IRVING, Texas--(BUSINESS WIRE)--Nexstar Broadcasting Group, Inc. (Nasdaq: NXST) (“Nexstar”) set the record straight today following gross mischaracterizations issued by Cox Communications (“Cox”) related to ongoing negotiations between the parties on a distribution agreement that will allow Cox to continue to offer Nexstar’s highly rated network and local community programming to subscribers in nine markets. While it is not Nexstar’s policy to debate publicly with any of its commercial partners, the egregious mischaracterizations included in today’s Cox release warrant a response to ensure that viewers, legislators and regulators, the investment community and the public at-large get the accurate facts on what is in most cases a straight-forward business negotiation. Nexstar intends to pursue any and all methods of recourse to cause Cox to cease and desist making future mischaracterizations.
As noted in Nexstar’s press release of January 25, 2016 Cox management is willing to hold subscribers in nine markets at risk of losing network and local community programming at 11:59 p.m. local time on January 29, 2016 as Cox has yet to reach a new distribution agreement allowing the cable television provider the right to continue to air Nexstar’s highly rated programming. Cox mistakenly claims in today’s release that “Cable TV/Satellite customers forced to pay more with Nexstar merger” (referring to yesterday’s announced agreement that Nexstar has agreed to acquire Media General). In fact, the reason that Cox unilaterally raises the rates to its subscribers is related to the gross mis-allocation by Cox of its programming Fee Payments to programming with marginal viewership relative to the network and local community programming that Nexstar provides.
Across the U.S., broadcast stations and station groups, including Nexstar, generate approximately 35% of household viewing, yet local broadcasters in aggregate received on average about 12% of the total distribution revenue from cable, satellite and telecom providers such as Cox. Inexplicably, Cox (through charges to its subscribers) pays The Walt Disney Company nearly $8.00 per household per month for carriage of ESPN and Turner Broadcasting more than $1.65 per household per month for TNT. Unfortunately Cox management fails to consider reasonable business logic and reliable viewership data in determining what’s best for their viewers and instead chooses to finger point at the very source of its programming and content with the highest viewership. With Nexstar’s commitment to local viewers’ information and entertainment needs, local businesses and their marketing effectiveness, local stations need to be fairly compensated for the value of their programming.
Tactically, Cox’s mis-guided plea to consumers to oppose the announced transaction with Media General serves to further highlight the irrational thinking of Cox’s management as Nexstar’s merger with Media General is in full compliance with the FCC’s rules regarding ownership of television stations, including the national cap, which was statutorily set by Congress.
Furthermore, Cox’s assertion that “Nexstar won't even accept the very same rate that stations they manage agreed to just two weeks ago” speaks to the ignorance of Cox as it relates to FCC regulations. Specifically, the FCC adopted rules in 2014 that prohibit Nexstar from knowing the rates agreed to with Cox by the stations Nexstar provides operating services to.
Cox also fails to acknowledge that the expiring agreement with Nexstar was entered into at the end of 2010. Therefore, for the past 3 plus years, Cox has reaped the benefit of paying significantly under market retransmission consent fees to Nexstar while consistently instituting rate increases to its subscribers. Moreover the economics to the local broadcast industry have changed dramatically since the expiring Nexstar/Cox distribution agreement.
Cox conveniently disregards the fact that as a result of the advent of reverse comp, Nexstar’s network affiliated programming costs have increased. Furthermore, in the intervening 6 years, Nexstar has made continual ongoing investments for the benefit of its viewers and distribution partners through expanded local news and other programming in its markets, the upgrade of its stations to full HD broadcast standards, the acquisition of costly life-saving weather equipment and a broad range of other improved services in its local communities. While Nexstar believes Cox has the resources to conduct financial analysis capable of efficiently managing its business for the benefit of its customers and shareholders, it is clear that Cox needs math help. Nexstar is not, as Cox states, seeking triple the rate of the expiring contract but is actually pursuing economics slightly more than double the now extinct and very favorable rate that Cox negotiated over 5 years ago. Given the exponential viewership of the Nexstar programming relative to other programming that Cox over-spends for to the detriment of its subscribers and the fact that Nexstar and other broadcasters now pay reverse comp to networks, Nexstar’s request is reasonable and consistent with the cost of such programming in similar markets.
Nexstar has established a long-term record of completing hundreds of agreements with cable and satellite providers for the carriage of its programming and is proud it has had no material service interruptions related to distribution agreements since 2005. However, despite 4 months of negotiations, Cox by its own admission never offered a rate close to current market rates and reflecting the bad faith nature of its negotiating stance, even Cox’s most recent offer does not offer contain a market rate offer to Nexstar. To be explicitly clear, Nexstar has offered Cox the same rates it offered to other large distribution partners with whom it successfully completed negotiations with in December.
Nexstar remains hopeful that a resolution can be reached before the January 29 deadline, but should Cox fail to come to terms with Nexstar, Nexstar intends to actively educate consumers in affected markets on how they can continue to receive their favorite network programming, in-depth local news, other content and programming relevant to their communities, and critical updates in times of emergencies. Cox’s attempts to disparage Nexstar will not be tolerated and their mis-guided efforts to fool their viewers as well as legislators and regulators, the investment community and the public at-large warranted a response.
About Nexstar Broadcasting Group, Inc.
Nexstar Broadcasting Group is a leading diversified media company that leverages localism to bring new services and value to consumers and advertisers through its traditional media, digital and mobile media platforms. Nexstar owns, operates, programs or provides sales and other services to 103 television stations and 54 low power and digital multicast signals reaching 62 markets or approximately 18.0% of all U.S. television households. Nexstar’s portfolio includes primary affiliates of NBC, CBS, ABC, FOX, MyNetworkTV and The CW and multicast affiliates of Telemundo, Bounce TV, Me-TV, LATV, Estrella, This TV, Weather Nation Utah, Movies! and News/Weather. Nexstar’s community portal websites offer additional hyper-local content and verticals for consumers and advertisers, allowing audiences to choose where, when and how they access content while creating new revenue opportunities.
Pro-forma for the completion of all announced transactions Nexstar will own, operate, program or provide sales and other services to 171 television stations and their related low power and digital multicast signals reaching 100 markets or approximately 39% of all U.S. television households. For more information please visit www.nexstar.tv.
This news release includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements include information preceded by, followed by, or that includes the words "guidance," "believes," "expects," "anticipates," "could," or similar expressions. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
The forward-looking statements contained in this news release, concerning, among other things, changes in net revenue, cash flow and operating expenses, involve risks and uncertainties, and are subject to change based on various important factors, including the impact of changes in national and regional economies, our ability to service and refinance our outstanding debt, successful integration of acquired television stations (including achievement of synergies and cost reductions), pricing fluctuations in local and national advertising, future regulatory actions and conditions in the television stations' operating areas, competition from others in the broadcast television markets served by the Company, volatility in programming costs, the effects of governmental regulation of broadcasting, industry consolidation, technological developments and major world news events. Unless required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this news release might not occur. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this release. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission.