Letter to shareholders
Last year was our first full year operating the 13 former Journal Communications television stations, and among our top priorities was positioning them to capture more than their fair share of political advertising dollars, as we had in our legacy markets in past presidential election years. However, as a whole, the presidential race spending did not rise to the level we had expected, and yet some of our regular local and national advertisers had already created marketing plans to avoid competing with political campaigns.
At the same time, we were encouraged by the strong spending levels for U.S. Senate and House races in our markets in 2016. And looking ahead to the 2018 mid-term election, we are focused on 10 Senate seats up for grabs in our footprint as well as a significant gubernatorial year, with 16 governors’ races across the Scripps markets.
Also in our television division, we took a giant leap forward with our retransmission revenue, delivering a 62 percent increase after renewing a below-market contract with Time Warner early in the year. On the network compensation side, we have recently completed key renewals with all four networks. We expect a 20 percent increase in total retransmission revenue in 2017 and a 25 percent increase in what we keep after network compensation.
Our original programming strategy continued to pay dividends in 2016. Our infotainment-news program The List continues to pull strong ratings as a top 20 rated show in syndication. The List can now be enjoyed in 45 markets covering 28 percent of the nationwide audience – 32 million U.S. television households.
Our viral videos show RightThisMinute is on track to launch into a seventh season this fall. The ABC-owned station group has renewed the show (a partnership among Scripps, Cox and Raycom) for the 2017-2018 television season. Today, the show is cleared in 94 percent of the country on 212 stations nationwide and one market in Canada.
The Federal Communications Commission’s broadcast spectrum auction ended early this year. We had pursued several channel-share arrangements with ourselves and other broadcast partners that would have allowed us to continue to operate our stations and serve our local communities while supporting the government’s attempt to recapture some broadcaster spectrum. However, none of the spectrum we offered was selected during the auction process because the prices fell below the value we thought it was worth. We believe having a full 6 MHz capacity in local markets will provide the foundation for new business opportunities in the ATSC 3.0 world.
In our digital reporting segment, national video news service Newsy is rapidly expanding its distribution and viewership. It recorded 1.3 billion video views for the year. By the end of 2016, over-the-top and next-generation video delivery services made up the majority of Newsy’s revenue stream, as the service continues to move away from syndication services and establish itself as the news network of choice for millennials looking for thoughtfulness, context and objectivity.
Podcast-industry leader Midroll also expanded its brand late this year. Midroll owns and operates shows, serves as an advertising network for about 250 additional shows, and runs the podcast listening platform Stitcher. Last year, Midroll staged its first-ever live event, the Now Hear This Festival. Fans from across the country traveled to Anaheim, California, to meet popular hosts and see shows recorded live on stage, providing the Midroll team with great real-time feedback on its programming strategies. Midroll also launched the Stitcher Premium subscription service last year, laying the foundation for our direct-from-consumer audience and revenue strategies.
Finally, we acquired the long-time satire and humor brand Cracked in April 2016. Many will remember Cracked as a magazine that competed with Mad Magazine, but it has evolved over the last decade into a robust digital brand serving 50 million loyal monthly visitors to its website, a vibrant YouTube channel and a strong social media following. The $39 million acquisition fit neatly into our portfolio of digital content brands with national reach, loyal audiences and tremendous traction.
We continue to maintain our characteristic strong balance sheet in 2017 and project our net debt to fall even lower this year. This financial flexibility gives us the resources to act quickly and show good returns when an attractive acquisition opportunity arises, and the firepower to repurchase our own shares. In addition, our modest cash requirements for capital expenditures and debt repayments mean we have strong and growing cash flow.
We are well positioned to seize the opportunity afforded by 2017 and beyond.
Thanks for your support.
Richard A. Boehne
Chairman, President and Chief Executive Officer