The E.W. Scripps Company (SSP) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Scripps Fourth Quarter 2021 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to Carolyn Micheli, Head of IR for Scripps. Please go ahead.

Thank you, Lea. 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.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 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. 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. We'll hear this morning from Scripps' President and CEO, Adam Symson; Chief Financial Officer, Jason Combs; Local Media President, Brian Lawlor; and Scripps Networks' President, Lisa Knutson. Also on this call is Controller, Dan Perschke. And now here's Adam.

Good morning, everybody, and thanks for joining us as we report results for what was a terrific year for our company. We're so pleased to be delivering to you free cash flow that is 25% higher than the mid-range of our projection a year ago and 8% higher than we expected even in November. In 2019, our free cash flow was $65 million. We ended 2021 with $280 million of free cash flow, quite a change for us in a nonelection year, a testament to the work we are doing to transform the company and to our continued focus on execution. Both of our divisions contributed to our outstanding 2021 financial performance. In local media, our sales teams capitalized on the rebound in the advertising marketplace and generated a record level of new business for us. They helped our advertisers reach targeted consumers on air through our connected TV products and across digital platforms. 2021 reaffirmed the important role local television advertising plays in the marketplace. Our Scripps Networks team came together to build a powerful and profitable economic engine that outpaced our financial expectations for its first year. The Networks division fully realized its year one synergies for the ION acquisition, invested to launch three networks over the air and began an aggressive plan for connected TV distribution, all while beating our initial acquisition thesis. As we look ahead to our results this year, our Scripps Networks' expectations and our political revenue forecast point to free cash flow of between $400 million and $450 million. Jason will talk more in a moment about our Q1 and full year guidance. While so many other players in the television ecosystem are focused on the streaming wars, spending tens of billions of dollars in a battle for a finite share of the consumer's wallet. When you think of the E.W. Scripps Company, I want you to think of the power of free ad-supported television. During 2022, expect to see Scripps continue to focus on further expansion into the fast-growing connected TV marketplace across all of our local and national brands. And then there's over the year. It's not as sexy as digital, but OTA is growing right alongside Connected TV. It's a regulated distribution platform with barriers to entry, where we are already fully scaled and have a distinct leadership advantage. So, it stands to reason we are going to accelerate its growth. More about how we'll do that in a moment. Recent studies show that cord cutters and cord nevers are spending an average of $142 a month between high-speed Internet access and up to 11 subscriptions, a higher price tag now than Pay TV. In a recent Deloitte survey, 40% of respondents said they'd be canceling at least one service. And with no real customer captivity, it's no wonder Wall Street is so focused on subscriber retention rates and churn. We are, after all, in the middle of record inflation pressuring the consumer's pocket book. Even those who aren't price-sensitive report being overwhelmed by the content cloud, Research firm Horowitz found 49% of streamers say they find it hard to know what shows are where and 44% say they often have a hard time finding something to watch at all. There's just so much new premium content, in fact, tens and tens of billions of dollars' worth of it. And yet, according to Nielsen, the most popular shows on streaming services are actually the network shows, still available for free over the air. We know live sports is the single most important driver of linear viewing. But if you streamed the Super Bowl, you were watching up to 60 seconds delayed, and it's no fun to get a tweet about a touch down before you see it, let alone if you participate in in-game sports betting. This past season, the NFL ratings came rolling back, reaffirming the value of live sports. Starting next year, broadband homes will have two choices to catch the action. They can sign up for several different subscription services and then try to keep track of where to watch, which game, when or they can watch it all in the best quality, high definition in real time over the air and for free. It's against this backdrop of plus fatigue and content overload where we see opportunity to catalyze over-the-years growth. Use of the over-the-air TV is expected to surpass 50 million households in the next three years. Already, more than eight million digital antennas are sold in the U.S. every year and one in four broadband homes is using free over-the-air TV bundled alongside its subscription services, but I should really say only one in four because we will do better. Studies show that awareness and familiarity are the biggest obstacles to more consumers making OTA a part of their TV bundles. One common misperception is that they only get a small selection of stations. In fact, more than two dozen networks are available over the year, in addition to the Big 4, ION, local independent stations and PBS. Over-the-air television is once again the best and easiest way for consumers to watch the most popular shows, live sports and news for free. So it's time we let America know. Scripps is launching a consumer marketing campaign to help broadband homes better understand how to get free TV through digital antennas and how much great content is there for them once they do. We're also forming partnerships with key retailers, antenna manufacturers, rooftop installers and TV hardware companies that will benefit from the growth of free over-the-air TV. Stay tuned over the coming months for more on this campaign and these powerful partnerships. In recent years, rather than waiting to see what happens in our industry, you've seen us take control of our own destiny. Several years of strategic divestitures, local station and national networks acquisitions and operating performance improvements have positioned Scripps exceedingly well. We've carved out our own lucrative corner within the thriving television ecosystem and so we'll continue to drive both excellent near-term operating performance and long-term value creation for the benefit of our employees and our shareholders. Now here's Jason.

