The E.W. Scripps Company (SSP) Earnings Call Transcript & Summary

Okay. Welcome back to the conference. For our next session, we have E.W. Scripps back with us this year. Very pleased to have both Chief Executive Officer, Adam Symson; and Chief Financial Officer, Jason Combs, to help guide us through the story here today. Gentlemen, thank you for being here.

Thanks for having us.

Thank you.

Adam, most important question I need to get out of the way upfront. My favorite competition of the year is the Spelling Bee. I just want to make sure that's on track for this summer.

It's going to come back live. We're going to be broadcasting over ESPN 2 directly from the Wide World of Sports in Orlando, the same location that the NBA played their season in the bubble. So we'll be able to have a final round safely with all of our children from across the nation and their families, and we're really thrilled to be able to do that again this summer.

Okay. Great. Great. All right. So now let's jump into it. For most companies, the past year's main focus was simply navigating the challenges presented by the pandemic. But at Scripps, you were also busy reshaping the scope of the company via both organic and inorganic initiatives, whether it was launching new networks, acquiring ION or divesting noncore assets, profitably, I might add. Kick us off with a few of your key learnings or fresh insights on the company that you took away from the past very unique year, how you view Scripps' position coming out of the pandemic and embarking on the road to recovery, and what you'll be most focused on over the next 18 to 24 months.

Sure. So you're right, I mean, 2020 was a crazy year. I'm obviously very pleased with the way we navigated our way through it, and I'm happy to share some takeaways. I guess, the work, from my perspective, started prior, between 2017 and 2019, to set us up really well. I mean we cut about $30 million in costs. We doubled the size of our local media portfolio by really carefully choosing stations in markets that would make us better and more durable. Obviously, durability was something that was really important during the pandemic. We did so with a lot of intention, ahead of renegotiating about 50% of our retrans subs and greatly expanding our political footprint, which, I would say, really paid off well last year. So our strategy has long been about improving our near-term operating performance and setting us up for longer-term value creation. And we really spent the couple of years before 2020 doing what we said we would do. And during last May's earnings call, I had promised investors that we would use the pandemic to our advantage, as you said, not merely to navigate or even to play defense, but to come out the other side a stronger company. And I think that's what we did. We sold our podcasting and digital audio business for really attractive returns, an excellent return on invested capital for investors. I think we've long talked about the multiple ways we believe that exist to create shareholder value. We invested in those businesses, but understood clearly that they would be better off in the hands of others who would pay us handsomely for them. And I think this also helps clean up our story a little bit for investors. And then outside of a formal sales process, we acquired ION for a good price, and ahead of an election that we knew would change the regulatory environment. And this was a real transformational moment for our company. I'm sure we'll probably spend more time over the course of the next hour talking about the new Scripps Networks. My takeaway is always to look for the opportunity in the chaos. There was a lot of chaos. We certainly were on firm financial footing as a result of all the work we did going into the pandemic. We addressed running our business with 3 priorities: the health and welfare of our employees, maintaining business continuity and executing our mission. And by focusing on those 3 priorities, I really feel like we will, and we have come out the other side much stronger than we actually even went into the pandemic. I would say, looking forward, we're very focused on execution. We've just transformed the business. We have, I think, told our story with respect to how we believe our 2 new segments will work together and make this company a bigger, better and stronger company. And I expect us now to continue with our legacy of execution and really get the operating results we expect from both of these businesses as we move forward.

Okay. That's a great introduction. A lot to unpack there. Let me start with the kind of advertising environment and the recovery. So core advertising performed better than you expected in the fourth quarter despite record political crowd out and was thankfully much improved from the pandemic-induced trough last April. You stated that first quarter core is trending towards flat, which is great to hear. What's driving the improvement forward right now for you?

So why doesn't Jason take this question?

Sure. I'll go ahead and talk -- speak to that. So -- yes, we certainly saw a steady rebound in the back half of 2020 and into Q1 of '21 across multiple categories. In Q4, as Adam alluded to, a lot of that progress really accelerated post the election as we saw services up high single digits in both November and December. And when we look at our home improvement category, we were up high singles in November and nearly 20% in December. So certainly a lot of progress throughout the year, but really continuing from Q4, and so far, we've seen some of that flow through in Q1 as well.

