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

[Audio Gap] here at Bank of America. And I'm pleased to be welcoming the leadership team from Nexstar Media Group. With us today are Perry Sook, Chairman and CEO, who founded the company in 1996, has led its transformation into a local broadcast immediate powerhouse; as well as Lee Ann Gliha, EVP and CFO, who supported Nexstar's continued growth since joining the company in 2021. So thank you both for joining us again.

Thanks for having us.

Great. So let's get right into it. Perry, you spent over 2.5 decades scaling Nexstar's local broadcast TV assets. You've been a vocal champion of the industry. Now you're helping the industry deregulate with the recent announcement of the acquisition of TEGNA as well. We've seen the FCC make a number of positive comments in support of deregulation. In fact, we had a member of the FCC here yesterday. What makes you confident that you'll be able to achieve regulatory approval before we get to the specifics of TEGNA, but just regulatory approval and would love to get into some of your vision for what needs to change?

I think it starts at the top of the government with the Trump administration and a focus on deregulation and eliminating needless and outdated regulation. And that flows through to the regulatory agencies, the DOJ and the FCC. And in particular, I think Chairman Carr has been very adept and very clever at taking an open rule-making proceeding on eliminating national ownership cap that laid dormant through the Biden administration and the Rosenworcel's FCC and reviving that by refreshing the record. And so now I think that all the comments are in, and I think most notably, the last comments that were filed in the reply comment pleading cycle, which is why these things take a while, was a unity petition filed by the National Association of Broadcasters, Sinclair, Nexstar and then 3 of the 4 networks that also filed in support of eliminating national ownership cap which was every network owner with the exception of Comcast. So the universe of local broadcasting and as well as the network owners are speaking virtually with one voice that this is an outdated regulation. We don't compete against each other. We compete against big tech. And we need to be unshackled from outdated and outmoded regulations. And I think we have a pretty clear line of sight that, that is going to happen, and I have a high degree of confidence in the Trump administration and the heads of the FCC Brendan Carr and at DOJ from Pam Bondi to Gail Slater that they will look at these regulations in the light in which they exist today, realize they make no sense and eliminate those barriers to our industry growing.

And so maybe if folks listening aren't fully clear, is the TEGNA acquisition contingent on getting that regulatory approval that cap lifted?

Well, the FCC can always take actions on transactions they believe to be in the public interest. We believe that the pendency of a order eliminating the national cap will happen sometime before the end of the year. It could happen as early as this month. But may or may not happen because the Chairman has to digest the comments that were filed and write his order, but we certainly believe that the line of sight is that the national cap will be eliminated, and that will be during the pendency of our FCC and DOJ approval processes. So at that point, then you're dealing with the local ownership rules, which the Eighth Circuit Court has already vacated the prohibition against owning 2 of the top 4 rated stations in the marketplace that has yet to be signed in the law, but that is fairly imminent. And then we believe that down the road, the FCC will launch a notice of proposed rule making to receive comments on the local ownership rules that would remain and whether they should be eliminated or modified in any way. So we think that the administration has been consistent that they want to eliminate unnecessary and outmoded regulations and that they're making good on that vision and that promise.

Absolutely. So just turning specifically, there's a lot of different aspects of the media sector that you and your company have looked at or have been involved in through the years, whether it's traditional broadcast networks, cable networks, sports assets, what continues to make the broadcast model attractive to you? Why TEGNA?