Thanks, Adam, and good morning. Our earnings tables in today's press release include our as reported results from fourth quarter 2021, as well as an illustrative comparison to fourth quarter of 2020 as that we had owned ION and had divested of WPIX. My segment comparisons today will be on that adjusted combined basis. Let's begin with the Local Media results for the fourth quarter. Local Media core advertising revenue was up 8% in Q4, driven by our strong sales execution in a rebounding ad market. Total revenue was down 24%, reflecting the lack of 2020 presidential election spending. Political ad revenue in the quarter was $11 million compared to $137 million in the fourth quarter of 2020. Local Media retransmission revenue was up nearly 1%. Local Media expenses increased just 4% from the year ago quarter. Segment profit for the division was $82 million. Turning to the Scripps Networks division. Revenue for the fourth quarter of 2021 was $273 million, up 14% from the prior year. This performance helped us outpace our revenue expectations for the year as we drew larger audiences to our nine national networks, capitalized on the health insurance open enrollment season and began to realize the benefits of our successful upfront. Networks' segment expenses rose 14% over the fourth quarter 2020 adjusted combined results. That includes our cost for launching three networks over the air. Segment profit for the Networks was $106 million. Shared services and corporate expenses were just under $20 million in the fourth quarter. The company realized Q4 income from continuing operations of $0.43 per share. The quarter included $4.8 million of acquisition and related integration costs as well as a $1.6 million loss on extinguishment of debt. During the quarter, we redeemed $15 million of our 2027 senior notes and $22 million of our 2031 senior notes. In addition, the outstanding warrants to Berkshire Hathaway increased our diluted weighted average share count by 7.5 million shares in the quarter. These items impacted earnings per share in the fourth quarter by $0.09. As of December 31, cash and cash equivalents totaled $100 million. That amount includes $34 million from the sale of the Denver building that was restricted cash until last month. During 2021, the company paid down a total of $581 million in debt and we expect to use excess cash to continue paying down debt in future quarters. Our net debt at year-end was $3.1 billion and our net leverage was 4.7x per the calculation in our credit agreements. With our new cash flow profile and our 2022 political ad revenue outlook, we expect to move our leverage to about 4x by the end of this year. I'm pleased to point out that this is a whole turn ahead of where we had expected to be by that point when we closed the ION deal a year ago. Finally, we were extremely pleased to end the year with more than $280 million of free cash flow. That's 25% higher than our original projection a year ago and 8% higher than our projection last November. We can credit sales execution in both divisions for growing our market share in the rebounding advertising marketplace. Now looking ahead, I'd like to give guidance for a few key areas for the first quarter of 2022. We expect total Local Media revenue to be up low single digits from the first quarter of 2021. We expect local core ad revenue also to be up low single digits. We expect Q1 Local Media expenses to be up high single digits. In the Scripps Networks division, we expect revenue to be up about 10%, accounting for the typical first quarter ad market seasonality. Networks expenses are expected to increase in the mid-20% range. That includes cycling through the start-up costs for the three new over-the-air networks that we launched in the back half of 2021. First quarter shared services costs will be about $24 million. And one note on our Other segment, it will include the expense for our over-the-air consumer marketing campaign that Adam discussed. That's about $20 million for the full year. Now I'd like to touch on a few other key guidance items for the full year of 2022. We expect Local Media retransmission revenue to be up high single digits over 2021. We'll be about flat for Q1 with year-over-year growth beginning in Q2 as we renew about 20% of our subscriber households and we've already completed that agreement. We expect local media political revenue to be on par with 2020 levels despite the fact that this is not a presidential election year, compared to the last midterm elections in 2018 will be up nearly 40%. We expect cash interest outlay this year of between $130 million and $140 million; cash taxes of $100 million to $110 million; CapEx of $70 million to $80 million and depreciation and amortization of about $160 million combined. We do not have any required pension contributions this year due to new federal legislation and the strong growth in our pension assets over the last few years. Finally, given the expectations for another record political spending year, we expect to deliver free cash flow of between $400 million and $450 million. At the midpoint, that works out to about a 55% free cash flow conversion and would represent the highest amount of free cash flow that this company has delivered since we spun off our cable networks back in 2008. Now here's Brian to talk about Local Media.