And Jason, when you think about kind of your national platform versus your local, can you talk about some of the differences in the recovery there? And kind of any significant verticals that stand out for you in each of them?

Yes. So the networks business was down on a pro forma basis, about 1% in 2020 versus the prior year, which is better than what we have spoken to in terms of the core advertising on the local media side. A big driver of that certainly has been the strong performance we saw at our legacy Katz Networks, really driven by resiliency in the direct response advertising space. In fact, the collection of Katz channels actually managed to grow by double digits in 2020 despite the pandemic, which, really outstanding results, given some pretty tough circumstances. And in terms of specific categories, services is our largest category. It represents over 1/3 of our total ad spend in local media, and it's been fairly resilient during the pandemic. Automotive is the second biggest category. And as you might -- it's back. It saw some pretty significant headwinds in 2020. But when we got to that post-election rebound, started to see some nice progress there as well. And home improvement really proved really resilient during 2020. We saw a lot of people traveling less, spending more time on home improvement projects. When we talk about our network business, we really don't necessarily talk about it as much in terms of one category versus the other. We focus a lot more on things like how successful are we in selling in the upfronts? How are we monetizing within the scatter market? And how effectively are we driving yield in the direct response advertising space? So that's kind of how we really focus on national versus the local business.

Aaron, can I add something looking forward?

Okay.

One thing, I think, it's important for investors to recognize is that we are about to enter a period that will represent, really, the most stimulated economy in the history of the United States. There's a tremendous amount of pent-up demand across these categories in local and in national. And I suspect we will see a competition for the share of the consumer's wallet play out over our advertising airwaves, which I think is really good for investors, very good for our company. We're already hearing from national and local advertisers. They recognize the opportunity is there for them, and this is the chance for them to make their cash registers ring by activating consumers directly through our TV stations and our networks.

Okay. There's been a lot of discussion lately about the potential for sports betting to become a leading growth vertical. Where is the category at for you today? And in your markets, how much upside do you see for that the next couple of years?

Yes. It has quickly grown from what I would say is nascent to several thousand dollar category a couple of years ago, to what I think will now be in the low double-digit millions in terms of annual spend. We are right now live with 6 markets that have sports betting legalized. That continues to expand, and we expect that to expand as more states take up the issue. I sort of look at this like the wireless industry. A new service is coming into the market. And initially, the 3 or 4 major competitors are spending significantly in local television. Specifically, it's local television because of the regulatory environment. It's a market-by-market move. So they're spending a lot to get their brand recognition, to get their names out there, to acquire customers and get people to download these sports betting apps. And then I think we move into a mode a little bit later on, where, again, like the wireless industry, it looks a little bit like a sort of a switch campaign. They're constantly throwing out new incentives in these apps in order for them to get people to move from one platform to the next. These advertisers have a very keen understanding of the lifetime value of their consumer. And they have also recognized that one of the best ways for them to get those consumers into the products is to introduce and retain them through local television. And I expect that will continue to grow for us into a significant category. We bucket that into travel and leisure. Travel and leisure, obviously, significantly damaged last year as a result of the pandemic, but sports betting has been a bright spot.

Okay. Great. I'd be remiss if I didn't mention political after the record year of spending we just witnessed in 2020. The bar has been set very high for the next cycle. How does political stack up for Scripps the next couple of years?

Yes. So last year, we did $265 million, a record level of political in 2020. As you said, that's a high bar. I actually expect that in 2022, we'll push that bar higher. We expect in 2022, more total dollars to be spent in the ecosystem, more to be raised and more to be spent. And we've already actually indicated that we expect our 2022 political number will be even stronger than 2020. We have -- we're in the middle of contending with a 50-50 senate. We -- Scripps will host 18 U.S. senate races, 17 gubernatorial races. And we expect nationwide redistricting that will come after the census to make the footprint even more competitive. So we're looking forward to 2022 and expect a very, very good year also on the political front.

Okay. Great. And maybe last question here on the advertising arena, and this is a little bit loaded, I appreciate that. But based on what you're seeing in the marketplace right now and as you look into your own crystal ball, any framework or timing you can provide on if and when you get back to pre-COVID levels of core advertising spend?

