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

Hi, everyone. Thank you very much for coming. My name is Nick Zangler. I cover ad tech and media at Stephens. Happy to have Nexstar with us, Lee Ann Gliha, CFO; Mike Biard, COO. Guys, thank you very much for coming. Nexstar, it's the largest broadcaster operating 200 local stations across 116 markets, also operate some major broadcast network in the CW recently acquired, I think, that was 1.5 years ago or so, a growing cable news network in News Nation, which I actually utilize and watch pretty frequently.

Yes. But maybe just as an introduction, would you mind discussing the reach, the scale of your assets how you feel about your positioning, the strategy versus your peers and other broadcasters within the current market environment.

Yes. Great. I'll just kick it off. Thanks for having us here. We really appreciate it. We think our scale is a real differentiator for us. We are -- it makes us a little bit of, I think, a unicorn in the broadcast space. We are the largest local broadcaster. We cover 68% of the population of the country. And on a revenue basis, we're actually 40% bigger than the next local broadcaster that's out there. And just to kind of put a little bit of more flavor behind the scale on the local side, we are the #1, #2 or #3 affiliate of each of the Big 4 broadcast networks and then also of CW and my network. And so that really provides us a significant amount of scale from that perspective. As Nick said, we are in 116 markets across the country with 200 local stations and from a political perspective, which is a great source of revenue for us in the even years, that scale provides us coverage of over 80% of the contested elections. So we really do a good job of being able to generate significant revenue from the political environment in those even years. And then when you compare us to any of the larger network operators, we have a footprint that's actually from a station perspective, 75% bigger than Fox, which is the largest owner of stations from a network perspective. So it gives us a little bit of a different angle when we talk to advertisers because both of our nationwide exposure and our local exposure. On the nationwide side, as you mentioned, we have significant coverage. We acquired the CW network in September of last year and that covers 100% of the country. And we also have the NewsNation, Cable News Network, which has comparable coverage to the other cable news networks that are out there. So not only do we have the nationwide reach, we cover the entire country, but we have the largest local presence. So that really creates an interesting dynamic for us and a kind of a very compelling offering when you go talk to advertisers. In addition, it provides us with some significant -- because of the scale, significant negotiating and operating synergies, which really help us drive our revenues from a distribution perspective and also from an advertising perspective because we have that scale and also helping us manage our expenses because we can leverage that across a larger platform. And that really helps us generate our significant amount of free cash flow. Over the last 12 months, we generated attributable free cash flow of just over $1 billion and we're able to return about 95% of that to shareholders.

And I'm just going to allow the questions up. And so I kind people want to watch them and everybody in the audience, guys want to step in. Sorry, go ahead.

Just a broad picture, number of minutes spent on this network after that trend, individual, I'm just thinking [indiscernible] in the last 5 years. How much do I guess way far out to the next. So I am watching at on the phone. I'm not watching our screen.

Yes. I don't really have that handy, but we would -- you can pull any sort of Nielsen data or whatever that talks about kind of the overall pie and how much it goes to broadcast versus cable versus streaming.

Is that [indiscernible].

Yes. Okay.

Honestly, I was hoping just to talk about sports the whole time. There's some exciting things going on here, but I'll walk through the overview of the company. But I am going to get into a bunch of sports-related questions. But before I do that, Mike, you're almost 3 months into the role as COO. Can you talk about your background hailing from Fox and how that background helps with the strategic direction the Nexstar is pursuing.