Well, I've said in other conversations that the local media space, which has largely been ignored because everybody is focused on networks and streaming and top-down and national media, the local media space, which has been ignored, is one we've chosen to build a dominant position in. And it's that last mile connection with both the viewer and the advertiser that I say is the least s***, most sticky part of the media ecosystem. In the upfront that was just concluded, the national media holding companies did business with the national agency holding companies and probably 5 dozen, maybe a few more, advertisers place business in the upfront. So it's very concentrated, big dollars, but from a fairly short list of clients. Contrast that with us. We have over 43,000 different customer SKUs in Nexstar. So different SMBs that we do business with across the 40 states in which we operate in. And the dollar volume of each may not be hugely significant, but the collective dollar volume, it's a large tail and a much more diversified revenue base than at the national level. And again, we don't have red carpet openings or premieres, but we go to the opening of supermarkets, of car dealerships, of furniture stores. At our essence, we are a local service business. We produce local content that is relevant, interesting, informative, contextual, accurate, not biased at the local level. And our business reason to exist is we help local businesses sell stuff. All transactions, no matter whether you're buying from a digital website or walking into a store, happen at a local level, and we are at that point of purchase with a branded relationship with both the viewer and the business owner. And we have this better than 2,000-person local sales force. That's a huge asset, right? That and our 6,000 journalists, it's prohibitively cost ineffective to try and build something to compete with that. So it's kind of got a built-in moat. There are a lot of people who would like to aggregate local content. A lot of folks have tried to build local sales forces to sell digital assets, none have been successful so far, not to say that they won't continue to try. But we're already there. We have those relationships. We have proven to be good fiduciaries. You don't have to call a call center, when you have a problem that you didn't get your fulfillment on your digital ad buy or your spot didn't run because the ball game ran over and the late news didn't run that night, you see that person at a service club over the next week at a school PTA meeting or whatever. And so we're at the touch point. We can do local activation at scale, which is really what all advertisers want. And the whole reason advertising exist is to make the cash registering, and we're very close to that point of purchase. So that's the unique selling proposition and really what all advertising is there to do, which is to move product, and we're at the point of purchase. I mean you couldn't ask for a much better position than that in terms of the media ecosystem, which is why we've chosen to focus and specialize in the local moat.

Thank you very much. Yes, understood. So your company has been a very successful and famous kind of consolidator of some other big assets, Media General in 2017; Tribune, I think 2019. How do you think about the TEGNA acquisition in the context of some of those success stories for you guys? Is there a playbook that is still valid? Is there -- how has it evolved and what you might do post acquisition?

Yes. I mean, look, in a lot of ways, it's very similar because it's a television broadcaster buying a television broadcasting company, and we've really done a lot of the same work in terms of determining what those synergies can be and looking at that opportunity. The difference is that this time, we've got 35 of the 51 markets that TEGNA operates in our markets that we are also in. And so it's a little bit more of an opportunity in those markets that can be incrementally helpful. I think the offset to that is when you think about what's gone on since the last deal we did, which was Tribune in 2019 and today, a lot of companies have taken the opportunity to kind of rationalize their cost base already. So there's a little bit less meat on the bone, but then that's offset by the fact that we've got a little bit more of this overlap market opportunity that's coming at us.

Great. And now if this vision for deregulation or we had Olivia Trusty yesterday and she kind of borrowed some of the language you were saying, but getting rid of outdated or regulations that have outlasted their relevancy, if that's achieved, how do you see your industry or even the broader media industry evolving over the next 5 years? Is it going to look very different? There's just going to be a little more consolidation? Is there any other kind of knock-on effects you can envision?

I think at the local level, how we do what we do could continue to evolve. How we reach the consumer, how we deliver the B2C message to the consumer from the business owner that could change the delivery mechanism or we just have more opportunities to do that, display our content and deliver advertising messages, but it doesn't change the basic business reason that we exist. I think structurally, there will be more consolidation. You need big, strong companies to even attempt to have a fair fight with big tech. And no one wants their local news delivered from a chatbot. So there was a vested interest, I think. There's a national interest in having a free and independent press. And when you think of what's happened in newspapers, what's happened in radio, the last bastion for a free and independent press is local broadcasting newsrooms. And so I think that 5 years from now, there'll probably be 2 companies that are in the local station business that investors care about. There may be some more companies that are in that business, but they may not be public or may not be -- company is big enough for investors to care about. But I think you'll probably have 2. The interesting thing is, I think we have a first-mover advantage in that if the transaction proceeds to the finish line as it's constructed, we'll reach 80% of the U.S., our next closest competitor reaches approx a mid-30s percent of the U.S. So there's almost not enough to buy of viable TV stations to build a platform locally to compete with us. But I mean, I think there will be some additional consolidation in addition to whatever we may decide we want to follow on the transactions with once we have executed on the TEGNA acquisition.

