E.W. Scripps Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Scripps Second Quarter 2023 Earnings Call. And as a reminder, this call is being recorded. I'd now like to turn the conference over to our host, Investor Relations Officer, Ms. Carolyn Micheli. Please go ahead.

Speaker 1

Thanks, Brad. Good morning, everyone, and thank you for joining us for a discussion of The E. W. Scripps Company's financial results and business strategies. You can visit scripps.

Speaker 1

Mode.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward looking statements and mode. Actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward looking statements we make today.

Speaker 1

Included on this call will be a discussion of certain non GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies' uses or formulations. Included in our earnings release are the reconciliations of non GAAP financial measures to the GAAP measures reported in our financial statements. Mode. We'll hear this morning from Scripps' President and CEO, Adam Simpson Chief Financial Officer, Jason Kalms and Scripps' Chief Operating Officer, Lisa Knudson.

Speaker 1

Here's Adam.

Speaker 2

Good morning, everybody. Today, I'd like to provide you with a big picture perspective On this moment in the television landscape and how Scripps is executing on its plan to capitalize on our industry's evolution. Mode. The television industry is experiencing an era of volatility where the growth of streaming is upending a long successful business model. But as a wise and very successful investor recently reminded me, just because everything is moving towards streaming doesn't mean it in and of itself is a good business.

Speaker 2

For most in the industry, the math on streaming alone doesn't work. Mode. And as media investors are well aware, the path to value creation is far from certain. Content creators are rebelling against the new model, mode, sparking the most significant strikes in Hollywood's history. Experts have said the strikes are fueled by existential worries over the industry's future.

Speaker 2

Mode and it's no doubt that the end result will make the economics for streamers worse. In this chaotic climate, mode. Scripps has carved out its own valuable niche, linear television viewing driven by entertainment, live sports, mode. And despite a temporary hurdle driven by inflation and a soft ad market, mode. Opportunity to increase yield from pay TV, expand upon our leadership in free over the air television mode and create new incremental value through a profitable approach to Connected TV.

Speaker 2

To be sure, linear TV audiences are declining. Consumers are spending less time watching traditional television and turning increasingly to subscription services. Under pressure from sub declines, mode. The cable programmers are eroding the quality of their product and shifting attention to still questionable ambitions in D2C. That's probably because they simply don't have what we have, that all of the above distribution strategy.

Speaker 2

Scripps' linear business makes use of both pay TV and the growing over the air ecosystem. So it's no wonder that in the midst of this carnage from Consumer preferences, our portfolio of networks is growing share reviewing. We expect free mode. OTA TV to play an even more significant role in the new bundle ahead. One factor we forecasted many quarters ago is now coming to fruition, mode.

Speaker 2

The shift of sports rights to broadcast television. By our count, at least 6 major professional rights deals announced over the last 6 months mode. From NASCAR to college football to our own WNBA on ION. And of course, regional deals mode like the one we announced that is bringing the Stanley Cup winning Vegas Golden Knights to Scripps' local broadcast stations in Nevada, Utah Montana, the teams and owners understand well that D2C will be a lucrative opportunity for the future, but that the reach from broadcast distribution in parallel will be the price of admission to get there. While we expect more live sports to be a catalyst for growth, we will continue to educate consumers on the benefits of free over the air television as a way to grow our mode.

Speaker 2

Our scale and linear distribution underpinned by our network of 109 television and television viewers will continue to consume and demand more from Connected TV. So to tackle that opportunity, We have aggressively claimed territory in that space as well. As of this year, our national networks brands are widely distributed across mode. Streaming, smart TV, virtual MVPD and other connected TV platforms and particularly on the rapidly fast growing mode. We acted quickly to establish a 1st mover advantage and now are building audience and seeing significant growth in ad revenue.

Speaker 2

Mode. That's high margin revenue because our fast networks open up a new opportunity for us to monetize some cost, mode relying mostly on our linear programming streams or original content we already own. As with our 2 latest fast channel launches, mode. In the meantime, linear advertising remains mode. Very large and lucrative marketplace projected by Magna to be $54,000,000,000 this year, mode.

