Nexstar Media: Broadcasting's Biggest Bet - [Business Breakdowns, EP.221]

Summary

• Zack Fuss frames Nexstar as a rollup machine nearing the end of its runway — “sometimes the rollup can run out of runway” — because its organic growth drivers have “either tapped out, stalled out or are currently in decline.” McMillan details how Nexstar became the largest local-TV station group outside the Big Four (~200 stations, 116 markets, 68% population reach via LMA arrangements around the FCC’s 39% cap) through deals like Media General ($4.3B, 2017) and Tribune (2019).
• The financials still screen like a value stock: ~$5.2B market cap, ~$12B EV, 3.5-4x net leverage, $5.5B 2024 revenue, ~$2B adjusted EBITDA (37% margin), with 50-60% of EBITDA converting to free cash flow. Revenue mix has flipped from ~75% advertising a decade ago to 55% distribution fees today — but McMillan warns the reverse-retrans give-back to networks is ~50% of those fees, “pushing to upwards of 60%,” and “trending in the wrong direction.”
• Cord cutting has broken the old escape valve of raising rates on a shrinking base. Pay-TV households fell ~30% in a decade, from 100M to ~70M; traditional cable fell more than 50% to ~50M. YouTube — not Netflix — is the top disruptor, hitting 12% of big-screen TV viewing in April 2025, a fifth consecutive all-time high. “Everything is weakening for the TV ecosystem,” while cable companies “don’t care about the video product” anymore.
• The last major bargaining chip is the NFL: “your local broadcast station is still by far the overwhelming way most Americans watch NFL games.” But the demo skews over 50, younger households skip pay TV entirely, and every point of leverage “is getting weaker every cycle” as networks pull sports onto streaming.
• McMillan dismisses the two favorite bull cases: The CW and NewsNation are not yet material to earnings, and ATSC 3.0 is “a little more of a pipe dream” — a decade of limited progress because the industry never set a hard cutover date like the HD transition, TV makers skipped the receiver components, and encryption prevented DVR recording and casting. “The technology hasn’t panned out.”
• The tradeable conclusion: in a melting-ice-cube industry, “capital allocation is not a strategy” — the smartest media operators were the ones who sold (Murdoch to Disney; AT&T outperforming Warner Bros. Discovery afterward). His own cautionary tale: he won the Ira Sohn idea competition in 2013 pitching Tribune long at $55; it ran over $100 on consolidation hype but last traded in the high 40s in 2019. “If you’re a broadcast investor, the best thing you could probably do is find a way to sell your assets to Nexstar because they’re going to be a buyer.”

Deep dive

1. The broadcast affiliate model is a pre-Internet artifact held together by a 39% cap

• McMillan’s setup: broadcast TV is a hub-and-spoke system born when a video signal could only travel as far as spectrum allowed. NBC, CBS, ABC and later Fox own studios and monetize shows via ads and affiliate or subscription fees — but the FCC’s “39% rule” bars any one broadcast entity from reaching more than 39% of the US population, originally “to keep any one network or station from controlling what listeners were hearing.”
• The predictable result: the Big Four kept O&Os (owned-and-operated stations) in the top 10 markets and partnered with third-party affiliates elsewhere. Affiliates get prime-time programming, national news-desk support, and sports “that they could not afford to pay for themselves” in exchange for a share of ad revenue.
• The stakes today: after ~15 years of consolidation, hundreds of local stations have been consolidated into roughly five major owners, and operators are seeking FCC action to lower the 39% cap and consolidate further — all while cord cutting erodes the base underneath.

2. Follow your cable bill: retrans, reverse retrans, and the MFN squeeze

• The money flow, as McMillan traces it: your $120 MVPD bill gets carved up via rate cards, and for years the majority went to cable channels even though broadcast still dominated actual viewing — “the split of the cable revenue back to the networks was not perfectly correlated with the viewing.” Nexstar was a pioneer in pushing for retransmission fees in 2005, arguing “we’re broadcast… but our content has value” — sports, primarily the NFL, plus local news — and eventually receiving monthly retrans fees.
• The counter-move: once locals got paid, the Big Four demanded a give-back — “reverse retrans,” a concept CEO Perry Sook “is a legend in the industry for coming up with” — since the affiliates were “just reairing content that is largely content that they’re purchasing from us.” Broadcast networks likely collect $3-4 per subscriber per month; cable companies break out the “broadcast fee” as a separate line item to show customers how expensive it is.
• One structural quirk worth keeping: most-favored-nations clauses mean whatever rate a network charges Comcast must be the lowest in the market — so YouTube TV, Sling and the virtual MVPDs pay higher rates, “another reason why the broadcast model has survived as long as it has.”

3. Nexstar: from second- and third-tier markets to 68% of America via M&A and loopholes

• Founded in 1996, public in the early 2000s, and “out of the gate” doing acquisitions, Nexstar is still run by founder-chairman-CEO Perry Sook. Two deals supercharged it: the $4.3B cash-and-stock Media General merger in 2017, and the 2019 Tribune Broadcasting merger — leaving ~200 stations across ~116 markets.
• How a 39%-capped company reaches 68% of the population: sidecar “local marketing agreements” (LMAs) let station groups manage stations they do not technically own — providing editorial content, running the news, and operating “almost as if they own the station themselves.” Nexstar has been “the most aggressive aggregator to date”; Tegna is probably next, at about 39% population reach.
• The juncture: Zack Fuss says Nexstar probably has “one more M&A cycle” if the cap is relaxed. McMillan says he expects some regulatory change eventually but does not know when or how, and frames Nexstar as a rollup machine that can run out of runway.

