Nexstar Media Group, Inc. (NXST) Earnings Call Transcript & Summary

Okay. Welcome back, everyone. Thanks for joining us today. I want to thank our next guest, Perry Sook and Tom Carter. Perry has been a regular. This is 7 years in a row for us today. I think Perry has been here almost every year. So Perry, thank you so much for doing this again for us. I really appreciate it.

You're welcome, Michael. Happy to be here.

Yes. I hope all is well in Texas. You guys look good. You look healthy.

We are open for business. We're in the office today.

I can see that.

So we can get right to it.

I could see that. Okay. So Perry. We've done this for many years. Because we usually get through 100 questions, I have 2 sheets for you, okay, and you're the only person I have 2 sheets for because typically, we go through this very quickly. So I'll try to go slower this year. We have Tom joining us, maybe he could slow it down, but let's go.

So the question we've been asking everyone is, what do you think will be the most meaningful changes to consumption and the media ecosystem post this crisis? So what's your take and what's lasting from this.

Well, I think the most immediate takeaway we have is the affirmation of the value of local news. Obviously, through this pandemic, our usage numbers for local news across all dayparts is up. I mean we're seeing numbers we haven't seen probably since the '80s in terms of audience reach and engagement. And that proves, obviously, the ultimate value of our local content regardless of what it's paired with -- national content, sports or whatever, but our local content stands on its own. We're seeing website usage of that content. So across the digital platforms, we think there's an affirmation of value. I think the other thing is, and we were just having a conversation while we were waiting here, the number of workflow adjustments we've made to be safe in this environment and that some of these may persist going forward, we're trying to determine openly if that saves us any cost or it's just another way of doing business. But as I said, this is kind of a disaster like we've dealt with in Nashville with the tornado or in Panama City with hurricanes, but this is kind of a disaster that's affecting the whole country at one time. So our preparedness is -- has been spot on in terms of being able to cope with this crisis, but it's -- I think for the first time, we're experiencing what we do in individual markets on an ad-hoc basis, kind of, on a national scale.

Okay. And so I ask, for someone who's built this company, both you guys worked to build to where it is today, what gives you confidence that you built the company to be well positioned to benefit from this crisis? So what are the signs that you feel like, okay, those decisions actually make a lot of sense for where we are now.

Well, first of all, when it comes to disasters and distance working and things of that sort, we're prepared. We trained for this, we've done this and we have our -- we have a playbook. I think more than anything, since we are the largest purveyor of local news in the country with 5,400 journalists and over 260,000 hours of local content, if there is stickiness at all to these viewing patterns and millennials are now discovered local news, if there's any stickiness to that at all, then we would be the one to benefit the most because we do the most local news of any video production entity in United States.

Okay. And then I ask other people this for 2 days. And I wonder, you touched on it before in talking about Tom, what are those adjustments -- the operational adjustments that you think can actually help improve profitability and maybe efficiency. What is what is in your heads, you guys are talking about in terms of maybe changing how you go to market with your business structures and your expenditure. So what could be different about operating Nexstar going forward?

Well, normally, we'd have a team in New York City this week for the upfront meetings. We're all either sitting here or in other conference rooms. I think, Tom, the first thing comes in a 7-figure savings in T&E that we go about our business, and the Zoom calls are not necessarily perfect as we experience at the front of this one. But by the same token, they tend to work, and we tend to get the information back and forth, I think, that we need to. So...

I agree. Our travel is a mid- to high 6-figure amount monthly. Also, just investor interaction. Maybe this is going to be the new normal here. And I don't have to have an executive platinum membership in American Airlines anymore to go see investors in Las Vegas or Florida or New York or other places around the country. Obviously, some of that's always helpful from a high-touch perspective, but high-touch is not the way forward going on the other side of the pandemic.

Yes. And we just had Sir Martin Sorrell on and what he was saying was real estate for him because agencies are such uses of real estate, but I wonder, is that something that you've seen? I don't know how your real estate costs look versus -- as a percentage of revenues, but that's an opportunity?

It is to some degree. I would say it's more kind of on corporate than it is probably at the station level because the station level is all about putting the product on air. For us, it's about the national -- 2 national operating centers we have, one in Indianapolis and one in Dallas. The accounts payable, accounts receivable, the accounting, et cetera, et cetera, those are all potential areas. The hindrance there are 3-, 5- and 7-year leases that we have. So that's not anything you're going to see immediately, but I think over a period of time you could, just with regard to kind of the infrastructure that we have in order to deliver the product.