Excellent. So just kind of switching topics a little bit, turning to sports. And we just heard from one of the biggest names in sports, ESPN, and Jimmy Pitaro a few minutes ago. But ESPN is entering with its unbundled streaming product very soon or is already in the market, Fox One. What are the implications, if any, for this kind of unbundling of some of the sports products or DTC sports products in the market for your business or the subscribers or viewership or anything?

Perry, maybe I'll take that one. I think we're optimistic that the advent of Fox One and ESPN will be neutral and potentially net positive for the pay TV industry. We know that both Disney and Fox are very invested in the success of the pay TV ecosystem on a go-forward basis. They both have substantial other assets that benefit from making sure that, that is a viable ecosystem. And they've really designed these products to be complementary to the overall pay TV product and not cannibalistic. We think that -- and that's really evident in the pricing that they put out. It's really kind of respectful of the wholesale pricing that you -- that we are seeing sort of overall at $50 combined for Fox and ESPN, really you kind of have to make a decision, do you want to do that or do you want to just buy the full pay TV bundle? And I think the other piece of it is, these guys have said, specifically, they're focused on targeting the Cord Nevers, so people that are the cordless audience. And so if that is the opportunity, we think that could be potentially incrementally beneficial for us, especially with the Fox One product, where we will -- our stations will be participants in that Fox One product, and we'll be able to benefit from that and Fox One viewers will have the ability to watch our full content.

Does that work? Is there like a retrans or a fee that you get from -- you said you participated in that Fox One? How does that...

Yes, it will be similar to the MVPD...

Okay. And is there any thought or impact to Netflix, Amazon, Big Tech have been bidding on sports rights and getting more involved directly in sports in the last few years. Has that change the landscape meaningfully?

Yes. I mean, look, they've got involved. I think it's been -- there's been a lot of highlights and commentary about it. But if you look at sort of the overall the lion's share of the sports rights are still with the traditional media companies. I think the broadcast model and sports are really a marriage made in heaven. You -- if you are a sports owner, you want to make sure that you've got the widest possible audience and the best ratings. And the best way to get fan engagement to get audiences at your events and to have that sort of really fandom and creation of brand value and team value and franchise value is to have that engagement with respect to the broadest audience you can have, and that is broadcast. And then we've seen that with even just at a microcosm of the whole world with NASCAR, right? We took on the NASCAR Trinity Series this year. Last year, it was predominantly on cable television. We've had double-digit increase -- percentage increase in the ratings. That's not the same as what's happened with the cup, where it's been the opposite way because they've moved from broadcast to streaming and to cable television. And so I think that broadcast is a scarce commodity out there as well, and there's only a limited amount of slots. And so there's -- I think there's always going to be a home for sports on broadcast television because of the real benefit that it brings to those overall teams and leagues.

Absolutely. So now another important asset of your firm. You're a few years into owning and operating the CW. Can you give us an update on that business and that network? I believe profitability has been improving. When do you expect it will be cash flow positive or contribute to company EBITDA?

Yes. I mean look, we're doing what we said we were going to do, right? We have targeted a breakeven time frame of the 2026 year. We're still on target for that. It's kind of -- if you look back, the -- when we bought the business, it was losing hundreds of millions of dollars, it was spending a lot of money on original programming that wasn't rating very highly. What have we done? Well, we've completely transformed the programming lineup for the CW. We now are broadcasting -- over 40% of the hours that we're broadcasting are sports programming. We've increased the number of hours by 40% as well by adding on that sports programming on the weekends. We -- so over 400 hours of programming that we do on the sports side. And we've done all of that while reducing our programming costs. And that's really just a testament to really being efficient with the dollars that we had to put to work. I mean, we've not -- we've put dollars to work here, but it's been far fewer dollars than what was being previously spent on that original programming. It is now programming that's just much more interesting for the broader audience that's tuning into broadcast television to be watching. So we're very excited about the transformation that's happened, the success we've had. We've had continuing growth in prime time audience. I think it's been 5 quarters in a row of prime time audience growth. In the first half of the year where actually CW is the #8 in terms of all rated networks in the country, which is phenomenal. And so we're looking forward to continuing that opportunity on a go-forward basis. Not to mention the part that we sort of gloss over when we talk about this path to profitability, but it's -- we've been able to bring back a number of CW affiliations that were on third-party distribution and bringing back on to the Nexstar television stations, which has been incrementally profitable for us because we've been able to monetize that through our own distribution contracts. And so when you bring it all together, it's been -- we feel very good about the outcome here so far.