Thanks, Jason. Good morning, everybody. 2021 was a year when we saw the local broadcast business demonstrate its full power for resilience and longevity. We started the year with a national economy beginning to rebound from the global pandemic and lockdown. We built on the return of consumer and business spending with strong sales execution, record new dollars coming into Scripps stations and advertiser enthusiasm for our Connected TV products. We reached our 2019 core advertising performance in Q4 for the second quarter in a row despite the headwinds from automotive. In fact, our forecast for the first quarter that will be up, results in five consecutive quarters of core advertising growth for Scripps, which is remarkable since it includes automotive. We added a meaningful new growth category, sports betting, which provides a perfect match with local broadcast because of our depth in local markets and our ability to educate a broad mainstream audience. 30 states where Scripps does business now have legalized sports betting and Ohio should be a big one for us when it comes online this fall in time for the NFL season. And speaking of the NFL, the league saw viewers grow by 10% this season and 14% for the Super Bowl and each of the conference championship games drew 50 million viewers. That viewership translated to real dollars for us. Live sports and local broadcast, again driven by our geographic depth or another great match, and we saw that play out better than ever during this season. Finally, we want to continue to deliver advertising messaging on our trustworthy local brands and news programs, which businesses know give their ads more value and relevance with consumers. All of these elements of the local broadcast business allowed us to capitalize on the economic rebound in categories such as services, which was up 14% in the fourth quarter; travel and leisure, which is up more than 100%; meeting and communications up 25%; and home improvement up 16%. As we move through 2022, we continue to build on these fundamental pillars in our business. In January, six of our seven largest categories were well into positive year-over-year growth. As for auto, what we're seeing in Q1 is consistent with everything you're reading right now and we hope the category will start to improve in the third quarter of this year. The other perfect match for our local market depth and our trustworthy news programs comes from election seasons. Scripps is expecting to reach 2020 political revenue levels this year, even though it's a midterm, not a presidential election. The growth will be driven by strong statewide U.S. Senate and governors races. For the Senate, we expect competitive races in Arizona, Florida, Nevada, Ohio and Wisconsin. The firm ad impact projects these five races alone to generate more than $800 million in spending. On the governor's races, we expect to host seven competitive matchups in Arizona, Florida, Kansas, Maryland, Michigan, Nevada and Wisconsin. Among the U.S. House races, we're still waiting on congressional maps in some states, but already expect 25 districts to be competitive for us. In addition, the high level of partisanship in our country has put increasing emphasis on down ballot races. We are hearing estimates of $2.5 billion in spending nationwide on these raises, which is another factor in our 2022 outlook. I'd like to end by recognizing outstanding work from our investigative reporting team at KNXV in Phoenix. The team has spent several years investigating Phoenix area police departments and the court system. They have produced nearly 100 reports and three documentary specials on their findings of wrongdoing. Their work has received national Emmy's and IRE award, a Peabody and most recently, the prestigious duPont-Columbia University Award. Journalism that serves everyone in our communities is the biggest pillar of our business and the reason local broadcast continues to stand strong. Now here's Lisa.