Speaker 2

In that linear marketplace, mode. Scripps has continued to garner profit margins that far surpassed those of D2C streaming businesses, at least the ones that have profit. Mode. Like all industries, we are subject to economic fluctuations. So the current ad industry recession is affecting our growth rates.

Speaker 2

Mode. And as a result of that climate, we recognized an impairment in our Scripps Networks business. Our Networks business remains strong. And as I said, we expect its revenue growth and profitability to rebound along with the national ad marketplace. Mode.

Speaker 2

The networks come together with our local stations to form the foundation of the linear viewing, connected TV and free TV strategies I've mode. The WNBA deal with Scripps Sports could not have been executed without our acquisition of ION. And at the local level, We were able to redeploy ION Spectrum in 2 markets to launch independent stations that will become the home of the Vegas Golden Knights. Mode. We have preserved ION's reach in those markets through other channels and at the same time, we created 2 new local station duopolies.

Speaker 2

It's another good example of how the ION acquisition has enhanced our economics. As we pursue the best through ATSC 3.0 to the list of strategies that make use of our massive distribution platform. Mode. We continue to make progress on the work we are doing with Nexstar, HPE and Sony with a core network mode. Live in 4 markets, a necessary first step as we bring this business to the mobile wireless data marketplace.

Speaker 2

Mode. Our latest company reorganization was designed to position us for future growth in all of these distribution areas. Mode. Rather than being exclusively focused on the local station group or the Scripps Networks portfolio, our leaders are now charged with on opportunities that encompass all of our assets. This repositioning has already proven effective in sports mode and in news and created efficiencies in distribution, marketing and operations.

Speaker 2

And we are on mode. To realize at least the $40,000,000 in annual savings we had projected. The Media business is changing dramatically, mode as it has done many times over our company's 145 year history. Our aggressive but steady approach to navigating The convulsions has proven to create value time and again for our shareholders, just as I'm confident it will this time around. Mode.

Speaker 2

Over the last 5 years, the company's moves to dramatically enhance our scale in television have more than doubled revenue, more than triple segment profit and expanded margins, leaving us well positioned to benefit from the inevitable return of the ad market. Mode. I'm sure shareholders along for the ride will benefit too. Now here's Jason.

Speaker 3

Thanks, Adam. Good morning, everyone. For the Q2, we reported financial results that nearly all met or exceeded the expectations we set in May with a significant beat on segment company profit. Our segment profit over performance was driven by our Scripps Networks segment, which delivered stronger than expected revenue because of higher ratings and increased demand in the scatter market. The Networks portfolio grew Connected TV revenue by 18% from Q2 of last year.

Speaker 3

While a very strong growth rate, it is less than we have projected for Network We're sunsetting a low margin legacy programmatic advertising product because it's no longer in line with our evolution of CTV advertising. Backing out the impact of that product, CTV revenue was up about 80%. In total, Scripps Networks revenue was $231,000,000 down 3%. Mode. Scripps Networks segment expenses were $171,000,000 up about 3% from the prior year quarter because of higher employee cost and distribution fees as well as the incremental expenses for the WNBA on ION.

Speaker 3

Segment profit per Networks was $60,000,000 mode. In our Local Media division, revenue was down just 1% from the prior year quarter. And core advertising was down 5 Distribution revenue in Q2 was up 14% to $195,000,000 fueled mainly by contractual rate step ups. Mode. Local media expenses declined by 1.4 percent aided by our move to Comscore and by tight expense management in this economic environment.

Speaker 3

Local Media segment profit was $81,000,000 In Other, we reported a loss of $6,300,000 Shared services and corporate expenses were $23,000,000 The loss attributable to shareholders of Scripps was $682,000,000 or $8.10 per share. Mode. A non cash goodwill impairment charge and restructuring costs for the quarter accounted for $8.01 per share. Mode. Despite the better than expected Q2 performance, the implications of the ongoing economic downturn and resulting impact on the national advertising market mode.

Speaker 3

Has led to the impairment charge in our Q2 financials. The restructuring charge in the quarter was $8,000,000 We announced in January a company wide reorganization and restructuring costs are related to that work. As of quarter end, cash and cash equivalents totaled 39,000,000 mode. Our net debt at quarter end was $2,900,000,000 and our net leverage was 5.3 times per the calculations in our credit agreements. That That has run a bit higher for the last two quarters because in our trailing 8 quarter calculation, we've begun to lose the benefit of several quarters where the economy was bouncing back after the pandemic.