Sure. First of all, thanks for having us. Happy to be here. So yes, as you mentioned, I joined Nexstar just under 3 months ago from Fox, where I spent 23 years and it was Fox and its predecessor companies. When I started, it was News Corp and Fox was a subsidiary were actually tracking stock and then ultimately, split off, and then there was a massive transaction with Disney that closed in 2019, which fundamentally did change the company. And during that time, my role evolved and I was involved with distribution pretty much the whole time, but then expanded my role in 2019 to take on an operational role, which included everything from corporate real estate to running the Fox Studio a lot, which is like running a small city, everything from food and beverage to health and safety, you name it. It's an interesting business actually running Production Services, we had 18 sound stages and following the Disney transaction, we have an interesting relationship with them. They were both a tenant of our office space. And so we had to establish that relationship, which I led and then they had almost exclusive use of our backlog for production of their scripted content. So a very interesting business. In the course of that, I was -- Fox was a very flat organization at the top. And so I work very closely with the heads of the networks and particularly on the sports side and senior management on all of our significant either acquisitions or renewals including the most recent NFL deal. So I was on a relatively small -- not relatively, actually, very small deal team that did that renewal a couple of years ago. So in the room on really all of those things including the acquisition of Tubi, which for the first time really expanded Fox into a digital platform. So yes, a wide variety of experiences and the thing that attracted me to Nexstar and really directly relevant was, obviously, my network experience. At Fox, I was there when we both launched networks, acquired networks, transitioned networks, all of the things that Nexstar is busy doing right now, particularly with respect to news networks, I was there. During that, obviously, a significant rise in growth of Fox News, but also the launch of Fox Business and was involved in all of the distribution there. On the sports side, launching cable networks, acquiring networks, transitioning networks from one genre to another. I was there when -- I was heavily involved when we acquired a channel that was called Speedvision and we converted that to Speed Channel and ultimately converted that to FS1. And so lots of learnings along the way that I know will be directly relevant to exactly what's going on here. If you look at NewsNation, we're just over 3 years away from when we converted what used to be WGN America into a news channel. And we didn't mention when you were describing the network almost 3 years to the day of that conversion really launch of a news channel, we announced that NewsNation will be the home of the next presidential debate, right, the Republican presidential debate. So we're thrilled about that. It's one of those sort of kind of flags in the mountain, if you will, that the network has really arrived in a different spot and it will give us really a launch pad that we're excited to use and to grow from. On the CW side, as Lee Ann mentioned, we've owned that for just over a year, right, going back to September of last year and really just starting to put our fingerprints on it, right, and our imprint on it. You mentioned sports. We put LIV Golf on there, really the first time CW has had any sports ever starting in January, relatively small bet. We made a slightly larger bet with the acquisition of ACC football and basketball where our first season of football, we're excited for basketball to arrive next month. We announced the acquisition of NASCAR Xfinity Series will be the exclusive home of that beginning year after next and next year, we'll have the arrival of WWE NXT series, again, exclusive home of that. So significant changes to that network under our ownership and we're excited about it and certainly all the experience that I had at Fox will bring to bear on the development of all of those businesses.

Well, that's what I'm most excited about. The sports content and all that's coming to Nexstar Media, either local or broadcast. I mean opportunity to some of those ACC network games on the CW. But obviously, within this sector, I think it's the most exciting thing that's happening for broadcast and it's happening for all you guys, Nexstar Gray, scripts, you're all gaining incremental access. It's either from the move from logo content from RSNs back into the RSN model? Or you've got -- I mean, even the NBA is talking about potential looking for broadcast partner. The sports dynamic is changing. They want broader access and I think they're looking to the networks or the broadcasters to potentially provide that. So can you just talk a little bit, starting high level about the benefit that the broadcast model in general brings to sports and what it kind of looks like now versus potentially what it could look like going forward?