Thanks, Brian, and good morning, everyone. Our team at Scripps Networks is already well into our second year of operations and I have a lot to share this morning about what's ahead. But first, I'd like to spend a few minutes discussing our first year performance, which surpassed our expectations. I am very pleased with the way our team came together and fully delivered on what we had said we were going to do. We realized the full year one synergies we had projected. We successfully packaged together our networks for advertisers creating an attractive portfolio that brings complete national reach and caters to [indiscernible] of America. We launched two new entertainment networks in transition Newsy over the year. Today, all nine of our networks reach well over 90% of U.S. TV households. We saw our five Nielsen-rated entertainment networks become the only entertainment portfolio to grow audience year-over-year. And for the full year, we delivered 13% revenue growth and a 41% margin. Needless to say, the integration of ION has gone quite smoothly and I'm very pleased with the way our division has coalesced into the powerful and profitable economic engine that Adam described. I'd like to give a big shout out to my team, division leaders and the 800-plus employees who really delivered this past year. Contributing to our performance in the fourth quarter was tremendous revenue growth at Bounce as we continue to refresh its programming for black audiences. Across our portfolio, we also saw nice growth in our ad rates in the scatter market in Q4. And our Connected TV revenue grew 45% over Q4 of 2020. As we move through the first quarter, we continue to benefit from a strong upfront presentation last summer. The upfront dollars account for a substantial portion of our revenue each quarter and that lays in a solid foundation on which we can grow as we optimize our rates across direct response in the scatter market. We've already begun to prepare our upfront presentation for this season and we anticipate our portfolio being even more attractive to national advertisers. Now that we have nine over-the-air networks and an expanded CTV offering. We will take an integrated approach to selling CTV inventory alongside our linear screens. Turning to distribution. We have continued our cadence of launching on connected TV platforms with key partners, including Samsung, VIZIO and Roku. Our networks ION, Bounce, Core TV, ION Mystery and Grit will be launched across the majority of these platforms by midyear. And as you know, Newsy and Core TV are already fully launched across CTV. Our streaming network Bounce XL has been especially good - have seen especially good success since its fast channel launch last September. In a short time, it has become one of the leading connected TV brands. For example, on Pluto, Bounce XL has averaged more than 2 million viewing minutes a day. Bounce also saw strong viewership growth for its linear product in the fourth quarter, up 24% among viewers 25 to 54. And for the first time, Bounce outperformed the cable network, BET, among total viewers for the total day. Both of these milestones helped to drive significant growth in Bounce revenue. Our national news network, Newsy, received an important recognition in the fourth quarter with its first seat assignment in the White House briefing room. This access reflects the respect Newsy has earned and puts it in a better position to hold the upper echelons of government accountable. We also are proud of the high-quality long-form storytelling by Newsy's new weekly documentary series in real life. And in January, the network relaunched its prime time show, The Why, focused on explanatory journalism and distinctive interviewing. At Core TV, viewership spiked during the fourth quarter due to the high-profile trials of the McMichael convicted of killing Ahmaud Arbery in Wisconsin versus Kyle Rittenhouse. For the quarter, Core TV was up 47% year-over-year for viewers ages 25 to 54. The network saw its best year since we launched it nearly three years ago. It is also receiving recognition from the industry for its groundbreaking legal journalism and its work to allow cameras in the Derek Chauvin trial and other high-profile courtroom cases. Now operator, we're ready for questions.

[Operator Instructions] And our first question is from Dan Kurnos with The Benchmark Company. Please go ahead.

I guess just two for me, Adam, I've been asking this and obviously, Brian, feel free to jump in here. I've been asking us a kind of the group, the dynamics around retrans and net retrans have been changing given, as you put it - add on - the billions of dollars being put into the streaming wars. And we've heard that from several companies both on the network and the broadcast side now that the step-ups on the reverse side have come in. And also, obviously, the growth side as it begins to mature a little bit, a little bit less of a jump in sort of that first year. So if can you just kind of talk through the dynamics as you see them going ahead for net retrans. And why don't you start there and then I'll ask a follow-up.