Speaker 3

Mode. Effective July 31, the company decided to increase the size of its revolver to $585,000,000 and use the revolver to pay down its Term Loan B1, which was scheduled to mature in October of 2024. The new revolver better aligns with the mode. Looking ahead to the Q3 of 2023, In the Scripps Networks division, we expect revenue to be down in the 10% range and expenses to be up low single digits. Our revenue guidance compares against the very strong Q3 of mode.

Speaker 3

We expect total local media revenue to be down in the mid single digit range mode and Q3 local core ad revenue also to be down mid single digits. By later this quarter, we expect to have renewed nearly all the pay TV households We are resetting this year. We continue to expect full year gross distribution revenue to be up in the mid teens range and net distribution dollars to increase mode by more than 40%. For Q3, we expect local media expenses to be up in the low single digits. Mode.

Speaker 3

That includes the cost of pay increases for key news gathering roles at our local stations aimed at attracting and retaining top journalists to serve our communities. 3rd quarter shared services costs are expected to be about $22,000,000 We expect an $8,000,000 loss in other in Q3. Please see today's press release guidance tables for updates on a few below the line items. For the full year, we continue to expect Free cash flow to fall in the range of $50,000,000 to $100,000,000 We continue to place our highest capital allocation priority on paying down debt. Mode.

Speaker 3

We are on track with our expectations of realizing at least $40,000,000 in annual savings from our company reorganization. We expect those savings to be mostly operationalized by the middle of next year and we still expect to reach a year end 2023 run rate of around $20,000,000 in savings. Now here's Lisa to share some highlights from both Local Media Scripps Networks Operations.

Speaker 4

Thanks, Jason, and good morning, everyone. We were very pleased with the Scripps Networks segment Exceeded our expectations for Q2 financial performance. Scatter market advertising was the largest we've seen since late 2021 and we also outperformed our expectations for audience ratings in several key areas. Despite outperforming on revenue, our Networks business still faces headwinds in the national advertising marketplace. We do see a few bright spots, however, including mode.

Speaker 4

Premium Live Sports, which have become the new prime time in terms of advertising rates and continue to attract younger viewers. Mode. I'll talk more in a moment about our Scripps Sports strategy, which is designed to take advantage of that marketplace. And we continue to benefit mode from advertisers who want and need to reach multicultural audiences. Bounce provides high quality programming created specifically mode.

Speaker 4

And we're seeing nice CPM growth for those shows. In fact, in the midst of a challenging upfront for the in Q3 and Q4. Overall, during the quarter, general market ad categories were down, although we did see increases in consumer packaged goods as well as the Entertainment and Media category. In direct response, we continue to expect weakness until inflationary mode. As Jason mentioned, our Connected TV advertising revenue is being impacted by a change in strategy that led us to Sunset, a legacy CTV advertising product.

Speaker 4

Although this product in the past has accounted for a significant amount of revenue, it is low margin and and out of step with the evolution of the CTV advertising landscape. So we are focused on more profitable efforts around our network's nearly mode. In fact, the launch of our networks across these platforms over the last year mode, excluding the low margin programmatic product to be up about 50% in 3rd quarter. Turning to the Local Media segment. I'd like to hit some highlights in our local core ad performance.

Speaker 4

We were pleased to realize for the 4th consecutive quarter of growth in automotive, which was mode, up 13% in Q2 and made up 16% of our core revenue. Home improvement was up 8% mode and we benefited from the Denver Nuggets appearance in the NBA finals this year. Average unit rates for premier sports in our markets can be more than 10 times the average unit rate when we don't have a local team competing. This dynamic is an important driver in our Scripps sports strategy. Mode.

Speaker 4

Our largest category services was down 12% as it continues to be hit by inflationary factors. In addition, we Continue to see local advertisers exercise caution and book advertising closer to airtime, giving us less visibility into our outlook. Mode. Also in local, we're continuing to grow our connected TV audience. Scripps local stations delivered a 29% increase in hours of viewing mode from Q2 of 2022 to Q2 of 2023.