Okay. And then Perry, on the local news side, you noticed anything different on how you produce the news? Are people using more mobile phones? Do you think that the cost production could come down? Is it something that you've contemplated at all?

Well, it will be interesting to see over time, Michael, that obviously people are willing to sacrifice some level of quality for cellphone video producing or anchoring the news from your living room, having people on the phone as opposed to in-studio. We'll see outside of a kind of a war footing or disaster footing, if that same tolerance for less quality is going to be there among the audience. But I think that would remain to be seen. Obviously, you can anchor The Tonight Show from home. You can anchor our 6:00 news from home. And it might be cute for a while to see the cat or the 3-year-old in the back background, but our viewers are going to want that over time or they going to want to revert to the kind of quality level they expect from professional organizations.

Okay. So as you know, because you guys read our research, we have a strong opinion in our firm that the future of the TV bundle is live news, sports and events. I wonder, do you agree with that? And if so, how do you see the opportunity for broadcast networks like yourselves, the networks and the stations, adjusting to that opportunity and reality?

Well, I think you know because I comment on your research that we totally agree that agree that live news and live sports are the value drivers in the bundle. So we agree with your philosophy there. The NFL is a unique proposition, right? I mean I think it stands alone or above from sports as kind of being a national sport. Where other sports are regional, it brings a unique value to the distribution chain, and it is also uniquely costly to the networks and then ultimately downstream to us. There's value created through the exclusivity of the product. So let me put this thought forward that while the networks are likely to retain the NFL, we're going to be paying more and more, the NFL itself has begun to introduce streaming packages or streaming partners with every broadcast package, which obviously reduces the amount of exclusivity. And my concern is that I'm the one that generates the retrans dollars that ultimately pays the network, reimburses them for some of these sports costs. And it's our ecosystem that kind of anchors this altogether in being the direct touch with the consumer, serving the local community. And I would hope that the NFL would tread cautiously there with streaming partners because the less exclusivity, the less value that content ultimately has in the bundle, and perhaps the less value I can generate with that content as part of the bundle. And so ultimately, we don't want to see this loosening of exclusivity or lessening of exclusivity ultimately harm the local stations that, obviously, were designated as essential businesses in all of these orders, where in state opening and closing, we were in an essential business from the beginning, not necessarily the networks, the stations local. So the unintended consequence of some of the NFL's actions could be to harm local stations, and we think that has a public policy potential to it. But again, we are excited about the fact that NASCAR comes back on the air this weekend, we'll get to see golf from down the road here in Fort Worth at the Colonial early part of next month. And I think as those sports come back to television, television will benefit the sports that generate varying degrees of their revenue from in-stadium food and beverage and concession sales may not have that at all or at least for part of the season, but there's no question that television will benefit when we have live sports back on.

Yes. And you're referring to the Amazon, they did a deal for next -- for the upcoming season, one game that's going to be taken out of the rotation, put on Amazon Prime, and that's the change, right, like in -- basically it's not available anywhere but Amazon Prime. So it was going to give people a chance to actually exit the system and experience content in their line for free.

Even more than that -- or even as much as that, Michael, it's the streaming aspect that that makes the product less exclusive, less special, people less willing to pay for it as part of the bundle if they can get it outside of the bundle, and that ultimately has implications back on local stations that have to go out and do heavy lifting and negotiating for the retrans to have that money to attribute back to the networks.

Yes. Well, it's interesting because, Perry, big picture, you're seeing like the pay TV networks, which is not your business, Showtime, HBO, they face resistance from distributors as their products become more available as streaming, right? So it's -- in many ways, it's hurt their linear business. They've had to do it, but it's actually not been a very efficient transfer for them. They've been killed somewhat in traditional distribution to make up on streaming. It's not been a win-win, they see that a win-lose.

Well, listen, I get the MVPD's argument, why the heck should I pay you if they can get it somewhere else for free. And we totally get that and agree with that and want to preserve the bundle and the economics of the bundle.

Okay. So on that question, I know you read my research, you pulled down the screen. Question we have for you is that -- and as you know, both you guys know, Craig and I think the number of pay TV customers will be smaller due in part to price increases by distributors who are facing higher sports and retrans. I wonder do you agree that analysis, of that point of view.

