Broadcaster Nexstar Media is scooping up a 75% stake in The CW from co-owners Paramount Global and Warner Bros Discovery (WBD), as it believes it can return the struggling network to profitability.
The announcement confirms earlier media reports that a deal with Nexstar for the network was inching closer.
Paramount and WBD will each retain a 12.5% stake and continue to produce original, scripted content for the network primarily for the 2022 and 2023 broadcast seasons. Speaking on a Monday conference call Nexstar COO and President Tom Carter said the deal provides an option to extend the content partnership down the line for additional programming if the sides agree.
The operating chief acknowledged that The CW, which over its 16 seasons has had series like “Gossip Girl,” “Supernatural” and “The Vampire Diaries”, is currently the lowest-rated broadcast network. Nexstar believes that’s because the network’s programming target demo is age 18-34, but the average CW broadcast viewer is 58 years, Carter said. Part of Nexstar’s plans for the network include a shift away from costlier original content.
The transaction, which doesn’t require regulatory approval and or include any upfront consideration, is expected to close in the third quarter. Nexstar is taking on management of The CW network immediately.
CEO and Chairman of The CW Mark Pedowitz will continue in his role and remain responsible for day-to-day operations.
While the acquisition isn’t materially significant for Nexstar financially, CEO Perry Sook said the company believes it’s strategically important, and noted M&A has been the biggest driver of value for shareholders over the years.
“This transaction will again leverage our well-established track record of success in improving the performance and the profitability of the acquired assets, and if we realize our vision it will become among one of the most accretive acquisitions that we have done,” Sook said during Monday’s conference call.
On the strategic front, Sook said the M&A enhances revenue opportunities, particularly with ownership solidifying and creating better opportunities for CW stations and other CW affiliates.
He noted that Nexstar is the largest CW affiliate group, with 37 CW and CW Plus affiliates, including five in the top 10 DMAs, reaching 32% of all U.S. TV households across the nation.
“Together these stations are some of the most profitable and highest margin television assets in our portfolio. As the network’s majority owner, Nexstar will make business decisions that will enrich these revenue streams while ensuring the viability and future financial success of the broadcast network,” Sook said.
The company plans to improve programs and ratings on the network, which he suggested will create new opportunities for affiliate stations to enhance retransmission and local advertising revenue.
Sook said the deal positions Nexstar to have “an important seat at the table regarding any potential future changes in the network affiliate ecosystem” as owning proprietary network content gives it added negotiating leverage and chances for monetization for TV stations.
Nexstar also sees the deal enhancing and injecting a new mix in its original content portfolio, as the broadcaster currently produces over 290,000 hours of original content annually that’s mostly focused on local and national news programming.
The CW brings non-news content, which also strengthens the combined assets to attract advertisers. Increasing exposure “to the large and lucrative national advertising market” is a key strategic benefit Sook cited, noting that The CW almost exclusively sells its advertising nationally. In addition to boosting existing national ad revenues, it gives Nexstar the chance to bundle or separately market its network inventory with local inventory.
Acquiring The CW means Nexstar is also a participant of an advertising-based or AVOD service, with Sook pointing to the network’s app. The CW app is available on major platforms, has almost 90 million app downloads and over 3 billion digital impressions served for the current broadcast season through the end of June. Sook said Nexstar will continue to grow the platform by adding content, with the potential to use Nexstar’s content and other programming assets.
Improving profitability, shifting away from original scripted content
As Nexstar takes over management and ownership of The CW, the first goal is to improve the low-rated network’s profitability. Initially that’s by cutting costs near-term with Nexstar expecting to save on corporate overhead, digital infrastructure, advertising sales and content and programming acquisition at The CW, according to Carter.
Nexstar also believes it can create significant value by focusing on and building out the broadcast audience, which will help strengthen ratings, driving increased ad revenue and affiliate fees.
Carter said Nexstar’s programming approach “will be unlike other broadcast network owners” and current owners Paramount and WBD “as we will strive to grow the broadcast audience without a dual agenda of greenlighting programming capable of crossing over to an SVOD service.”
In terms of focusing on content for SVODs, Paramount has its own Paramount+ service, while WBD owns both HBO Max and Discovery+ (WBD will be combining its SVODs into one larger subscription streaming service next year).
Part of the plan for Nexstar includes departing from the prior focus on expensive original scripted content. Carter cited SNL Kagan data as saying The CW original programming spend is almost twice that of other broadcast networks. It will increase the mix of lower unscripted costs and high-quality syndicated programming, with Carter noting that Nexstar will leverage its experience spending around $2 billion annually on programming.
Given early media coverage on the deal, he said, Nexstar is “already receiving a number of inbound opportunities to source cost-effective content.”
Nexstar CFO Lee Ann Gliha also acknowledged the troubled network, saying “it’s no secret The CW is not profitable” – but added that’s not typical for fully distributed broadcast or cable networks.
Based on plans, Gliha said Nexstar believes it can bring The CW to profitability by 2025.