Yes. I think in a word, what broadcast brings that literally no other platform can bring is reach. It brings a level of reach that is really unrivaled when you look at streaming products and the growth of those has really started to flatten out. They're sort of middle of the road, you've got fully distributed cable networks, ESPN being sort of the lead in the sports world. They do a little bit better on reach and then you have broadcast, right, which is really head and shoulders above any of those other products and continues to sort of offer a scale and an accessibility that no other platform can offer. And so if you're a major sports league or any sports league for that matter, you thrive based on growing your fan base, right? You don't thrive in a closet. But you thrive by being widely available and sort of being available generation to generation so that families can sit and pass on that sort of tribal nature of sports fandom and that's how they grow. And so you look at the sort of lead horse and 800-pound gorilla in the sports landscape and that's NFL, obviously, and NFL more than any other product out there has been quite vocal and express about embracing broadcast television. Every single NFL game is available on broadcast television. And I'll repeat that because people sometimes don't realize that's the case. They talk about the packages they have for Amazon Prime on Thursday Night Football. But each of those games is actually available on broadcast in the market of each of the teams playing. So if you have the LA Rams playing the New York Giants on Thursday night on Amazon Prime, that game is also available on broadcast in LA in New York. And in fact, the viewership in those markets, if you look over this season and we track this, not surprisingly, you'll see about 2/3 of the viewers in the markets where the game is available on Prime and broadcast choose broadcast, 2/3. And that's without all of the marketing that goes into Amazon Prime, right? If you're watching Sunday Football, whether it's CBS or Fox or Sunday Night Football on NBC or Monday night football on ESPN, you're promoted to Amazon Prime for that Thursday night game and yet in the markets where it's available on broadcast, 2/3 of the viewers, but with our eyeballs to go to broadcast, right? There's lots of reasons behind that, but it does demonstrate the sort of enduring strength of the reach of that platform, right? And the fact that it is a better viewing experience for most people. I think hands down, people would tell you that if I can choose to watch on broadcast, and change the channel time out or half time or whatever versus being stuck in an app, where not so easy to change a channel, it's a much better experience. And all the more so, if you're looking at that in a window when there's multiple games on, right? And on Thursday night, you may be a football fan, but there's probably an NBA game on or Hockey game on and you want to check what's going on there. If you're stucking it out, that's not so easy to do. So the user experience that sort of confines you in that, I don't think it's one that most sports fans find particularly fulfilling. So back to your question about sort of the platform and sort of this -- I think it's being written about is though it's a renaissance of broadcast. And we don't think that's true. We don't think broadcast ever went away. We think there's just a little bit of a refocus on it, and that's primarily because you've had 2 things happen. You've seen sort of the promise of these direct-to-consumer apps start to kind of fade as their growth has flattened out and the churn rates continue to be fairly unsustainable and then secondarily, you mentioned the RSNs, right? You've seen cable networks led by the regional sports networks. And I know that business well because of course, Fox was the biggest owner and operator of those, and I was a big part of growing those businesses for the years that I was there, and I was there when we sold them to Disney -- through Disney really to Sinclair. And you've seen that business fade away for 2 reasons. Number one, they just haven't been able to get the distribution, right? And number 2 is sort of the price value has gotten out of whack. So as a result, you have leagues and teams now sort of pivoting back to look for that reach, right? And that distribution, of course, broadcast is right there waiting for them with open hours. So we at Nexstar sit in a particularly unique place in that ecosystem. So Lee Ann mentioned our position as an affiliate of the big 4 networks, right? #1 affiliate of Fox, the #2 affiliate of CBS and NBC, #3 for ABC. As a result, we end up distributing NFL and the other sports that each of those big 4 has, whether it's NASCAR on FOX and NBC or Major League Baseball or NBA, we are the face of each of those networks in the markets where we own the affiliate covering a big swap in the country. So we play on our own stations that are big 4 affiliates with that marquee programming. We then have the CW. We talked about the sports that we've acquired for that. We control that network, both in terms of the national level where we deal with third-party affiliated stations, but also our own stations and where we do quite well. And then we have dealing with increasingly local teams that are starting to think about what life is like after the RSNs and that's where those conversations, I would say, are really kind of in the early stages. The Diamond Sports Group Bally as the trade name on them, still going through their bankruptcy process. How that shakes out, I think, it will be lumpy. It will be uneven depending on the market, depending on the league and the team that you're talking about, but we feel really, really good about how we're positioned for that going forward.