Michael, I'm not sure. We do debate this. I think in other recessions, we've seen there is a subscriber loss due to nonpayment, people being disconnected. There have been pledges not to do that now. So does that get pulled forward and that manifests itself later in the recovery and some abnormality. I think looking at a snapshot today and trying to annualize that number is a little disingenuous as well because we're in kind of crisis situations and 20 million unemployed and all of that. But I do think that -- and it goes kind of to other questions, I think you have about virtual MVPDs is that there is value in the bundle. If the bundle becomes too expensive, then you've got to begin to tier the bundle. And I think that, that may be a way to create value in the bundle because the virtual MVPDs all started as skinny bundles. Well, now they've got as many channels jammed into those bundles, and there's no differentiation for the consumer between a virtual MVPD and a traditional MVPD in terms of cost, when you add in the fact that you have to have the broadband as well. So if they don't have a reason to exist, they -- I don't know if they'll continue to exist. But I think we're in a temporary situation here where we're not going to have -- we're going to have data, but we're not going to have information for a few months until this kind of settles out and employment begins to normalize, the economy begins to normalize. But we -- there is pressure on the bundle because of price. There's pressure on the bundle because of shiny, new ways of doing things. But again, there seems to be a reversion to the more -- the new looks like the old and what's the differentiation point. And we're probably more bullish on the bundle, ultimately establishing a baseline where you get navigation, broadband and video. And at a price, we think that has value rather than having to have 3 different remotes on the coffee table to get the same thing. And how it settles out, I don't know.

I would just add, your question says in part due to increases by distributors facing higher sports and retrans bills. The other part is for distributors continuing to have to pay for cable channels that nobody watches, right? And we did the study that others have done and it was recently done, I believe, in September, October of last year, we still get 30% to 35% of the viewing in an MVPD bundle compared to 200 cable channels, yet we're only getting, depending on who you subscribe to, somewhere between 15% and 20% of the fees. So we still over-index with regard to our take from the bundle relative to our contribution to the bundle. And I think that's the opportunity, and we don't view it so much as cord-cutting as cord-shaving when you go to a virtual MVPD because you're shaving out 150 of those 200 channels that nobody watches or a very few people watch.

Yes. I have YouTube TV. I tell you, it's great. It's a great product, and it's not as case it should be. But I wonder, do you guys think that tiering -- when you talk to distributors, does tiering become a solution in the next couple of years? Do we expect to see more cable tiering with broadcast as the basic and then tiering above that?

Well, I mean you really have to talk to the MVPDs, but that's kind of how cable started, right? It was a broadcast basic and then there was a kids tier, then there were pay-per-view movies and all of that. I think we'll probably come full circle and the biggest way to remove pressure on the bundle would be to tier the regional sports networks. Now we don't have a dog in that fight one way or the other, but if you look at the amount of my cable bill that goes to RSNs, and I might pay any amount to see some of that, but my wife might not want to pay any amount at all to see any of that. So I do think you'll see people look to reduce the cost of the bundle, and I think you would do that by tiering. And so I would expect that to be a subject we'll talk about more and more as time goes on.

Right. And is your point while we shouldn't really use today's data points on cord-cutting, is that -- sports is such an important driver of virtual bundles that you're looking at a time with no NCAA tournament, no Masters, no NBA, no hockey, no baseball. So is sports coming back a key in your minds, maybe an accelerator back of pay TV growth? Could that be a possible upside?

Well, I don't know, right? I mean I do know that local news has been the one constant through all of that, and people want the local news. They want to see what the -- what's going on with the virus in their markets. They want to see how the government's reacting to it. Sports is coming back, and I think everybody knows that. So we have a view that in recession, the cable bundle is probably the cheapest entertainment that you have, and you're going to want some degree of connectivity with television in your household. So maybe you're not going to the movies or going to the restaurants, but you're home watching TV and whether you're streaming it. YouTube TV has a lot more channels in it today than it did 2 weeks ago. And again, I'm sure those came -- it didn't come for free. So YouTube TV is starting -- YouTube Live is starting to look a lot more now like a traditional MVPD. And so what's the differentiation there. And if it's not priced, then is it content or superior navigation. And so there's -- it all comes back to the consumer, in my mind, Michael, that you've got to create value to the consumer to have a reason to exist as a direct-to-consumer business. And if there is a sameness to then, then I would say that would probably say the next step in that story would be consolidation.