Speaker 4

Today, we are getting about a half 1000000 hours of CTV viewing a week across our local station group. Mode. One more note about our local stations. We were proud to have won 98 Regional Emmy and Morrow awards mode as well as a gold telly. And on the network side, Scripps News won awards from GLAAD, SPJ and the Telly Awards and and has been nominated for 2 National Emmy's.

Speaker 4

And ION won 3 prestigious Promax Marketing Awards. We appreciate this recognition of our employees' hard work and audience impact. Turning to our reorganization. Mode. Our focus is on collaboration and centralization.

Speaker 4

By bringing leadership from Scripps Networks and Local Media together into 1 enterprise level management team, we are creating efficiencies and cost savings. And equally important, we're creating new business growth opportunities that leverage the power of all of our assets. Mode. Our Scripps News Network and our Scripps Sports division provide two great examples of how this is working. Scripps News is part of our Scripps networked portfolio.

Speaker 4

As of late June, its programming also appears on 31 of our 42 news producing local stations. Scripps news mode. Shows including Morning Rush and In Real Life are running daily on these stations. They are performing well with the local audiences and are offsetting local programming expenses. Mode.

Speaker 4

In addition, Scripps News reporting is appearing frequently on our local news programs. For example, Scripps News and local teams have been working together to tell the mode. We've covered warming waters off the coast of Florida, sustained high temperatures in the Southwest and the impact of the Canadian wildfires on our air quality here. Leveraging the strengths of our local market depth with our Scripps News broad national reach is resulting in stories with mode. In addition, we are freeing up local resources to concentrate on high mode.

Speaker 4

And we're building the Scripps News brand with local audiences across the country. Mode. At Scripps Sports, we're looking ahead to the premier of the Vegas Golden Knights on our 2nd station in Las Vegas and Salt Lake City as well as 7 other Scripps markets. Mode. We have converted our ION signals in Las Vegas and Salt Lake into independent stations that air live local sports and we are still broadcasting ION in these markets, keeping our national reach intact.

Speaker 4

This is a great example of how Scripps drives value through a strategy to best monetize our large spectrum holdings by taking a broad view of all of our assets. And through our new approach, we are creating incremental cash flow, growing our over the year audience and increasing our value through live local sports. Mode. Also in the sports division today marks 10 weeks of WNBA Friday night spotlight on ION. Ratings for these games have grown 42% since our first broadcast on May 26.

Speaker 4

Advertising demand is strong and sports Premium average unit rates are running 70% above those of our typical ION programming, delivering younger and more diverse WNBA fans. Mode. As we move through our reorganization work and into operationalizing our changes, we are on track to realize the $40,000,000 plus in savings we previously outlined mode and we remain focused on both aggressively tackling the near term challenges in the media marketplace and creating a more efficient, cost effective, high performing business, one that is well positioned for long term value mode. And now operator, we're ready for questions.

Operator

Thank mode. We'll first go to Dan Karmosz with Benchmark Company. Please go ahead.

Speaker 5

Great. Thanks. Good morning. Adam, two high level questions for you. 1, obviously, given the comments around live sports mode and CPMs and where all the dollars are flowing.

Speaker 5

We know historically what your view has been about license mode. Obviously, some of your peers have decided to move upstream in terms of AAV for some of those deals. I'm just curious, given the landscape right now, sort of what your appetite is for Maybe potentially being a little bit more aggressive, if you think that you can monetize better or more effectively,

Speaker 2

I think we've been appropriately aggressive. I still think it's necessary to bring discipline to these discussions. I can tell you, mode. We're about 2 months out from the start of the NHL season and sales for sponsorships and ads mode. In Las Vegas for the Vegas Golden Knights has gone exceptionally well.

Speaker 2

I think that gives us mode. A better understanding of what the opportunity is like with additional rights negotiations, mode, both locally and nationally. We've also been very pleased, as Lisa described. I mean, we're seeing At this point with the WNBA, every ION WNBA telecast in July has been rated higher than ESPN's best WNBA telecast. So our thesis around bringing these sports events to over the air and a broader audience, I think it's bearing fruit.

