have, right? So we've got some good markets where people are moving into. You see the same trends nationally that we do and those same numbers. Are we going to be insulated from that forever? I don't know the answer to that question, but we haven't seen any meaningful change yet, and I really like the markets that we're in. They're good growth markets, and that's allowed us to stay where we are.

And I would just also add to that, that while we haven't seen any meaningful change in our markets, the beginning of the launch of all these OTT services that we have contracts, we think at least in the short term, based on the stability of our markets, could provide the opportunity for people having secondary sources of devices inside their house that they're paying for, and we would have the opportunity to potentially monetize some of those houses twice. So I think we may be through a period of some level of protection.

No further questions in queue at this time.

Thanks, Steven.

So just to sum up: The acquisition of 4 fast-growing, audience-targeted, multi-cast networks with even more revenue upside; core advertising growth in the back half of the year; a strong political advertising year ahead; and double-digit retransmission revenue growth for years to come; a healthy broadcast industry, regulatory and M&A climate; and nearly 30% the digital division revenue growth, driven by our podcast industry leader, Midroll, and our national news network, Newsy.

Thanks so much for joining us today, and we hope to see you September 6 for our Investor Day. Take care.

Ladies and gentlemen, that does conclude today's Scripps second quarter earnings call. We'd like to thank you for your participation. We'd also like to thank you for using our service. Have a wonderful day. You may now disconnect.