Yes. Well, Perry and Tom, that's been the shame of this, that you got a chance to recreate the offering. The interface is great, but I don't want 100 channels for $75. And so they replicate something I don't want. And they've missed the basic premise of what do consumers want.

Right. They want more choice.

Yes, choice. Okay, guys. So first time we've done this since you actually have controlled Tribune. Congratulations again that got done 9 months ago. What have been the biggest surprises operationally for you now that you're in there under the hood of Tribune? So what surprised you on the upside?

Yes. We really didn't have a lot of surprises. We trained well for this. We diligenced well for this. I'll tell you there are a lot of good people, a lot of good managers in that organization that we're glad or a part of our company. The idea sharing between the legacy Tribune, legacy Nexstar stations has been robust. We say, it doesn't matter what jersey you wore before the merger. Now you're wearing one Jersey, it's the Nexstar jersey. So we've been pleasantly surprised at how well the cultures have integrated and the company has come together as one. Obviously, the biggest revenue synergy was the retrans synergy, which was a big percentage of our synergies, but also a big percentage of the legacy Tribune retrans to the extent, now if you annualize our first quarter retrans, you come up with a number north of $2 billion, and that's what's embedded in our guidance and our working assumptions internally here. So I'd say the sales incentive has been more aligned now with Nexstar's focus on business development and not just selling rating points in large markets. So -- and we've launched new product. I mean we just launched last night a 10 -- a 9:00 news in Houston, produced by the ABC O&O, which is an arrangement we have in Philadelphia between our CW and the ABC O&O. And we hope it goes as well as it did in Philadelphia because that's been a success for all parties involved. So we've added local content in Sacramento and in Los Angeles and in Chicago and other of the Tribune markets. So I'd say it's just kind of running our playbook, focus on business development, local sales, adding more local content to the mix and less of reliant on syndicated programming, but it's kind of the playbook we've been running all along.

Right. And then one of the big announcements was the moving to create a product, primetime news called News Nation and WGN. Talk to me about the vision there and how that service scales over time?

Sure. Well, we looked at our assets and one of the assets of the company is WGN America, which if it were a television station, would be our single largest one, right? It's a national cable network on the basic tier, by and large, reaching about 75 million homes right now in the Pay TV world, has only one OTT or streaming component, which is AT&T now, and we hope to build on that. But here's this network that's doing well financially, but has no real brand or identity in the eyes of the consumers. When we do consumer research, they say, "Oh, yes, I remember WGN News and the Chicago Cubs. I never missed a game, but we haven't had the Cubs on WGNA for 5 years since it converted from a superstation." So we said this is a channel that we can either manage for cash or we can pivot to something that we know how to do, which is produce local news. And it started as a counter-programming strategy, Michael, where we said, okay, in primetime today, across all networks, broadcast and cable, it's either entertainment shows, sports, when sports comes back, or opinion shows, there is no hard news option in primetime 7 days a week. And we said with our 5,400 journalists and the other 150 that we're hiring in Chicago to produce and anchor this broadcast, we can do local news, and we can go live to the event in Fresno to the event in Portland, Oregon or in Tampa, Florida. And you have reporters that have context and know the neighborhood where the incidents are happening. And we can be on the air before you can charter a plane to fly a correspondent from another network to parachute into whatever the event is. So we said we can build on that, and we're financing it through the -- it's going to be primetime, 8:00 to 11:00 East and a repeat then 11:00 to 2:00 a.m. right after, which puts us into the news business on WGN America, basically in 25% of the broadcast day. So that's our goal, is to program that time period to do well. It's very exciting. We've already hired our weekday and weekend talent. They're not names that you would recognize today nationally, but we think you will over time. But they're hardworking journalists. And our goal is going to be every day to be absent of bias. That this is news from the middle of the country, news that's down the center of the fairway, no bias, no opinion, just the facts. And our head of news for WGN America did a radio interview last week that I just heard a copy of, and she said, "You're going to learn a lot about America." And I think it, at our best, that's exactly what this will be, is alternative programming, but news and something that we can then expose WGNA to additional audience, but more than that even to additional advertisers that don't buy us now because we don't have any information programming on the air. And so we're very enthusiastic and think it's a great opportunity and a great time to launch this.