Speaker 2

And as Lisa described also, that led to a 70% premium in AURs or average unit rates for mode. Primetime with WNBA over ION's traditional primetime audience. So we definitely see the payback there. But what we aren't going to do is irrationally invest. That's what got the RSNs into the position they're in.

Speaker 2

Mode. And what's necessary is both an aggressive play for us to move towards sports, but also the understanding that we are bringing something of incredible value to teams and leagues, linear distribution that reaches almost all of the households in a market or across the nation. And so that's key to our strategy. The other thing I would say that, we've seen great success with is that when we've distributed mode. Our linear broadcast with Ion on CTV, we're bringing a product into the CTV marketplace that nobody else is bringing too fast mode.

Speaker 2

So we definitely think we're positioned to continue to play aggressively, but we will also play prudently.

Speaker 5

Got it. That's helpful. And it's kind of a good segue into sort of the high level thoughts I wanted to ask. I mean, obviously, there's a lot of noise out there with the mode. Right or strike, the actors strike, etcetera.

Speaker 5

I think you guys have been pretty savvy in your own content rights aggregation, especially on that more. I just wonder as we head into more unscripted programming, if you could just sort of give us your thoughts What's happening in the ecosystem around or outside of just dollars driving to live sports and the fact that you guys have a bunch of more available content in the can as it were, if people need an outlet for advertising.

Speaker 2

Yes. I'm actually looking forward to the fall premieres because There won't be very many fall premiers and the audience on Ion, I think is used to what they tune mode. On a nightly basis for Ion is already the 5th ranked broadcast network, oftentimes 5th on cable as well when you Discount or take out live sports and news. So from our perspective, that consistency, I think, is going to bode well for us from an audience share perspective as we head towards the fall, which typically can be disrupted by premieres on network television. Mode.

Speaker 2

I think ultimately the strike as I mentioned in my prepared remarks is going to lead to higher costs for streamers. Mode. There's clearly going to be progress made with respect to residuals on streaming platforms. Our strategy has long been to take the content that we are already paying for and to negotiate for the fast rights and to move that mode. Content into with those linear streams into fast with no additional cost, as I said, for high margin revenue.

Speaker 2

Mode. The other thing I think that will happen will be that as the streamers end up with higher expense Structures even than they have today, they will continue to look for new ways to offset that expense or to monetize their own cost own sunk cost. And I think that will open up additional programming opportunity for linear broadcasters like us. I think it's now becoming recognized by the streamers that having distribution on linear particularly over the air is not cannibalizing their D2C products. Mode.

Speaker 2

It actually can represent a significant opportunity to be a barker channel for their D2C mode. And so we expect to benefit on the content acquisition side in that way too.

Speaker 5

Got it. And just if I could squeeze one last one in, I I don't know if Adam or Lisa, just on the network or the network's guide, we've heard that national has been improving sequentially. You had a mode. A really strong quarter relatively speaking. You've been taking share.

Speaker 5

I know you guys are up against a tough comp. There's some element obviously of the sunsetting of that like TV product that's in there. But is there any other noise that's going on in Q3? Because it sounds like based on your upfronts and everything else, like Q4 should be substantially better. It feels like things are getting better from an overall perspective and the guide is just

Speaker 6

a little bit sort of just

Speaker 5

trying to reconcile this all.

Speaker 4

Mode. Thanks for that question. Certainly, some of the noise is the CTV product that we're sunsetting and offsetting some of that low margin revenue. So that certainly is a factor. I would also say that The Doctor marketplace continues to be really hampered by the fact that inflationary pressures are keeping folks from being able to spend.

Speaker 4

And so we do see a little bit of green shoots in the Doctor space and certainly the 4th quarter is typically 3rd mode. Late 3rd and 4th quarter are typically the higher quarters for Doctor advertising. We continue to see strength in the scatter market. Mode. I think we're with this being the last quarter of a broadcast calendar upfront, certainly there are cancellations in 3rd quarters that we have to then rewrite in the quarter.

Speaker 4

And so you may see some of that being masked by the cancellations that we're rewriting in the scatter market. Remember, Scatter typically is about 30% higher than anything that we sell in the upfront. So that could bode some upside potential for us in 3rd and certainly as we move into Q4. So hopefully that helps clear it up a little bit. But I know with mode.