And I would assume that having higher ratings; more engagement; sports, which is sticky; loyal content with passionate viewers would strengthen your hand into these affiliate renewal discussions whenever they come up. And if that -- if I'm right about that, and those renewals go well or better than feared, does that pave the way for you to continue investing more in sports? Is it -- or is there anything about it?

No, you're absolutely right. I mean, look, we've chopped a lot of wood with respect to the operating expense side of things. We've transitioned the programming. Now we're all about executing on the revenue side, right? How can we monetize these eyeballs, get the audience growing, generate more advertising revenue because we have more audience, but then also monetize it with our affiliates in terms of the value that we're bringing to them because now what do they have to offer even talking about our own stations. What were they airing on a weekend previously? Was it a paid programming? Was it a movie? Well, now they've got NASCAR on Saturdays and ACC football and basketball and all of these great content, professional bull riding and the professional bowling league now and Pac-12, so it's a lot of exciting stuff that can be -- that's incrementally beneficial to the stations.

Great. And while we're on that, we're talking about revenue, 2 main buckets of revenue, advertising distribution. Why don't we talk about advertising a little bit? This year has been kind of a weird macro year. We had tariff concerns, which impacted the auto industry and other big industries that I know advertise a lot on TV. How are you seeing your local national advertising platform? What are you observing in the ad market broadly?

Yes. We've been -- it's not been any sort of crazy fall off that people were worried about with respect to the tariffs. I think has it been a little bit of a bumpier year than what we thought it was going to be at the beginning? Yes. But has it been any sort of major negative? No, I think it's pretty much business as usual. We have seen a negative impact from auto that has been directly related to the tariff situation. But I think people have seen that kind of across the board. I think we benefit a little bit from -- if you look at our overall advertising pie, we have about 60% of our revenue comes from services-based businesses rather than goods-based businesses, which does help insulate us a bit from that impact of the tariffs. Our #1 services category is actually attorneys and they're not really impacted by any of these tariff-related issues.

Another area of revenue importance for the network -- for the broadcast stations is always political. Any early thoughts on the midterm political cycle, how you guys might benefit or any [indiscernible] there?

Yes. I think AdImpact’ came out with some article yesterday, I believe, saying that they thought that the political advertising spending would be up about 20% in this cycle versus the comparable cycle, which is good. I think they predicted that broadcast would be about the same from the prior cycle to this cycle. So we're feeling great about it. I think broadcast continues to be the #1 place that political candidates put their dollars to work because it is a very concentrated local election and a local audience that we deliver.

All right. Great. And then obviously, one of the concerns or things weighing on this entire industry and not just local stations has been cord cutting. So is there a view that this is abating, stabilizing, plateauing? Does it need to? So just any general thoughts on what you guys are observing?

Yes. I mean, look, we're observing the same thing everybody else is observing, which is like you're starting to see a little bit of positivity out of the likes of Charter and similar companies that have really done some good work in rebundling all of these direct-to-consumer platforms and creating more value in the bundle. You're seeing the economic benefit from cord cutting less and less to the consumer. I think we pointed out in a couple of prior meetings that if you just look at the composition of the people in the pay TV ecosystem, it's primarily now the folks that are interested in sports and live news. And so there's -- the people that really were not interested in either of those things are mostly out of the ecosystem. So all of these things point towards the ability for the rate of subscriber attrition to decline. We haven't quite seen it yet in our numbers. But we're looking out there and we can see that we -- there is an expectation amongst most research analysts that, that overall rate of decline will continue to abate, not be gone, but be lower.

Right. So NewsNation, one, could you, I guess, remind the audience a little bit what this asset is because it's evolved over the years, it's become really significant. It's now a 24/7 operation news channel. What -- how would you describe your current positioning in the cable market? What KPIs are you must focused on as indicators of success in this business? Just thoughts there.