4. The P&L: fat margins, heavy leverage, and a distribution line under pressure

• Scale: ~$5.2B market cap, ~$12B enterprise value, net debt/EBITDA typically 3.5-4x. 2024, an even-numbered political year, brought ~$5.5B revenue and ~$2B adjusted EBITDA, or ~37% margin, with very low maintenance capex and 50-60% EBITDA-to-FCF conversion — roughly $1.0-1.2B of free cash flow.
• Mix: ~55% distribution fees, ~45% advertising (down from ~75% a decade ago); of advertising, roughly 70% is local (car dealerships the classic buyer), 25-30% national sold via third parties, and digital is only ~10% of total — “digital in broadcast is not like Google or Facebook,” but display ads and weather apps.
• Cost structure: ~50% of the monthly subscriber fee received by a station is handed back to networks as reverse retransmission, trending toward 60%; agency fees are about 15%, and sales commissions 5-15%. Direct costs are ~40% of revenue, SG&A another 20-24%, and EBITDA margins generally land between 32% and 38%.

5. The growth bets — CW, NewsNation, ATSC 3.0 — haven’t earned their keep

• The CW: Nexstar acquired an approximately 70% interest from Warner Bros. Discovery “basically for free” and assumed about $100M of debt because the fifth English-language network — with less viewership than even Univision and Telemundo — was “unprofitable pretty much during its entire existence.” The pivot includes cheaper unscripted programming, some NASCAR races, more college football, some LIV Golf, and sports “shoulder programming,” but “ratings are still very poor and the turnaround is still in the very, very early stages.”
• NewsNation, rebranded from Tribune’s WGN America, a “wannabe TBS,” targets a neutral-news niche outside Fox/CNN/MSNBC but is “very, very small”; neither it nor The CW has earnings material to Nexstar. The Hill, the diginets, and Nexstar’s 31% stake in Food Network — which provides a “nice little dividend” — round out a portfolio where “all these attempts to break outside of the cable bundle have not worked to date.”
• On ATSC 3.0, McMillan speaks from experience — he was a substitute bidder in the spectrum auction while at Univision — and calls the bull case overdone: the industry never committed to a hard cutover like the SD-to-HD switch, forcing broadcasters to run two signals; TV manufacturers did not add the receiver components; and encryption prevented DVR recording and casting. “A lot of bulls who need something to justify going long this space will point to this standard… I can tell you from experience the technology hasn’t panned out.”

6. Cord cutting has flipped the leverage — and YouTube, not Netflix, did it

• The numbers he wants listeners to internalize: pay-TV households fell ~30% in ten years, from 100M to ~70M; traditional cable fell more than 50% to ~50M. The consequence: “broadcasters are no longer able to make up for the loss in subscribers by charging higher subscriber fees” — the old recoup mechanism no longer works, and distribution revenue may actually decline as networks claw back fees.
• Per Nielsen, YouTube hit ~12% of big-screen TV viewing in April 2025 — its fifth straight monthly all-time high, excluding YouTube TV. Streaming’s lower ad load compounds the monetization problem, and cable companies would rather sell internet and mobile: “they don’t care about the video product.”
• Zack Fuss’s pointed question — who actually demands local programming on a YouTube TV bundle? — draws the episode’s key line: “by far the asset that the local television stations have… is that your local broadcast station is still by far the overwhelming way most Americans watch NFL games.” That, plus the “bully pulpit” of call-your-provider ads during carriage disputes. The local-news demo is 25-54, skewing over 50; younger viewers skip pay TV as a rite of passage entirely, and “all those bargaining positions are getting weaker every cycle.”

7. Melting ice cube math: the smartest operators sold

• The hard-won lesson: “capital allocation, in my opinion, is not a strategy… if you were investing in a declining industry with strong free cash flow, I think you need to preserve cash and look to exit the business.” Buybacks and dividends cannot turn around a shrinking pie, and “you can’t just keep buying declining assets with leverage and firing people and hoping that’s the strategy.”
• His own receipts: in 2013 he won the Ira Sohn idea competition pitching Tribune Broadcasting long at $55; it ran over $100 on consolidation M&A, but by the 2019 Nexstar close its last trading price was in the high 40s, strongly trailing the S&P 500. Citing Jonathan Knee’s Curse of the Mogul, he holds up Murdoch selling to Disney and AT&T jettisoning Warner Bros. Discovery — AT&T has outperformed since, while Warner Bros. Discovery has not — as the model. Nexstar itself is too big to be acquired: “the best thing they should have done for shareholders was to sell years ago.”
• Closing operator’s wisdom: Nexstar is a “beneficiary of the bundle” wearing golden handcuffs — carriage deals with MFN pricing and programming restrictions mean “your business model is maybe 80% set in stone for the next 3 to 5 years.” He gives management “too much credit but also too much blame,” discounts their forecasts as “too optimistic,” and notes that four or five turns of debt, or more, make management reluctant to disrupt its cash-flow stream. “The industry’s course is on cruise control.”