If you think about that dynamic, I mean, what's been announced thus far on the local side, you got Scripts talking about gaining 2 exclusives for some hockey teams, more weather hockey teams, so they're going to benefit their advertising revenues by $24 million on a base of $600 million, right? So like 2 hockey teams, 2 sports relationships, is that meaningful for Scripts. And obviously, Gray is formulating some unique relationship with the Phoenix Suns. You guys thus far, I would say, have been more focused on what you're bringing to the national stage versus with the CW, right? But you do have the local content exclusive with the big clipper. So can you just kind of frame up where you see more of the opportunity going forward? Is it going to be more steered towards, what I call it, the national market with the CW? Or do you see more of an opportunity on the local side? And then just given your footprint, I would imagine that you are in a more advantageous position and any other broadcaster to attract these local teams. Maybe you can just dissect that a little bit when you think about the opportunity.

Yes. I think again, that the teams that have been available for the local deals is really a function of kind of where they stand vis-a-vis their ours and rights deals, right? And so you mentioned Gray's deals for the warm weather hockey teams, that's Phoenix and Las Vegas. In the case of Phoenix, the [indiscernible] became available because that contract ended with Diamond Sports Group with Bally. In the case of the Golden Knights and Vegas, they weren't part -- they weren't doing business with Bally, their deal became available. And so that was a bit of a kind of early indicator, if you will, of kind I think where the teams that are still tied to RSNs where that will go as RSNs start to either close or transition away from particular markets, remains to be seen exactly what happens there across the board, whether that's a sort of market-by-market basis or does that entire group full shop. I'm not sure I know exactly and they're still trying to get a bankruptcy plan that's approved by the debtors in the court. So we'll see where that goes. But to your question about how we're positioned, we're certainly positioned better than anyone else just by virtue of our raw scale and the number of markets that we reach. We've been active in discussions, certainly taking a lot of incoming calls from teams and leagues who are interested in exploiting our reach and will continue to have those. You mentioned the Clippers deal that's actually one that's different than sort of the fallout from an RSN. We did that side-by-side with the RSN to 15 games in Los Angeles for the Clippers. And interestingly, back to my story about reach and performance, you can see that those games on KTLA in Los Angeles to 2x the rating that the same games do on the RSN, notwithstanding the fact that we only have 15, all the marketing, you would think that viewers would not think first of KTLA to go watch a Clippers games, given the fact that we only have 15 and yet we do 2x the rating, right, and back to all my our thesis about where people tend to go to see sports, in particular. So back to your question, I don't think that -- I'll reframe your question. I don't think it's an either/or. We don't think of CW and our interest in national sports and what we've done there is an alternative to acquisition of local rights. We think it will be in tandem and we will continue to be, I would say, opportunistic in those markets. We'll be disciplined and judicious as we talk to teams. I think certainly when you look at the landscape, not all teams are sort of situated equally, even within leagues, but particularly if you compare like MLB teams and the percentage of revenue that they've been accustomed to getting from their local and regional rights versus an NBA and NHL team and particularly NBA because they're on the verge of redoing their national deal. And so I think they have probably slightly less concerned around the revenues that they need to acquire from the local market compared to maybe MLB, right, who doesn't have a renewed national deal coming. So the fact that NBA is coming up on a national deal, I think that will be very interesting how that shakes out. But certainly, the teams are feeling much more interested in pursuing local broadcast deals than I think historically we've seen.

Great. Yes. So we'll continue to look for more sports deals as the time goes on. Go ahead?

We force them to make a guess on the RSNs. I know the tone of your voice and your merger suggests you to the [indiscernible] notes, but you're educated [indiscernible] assuming your background, what do you think that is. We're going to see a bunch of billionaires come in and do vanity buy like Time, Magazine or The Washington Post.

On The RSNs?

Yes, what's going to happen.