How about other dayparts, more like what's the plan of moving to other dayparts after primetime?

Well, we have program commitments for other shows, all off-network shows that we bought that will sunset over a period of time that could create more dayparts to launch a local news product or a national news product using our local resources. And we'll see how it goes. Obviously, if primetime is a success, and then we would look at other dayparts if they were -- had the chance to be successful. And our syndicated programming waterfall of when those expenses roll off is what's allowing us to kind of self-finance this. There's a onetime $20 million CapEx that we're spending to build a studio and a control center in Chicago, but the OpEx is basically self-liquidating. So we think our chances for success are very strong. If you look at relative values, WGNA as an operating entity to Nexstar today is worth just shy of $1 billion in enterprise value. There was a recent valuation done on FOX News. At the time of the Disney split that said FOX News itself is probably worth $18 billion to $20 billion. So somewhere north of $1 billion is value creation for us. And so we aspire to that.

Yes. I also would say, it's also an acknowledgment that playing in entertainment is a tough business to be in, right? Being in syndicated content, general entertainment, it's just not a place you want to be. And it's an estimate, you and I have e-mailed each other about. Like you've seen the direction of cable networks who go there, it's not a very healthy business.

Well, if you're going to produce local content -- air local content, you want to own it and not just rent it because the real value is in the ownership of the content.

Well, if you think about of what is really valuable in our company, part of it is the local news product and 54,000 journalists around the country who can feed the beast of a national product and take that information and repackage it nationally. But also 194 television stations to promote this new newscast. So we can reach 60-plus percent of the population through our 194 television stations and promote it effectively as well.

Okay. I know the company has changed a ton, retrans, the whole point of the Tribune acquisition. But what's -- local advertising still is a big driver, it still matters a ton. What's the current state of local advertising for you? FOX said they were down 50, which were shocking, but they're in the biggest market. You clearly yesterday said, in the 30s. So what's your take on local advertising? And where do you go from here in terms of what you're seeing?

Well, for April, I would say that, that range is not an uncommon experience for folks in the local television business. I think radio probably marginally even worse than that. But we are seeing better trends in May than April and better trends in June than May, and third quarter pacing looks normal right now. Now do we expect all of that to potentially change? Yes, I mean we're managing. Our visibility, true visibility is maybe 2 to 3 weeks out at any given point in time because the situation is so fluid and dynamic. But I think long term, we commissioned through BIA a study of all sources of local revenue, and they're categorized into about 18 different categories: direct mail, outdoor, digital, radio, OTA television, over-the-air television which is us. And OTA television today takes, across all 210 markets, approximately 14% of total advertising spent in all 210 local marketplaces. So the greenfield opportunity is in the 85%, 86% of the dollars being spent in the market that are not being spent on local television. And so that's where we're focusing our business development, our reach extension, what else could we either partner with or buy in a local market to give us a chance for a larger share of wallet. And all of our discussions are about how do we grow a larger share of wallet.

Right. Let me ask you, you guys -- you're in an interesting place because you see real-time data as markets open, as states open, cities open. Is there anything you can tell us about maybe the rolling impact of openings that you've seen so far in the past weeks or so?

The first category to come back is automotive in terms of increased spending over where they were when the dealerships were closed. Restaurants for us is 3% to 4% category. Travel and leisure is sub-2%. And so those are not necessarily meaningful categories, but those are also, we think, are going to be the last to come back. During the course of the pandemic here and the information we have in April and late March, grocery store spending, drug store spending, attorneys, those are categories that were all up, packaged goods and the big-ticket items, furniture and automotive were closed and they weren't selling any of those. Here in our market in Nebraska, furniture market is open again and they're advertising again. Dealerships are open, and they're advertising, maybe not the levels before because, obviously, you've got to have the customers there that are willing and able to buy. But we do see categories coming back. And I think for us, the third quarter is going to be the pivotal quarter here where are we far enough away from this are enough things open or enough things being televised that we can quantify this as a new normal. Or are we still coming out of the coming out of the worst of it here.

Right. Of course, 2020 is a political year. I think you had really strong results politically, the first quarter. What's the expectation for political this year? Any changes and maybe that can suspend for 2020?