Dan, it's Brian. Let me just start by kind of talking a little bit about what I see relative to our discussions with the networks and kind of the environment that you just described. But look, I think as you know, over the decades, the largest value of the relationship between the networks and affiliates has been the exclusivity of the programming that we get and we pay for in our local markets. And over this last, I guess, two years or so, the launch of the direct-to-consumer products by the networks has really begun to diminish that exclusivity in our local markets. And so I think the conversation is changing and the results of that in our diminished exclusivity is forcing a different value discussion with the networks.

Yes. And Dan, just to jump in kind of from a net retrans perspective on what we're seeing, ultimately, that timing is really dependent on the timing of your MVPD renewals versus your affiliation renewals. In '21 and '22, we'll have reset all of our affiliation agreements. We don't have a ton renewing in terms of MVPD. So for us, we're going to see kind of flattish net retrans this year. But as we look forward to next year, 75% of our sub base renewing having already laid in all our affiliate expense, I think you'll see us resume really strong growth again in net retrans.

I guess maybe just a follow-up on that. And I did want to ask a content question. But, I guess, looking out ahead now, though, I mean would you view your - I know we don't like to really look at net retrans margins, but have they stabilized from a linear perspective?

Yes. I would think they have, yes. I mean, that's certainly our experience.

Okay. Great. And then either for Adam or Lisa, I guess, just again, because of all of the content that's going behind these paywalls, it's going to create a very interesting ecosystem where the networks are talking about deemphasizing the same network content. You talked about that's free that still remains the most popular. So, to the extent that the CBSs and Disney and ABCs and whatever the world just continue to spend more and more and deemphasize the network content, how do you see the content lineup evolving for the network business over time, especially as you guys make what looks like a really strong push into the CTV ecosystem going forward here?

Dan, it's Adam. I actually think that we're very, very well positioned because there's so much being made right now of what I would consider the billions and billions of dollars of spend on content that the content creators, the networks those that own other SVOD platforms ultimately are going to need to make sure they properly monetize those assets. And we expect that they will continue to recognize the value of having their cake and eating it too. The opportunity for them to both put their content behind their paywalls and drive subscription, while simultaneously recognizing the real value having that same content available on linear platforms. even potentially as a barker channel for that content. We've seen what's happened when content completely disappears from linear and is put behind the paywall. It gets lost, Consumers don't know it's there and ultimately, it doesn't create value. On the other hand, we've also seen the value of programmers who recognize the mix of linear free, whether that's AVOD and FAST or over the air and SVOD. And we've seen countless examples of the continued renewal of off-network series and subscript - and syndicated content, in addition to that content being placed behind a brand-specific SVOD platform. So I think it's going to spell incredible opportunity for us actually because I think the pressures, the economic pressures on these content creators and these SVOD platforms will absolutely force them to identify new ways to monetize that content. I don't see it coming out of the linear marketplace or out of the ad-supported marketplace. I actually see more content going into the ad-supported marketplace because these two marketplaces work really well together.

And our next question is from Craig Huber with Huber Research Partners. Please go ahead.

I guess, Brian or Adam, ATSC 3.0, maybe just give us an update on that. How it's going? How do you envision the long-term revenue model playing out for you guys? And maybe talk about the chances of maybe renting out your excess spectrum down the road. I mean, Nexstar obviously talked about this two days ago on their call, and they mentioned that they've been speaking with your company about potentially teaming up to rent out the excess spectrum in the marketplace. Just talk on that and just the long-term outlook. How many years do you think it will take for the business model to sort of play out and be meaningful to your guys' top line and bottom line?

Yes. We are working with other broadcasters and through our leadership with Pearl to continue to advance the technology and the business use cases. I mean one recent example was the test we did across Michigan with Nexstar, which confirms what I would sort of refer to as the cellularization of the broadcast distribution of data, which was really a critical step for a number of the different use cases, including for mobile entertainment, telematics, data streaming. Meanwhile, on the consumer side, we're seeing enough live ATSC 3.0 sets in some markets that they soon - that will soon rival the number of households in a market's Nielsen panel. And just as a reminder, that will also ultimately open up a first-party data and addressable advertising opportunity for us down the road. So, we continue to see opportunity there. I would say it's important to remember that Scripps is already the most efficient monetizer of spectrum through our Networks division. And so we've set ourselves a challenge. We are looking always to identify the best and highest use of that spectrum. And we're very serious about looking for new business opportunities to lever that spectrum for programming like we are doing already with our over-the-air networks or with data casting. And we would always focus on identifying a way to create value that is the best and highest use of that spectrum. We'll continue to do our work on the development of ATSC 3.0 and that spectrum opportunity for Scripps. And look, quite frankly, I want to encourage more broadcast companies to join our effort to inform America on the benefits of using a digital antenna for over-the-air TV, which is ultimately necessary for consumers to get the greatest benefit from 3.0. So I'm very, very bullish on the opportunity for us because we're already doing so much with spectrum today.