You'll see some of that, I think. In other words, the vanity buys have already happened around the teams. And the question is, do they sort of pivot into owning their own distribution platforms. I think there will be some of that, but I think mostly that will be -- you can look at what's happening in Washington, all right, around the [indiscernible] Group, right, where they're going to launch a direct-to-consumer product and try and pick up, I think, subscale, but they'll pick up some viewers and fans outside of pay-TV. But I think what you will see is that paired up with broadcast to get the reach. And I think the most sort of progressive thinker on that is a billionaire with a vanity buy in the suns, right? And you can see the deal that they did with local broadcast paired up with a D2C app. That D2C app, I think, allows them to sort of reach into the corners and maybe experiment with some different programming, but the sort of cornerstone or bedrock of it all, as it relates to really making sure that the product is widely available back to growing that fan base for sustaining it and then growing it that Bedrock is broadcast, right? And if you listen to the executives at the Suns talk about it. That's exactly the way they see that. So I think you will see more of that going forward, whether some subset of the RSNs survive. I think is the question, there's no question that it won't emerge looking like it does right now. I think, for sure, that's not in the cards. I think the only question in my head is whether some number of those RSNs and they really are operated as individual businesses. They lose scale as they start to sort of really operate individually, which I think creates even more pressure on a challenged business. But I do think there is a business model for 2 or 3 of them that cover broad swaths of the country. I'm thinking now in the Southeast and Florida in particular, where there are economies of scale and really strong teams there and long-term rights deals that they could probably rationalize. But I think that's the exception to the general rule.

You may talk a little bit about [indiscernible] so a lot of these initiatives, is this -- if I think about '24 cash flows and to sort of mean that we're going to kind of maybe flat even lower, but then looks [indiscernible] is the same all these contemplate when you guys did the deal? I'm just trying to think about this specifically. Should we be thinking about '24 cash loans lower but maybe greater payoff or this is kind of what we expected.

Yes. I mean, look, the -- I would say, if you just look at the last 12 months of losses, those are very heavy losses because the content that was being put in place was very expensive content and had very low viewership. I think our strategy is sort of twofold. One is to reduce overall content cost. And that competes a little bit with the fact that we are actually expanding the amount of content that we provide and then also to put on content that's going to generate better viewership and that we're going to be able to monetize in a couple of different ways, one of which is being advertising and one of which is distribution. I think a lot of these deals, we didn't -- obviously didn't see them coming as quickly as they came. But I think our outlook is still to achieve profitability in the next couple of years, but we'll have to see how that kind of all plays out vis-a-vis we've got some headwinds right now especially with the national advertising market doing what it's doing.

Initially move from [indiscernible]. I mean I really thought of it as like costs take out old business.

Yes, it's still cost takeout.

I see like there's a lot of -- I won't say that was [indiscernible] it sounds like it was there's a lot of offensive buyer.

Yes. I think we're really excited about it, right? I mean I think at the time, I think you know when we bought it, we said, look, this is a defensive play and an offensive play. The defensive play because we didn't want the network to be shut down because we had a lot of revenues that were tied to CW affiliation. But on the offensive side of things, putting more sports content, live sports content on the network that, as Mike just said, broadcast and sports are like a marriage made in heaven. That's what's going to create long-term franchise value for the network and it's going to create more value than probably just putting on whatever entertainment content that we've got. So I think it's a combination of things. And I think we're working through kind of how all of this plays out in terms of what our vision was then and what it is now. But I think if you talked to Perry, having sports on, there was always part of the strategy. It just came a little faster than maybe we thought it would.

And I think that the timing was really terrific for us, right? Because the narrative around broadcast changed right as we were getting our arms around the business, right? And I'm not sure, I wasn't there when they did the acquisition, but I can't imagine that anyone saw as soon as 12 months in advance, you were going to have really every rights holder out there coming to the CW looking for REIT. The REIT that only broadcast can provide. I mean we published an investor deck recently. And if you look in there, one of the things -- one of the points we make very clearly is the performance of broadcast programming, right, relative to really everything else. And if you look at each of the big 4 networks and they're far and away are the draw more viewership than anything else, each of those big 4 is 4x versus what ESPN does, right? And a large of that, I just sort of repeat that because people don't realize that 4x the viewership that ESPN does. And part of that is because you just have this beachfront property, this very rare scarce resource of a broadcast network. And we've just put the fifth one really on the map vis-a-vis sports for the first time and that is essentially hanging open for business sign to all of the sports rights holders. And they've been coming at a pace that I think was probably faster than anyone expected a year ago. And we've been opportunistic in that regard. So we're super excited about the ability to really exploit that and do so in a way where each of those big 4, despite the performance that they have. They only have so many hours, right? And they are going to make their best where they think they can make them and we make ours and you know [indiscernible] we said we are not buying NFL, we are not going to be the lead acquisition for NBA. For instance, but we have acquired, we think will be terrific and really start to increase circulation with a different kind of audience that never had come to the CW before.