Yes. Look, I mean, I don't have a crystal ball, but I can tell you things feel very strong right now. I do expect us to make a complete recovery in core. When exactly that happens, I'm not sure. But I would tell you that, today, I feel better about where we are, certainly better than I thought I would feel compared to where we were 6 months ago, for sure. Things are rebounding much more quickly, and I expect that the advertising marketplace will continue to be sort of a way for us to gauge the health of the main street economy. For us, last year, when we saw a lot of our larger long-time advertisers fall off the air, we actually went out and put a lot of focus on new business development. We brought on a lot of new advertisers last year. I think a lot of those were from the radio business because more people were actually watching television last year during the pandemic, not less. And so for those services, particularly in the services category that traditionally relied on outdoor and radio, they became a real opportunity to move them into television. Just last week, our sales teams did essentially a lock-in, where they set more than 2,000 new appointments. So you can see or you can actually feel the momentum with respect to the local media market, the local advertising market. There's definitely pent-up demand. And I expect that the return of our traditional categories, a lot more strength in the services, the home improvement, the home services categories as a result of our focus on new business will actually power us forward to a core recovery, probably sooner than most people expect.

Okay. All right. Well, that's encouraging. Let's shift gears to the national side of the house. And I'll start with your ION acquisition because it is obviously meaningful, as you spoke about in your opening remarks. You closed on that acquisition in early January. What about ION makes it a great fit for Scripps? And given that this is a company that has a long history that I'm sure you and others considered in the past, why was now the right time to bring it into the fold? And how is the integration going so far?

Sure. So I guess I would say most of our peers have been probably totally exclusively focused on local broadcast consolidation. We certainly participated in some of that over the course of the last couple of years to provide ourselves with greater scale. And I think that -- I talked about that earlier, that bore fruit as we entered the pandemic. But really, since we acquired the Katz Networks, we've also been carefully monitoring the development more broadly of the over-the-air marketplace, particularly the marketplace that we knew we could activate as a result of having greater scale. Watching over-the-air grow right alongside over-the-top started to get our sort of entrepreneurial spirit moving with respect to where we saw the opportunity to really -- to create greater profit, greater opportunity for our company. We were in a really unique position to be able to buy ION because of the distribution synergies. So our Katz Networks have historically leased spectrum to get to 90% to 95% of U.S. households. And buying ION, making ourselves the largest holder of owned spectrum, provided us with the platform for more than $500 million in contractual synergies over the course of the first 5 or 6 years. So that was really unique to our story. The company has a long history of really identifying ways to create value for shareholders as we see the media landscape changing or evolving. And that's what this is really about. It's about the opportunity for us to create value, a new value in the television landscape. I would say, from an integration perspective, going very, very well. Lisa Knutson, who used to be our CFO, has moved into the position to lead the National Networks business. Scripps Networks has already announced not only, I think, a lot of progress with respect to yielding synergies on the integration side, but we also, last week, announced that we would be expanding our share of the marketplace and launching 2 new channels. So we're not letting any grass grow. We are going to be yielding those synergies and creating new value very quickly.

Okay. And you touched on this, but there's so much focus on cord cutting and the shift to ever-growing number of streaming services, and rightly so, yet this purchase really strengthens your presence in the OTA arena. And I think the natural first reaction for investors is that OTA is a relic of the past. Why is that not the case? What are some trends you're seeing now that give you confidence in OTA being a growth area in the years ahead?

Yes. That's a great -- it's a great point. So look, what you think over-the-air was 5 television stations broadcasting in 1 market and people at home with rabbit ears to receive those stations, like when I was a kid, that is, in fact, a relic of the past. What it actually is, is a robust ecosystem that has developed -- that really beautifully complements the way consumers are now watching television. They're self-bundling. They're bringing together their own options. So I would tell you, when we acquired the Katz Networks, initially, I would speak to investors about over-the-air. And I would get that sort of kind of quizzical look because many of them didn't recognize this ecosystem had developed. Everybody had been focused on OTT and digital, and nobody had paid attention to this other marketplace that had developed right alongside of it. Now -- as we've now passed several years on, I speak with investors all the time, and it's unusual that somebody in the room doesn't raise their hand and say, "Oh, yes, I have a digital antenna. That's how I watch local television. That's how I watch network television." 40% of U.S. homes now use a digital antenna. That's 50 million households. We forecast that, that will grow 30% over the next 5 years as the total addressable market expands. So it's no longer a matter of sort of the way I thought of my dad going into the attic and adjusting the antenna. At this point, you plug in a digital antenna and an entire universe of opportunity opens up. And Scripps really dominates that universe of over-the-air networks.