Sure. I would say a little bit of just the cadence has changed. Obviously, really good first quarter. Second quarter, we had a number of primaries either go to mail ballot or to shift later into Q3. And but we have not changed our guidance with regard to political for the entire year because keeping in mind that in excess of 50% of the political comes in the last 2.5 months, really you dropped the flag on Labor Day, and you run strong through September, October and the first week of November. We don't think that's going to change. Also, think about it, depending on how things roll out over the course of the next several months, I'm not sure in-person or rallies are going to be necessarily a big way to get the message out for political candidates going forward. And the best way then our way of thinking, and obviously we're a little bit biased from this, is mass media. And broadcasting is the last of the mass media in terms of reach for the entire population. So we think we're well positioned, however, it comes out because the majority of the spend will come in the last 10 or 11 weeks.

Especially if sports comes back and you get NFL local markets. I remember Perry talking about Wisconsin last time that you had...

It was Green Bay, yes.

Green Bay, right? Yes. How...

Well, we blew that away in the Super Bowl this year with a $200,000 -- actually, a $400,000, 30-second ad. It had nothing to do with political, but had to do with scarcity of inventory and a match-up that was particularly helpful for us with Kansas City Chiefs and us being the home market FOX station.

Okay. Cool. One of the surprising things about first quarter results for me was the strength of Google and Facebook to hang in relatively well, given the long-tail small and medium enterprises. I wonder, did that catch your eye that all these small businesses were really hurting stuck with Facebook and Google. And the question here is, you mentioned it, 85% or so of the money in your market is not going to local TV. What are you doing to tap some of those dollars from small and medium enterprises who are hanging in digital, but maybe not spending in other places? So did that catch your eye? And what are you doing about that?

Sure. Well, what we're trying to do is develop a concierge approach from our local account executives here. We can do what Facebook and Google do. We can even help you place on Facebook and Google. But you don't have a call center if something goes wrong or look for tech support elsewhere, you can call me and I can help you through all of this. But we're also trying to develop, in addition to our own walled garden kind of our own self-serve, make it easy for people to access our inventory and other inventory that we have access to. And we're in the process of trying to build that now in our digital division. Again, our customer research would say people want somebody to help them navigate through all of these choices they have. They want it to be easy to buy. And we think we can provide those solutions along with our street-level experience that, again, would be a differentiating prospect in terms of the local advertiser and the local business community.

Okay. Let me take you to retrans for a second. I would say the pressure from the networks to ask for license fees from you, never -- has been never been greater, especially as sports costs rise. The pushback from MVPDs, as you know, firsthand, has never been more intense either. So can you walk us through the big picture economics of your retrans deals, juxtaposed by a new affiliation agreements? So how do we think about these 2 pressure points meeting at Nexstar base?

Michael, you're exactly right, and welcome to our world. I mean that's something that we've been dealing with, quite honestly, for about 10 years. It's just really gained traction with the investment community over the last 4 or 5. But the real differentiator for us is how we manage that. And I think the next 3 years for Nexstar is very clear. We just did 70% of our subscribers on the retrans revenue side last year, and those are typically 3-year agreements. So you should think about having contractual certainty with regard to terms, costs, et cetera, obviously, not the subscriber base, but all of the contractual terms for a 3-year period. We have 80% of our big 4 affiliates done for a minimum of 2 years and 70% done for a minimum of 3 years. So if you just take it out for a 3-year period, 70% of the economics on the revenue side are known and 70% of the economics on the cost side are known. And this is where scale really matters from our perspective. If you're the largest CBS affiliate or the largest FOX affiliate or a top 2 or 3 affiliate for ABC and for NBC, and the largest CW as well, just to kind of throw them in the mix here as well, that's meaningful. I can't tell you what the entire industry is going to pay, I just know that Nexstar will pay less than anybody else, especially if we're doing our job correctly. And Perry is one of the instigators of retrans. So I think he's talked a fair number of lessons on this. Plus size matters in dealing with large MVPDs, especially, you could see what happened with AT&T last summer and early fall, we're happy with the outcome of that. And I think that then set the tone for our MVPD negotiations at the end of the year that were done without any further service interruptions.

Yes. Was there any -- on that AT&T point, we're kind of mystified why they would pick a fight with a broadcaster in the football season. Is there any reason that you can tell what the rationale was for that fight and why they chose it?