And then just one other follow-up question if I talk about cash flow guidance next quarter including the [indiscernible]?.

Yes. We -- our new guidance that we put on in the third quarter call was a little bit lower than what our original guidance was. And that was really kind of due to, I would say, half due to distribution of which a good chunk is related to the fact that we were dark on DIRECTV for a period of time. And then also the other piece of it being just higher attrition than what we anticipated at the beginning of the year. And then the other half is really due to advertising and interest. So on the advertising side, the market has been pretty negative in terms of the -- what the expectation was for the beginning of the year and then sort of that compounds into 2024. So that was really the reason for the adjustment in the guidance.

And then just one last question on [indiscernible] cost of capital?

Yes. I mean cost of capital is more expensive. But when I look at -- if I think about my highest cost of debt is really ironically, my term loan B right now. And if I look at that on an after-tax basis, I'm still like in the 6s in terms of what the cost of that is. And so when I think about my capital and where my access free cash flow, where do I put it? Do I do it into debt in the 6s? Or do I do it into my stock in the 20s, I got to go to the stock because I don't think I'm over-leveraged, right? I mean we're -- our leverage from an LTM basis picks up in a nonpolitical year. And obviously, this year, we had the incremental impact of the DIRECTV situation. But it will come back down next year when we have great political revenues and the benefit of all these distribution contracts flows through. So I think we feel good with the quantum of debt that we're at right now and then being able to use our excess cash flow to return to shareholders in the form of dividend and stock repurchase. And then look, at the end of the day, your Nexstar made a living and created a lot of value for shareholders from M&A, so to the extent we can find something that makes sense, we'll kind of lean into that, if that's going to be more accretive for our shareholders than just the straight buybacks. I mean I guess the other point and I'll just -- and Nick's going to ask me, but I'll just take the opportunity to just sort of add the -- on an LTM basis, we generated just over $1 billion of attributable free cash flow. And we returned 95% of that to shareholders in dividends and share repurchases. So that's actually a cash 20% return. I mean -- and yet we trade on an EBITDA multiple basis that's at the low end of the peer group. It's -- to me, there's an opportunity there to think about maybe valuing Nexstar in a different way. And then on top of that, we've -- since we started our share repurchase program in 2019, we've reduced our share count by 25%. And that's been about 10% a year for the last couple of years. So there's real sort of value levers just that are corporate finance that can be a case for why the stock would be a good one to buy.

Lee Ann don't want me to lead with that question. I think that can be the first question.

So what is the market getting on?

I think that the market gets caught up in sort of the -- there's a lot of media and there's a lot of news about streaming and how the viewership is changing. And at the end of the day, we believe that there is a true and Mike touched on this, virtuous cycle as it relates to the broadcast model. We just spent a bunch of time talking about the benefit of sports and he didn't touch on news. News is incredibly important. People spend a lot of time on news. We talked about when we put that investor deck out, we looked at -- let's look at all of the national networks and how much time people are spending watching those national networks. But I also said, look, let's look at our own stations. And if we take our entire portfolio of stations, how much of the viewership of our content is related to network content or our own content because we know the value of the network content. You can see that in those national numbers. It's about 45% of the viewership is from our own content. So that's not a small number. That's people leaning in. They're watching news. They're watching the syndicated content. They're watching our local lifestyle shows. They're spending a significant amount of time with our own content. We think that there's a real virtual cycle as it comes to broadcast that's based on sports and news and people leaning in and watching that content that's going to create reasons for them to continue to subscribe to pay-TV ecosystem, which will then help us with our revenues over time. And so we feel like there's a lot of noise out there and it's hard for people to kind of see through to that, but that's what we think is really kind of driving what the disconnect is. Because I think if you look at the fundamentals of our company and the free cash flow generation, it's undeniable.