Okay. And Adam, I had a question just come in related to this. Will the OTA multi-cast networks be available in streaming? And if so, will there be a Scripps bundle that could combine them all?

Yes. So we -- first of all, we don't even really think about them any longer as multi-cast networks. The reality is every one of these networks broadcasts minimally in SD or HD into the homes of 90-some-odd percent of U.S. households by over-the-air broadcasting through pay-TV platforms and on OTT or free ad-supported streaming services. So we will -- we intend to continue to expand our distribution. It's certainly one of the growth levers we think we have in order to continue to grow the business. We will continue to expand into new geographies, so we can continue to get closer and closer to 100%. We will continue to work on deals that move us into the pay-TV ecosystem, so long as they work with the economics. And we will obviously move wherever the consumer goes on digital platforms, that is in the free ad-supported streaming ecosystem. You can already watch Court TV and Newsy, for example, on Roku. We've got the Derek Chauvin trial right now being broadcast. It's a simulcast on our over-the-air platforms on Court TV as well as on all of your connected TV apps. And we'll continue to move in that direction to really make sure our networks reach consumers everywhere consumers want to see television. From our perspective, it's not really about pay-TV or OTT or over-the-air, the future of television is really going to be about all 3 and consumers pulling together their own bundles in order to make the most sense for them. And we intend for our networks to be there for them.

Okay. And this is a related question, another observation that I've heard raised. And a question came in from the audience on this as well is that buying ION seems to be somewhat like a hedge or potentially a bet against your local legacy station business, which could be hurt if the rate of subscriber churn accelerates with these digital antennas, which could impact retransmission fees. What are your thoughts on that angle?

So look, I would have characterized -- as a matter of fact, I had characterized the Katz Networks as a hedge in just the way you described. I would say this is very different. At this point, I see this as an opportunity for us to profit from the disruption. Scripps has always believed that 2 things can be true at the same time. Local is a great business, and I expect continued retrans growth, especially as we have the opportunity to reprice over the next couple of years. But I also recognize that there is a shift going on in consumer behavior. And rather than play defense, at Scripps, we always want to play offense. We think we can take advantage of that. As people cut the cord, they move from an environment where they reach us. We may be represented in 1 or 2 out of 250 or 300 channels into an over-the-air environment, where, at this point, we represent somewhere between 6 and 10 of the channels on their electronic program guide in the over-the-air space. That's a significant amount of share. It makes Scripps a must-buy, especially as agencies and brands recognize that cord cutting is certainly impacting variability through cable to reach large audiences. If you have a cord cutter who moves into the SVOD environment, our over-the-air platforms become the best way for them to be reached by brands and marketers. And that's why we continue to see a growing share of the very, very valuable national advertising marketplace moving in the direction of free ad-supported television.

Okay. That's helpful. And ION -- just 2 more questions on ION, and then we'll move on to the other networks. But ION ranks near the top in terms of both broadcast and cable network viewers, yet your revenue share is much lower and doesn't reflect those audience rankings. How do you change that? What helps close that gap for you?

Yes. So look, ION had an amazing -- or has an amazing margin. It had very significant revenue growth. And so one doesn't want to cast stones, but the way it was positioned in the national advertising landscape was essentially as sort of the Walmart of TV networks, the low-cost provider. And it really should not have been. It provides a terrific audience. It's the fifth-ranked broadcast network. When you exclude news, in 2020, it was #1 on cable, beating ESPN, for example. So we think there's a lot of opportunity for us to close that gap, as you described. We'll do it in a couple of ways. The first thing we're already doing, we're in the market right now in the upfront. Networks today sell in the upfront as a bundle. ION was always a stand-alone network. And so bundling it together with our networks will allow us to sell across the networks and yield the Scripps Networks a greater share, better rates, better performance. The second thing, we have become expert at direct response. And I would say there is a significant misunderstanding around direct response. The direct response marketplace today is not the mesothelioma ads or the asbestos lawyers it was in the past. Today, the direct response marketplace is all about performance marketing, and it's used by all kinds of brands. And so we'll be taking our expertise in the direct response marketplace and moving it also over to ION. And then finally, all of that stuff comes together, works together to enhance yield management. Between the upfront, the scatter and direct response, yielding the highest revenue should be the goal. And we think there's a lot of opportunity for us to close the gap with better yield management from what we are already seeing just 8 weeks into the business.