Speaker 4

Half of our revenue sort of in the upfront and scatter market, we do see some real potential, I think, over the next several quarters for that to continue to improve.

Speaker 5

Got it. Yes, that was super helpful. Thank you, Lisa. Thank you, Adam.

Speaker 2

Thanks, Dan.

Operator

And next we'll go to Steven Cahill with Wells Fargo. Please go ahead.

Speaker 7

Good morning. Lisa, I just wanted to maybe dig into Those comments just a little bit more. So if we think about the Q3 guide, which does imply that the revenue growth rate at Networks gets worse quarter on quarter. Can you maybe help us back out what that transition in the CTV product does to that? I know that there is some risks most opportunities from what you're saying in the Q3 and you want to be a little bit conservative.

Speaker 7

But are you trying to imply that the ad market Is worse in Q3 than it is in Q2? Or is it just kind of the mix of all that that's getting to that guidance number?

Speaker 4

Yes. I think it's the mix I am not implying that it's getting worse. In fact, as I said in, I think, my prepared remarks, We are cautiously optimistic about 3rd and 4th quarter scatter. I think advertisers continue to book later and later in the cycle and even the upfronts, I'm sure mode. You reported on this with some of our national peers.

Speaker 4

Even the advertisers were waiting longer and longer in the upfront negotiations to really book the dollars. And so, some of that is the visibility that we see into 3rd Q4 and some of it is certainly the Doctor comments that I made mode. The CTV piece of this again is really about a decision Strategy that we are employing in terms of really looking at all of our products and making sure that we have high margin products and those that we believe are mode. Not as profitable. We're certainly taking a hard look at those over the course of both on the local and national side for sure.

Speaker 4

Mode.

Speaker 7

Thanks. And then Adam, I think you've tried to remain at the forefront of free TV and getting a lot of your broadcast more content into Connected TV 2. So I'm just wondering how you envision getting a lot of this network content on to CTV going forward, especially As you start to add more sports into the portfolio, and maybe in this period where there is less content, making sure it shows up on folks' home screens when they log into a connected TV and so they know it's there and can find it.

Speaker 2

Yes. I mean, I think you're right. We've been mode. Particularly active over the last year and a half since we acquired ION, first very quietly acquiring mode. Obviously growing very quickly, I think there's ample evidence that audiences appreciate free, which I think will continue to benefit our holdings and our streams on CTV as well as OTA.

Speaker 2

With respect to sports, I mean, part of what we negotiate mode. The right to ensure that nationally when we are acquiring national mode. As we did with the WNBA, we have the right to distribute that into the fast marketplace. We then have worked with our Distribution partners to ensure that it's accretive to the overall deal. I would tell you, the fast marketplace itself has become very competitive.

Speaker 2

So I'm really, really glad that we had that first mover advantage and are in where we are. At this point, our Brands are garnering significant hours of viewing and the content is premium. So I think it puts us in a really good position mode. From a operating leverage perspective as we work with those distribution partners, they want mode. Brands that are well known, they want content that is well loved and that's what they get with the Scripps Networks brands.

Speaker 2

Mode. So it feels a little bit like the early days of even like YouTube, right, when everything was sort of mode. A pile of stuff and then that became the culling down where more premium content got better positioning. What we see today is that given that Ion for example is the only broadcast network in the fast marketplace because we have those rights and no other broadcast network can do that. And given that we've been so aggressive, moving our multicast channels, Which is monetization of sunk cost into the fast marketplace.

Speaker 2

We think we've got really good placement on these platforms. Mode. So between OTA and CTV, we expect to continue to see significant growth in the consumers adoption

Speaker 7

mode. Great. And then, maybe lastly for Jason, just as you're doing mode. The big year for retrans with the net number up, I think 40% as you said. Is there anything that's different than what you expected, better or mode.

Speaker 7

And within that, what's your expectation for subscriber attrition is this year? Thank you.

Speaker 6

Yes. So subscriber churn for us continues to be down in kind of that mid single digit range, has been

Speaker 3

for a while. Subscriber churn for us continues to be down in kind of that mid single digit range, has been for a while and continues to be. In terms of the progress we're making, So as of the end of the second quarter, we've renewed about 2 thirds of the total subs who are for renewal.