But I'm just curious, how many years out do you think it might be, so it could be meaningful for your top line, however, the model plays out? I sort of asked that just because we've been talking about this as an industry for feels like five-plus years now and stuff. I mean how meaningfully, how far out do you think it really is here?

We'll actually probably generate our first dollar on ATSC 3.0 this year. That's not meaningful, that's nascent, but I think it's the first step. And then what we'll have to track carefully are the number of sets that are sold and the different market opportunities. So, if we take the path of identifying multi-versioning and data-informed advertising, obviously, we'll need a certain number of sets to be in the marketplace. But on the other hand, if through our work with the big four auto manufacturers, we continue to see progress leveraging ATSC 3.0 as an opportunity for the cellularization of data casting that could come sooner. It's just all going to depend and we're being equally aggressive on all fronts to identify the best path for creating value.

And my other big picture question, guys, is, what are you hearing from your advertisers with these much higher inflation rates, obviously, interest rates going up here? And then more recently, the huge tension fighting going on in Ukraine, what does that mean for your advertising? We've obviously got your outlook here for the first quarter, but are you hearing any pullback of budgets or any - just what's the general thoughts from your advertisers both at the Scripps network side, but also the local TV station side?

Craig, I'll start, it's Brian. Really no impact. I mean, I think there's a lot of momentum still in the local marketplace. Obviously, the news of what's happening over in the Ukraine is relatively new in the last 48 hours. So, we'll have to see how that develops. At first blush, it looks like beyond gas prices, it may not have a lot of impact on local markets and local businesses. But beyond that, I don't think inflation is yet a factor. Our categories are, as I've described, seven or eight categories, top categories were up in Q4. We're seeing that same trend as we now work our way through Q1. So, it seems like there remains a lot of health in the categories in the local sector. And so at this point, we are not feeling any impact from either.

Craig, yes, it's Lisa. We expect, obviously, to have another strong quarter. I think the Ukraine situation inflation are not a factor at this point in time, as Brian said, we'll sort of see how that plays out. Our strong growth, up 10%. We are comfortable with and that's really primarily driven by our repricing in the upfront, which is already laid in. So, we feel good about the quarter.

And then Brian, I want to hear if I could, please, about the auto. What percent of your core ad revenue does that represent, is that sort of mid-teens here? Maybe if you could share with us what percent down it is year-over-year? And my other nitpick question, retrans, I think you told us, Brian, third quarter was down a little less than 5% year-over-year. How is that in the fourth quarter?

Yes. Let me start with the latter, talking about the sub change. We continue to see nice improvement relative to sub decline, Craig, and we always report a quarter back. But for the third quarter, total subs declined 0.5%, so half of 1% and if you look on a 12-month trailing, our net decline was about 4.5%. If you go back a year earlier, it was 6.5%. So we're seeing dramatic improvement there. And you can see almost no net decline in Q3. Relative to automotive, look, our challenge here is inventory. And so we work closely with our local dealers. We have many local dealers who are still staying on the air, keeping their brands out there and in many cases pushing used cars. It's fairly consistent across the dealer groups. Foreign is down a little bit more than domestic. But needless to say, every sector of auto is down. It represents, to your point, about mid-teens of our total core revenue. And it was down a little over 25% as we looked at Q4. And I see kind of the same sort of numbers as we work through the first quarter.

And our next question is from Michael Kupinski with Noble Capital Markets. Please go ahead.

Brian, I was wondering, can you frame for me how big is sports betting for the company right now? And then do you have any thoughts on - I know Ohio is coming online potentially here. Do you have any thoughts how big the category may become for you for this year?