Okay. Great. And one last question, just to check the box, and you alluded to this earlier. The synergies with ION were an important component of the transaction for you, $500 million target over the next 6 years. Remind us about your timing on those savings and how you're tracking there so far.

Jason?

Yes, I can take that one. So Adam alluded to the majority of those synergies being contractual synergies, tied to the distribution fees we pay to other broadcasters. So there is another component. There are some head count synergies, which we've already announced back in January, the reduction of about 120 jobs as we've worked through the integration. So certainly, we're making good progress. We had said that, ultimately, to get to that sort of our year 5 run rate is about $125 million in annualized synergies. And we would expect to get to about 25% to 30% of that run rate this year.

Okay. Great. So let's talk more about the other networks within your national group. The portfolio is broad and growing. It includes Court TV, Bounce, Grit, Newsy. You also just announced 2 new networks, Doozy and Defy. So how are those networks each unique, yet still gel together? And where do they fit in with the evolving ways that consumers and viewers are taking in video?

Yes. So the first thing you have to know is that every one of these networks is based on premium programming. We go out and carefully craft a programming slate that is designed to attract specific demos for our advertisers to sell, young comedy lovers, women who watch true crime, men who like a good western. Our brands really end up aiding marketers to effectively reach a diverse mix of consumers. Also important to recognize, the over-the-air audience skews younger. Of over-the-air households, 1/3 are 18 to 34. So those are the sort of the demographics we build around. Each of the networks has a programming strategy and a portfolio of programming that is meant to take advantage of some of the same psychology we see it play in the SVOD marketplace. So for example, we're already taking shows -- or we're efficiently acquiring shows that we know will perform well because they performed well on their first run in network television, and then we're block programming them. So you can spend several hours going from show to show to show, and that's exactly the same mentality you see at play with SVOD. In fact, the New York Times had this really interesting story back in January about the fact that while the SVOD services have spent an enormous amount of money on originals, and those originals do attract consumers to the services, when looking in abstract at what the consumer is actually watching, the consumers -- the most streamed shows in 2020 were classic network shows. The same kinds of shows, in fact, the very same shows that we broadcast for free in the over-the-air marketplace. So it's no wonder networks like ION and Bounce and Laugh attract large audiences during prime because they're just easy to watch. They're comfortable, especially in this environment now, where consumers are adding over-the-air with SVOD. I don't know about you, Aaron, but I find myself sitting down on the couch in the evening and sometimes almost overwhelmed by the choices in the SVOD platforms. There's such a content glut. And if you have many of those platforms, you go switching from one to the next to the next, trying to decide what are you going to start now. And so sometimes, you just want to turn on the television, find something that you're comfortable with. You might not have seen the episode, maybe you have, but you want to sit down and just relax and enjoy. And that's why ION, for example, has really incredible retention, so sticky. People will spend the entire evening watching 2 or 3 episodes of their favorite serial dramas for this exact reason.

That's a great point. And it actually is a good lead into my next question is we've seen some ring-fencing of IP and bidding wars for desirable content as studios and diversified media and tech companies launch their own streaming offerings. Does acquiring the content that you're talking about here, even the older classic shows, become more expensive, or if not, just more difficult in the years ahead? And should we expect material increases in your cost to acquire that content?

Actually, I think quite the opposite. While we have seen content owners claw back the rights to their content from general SVOD services for their own D2C platforms, right, we saw what happened when they took The Office off of Netflix and moved it to Peacock, we have not seen any content clawed out of the linear marketplace. And I'll tell you why. First of all, most of these content owners will make more money in the syndicated and off-network marketplace nationally and internationally than they will initially, certainly, in the SVOD marketplace. Second of all, they can have their cake and eat it, too, because these platforms work really well together. In fact, there's a lot of evidence that linear television actually helps keep their big franchises warm, keeps them in front of the consumer. I absolutely do not believe that if The Office had completely gone away, it would have been as popular on Netflix as it was. But it had been on cable the entire time, keeping it fresh and in front of consumers, particularly new consumers, younger ones. So when we see -- when we talk to the content creators, we're not getting any pushback with respect to the opportunity to put it on linear broadcast, on linear television. We actually think there's a real symbiotic relationship and expect that to expand even as we move forward in years.