Speaker 5

And by the end of

Speaker 3

the third quarter, we'll have to be north of 90%. Mode. Yes. I'd say generally, we're really pleased with the progress we're making. And we talk often about maximizing our opportunity in pay TV ecosystem.

Speaker 3

And when you look at The progress we're making on both gross and net distribution dollars, I think you can really see that kind of coming to fruition.

Speaker 7

Thank you.

Operator

Mode. And next we can go to Michael Kupinski with Noble Capital Markets. Please go ahead.

Speaker 8

Thank you for taking the questions. I appreciate that. Mode. So, mine is more of a kind of a macro issue. This cycle has seemed somewhat unusual given that There's been such a prolonged national advertising weakness and that there hasn't been a follow-up of weakness mode.

Speaker 8

And I was just wondering if you had some thoughts given the past cycles, how this cycle is different and what mode. And you're kind of telecasting that you think that national advertising is starting to show some sort of more visibility or some sort of improvement. I was just wondering, if you feel that local is going to kind of Come back as well or do you feel like we might see local drag for some period of time?

Speaker 4

Hey, Mike, it's Lisa. Mode. A couple of things to unpack there. 1, I think we're seeing one of our largest ad categories automotive will come roaring back certainly over the last several quarters. In 2nd quarter, auto was up 13% over Q2 of mode.

Speaker 4

And that was we had a strong April, May June and we're continuing to see that same mode as we move into Q3. So that certainly helps to buoy the local ad space In particular, home improvement has also been a category that has really bounced back in The last couple of quarters for local and I think that you're going to continue to see that as well. And that's one of our top 5 categories. One of the areas that certainly has taken a hit a bit in the local side is the services category, which is made up of more several different things, medical, financial, legal, so on and so forth. And that's really, I think, tied to discretionary spending, mode.

Speaker 4

Even in automotive, for example, the national ad marketplace, I think there was, some stories saying that it was down in the high teens over the course of the summer mode versus us seeing increases on the local side. And that's really being driven, I think, by trying to get cars off the lots. The domestic dealer groups were up like 35% in the quarter. Foreign dealer groups were a little bit down, but domestic manufacturers in terms of the automotive space were up 26%. So I think you're seeing some resiliency in the local space, especially as mode.

Speaker 4

Automotive has rebounded as well as home improvement.

Speaker 8

Lisa, I appreciate the comments on the auto. And so mode. In terms of the percentage growth, is it coming more so from the dealerships or is it coming from manufacturers? And it's interesting that Some have said that in terms of moving cars up a lot, others have said that there's just not enough cars. And so mode.

Speaker 8

Maybe it's a function of different markets. Are you seeing auto rebounding differently in certain markets? And then if you could just kind of go back and then Tell us whether or not it's more promotional advertising or is it more manufacturers versus dealers?

Speaker 4

Sure. Mode. I would say we're not necessarily seeing any trends geographically that I would point to. I would say it's mode, generally up across the country. Local dealer groups, just to unpack sort of Q2, local dealer groups were up 6% and we see this really mode as a great opportunity in the coming months, especially as they're clearing last year's models off the lots and then and we'll be bringing new next year's models onto the lot.

Speaker 4

The domestic dealer groups, as I said, were up 35 more. So that gives you some insight into the dealer groups and local dealer groups. As I said, foreign is still a bit mode, down about 5% year over year. And then manufacturers, were up 26 more. And foreign manufacturers were up 58%.

Speaker 4

So I think that gives you a little bit more insight, mode. Not necessarily a geographic issue or a geographic play here. It's really, I think, strength across the board in our local markets.

Speaker 8

And Lisa, can you remind me what I think you already mentioned this, but what was the percent of auto As a percent of total advertising and then what was it at the peak?

Speaker 4

This quarter it was 15% and I think at its peak, it was probably low 20s, yes.

Speaker 8

Okay, great. Mode. Thanks for the color. I appreciate that.

Operator

Sure. And again, it is one-zero for questions. I'll move now to Craig Huber with Huber Research Partners. Please go ahead.

Speaker 6

Great. Thank you. Maybe start, if I could love to hear your comments on the Hollywood strike, obviously part that's been going for 3 months here. Do you view that it's going to be end up being a significant headwind for you guys Or beneficial or sort of neutral impact if this thing keeps dragging on and on?