You'd have to ask Randall Stephenson about why they chose it. I mean the learnings from that, as far as I were concerned, if you want to lose subs, just deliver an inferior product to the consumer and you'll lose subs. And I think that was a case study in that. They had -- we're missing a major network affiliate in all of their markets or most all of their markets for the better part of 2 months and look what happened to subs. Again, I don't think you can annualize that sub loss. Even you suggested that was an anomaly. It's a reset and then you make your assumptions of what your sub attrition would be from that going forward. But at that point, it was their largest ever sub loss in a quarter, and they were at loggerheads with us and, for a much shorter time, CBS. And I think it proves that if you don't have the content offerings for the consumer if you're offering is superior, consumer is going to go elsewhere.

Right.

I'm not sure what, in our opinion, what was the difference between the first week of July and the last week of August if you ended up in the same place anyway.

Right. Got it. Okay. We'll see what happens this third quarter. So let me ask you, Tom, in your answer to me, one of the things we worry about is the shape of cord-cutting and the fact that the revenue model on the paying license fees to the networks is fixed, retrans is variable, right? And so do you worry that as time goes on as cord-cutting accelerates, you have what is a fixed payment up to the networks and a variable revenue line. So how are you going to navigate what could be an accelerant and change on cord cut?

Well, first of all, I would say not all of the payments to the networks are fixed. So there is some variability in that. And Michael, I get paid to worry about everything. So Perry gets paid to be the optimist. I get paid to make sure everything else works. So I worry about all of that. But obviously, part of this is the negotiating process and our analytics that fall behind that. We gain theory on all types of things. We gain theory in different subscriber trends. We made the comment that we exceeded our budget in the first quarter of 2020 from a retrans revenue perspective. Well, look, all of the contracts were known, all of the rights were known, what that means is we had expected a larger subscriber decline than we actually experienced. So I mean we gain theory of these things multiple ways, and we have several file servers in our data hubs packed into this information. And so we analyze it, we update it. We update it interim. And we have various models going all the time, but we have to gain theory on that. Look, there's a lot of things to go into it. It's been what's the rate in the last year of the old contract, the rate in the first year of the new contract, what's the exit rate which is then the last year of the of the old -- of the new contract, which gets the first year of the contract after that and there's interim escalators. So there's a number of levers to pull here from us to achieve our desires, and we try and be responsive to what the MVPDs are looking at, at any given time within some parameters. So there's a lot of different things that we look at. But we're -- it's not our first rodeo, and we've been -- I think we've been successful at this, understanding kind of the pushes and pulls that we get from the MVPDs. Is that fair?

It's fair enough.

Okay. Perry, you brought the NFL early on, the comeback of the NFL. We're waiting this summer maybe some new NFL deals from the broadcast networks. We're expecting pretty big step-ups. If those step-ups happen as we expect, they're going to look to you for additional compensation somehow. Are you expecting an escalation in the NFL cost? Yes, probably. But then what does that mean for you if NFL costs go up 50%, 60% in terms of your partnership obligations?

Well, the time the network will speak to us about our relationship is that the renewal -- the expiration of the current agreement and in the context of a renewal. And I'm sure one of the levers will be, well, I'm paying more for the NFL, you have to pay me more for the NFL. I think the affiliates in aggregate pay approximately -- depending on the network, approximately 10% of the NFL expense. So am I expecting that they'll ask for more money? Yes. Was I expecting that last year? Yes. And I'm sure it will come true. So our job is just to negotiate the best deal that we can here. And I think it will depend kind of on -- I think all NFL will probably end up on the incumbent networks in some way, shape or form with the possible that ESPN would either move their Monday night package or move whatever package they end up with to ABC or simulcast it so they could get in the Super Bowl rotation because it's the broadcast networks that are in the Super Bowl rotation. That would be a net positive for us because right now we don't have NFL on ABC, except for maybe one playoff game in a year. But I'm sure they'll come back and ask for more money. And again, being the #1 CBS affiliate group, #1 FOX group, #1 CW group, #2 NBC, #3 ABC, it's important to be important. And so I think those conversations are ongoing and have been constructed. Because the nuclear option for either party is pretty distasteful, so you generally figure out how to make a deal.

But also think about it in terms of something we talked about before. If they hive off some streaming, that is a new revenue stream and those are $1 incremental. So if they go up 50% or 60% and 20% or 30% of the 50% or 60% is funded by the streaming services, I'm not sure you're going to necessarily see a 50% or 60% increase to the broadcast channels.