Okay. Are there additional niches that you're not currently covering that you could see adding in the future in the form of additional networks? And is there a point where increasing the number begins to cannibalize your existing viewership base?

Well, we think expanding the number of networks we have and locking in that real estate is a really important way for us to continue to expand our leadership position. That's why we announced the launch of Doozy and Defy. And so I think that's part of what we think will continue to drive, first of all, growth in the marketplace. It's important that, that marketplace be a robust marketplace of premium content if it's going to attract and retain consumers. And we will do our part to make sure that an over-the-air consumer can rely on over-the-air television for the kind of entertainment and engagement that they have come to expect from television in general. So I don't think there's any cannibalization. But you have to remember, there is a moat. There are barriers to entry. The FCC is not handing out any more licenses to broadcast. We're not expanding the amount of spectrum for broadcast. And so we already have a very dominant position. Expanding our scale, we all agree that we saw it in the cable business, we've certainly seen it in local TV. I expect that we'll see from us in national TV. Expanding your scale of reach actually, I think, has the opposite effect. It's not cannibalizing. It allows you to grow new markets or new opportunities off of existing ones, and I expect we'll continue to do that as we move forward.

Okay. Great. Let's talk about your local broadcast platform for a moment. 61 stations across 41 markets, including 10 duopolies. Prime time ratings for the networks had a tough year in 2020, but there's been a downward trend forming even prior to the pandemic. I know prime time is not a large source of revenue for you, but it can potentially have bleed-over effects on local programming and advertising. How are you thinking about that? And how are your news and other local programming offerings holding up comparatively?

Yes. I mean if the pandemic did anything positive for our business, it demonstrated the value of our local news brands. We actually saw local news experience audience growth. And to your point, that's pretty remarkable, considering many of our lead-ins were reruns or not very remarkable programming. There was no live sports. And so even amidst an environment with no live sports and no new programming, local news during the pandemic, during the social unrest, during the historic election we just went through, actually grew its share of audience. Now some of that has settled out a little bit, and there are some new routines that we expect that will sort of evolve as things get back to normal. But look, I fully believe that local news will continue to be an important part, if not the most important part, of the information ecosystem for most American consumers. Almost every trust survey talks about how local news -- while we've seen tremendous erosion of trust in news, particularly around cable news, local news is now the #1 trusted platform for news and information. It's the most consumed platform for news and information between our news brands on air and online. And frankly, the economics of our business have held up very nicely as a result of that. So we're thinking about the interplay between news and programming. We certainly expect our partners on the network side to hold up to their end of the bargain and make sure we're having great lead-ins. But I'm not concerned at all about local. There's a real moat around the local business. Lots of people have tried to execute in local. And we continue to see that local television is the best way for consumers to find out about new brands, for car dealers to push cars off of the lot, for windows manufacturers and installers to get home remodeling done. And we play a critical role in the local news and information ecosystem and in the local economy.

Okay. One of the quite positive data points I came away with from your last call was that your underlying subscriber base was down a mere 1% in the most recent -- from the most recently available data in the third quarter. That's certainly a lesser decline than was experienced by the industry throughout 2020 and also compares pretty favorably to the stats we've heard from others in the space. What do you think about your markets? Why do you think your markets are seeing a bit more stabilization in the sub base than others? And what assumptions are you modeling in for the sub base in the coming year?

Jason, do you want to talk about sub trends?

Yes, I can talk about that. And I want to clarify that number. So the down 1% that we talked about on our earnings call was our churn for the most recent quarter versus the quarter before it. It was not a year-over-year churn number. On a full year basis, so Q3 of '20 through Q3 of '19 because Q3 of '20 would be our last full reported quarter of sub data. We were down mid-single digits, which, I think, lines up pretty well with what most others in our industry are reporting. Looking ahead to 2021, we are certainly hoping that some of the improved trends we saw in the back half of 2020 continuing forward. But I would say, we've planned an overall conservative number that's largely in line with kind of our trailing 12-month sub trend.

Okay. And you grew your retransmission revenue by around, I think, 31% in 2020 over 2019. And for the first half of '21, you said that you expect retrans to be up 10%, but then finish flattish in the back half of the year. So can you talk about the driver of that trend and that cadence? And maybe touch on your recent distribution renewals and any notable ones that are upcoming.