Speaker 2

I don't see it as a significant headwind for us. Certainly not near term. Like I said, I mean, I actually think it could benefit us with respect to audience in Q3. Mode. Longer term, depending on sort of what the deal ends up being, I also think it could benefit us because mode.

Speaker 2

Recall, we benefit when companies creating programming look to offset those costs through distribution deals. And as I said, I do believe that the streamers in particular have recognized the value, both economic and from perspective of doing deals with their content in the linear marketplace. It's not being both it's not cannibalistic. And I also think it's the Barker channel that everybody is long believed D2C probably needs. Mode.

Speaker 2

So I don't necessarily think it's much for us. Obviously, mode. For our local stations, it's not ideal for us not to have the kickoff of the season. Mode. To be frank, some of the networks have continued to move some of that content to drop the exclusivity and move some of that content to They're streaming platforms.

Speaker 2

So I know that we'll be programmed well. I know we'll have compelling content and I expect it to be mostly a neutral issue for our I know it's not going to be neutral for others, but it's certainly, in the near term neutral to positive.

Speaker 4

Mode. Hey, Craig. It's Lisa. One of the theories that I have is after this is over and as Adam said, as studios need to monetize or mode. I think that there may be a proliferation or a flooding of the market of new content and shows available to us, which I would assume given the amount of supply made also drive cost down.

Speaker 4

So that's something that we're keeping Definitely an eye on.

Speaker 6

Do you worry at all that this strike with the lack of original content, Scripted content could help accelerate cord cutting. Does that do you think it's a significant issue for you at all?

Speaker 2

Mode. No, I mean, I don't think this strike is going to be beneficial to the streamers. And so People still want to be entertained. They still want to watch television. And so ultimately, I don't see this as driving cord cutting any further.

Speaker 2

I think there are other questions in the marketplace right now about cord cutting mode. That abound, but I don't necessarily see the lack of new content this fall season mode. Or I would even say beyond this fall season because much of it's already locked and loaded, as existential for cord cutting.

Operator

Mode. And then

Speaker 6

also at your local TV stations, I guess that's down 5% core advertising performance in the 2nd quarter in a rocky environment out there. Can you just break apart, if you would, how local did versus the national categories?

Speaker 4

Mode. Certainly, when we take a look at the local versus national, certainly mode. Local or national over the course of the last several quarters has been hit a bit harder similar to what we're seeing in the network side, right? Mode. It's the same national macroeconomic trends mode that have played out in the local side.

Speaker 4

So it's certainly it's been hit a bit harder. I would say, similar To my comments about Scripps Networks, we are starting to see some, I would say green shoots on the emotional side, less declines, certainly than what we've seen over the last several quarters.

Speaker 6

Mode. My last nitpick question, the sun setting of the CTV product, can you quantify that for us either on a percentage or dollar basis, how much that's impacting the revenues

Speaker 3

mode. We did, I think within the script for Q2, we talked about sort of our growth with and without We're not breaking it out as we kind of move forward. But we said we were up 17%, inclusive of 18% inclusive of the sunsetting, we would have been up 80% in CTV revenue without, but we're not providing any detail beyond that.

Speaker 6

Mode. Okay, great. Thank you.

Speaker 2

Thanks, Greg.

Operator

And currently no further questions in queue.

Speaker 1

Mode. Thank you, Brad. Thanks, everyone, for joining us today. Brad's going to go over the replay information now. Have a good day.

Operator

Thank you. And ladies and gentlemen, this conference will be available for replay after 11:30 Eastern this morning and running through September 3 at midnight. Mode. You can access the AT and T playback system by dialing 1-eight sixty six-two zero seven-ten forty one and entering the access code 7,872,133. International parties may dial 402970 mode, 847.

Operator

Those numbers again, 1-eight sixty six-two zero seven-ten forty one mode. International parties, 4029700847 with the access code 7,872,133. That It does conclude our call for today. Thanks for your participation and for using AT and T Teleconference. You may now disconnect.

Powered by Quartr
Earnings Conference Call
E.W. Scripps Q2 2023
00:00 / 00:00