With continuing supply chain issues leading to vehicle inventory shortages and higher pricing, Nexstar Media Inc. is not seeing any real progress with what has historically been TV station groups' largest advertising category.
Nexstar President and COO Thomas Carter said the company at this stage is not seeing any sort of recovery with the automotive sector, which has been constrained by a shortage of chips and wire harnessing. While this has not materially impacted the company, Carter said there has been "a bit more declination," which was disappointing, as there had been an expectation for a modest category rebound in the middle of this year.
Speaking at Credit Suisse's Communications Conference on June 15, Carter said he expects the auto category will ultimately rebound. However, he is uncertain whether it will return to previous levels of accounting for 25% to 26% of the company's advertising revenue.
Currently, Carter said the sector's ad contribution is parked in the midteens, but Nexstar has been able to make up for some of that downturn with government ad spending, and recoveries in tourism and in-person entertainment.
Sports betting soars
Allocations against sports betting have been robust, and Nexstar anticipates continued growth. CFO Lee Ann Gliha said the company has derived a lot of sports betting benefits in states such as New York, Illinois and Louisiana where the practice has recently been adopted.
"We expect to continue to see that," Gliha said, while also spotlighting Ohio, which will come online in January. The company, she said, is in every market in the state, save for Cincinnati.
Gliha noted that three of Nexstar's top five markets with the category have been live for more than a year.
"There is some level of continued maintenance," she said while acknowledging that some sports book operators have moved over to network spending from local buys. "We'll have to just sort of look at this on a quarter-to-quarter basis. But for now, it's still a good-sized category for us."
Potential digital, station deals
As to M&A, Gliha said the company would be interested in deals in the digital arena. Digital is a 7% contributor to company revenue overall and 15% of advertising. "That's a segment that's still growing a little bit faster from an organic perspective, and we would like to have more exposure to that," Gliha said.
She also pointed to additional station deals as transactions that would be "closest to our heart," stating the company has the capacity to do that in some of the markets where it has The CW (US) affiliates or others where there are opportunities from a regulatory perspective.
Asked about the 31% stake Nexstar holds in Food Network (US) through its Tribune Media Co. acquisition in September 2019, Carter said with the establishment of Warner Bros. Discovery Inc., it is less likely the holding continues in its current form.
Food Network stake
Carter noted there are plenty of assets inside of Warner Bros. Discovery that could be of interest to Nexstar, and that there could be a tax-efficient way to move some of those assets around in exchange for the company's Food Network equity position.
However, he does not envision this happening right away, given Warner Bros. Discovery's current focus on merger-related job cuts. "But it's not lost on us that they have a lot of assets and that they will be rationalizing their own portfolio here in the not-too-distant future," Carter said.
Multiple reports have pegged Nexstar as the leading contender to purchase The CW. Launched in September 2006, the young adult-skewing broadcast network is a joint venture of the companies now known as Warner Bros. Discovery and Paramount Global.