Yes. Mike. Look, sports betting has become a pretty meaningful category. In fact, we've rolled it into travel and leisure. But I guess we should foreshadow. We're going to start breaking it out as its own category next year because of the size of it. But it represents more than 5% of our core and so certainly becoming a material category. Really, it's following some ebbs and flows. There's a lot of money that goes into a market when they launch. I think some of the big players are very aggressive recognizing that people aren't going to have five or six sports betting apps on their phone. They might have two, possibly three, and so they try and win that space and get a couple of bets placed and then there's engagement. Then there is a little bit of a pullback and we're seeing that pull back money then they stay active in the markets, but that money is moving to new launch markets and we've had a couple of markets launched recently. Maryland's launched Lafayette and Louisiana has now launched. But as I said, Ohio will be material, having two NFL cities in Ohio. The other big one that will be for us, although I don't think it's going to happen in '22, but I do expect it to move through its legal process and voting process and '22 would be Florida. And so I think that's probably 2023 money. But I think - look, there's - I think they're still in - there's 30 states that currently have sports betting legalized. I think it will move through the process of - across the country of most of all states becoming legalized. And then I think they'll become some standardization. Many of the states look different. I think there will ultimately be standardization. And then I think the real payday, as we see in Europe and other places is when you can get to in-game betting. In Europe, more than 50% of the betting that happens is actually happening in game. And so I think that there will be a several year move of a very healthy category to get to that point and then I think it becomes an even more robust category for us.

Got you. And then just following up on Craig's question about auto. I'd ask it a different way. Can you frame for me where auto advertising is relative to 2019?

It's probably two-thirds roughly of what it was.

Okay. And then just kind of moving on. Just - I guess I want to ask now that you moved Newsy over the air, how has it performed relative to the other networks?

Mike, it's Lisa. We are pretty happy with Newsy in its fifth month of over the year. Certainly, before going over the year, it was primarily an OTT or CTV play with most of our growth over the last several years coming there. We're seeing audiences build over the air. It's a little too soon to tell at this point. We're not Nielsen rated. But certainly, we're pretty happy with where we sit in month five of Newsy's launch.

And Lisa, is Newsy no longer carried on the Comcast systems?

Correct.

Okay. And then when do the comp - as a part of the renewals that you've indicated for next year, 75%, are those Comcast subs as well?

Yes. That includes Comcast subs.

Okay. And I know that you - it seemed like you left a little money on the table last time when you went through the test subs, especially as you were launching Newsy over the air - I'm sorry, on Comcast. So, do you have any thoughts in terms of what we could look for in terms of retransmission revenue growth potentially or maybe a range looking out to 2023?

Well, first, I would sort of clarify. I don't think we left money on the table, quite frankly. Just remember, dependent on from where we started, we started at zero. So, the negotiations, I think, proved to be very positive for us, but you sort of start where you start. I would expect us, as we will, with all of our retrans especially in this mode right now where we are fully scaled as a local broadcaster to get full market value for all of our retransmission consent.

Next, we have a question from Steven Cahall with Wells Fargo. Please go ahead.

Adam, I just wanted to ask you a little more on the marketing campaigns for OTA and OTT. I guess, first, is there a way for us to think about the advertising ARPU that you generate on an OTA or an OTT viewer? Just kind of thinking about what that opportunity looks like? And any idea of how many incremental viewers you hope to get through the $20 million campaign that you're putting through for this year? And you mentioned the Connected TV opportunity. I'm just curious where you are in taking your OTA networks, making them available as apps and CTV? And if in the future, we might see a similar sort of marketing push on the digital side where you're using like the Rokus and the Fire Sticks of the world to help you get to those viewers as well?

And there's a lot of math behind this. First, according to Nielsen, Scripps has between a 25% and a 30% share of OTA viewing at any one time. So that - between that formidable share and our ability to execute, we're obviously running a very large revenue business right now on the network side and that doesn't even count the upside we think we'll get on the - from OTA growth on the local side. That gives us the formula to invest pretty modestly in a way where we know that the OTA viewer value will definitely exceed acquisition costs. So we're now operating about a $3 billion growing business that's going to benefit as the OTA marketplace continues to grow and we're tracking the cost of our customer acquisition with expectations that you're going to begin to see the benefit of the OTA Marketplaces growth as we continue to develop our business given our strong share in the marketplace. I think Lisa can provide you a little bit more data on the CTV progress and on marketing for CTV.