Sure. Well, we celebrated our fifth anniversary as a news network on September 1. We launched 5 years ago with 3 hours a night of basically a newscast in prime time that has now worked into a 24/7 network that has opinion shows, has Washington DC-based shows, has crime-based shows, a more full-service network. And it started as a counter programming strategy, but has evolved now. And last month, it was the fastest. If you measure the last 12 months as of last month, the last month for which we have data, it was the fastest-growing cable network of all networks over the previous 12 months. So the KPIs for me are awareness and growth when we started. I mean, obviously, we went from a WGN America, which was a rerun network basically, to news. So we started with zero awareness, right? We're now up to about 40% awareness in the general population of NewsNation in 5 years, that's really gratifying. I think that if you look at news viewers to cable news viewers, our awareness is closer to 60%. But that still means almost half the country, we still have to introduce ourselves to and continue to build our awareness and share of mind and share of voice. It was developed again on the back of our local journalists, which we employ approximately 6,000 across the country, which is the largest number of journalists employed in the United States by any news gathering organization in the world. And so delivering what they do, which is a fact-based objective reporting and overlaying that into a national platform and where we really shine, and we have great shows, Chris Cuomo and Ashleigh Banfield and Elizabeth Vargas, Leland Vittert all do a great job with their shows in prime time, which were guests in opinion. But we shine with our breaking news coverage and our just general news coverage. And when the L.A. wildfires unfortunately happened, KTLA, our NewsNation affiliate and our very strong, very fine local station in Los Angeles, was front and center on our coverage. And we not only were there, we were at street level. We knew the street names. We knew the public officials names before anybody could come in from a national network and begin to assemble their stories. Same with the floods in Central Texas. We were there not only during the rescue operation, but with the relief operation as well. And so when we were -- when the President was shot at in Butler, we were on the air from Butler carrying that live when most of our competition was in tape programming because it was the weekend and the way you save cost in a mature organization is to not have original programming. So we're -- by and large, we're 4 hours a night of what I would call opinion shows that repeat overnight, but the rest of the broadcast schedule is live news from Chicago, from D.C., from New York covering all aspects. I mean we spend a lot of time on the border. We spend a lot of time talking about the surplus of the corn product and can that be monetized at a rate that farmers can get their money back and cover their operating loans because there's so much of it, the prices are depressed. I think not everything has to happen in the Acela corridor. And so I think that's the strength of the network as well, serving the center of opinion, highlighting the center of the country and providing an alternative to the other choices that are out there that are generally biased to one direction or the other. And we said the largest swim lane in America is probably the 60% of the country that basically agrees on a lot of things, but that opinion doesn't get expressed because the air is occupied by the extremes -- the far extremes on the far right and the far left. So I've been very pleased with what we've been able to build in 5 years. And the network probably has an asset value to us of something shy of $1 billion as an operating entity. It's been profitable since day 1 because WGN America had an existing distribution revenue base and existing advertising base. We've turned all of that over, but the way we finance the growth of the network was when contracts for syndicated programming expired, we plowed that money into journalism, which it took us 4 years to build from our initial start to a 24/7 news service. And so it was -- other than the capital cost, it was all financed organically. And success looks like what CNN is as a financial model, which is probably worth $4 billion or Fox as a financial model of Fox News, which is probably worth $9 billion. So anywhere between where we are today and where they are is what I consider success. And obviously, the more successful we are, the happier I will be. So it's growing awareness, it's growing our ad base. We gained share with both the CW and with NewsNation in a challenging national ad market because we were selling growth in a declining cable universe or declining traditional linear television universe. And that will take us so far. But at this point, all I can ask people to do is take what they've been given and grow it and make it better. And to that extent, I've been very, very pleased but never satisfied.

Well, I'm glad you're spending time talking about it because I think there's a perception of some of what's gone in the broadcast industry as its roll ups, it's consolidation, it's M&A expertise, which you all have demonstrated time and time again. But I think this is a great example of organic innovation with the assets that you have and leveraging these assets and literally standing up a cable network from zero. So I think you deserve a ton of credit for that in addition to the M&A part of the story.

Thank you.

So just getting back to, I guess, a little bit of the regulatory environment and where we are in 2025. I would just love you to just opine a little bit about like how can things be better? And you've worked in this industry for a long time. It's been heavily regulated, overregulated relative to -- I cover the rest of big tech, too, which has been probably underregulated and not regulated, so you guys have won this regulatory burden forever. What's your vision for if the Trump administration and the teams you're talking to in Washington kind of side with you and kind of hear this voice. How is it going to serve consumers better, advertisers better, that kind of thing? Because I'm sure that's going to be a question.