So the market doesn't get wasn't explained in the second quarter.

Yes. That's my belief.

Well, I think in getting to these next few questions, I think the distribution revenues is a hot topic as well in the face of declining subscriber count from MVPD. So I wanted to touch on that as well because this is a dynamic that you continue to outrun here, but obviously, your paid distribution fees from the various MVPDs, the Comcasts of the world, charters of the world. They are shedding subscribers at an accelerating pace, right? Comcast was down 13% year-over-year from a subscriber count basis, yet at the same time, you guys are growing distribution fees, right? And you exhibited that into this next quarter's guide, the DIRECTV impact affected last quarter, but we're modeling 13%, I think, next quarter for distribution fees. And obviously, that just showcases that the math is simple. It's subscribers times, subscriber fee per subscriber. And on a net basis, you continue to grow that. So you're able to continue to extract higher fees per user. Can you talk about how you've been able to do that and the leverage you have to extract that value and I've got a few distribution questions that kind of follow up on that, but maybe that's just a good way to start.

Sure. I think just to clarify that 13% or a number in that range, you're really talking about the traditional MVPDs right, as opposed to overall pay-TV where we get paid, right? So we're not selling just to traditionals at that 13%. We're selling into all of pay-TV, which includes the virtual MVPDs such as YouTube, YouTube TV, Hulu Live and so forth. That number is much lower, right, down into the single digits, for sure. So that's really our base as we think about it, right? And we don't really think of our business being tied to just Charter, DIRECTV. We think of it as all pay-TV, anybody where our stations or networks are carried. So that's the first thing. And the good news is as the virtuals continue to grow. And I think the headline around YouTube TV, particularly with Sunday Ticket, bolted on to that product. The leading news there is they've had a really good fourth quarter -- third and fourth quarter, really fourth quarter tied to that. So we'll see that will bear out in the numbers as we get them. But back to your core question really about leverage. And I think Lee Ann touched on this at the beginning. Our scale it puts us in a different position versus really any other player out there, particularly as it relates to the local stations. We just have -- we're just playing a different game. And both the content that we have and the scale of that content allows us to go to a distributor and really be in a position of kind of having must-have programming. If they're going to be in the pay-TV business, they really need to carry our stations, and that's the reality. So the ability to continue to sort of outpace subscriber erosion, I think, reflects a couple of things: A. Reflects that scale; B. it reflects that the value that we bring and we talked about the big 4 networks and how much viewership they represent and our position vis-a-vis those big 4 networks on our stations means that we represent an over -- just a huge percentage of the viewership on any pay-TV platform. And we detailed some of this in the deck that we published, we think that the fees that we're generating notwithstanding the growth in those fees year-on-year is still trailing the viewership that we bring to the table. And so as you look at a changing landscape, and we talked about this in our deck as well, particularly post the Charter Disney sort of dust up and the resolution there, which represented really a couple of new kind of features as you think about pay-TV, we think we benefit from that. Let me elaborate on that, if you don't mind, right in the first is ...

No. Answer my next few questions.