Yes. So, Steven, of course, we launched Bounce XL in the fourth quarter of the year, which is doing really well. We have plans to launch most all of our brands over the next six months. Probably, the one I'm most excited about is ION. ION is the fifth largest broadcaster. It's a top three cable entertainment network and really will be the only network of that caliber carried on fast services. So, that is a pretty big deal and we're anxious to get that launched. I would say from a marketing perspective, this is a plan that we have executed really, really well with Newsy over the years, certainly as Core TV was launched, CTV. So we'll employ a lot of those same tactics from a marketing perspective with the big platforms in the coming months.

Yes. Let me also add. We talked about this a little bit last quarter. We went out and were able to acquire the rights for our linear streams and we'll now bring those into the fast marketplace. And in the fast marketplace, I'm a really big believer that the cream will rise to the top with respect to premium programming. And that really means that our streams will really be the best of the best premium content in the fast marketplace. And we expect that to be able to share a lot more with you with respect to the revenue growth ahead as we launch and go live.

Great. And then, Jason, I think you've beat and raised your free cash flow number a few times in 2021. Can you talk about what came in better than what you expected in 2021? And as we think about 2022, should we also perceive this one as being maybe a little bit conservative? Or particularly, does the marketing campaign just generate a little more maybe uncertainty in the free cash flow guide because if things go well, you might want to spend a little more, but then political could come in higher. So maybe just some of the puts and takes in your 2022 guide.

Sure. So specific to 2021, I mean the single biggest thing was just the pace of the rebound in the advertising marketplace and the sales execution you saw both on local and networks. Throughout the year, we continue to see us exceed our expectations and take up our expectations on that top line revenue side. I would also say, as the year went on, we also were pretty selective as we started adding back in some of those frozen costs during the early part of the pandemic that we curtailed. And so I think the combination of those things really drove that free cash flow over performance. As you talk about our number this year, there's a lot of variables, right? I mean political has - can have wild swings. That's one of the reasons why we have the range we provided there. But certainly, we are hopeful there's upside on political. We are always hopeful that we can see a little bit of outperformance on retrans and then also just on sort of the top line, the advertising revenue.

And we have a question from Keith Smith with Bonhoeffer Capital. Please go ahead.

I have a few quick questions here. The first one is what portion of your current ads are CTV versus linear? And where do you see the trends on going there? And then a little bit more on the sort of the timing of the online sports betting in terms of the in-event sort of that timing there?

Yes. This is Adam. I'll sort of answer for the enterprise on the CTV versus linear. I mean the vast majority of our advertising revenue today comes from linear. There is very strong growth across local and national networks on the CTV side, but we have very, very big huge platforms in local and national networks. And so, it makes the CTV look relatively small, although growing quickly. Brian, on sports betting.

Yes, Keith. Look, I think sports betting will be pretty consistent as we go through the year. As I said, 30 states already launched. So, there's either maintenance or acquisition marketing that's going on in all of those states. And beyond that, then we'll have new states launching. As I mentioned, Ohio is probably the biggest opportunity for us and that should come online somewhere right around the NFL season. So expect to see a little bump as we hit September and work our way through Q4.

Okay. What I was looking for specifically is do you guys have any time line of the in-game betting sort of services like you mentioned in Europe?

Yes, I think it's a couple of years, Keith. I think the whole country is going to have to ratify sports betting. Then you're going to have to have some consistent rules on how it's executed. And then I think you're in a position to be able to standardize something like that. So, I would think that there's a couple of years before that happens.

And we have no further questions. I'll turn the conference back to Ms. Micheli for closing comments.

Thank you, Lea. Thanks, everyone, for joining us as we reported a terrific year across the company and discussed our leadership and free ad-supported television. We have every reason to believe we have another great year ahead. Thanks for joining us.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.