Sure. Well, I used the analogy that some people limit the loss of A&P grocery stores or Jewel Tea grocery stores or Pathmark being replaced by Walmart. But then when you fast-forward to where we are today, Walmart is a viable alternative and local choice as compared to getting all of your groceries, all of your deliveries, all of your merchandise from Amazon. And so I think consumers benefit from having a local choice. Same thing in local news. Do you want all of your news from a chatbot delivered by YouTube or Google or Apple or Meta? Or do you want a local choice with 6,000 journalists around the country trying to do their best to report on the news fairly for a local platform that then can find its way into a national platform? And I think that the country has a vested interest in maintaining a free and independent press at the local level, and that's what we do. And so how could things be better? All of the outmoded regulations could go away by the end of the week in the cost to capital could be down about 300 basis points and things will be better. That would be great, right? And so I'd be happy. I don't think that is all going to happen. But I think over time, all of that will happen. So -- and people said, well, how come regulations haven't change? Well, you have the ability in a regulated industry to change rules, but you also have a comment period, right? And I think Chairman Carr at the FCC came out the other day and said, "I'd like to shrink the public comment period from 30 days to 10 days." If you got something to say you can say, why do we have to have a 30-day comment period, and then a reply comment period, why do transactions take 6 to 9 months to get done? It's because of that process that is in and of itself may be outmoded. You don't have really a public comment period if Meta buys an AI company, right? They just decide they want to do it and if it gets through an HSR review, then they can usually get that done. And so I think that -- I think things are changing, and I think they are changing for the better. And we haven't even talked about spectrum yet. That could be another half hour in terms of that opportunity and the value creation opportunity for local broadcasting. And guess who will pro forma for this transaction have more spectrum assets in the country than anybody else? You're listening to them or looking at them right now. So we think that's a huge value creation lever data casting with ancillary uses of our 3.0 spectrum. So that's layered on top, that's hidden asset value, that's a zero call option appropriately priced maybe at the moment. But I think there's a lot of things -- I'm more excited about the next 5 years than I have been even in the last 5 years in terms of the opportunities that are in front of this company, the opportunity to change an industry, to evolve an industry, to lead once again, whether it's virtual duopolies, whether it's retrans revenue or whether it's now helping the regulators open the door, push open the door that's already open and give them an incentive now and a reason to do what they are planning to do, which is to clearly wait for a transaction by eliminating the prohibitions to it and outdated regulations. So we're excited to be, again, kind of leading our space, which is the local media industry to a better place and are confident that we're going to be able to be successful in doing so.

No, I think the market is extremely excited. I think we're -- in lots of sectors, we're awaiting the deregulation trade, and I think your acquisition of TEGNA has proven to be hopefully a positive catalyst, getting things accelerated. Why don't we talk about that ATSC 3.0, what are you seeing as the most promising applications for this? Can you explain it a little bit and touch on the spectrum asset?