Sure. So first, I'd say, looking backwards, we renewed 50% of our pay-TV households in 2020, and we were very pleased with where those renewals -- or how they turned out. Most of those reset in the first half of 2020, which is why you see us guiding flattish as we get into the back half of this year as we kind of cycle past those renewals. Looking ahead, we only have renewals this year for about 4% of our TV households, but that steps up to 21% in 2022 and 23% in 2023. I know a lot of times the discussion on gross retrans leads to a discussion on net retrans. And what I would say in regards to net retrains is that the net retrans margin typically pretty heavily tied to the cadence of your renewal schedule. So seeing as we only have 4% of our subs renewing this year, we will certainly see some pressure in the short-term there. But again, looking ahead to next year's 21% renewal and the following year's 75% renewal, we believe we'll be back to margin expansion pretty quickly.

Okay. That's helpful. Many of your affiliate partners are launching new and/or expanded direct-to-consumer streaming services. Given the expectation that the studios and networks will want to pour significant resources and content into those offerings, disperse sub growth. Yes, it's also been in the press that NBC was looking to put The Late Show on to Peacock ahead of the broadcast. And the most basic tier offering at Paramount+ doesn't include local station content, but it does have NFL. How do you see those developments impacting the broadcaster/affiliate relationship?

Yes. So look, I mean, this is not unexpected. We think there is a important role that these D2C platforms will play for our network partners. I understand the strategy behind them. But 1 of 2 things is going to be true with respect to the way networks and affiliates work together, either we will continue to create value with them through these services, as we have in the past, or we are not going to see our compensation to them continue to grow. And I'm sort of resolute on one or the other. There's no scenario where I think you're going to see Scripps be comfortable paying a larger share of programming fees or a larger share of our retrans for programming that is not exclusive or that is being transmitted around our broadcast signal. With respect to the consumer, I think there's something we have to always be mindful of, and that is if you were to subscribe to Paramount+, that would not be enough to have a consumer proposition if you were a cord cutter because there is still, of course, ABC and NBC and Fox. And so you're still going to need that digital antenna. You're still going to be consuming our content. And as we saw, with respect to the Super Bowl, there was a lot of problems on those digital platforms. When an enormous number of people came to digital, they ended up moving back to over-the-air and to pay-TV anyway. So I think these things work together. As I said, the affiliate bodies, the affiliate groups are working with the networks to ensure, like I said, 1 of 2 things is true. We either truly partner together, or they recognize that we aren't going to be paying for programming or for increased fees to help underwrite the development of their ecosystem. That's -- I'm comfortable with the development of their ecosystem, but there's sort of a hard line there. It's one or the other.

That's helpful context. On the regulatory side, Adam, there's a case in front of the Supreme Court this year that could finally offer some relaxing of ownership rules. What's your view on what could come of that? And what could it mean for Scripps? I believe, like I said earlier, you have 10 duopolies now. Do you see the potential to possibly grow that number?

Yes. I mean we've long said we were interested in adding depth in our local markets. Adding a duopoly, an independent, a CW, a MyNetwork actually enhances the profitability of a market, it allows you to take greater revenue share. You can take your news and put it on that other channel and serve a different audience with more news product. Oftentimes, those stations don't have news products on them, and you can efficiently do that and expand the amount of news product you're offering into a marketplace, which obviously generates additional revenue and cash flow for the company in that situation. The regulatory environment, what you're talking about in front of the Supreme Court is not going to change the ability for a company like ours to pick up another big 4 market -- another big 4 station in the market. It's potentially going to address the local -- the Eight Voices Rule, which could open up opportunity for additional independents and duopolies. Obviously, that's something we'd be interested in, obviously, either to benefit our Local Media portfolio or our national distribution. It's also focused on some of the antiquated rules that preclude broadcasters from owning radio or newspapers. That's something we're not going to get back into. We were already in the radio and the newspaper business, and I think we exited those businesses at the right time. So I do think there could be opportunity for there to be some swaps for us to get deeper in markets, or for us to use capital to get second stations, but we're not talking about big 4s. In general, I would tell you, our best and highest form or use of capital will be in paying down debt. We're really focused on delevering, paying down debt, bringing our balance sheet down to a more comfortable place for us. It's around 3, 3.5x. I think you should expect us to do that. But we would be opportunistic if we felt there was an economically advantageous way for us to improve the performance of our portfolio, particularly if it was accretive. And we felt like we could do better as a company to have those stations in our portfolio with respect to depth.