Well, I think that we got hit as I may have said earlier, we got hit in the blast radius of someone else's fight. And we really felt the need to sort of say in a very public way to the extent that you think this is negative for us. You've misread what that fight was about and you've misread the implications of the resolution of that fight. The fight was not around the sort of proverbial content versus distribution where distribution wins and we, as content lives. That's not what it was about. It was -- we think it was about really 2 things. It was around D2C products that the traditional frankly, Big 4 Networks and others had created that were undermining traditional pay-TV and Charter said enough of that and it was about bloated cable portfolios with sort of long tail, what we call derivative cable networks that really aside from not adding value to the pay-TV, we're really just a tax on the premium content inside those bundles. So said differently, if you look at the resolution of Charter Disney inside that Disney portfolio, they had premium content led by the ABC O&O stations and the ESPN and other sports networks in there. And then they had other networks, namely FXX, FXM, Nat Geo Wild, Nat Geo Mundo, Freeform and others that Charter said, we're not paying for those anymore. In fact, they're not carrying them anymore. So when the deal got done and the Disney Networks went back up, they didn't all go back up, the networks I just named did not get relaunched and will never get relaunched by Charter. And so back to, well, what are the implications for us? I think the implications for us are a couple of things: number one, the premium content, the kind of content that we deliver on our stations got paid, all right? And the second is the D2C products got bundled in with traditional video package, both the existing D2C products in the case of Disney+ and ESPN+, but most importantly, and this was really what the fight was about, the forthcoming ESPN direct-to-consumer product, which Disney has been very vocal about saying it's not if, but when they launch that product and Charter basically drew a line in the sand and said, "we're not going to pay for you to produce that product only so you can compete with us. And Disney yielded on that front and it will be packaged in." We think that's a game changer, right? And back to your core question on the erosion of subscribers, we think bringing that content, which had started to leak out and there was these crazy sort of perverted incentives to put content, take it out of the traditional bundle that was paying and continues to pay for the creation of these D2C products, take it out of that bundle and put it on D2C as they try to chase scale. That incentive is over. Now if those D2C products are going to be bundled with the traditional video, there's no reason to pull content out of that and put it in there. In fact, the incentive is to put it on the biggest, widest platform i.e., broadcast, to generate the most advertising dollar, right?

So basically, to summarize, you see 2 key benefits. One, if we continue to see continued bundling of D2C into the cable offerings. What you could potentially see is a stoppage of the bleeding on the MVPD subscriber attrition that you're seeing there. That's benefit number one to you. And number two, you're seeing them you curate that offering and make more room to pay the people that actually matter by dropping some of those local stations and then you point to the amount of viewership that you track within that bundle, and that's where you can go after them with obviously, higher distribution fees, which leads me to my next question. Like in the investor deck, you talk about the fees that you get right now versus what you could potentially extract if your fees match your viewership, right? And that's -- I mean, the big numbers, right? I think 35% to 75% depending on how you look at it. I guess my question is, why don't you feel that it obviously presents a more long-term tailwind for you to continue to extract higher distribution fees. But if right now, you're giving away a product that -- and you're not being compensated for it, given the viewership of extracts, why can't you be more aggressive right now and just basically command the value you currently offer into each system.

Yes, it's a completely fair question. I think that the reality is when you get into these distribution deals and so much of it is leverage and both sides are fighting basically to move margin from one side to the other. Almost the single biggest sort of metric in those deals that's negotiated over is the rate of change, right, rate of change on the fees that are paid. And notwithstanding the fact that by every objective piece of data, we are trailing where we should be. You can't just wave a wand and get there. It's too disruptive, right? And not only that, we need those dynamics that you talked about at the beginning, particularly as the bloated portfolio gets sort of distilled down to the stuff that matters that's going to take a little bit of time to work through. And so we think -- I'd like to think of it as our share of wallet will shift, right, to track our share of eyeballs of viewership, but that can't happen overnight. These companies that we deal with, they're running a business, they're looking for margin as well as we take increasing share, it's got to come from somebody else and it either comes from them or comes from a third party that they're dealing with, right, or they continue to raise prices. That needs to go through in sort of a little bit of a time frame, we feel good about that.

It was positive about what you just saw is that the TVs are data. They're curating the offering.

No question, right?

Yes.

No, we feel really good about the dynamics. And if you listen to Chris Winfrey, CEO of Charter, he's pretty absolute about saying that they're not doing a deal in the future unless it looks like the Disney deal that they did on 2 features: number one, the inclusion of D2C products inside the pay-TV bundle and two, not paying for content that doesn't matter anymore.

Got it. We're over, but thank you guys so much.

Thank you. Thanks for having us.

Appreciate it.

Yes. Appreciate it. Thank you.