Sure. It's much like those of us who remember the change from analog transmission to digital transmission, more efficient use of the spectrum. Well, this is transitioning from ATSC digital to 3.0 digital, which is an Internet-based technology. So it's compatible with every device. It's compatible with the rest of the world. I think Venezuela just announced that they were going to go through to a 3.0 standard as South Korea and other countries. So -- but what it does is it's more efficient use of the spectrum. So where I can maybe put 2 HD signals and a couple of SD signals, multicast channels on, I can do a dozen of those with the same spectrum or conversely, if video is not the highest and best economic use of the spectrum, we can get into Internet datacasting. We can do video to the connected car. We can do a 3D navigation system projected on the windshield. We can be Internet backhaul for big data files that we can transmit overnight that take a lot of bandwidth. Who has watched a sporting event, a live sporting event on the Internet, glitch-free ever? And I don't think anybody in here would raise their hand. Well, Internet was never meant to be one to many. We can be one to many in datacasting. We can provide a backup GPS system for the United States, which doesn't have one, which President Trump said in his first administration, it's in the national interest to have one. Both the DOD and the DOT agree with that, and we're working toward making meaningful progress to providing a terrestrial-based back up to GPS and that's in the national interest to do so. And that's just another use of our ATSC 3.0 spectrum, which we think will catalyze the transition, right? It's not like we got a second channel, and we one day turn this one off and turned this one on. The transition will have to be kind of a flash cut because we're doing it all on the same channel and it will have to happen regionally and it will roll across the country. It's hard, but it's not impossible. But the payoff is I think that 10 years from now, maybe 5 years from now, ancillary uses of the spectrum will contribute as much revenue, more revenue than we get from selling advertising and potentially as much revenue as we get from distribution today. And just from a valuation perspective, if you look at the amount of spectrum that our company will control and multiply it by $0.93 in the last auction or AT&T paid $1.5 earlier this week to Charlie, that implies a multibillion dollar value to our spectrum. Now we're not going to sell it because that eliminates our ability to transmit. But when you just think of hidden asset value under -- it's just like having shale oil and shale gas in Texas, it took 20 years to figure out how to horizontally drill and hydraulically frac to monetize the asset. This is -- this may end taking 20 years if it's 10 years from now, but we have that same kind of hidden asset value like I said, it's a free call option appropriately priced today, but will contribute meaningful value to investors in companies that have local spectrum assets, which streamers don't have, networks maybe have some stations....

Well, what would be one of the revenue models or if you imagine -- because I understand the spectrum definitely has value. I think most investors agree, but spectrum has been this quirky asset. If you ask Charlie Ergen as well over the years and investors trying to value it. But what would be the revenue model? Would be like a GPS provider? Would pay an annual contract?

Well, yes, it's already being used, 3.0 is being used in South Korea for precision agriculture, right? You don't need to have a tractor driver to get it to go up and down. We can control that by a terrestrial-based GPS system. Anything that needs to know where it is or you need to know where it is, a delivery fleet, a taxi service, an Uber driver. The auto correct of our GPS to satellite-based GPS, we bring it down to a factor of a few inches to a foot rather than a few meters to -- and that's do we deliver the package to the right house or the wrong house on the street. Internet backhaul, and we are the wireless connector of the Internet of things, and we do a terrestrial, we can do it point to multipoint, you can just think of -- you're almost -- what we're doing is we're not trying to say, here's the service we're trying to sell. It's is like, here's the toll road, here's an open source development kit, you decide how you want to use it and how much you want to pay for it, and we'll decide if we want to do business. But that's coming. We are part of a consortia with Scripps, Sinclair and Gray. It's called EdgeBeam Wireless. TEGNA is not a member of that consortia. When we acquire, we'll be able to enter their spectrum into this JV and it's to mine for and it is a business development agent for monetization of ATSC 3.0 spectrum. And so I believe you'll start to see proof of concept and money flowing to that organization and then ultimately to our participating spectrum holding stations in 2026 and fairly early on in 2026.

And one other thing I would just add there that just differentiates from Charlie's spectrum is we actually already have our infrastructure build out. We have towers everywhere. We don't have to spend a bunch of money to go and build out that infrastructure. It's in existence today.

One last question I want to get to because we've talked about a lot, but one of the benefits of your company has been strong free cash flow generation, great capital allocation. So what are -- what is your philosophy around capital allocation, buybacks? What is the pro forma leverage going to look like and that kind of...

Yes. Look, we have always said we've been -- while we were sort of [indiscernible] from doing any acquisitions, we were utilizing our excess free cash flow to buy back our own company, so buy back our own stock. Now that we will have a deal to do, we're going to redeploy that excess free cash flow to pay down debt and to deleverage the business as quickly as we can. That's really about our MO, right? As we do -- borrow some capital and then use that excess cash flow to kind of delever back to where we were on a go-forward basis. So I think at the time we close, we should be around 4x leverage, and we should be able to kind of be back to where we are depending on interest rates, but sometime in 2028.

So experts at M&A on the cusp of a catalytic transformational deal, deregulation trade, free cash flow powerhouse, organic innovation with this NewsNation network that we feel people under-appreciate, hidden value in the spectrum, what's not to like?

It's a living.

It's a living.

Thank you, Brian.

Thank you very much again for doing this. Really appreciate it.

Appreciate it.