Okay. That's a great bridge to my next couple of questions around the liquidity position of the company and your capital structure. Maybe this is coming your way, Jason, but what are your priorities for the operating cash flow of the business that you're going to generate going forward? And I know I just heard Adam say that debt paydown remains a priority, so maybe he preempted this. But I ask with the backdrop of you coming into 2021, post the ION transaction, with $3.8 billion of total debt and net leverage on a trailing 2-year basis of close to 5x.

Well, yes, I think Adam pretty much hit it on the head there. I mean it's not a priority at this point. Our top priority is to utilize our operating cash flow to make meaningful progress on debt paydown. The 4.9 that you alluded to is certainly higher than Scripps' historical averages. So we're focused on just moving that number back down.

Okay. And target leverage is still the mid-3s?

Yes.

And maybe you can talk about when you think you'd get there. And is that solely through EBITDA growth? Or I guess what I'm hearing you say is that's also through principal paydown as well?

Agreed. Yes. You'll see us applying our excess free cash flow towards debt paydown. So leverage will decrease as a result of that as well as through EBITDA growth, especially as we start to shake out some of the more significantly impacted COVID quarters out of our trailing 8 quarters. And I think that will allow us to really start making some substantial progress towards delevering over the next couple of years to get back into that mid-3s goal that we talked about.

Okay.

Yes, I think, just leading into that, coming from a -- I was just going to add on to that. And so as we look ahead to Q1, as an example, I think as we exit the quarter here, we're going to focus on making a debt paydown at the end of this quarter. The size kind of that somewhat is dependent on the timing of the cash receipt we have for the Triton sale, but we are committed to making a paydown this quarter. And then as we look through the remainder of the year, I think each quarter, we'll assess our cash on hand, our short-term cash needs and then determine any incremental principal paydowns.

Okay. Great. One topic I want to be sure to cover is the fact that you're building a very successful track record of acquiring assets, growing them and then monetizing certain of those assets for pretty attractive returns. I'm, in fact, thinking of leaving my financial adviser to come hire you. But are there any other assets in the portfolio, currently, that you consider noncore or nonstrategic, that can potentially be useful in accelerating the deleveraging process?

Aaron, thanks for saying that. I appreciate you noticing. It's been a lot of work and something we've believed for a long time. Scripps, we definitely think there are multiple ways to create value. Obviously, you do so as an operating business, generating free cash flow. You do so by investing and growing something and then spinning it off or divesting of the assets. And over the long history of this company, we've done all 3 of those, I think, very, very well to benefit shareholders. Right now, I'd say we're totally focused on the television ecosystem and the assets we have are all in the television space. So I don't really think there's anything that I would consider as noncore that we would be interested in parting with. I do think we have a tremendous opportunity for us to continue to expand the cash flow generation of this company as a result of the transformational transaction we just did, and our focus will be on executing that strategy.

Okay. The financing for ION included $600 million of preferred stock issued at Berkshire. I believe the press are noncall at 5, and you can't issue dividends or repurchase shares while those are outstanding. Jason, is there any way to repay the preferred earlier than 5 years? And if so, how might you think about funding that?

Well, Aaron, you are correct. The preferred are noncall for 5 years. So based on that, I really don't have much else to add there other than to point back to my earlier comment that, that just really targets us on our top priority, which is to utilize any operating cash flow to pay down debt and to work swiftly towards delevering.

All right. Great. Well, we are coming up on our time here. I want to say thank you to you both for taking time out of what I know is busy day-to-day work at the moment and taking that time to spend with us. It is appreciated. I want to -- Adam, I want to turn it back to you maybe for any closing comments you might have to wrap us up here. But again, thank you for the time.

Yes. No, thanks for having us. Look, I look forward to seeing you and all of our investors, hopefully, at the Breakers next year. Wouldn't that be great? And I appreciate everybody's interest. Carolyn Micheli is always available. She leads IR for us. And if investors have other questions, they can reach out to Carolyn. We also had an Investor Day, and the replay or the repeat of that Investor Day is available on our website, along with the deck, which is full of good information about our future strategies and the way we're executing. So thanks very much for the interests. And I hope everybody is well, and has a great day.

Thank you.