Okay. A couple more, and thank you, guys, for doing this. You just recently updated or announced new agreements with NBC and CBS Viacom -- ViacomCBS. Can you talk a bit about how they're streaming plans at All Access and Peacock? How does that work with Nexstar? And what types of relationships are there between the affiliates and those streaming platforms?

Sure. We participate fully in CBS All Access, where the network charges the subscriber or rate and then the network pays us a rate. I just negotiated those rates on behalf of the affiliate body going out for several years. And it approximates 50% of net retrans. So what we keep after we attribute to the network is about the same as what the network is paying us there. With Peacock, it remains to be seen. Right now, there is no opt-in or opportunity for the affiliates. Although we're told that, that is under consideration and there will be some form of participation. What form that takes monetarily or content or otherwise, I don't know. It remains to be seen. But the NBC Board of Governors is speaking with the network on this in real time. And if there is to be a participation, I'm sure it will be announced at a later date.

Okay. Cool. I have 2 last ones. Mostly to Tom, Perry. So you can join...

Okay. I got it.

Exactly. No, just stick around. But Tom, we get this question with Perry all time, about capital allocation. So how has your capital allocation process thinking changed because of COVID-19? And your next debt maturities are 4 years away, but what are you thinking about lowering your overall debt?

Well, I only kind of halfway laughed when I say having $435 million on -- cash on the balance sheet is an unnatural act for me because we paid down $450 million plus of debt in the first quarter. And put that in perspective, that's $10 a share in debt reduction. If our valuation multiple didn't change at all, $10 of value was created right there, I've got another $10 of value in cash on my balance sheet. I think, obviously -- and we were buying back stock in the first quarter. And once it became apparent to us in mid- to late March that this was really going to become a national issue from a pandemic perspective, we stopped our stock buyback, but we still bought back 2% of the float in a 15-day period. So the [ spicket ] can be turned on and turned off. Right now, clearly, it's off because we're in a resource husbanding mode just to make sure that we can elongate any sort of economic downturn that we're experiencing. I use the analogy all the time. I think we know if we're floating a river, I think I know how deep the river is, I'm just not exactly sure I know how wide the river is. And so borrowing right now is a very efficient way to fund ourselves. Conversely, paying down debt is not a very efficient way, so we might as well just husband the cash on our balance sheet and give ourselves the ultimate flexibility for what happens in Q3 and Q4, especially when political comes back starting after Labor Day, and we have a tailwind behind us starting at some point along those same lines for potentially buying back more stock or paying down debt, either of which, from our perspective, continues to be accretive to equity holders.

Interesting, you guys paid a dividend but Walt Disney canceled it. So I was surprised to see you pay...

We don't own any theme parks, perhaps you...

I haven't noticed them.

Okay. Just wanted to make sure that was clear.

And that's surprising. And that's commitment you're going to keep doing through...

Yes, that was always -- our first tenet was the dividend is the fixed portion of the return of capital to shareholders' program and buying back stock is the variable. We cut off the variable and we kept the fixed.

Okay. Cool.

Michael, our dividend obligations are a -- the lowest of double-digit percentages claim on our free cash. And so we've run scenarios, we've run our base-case scenario, what we expect to happen. We've run a worst-case scenario, which is very bad. And all of those scenarios, we are profitable in every quarter. We have no liquidity issues. We can continue to fund our dividend. And as Tom said, we can pay down our debt, and we will use this cash to pay down our debt once we know that it's prudent to do that. And so...

My only issue is paying down debt, I can't borrow it back because we have a relatively small revolver because we rarely use our revolver. So we're just going to make sure that we're absolutely clear on our cash needs in the pursuing 2 or 3 quarters.

Okay. Well, guys, thank you for doing this. I really appreciate it. I know it's cheaper to come to New York, maybe more efficient, too, by the way. Maybe the way of the future for us.

Well, I don't know. I'd rather be sitting next to you in New York. Hopefully, we can do that next year live.

I was about to say all those good dinners in New York would be a great reason to come back.

Yes, that's true. That's true. Stay safe. Both of you look great. I'll see you soon.

Great. Thanks for having us.

Great. Thanks, Michael.

Thanks. See you.