Kevin Latek: Just to echo that, I think we feel that four dozen phone calls on the JV in two days and a fair number of questions seem to stem from the idea that the sports JV was going have 14 linear channels, 12 cable and then the reference to the two broadcast channels, Fox and ABC somehow meant a national ABC network and a national Fox Network that don’t exist. Frankly, that a lot of people did not understand that the way that broadcast networks work is that there are local TV stations that carry a certain number of hours a day of content, two hours a day for Fox Sports and about 15 hours a day for ABC-plus sports content. So for example if you are in Cedar Rapids and you want to watch Fox, you don’t turn on the Fox Network, you turn on the Fox affiliate owned by another broadcaster.
If you’re in Cedar Rapids, you want to watch ABC, you don’t turn on ABC network. You turn on the ABC station that’s — ABC affiliated TV station in Cedar Rapids, that is owned by Gray Television. People just seem to have completely missed that. I think, the comments from the networks to us privately and the comments publicly return people to the understanding that broadcast is different than a cable channel that’s distributed to all homes at essentially at the same time with the same content. And as that sunk in people, I think started to appreciate what really we said in the statement we issued that day, which was a virtual MVPD that carries local affiliates will compensate the local affiliates for their signals. And therefore as we learn — many subsequent conversations, the target audience here is not to destroy the linear — the traditional MVPD sub base that is contributes a significant amount of money and distribution for the cable channels that are distributed there as well as the two broadcast networks.
But it is going to target the core never crowd. So to the extent they are bringing in people that do not currently pay for television, that’s incremental revenue for all of us. So if it is successful, it’s incremental revenue, and that’s a good thing. There are a couple — there are three or four virtual MVPDs today. One has already gone on the business. So this is another new virtual MVPD, there may be more in the future. It is a dynamic business. And the industry does not end every time somebody announces a new virtual MVPD, but that seems like that’s what happened for that first week. So I think we are at the point where people understand now what virtual MVPD is and how slim these offerings will be and that virtual MVPD that carries Fox and ABC affiliates is a benefit to Fox and ABC affiliates.
Operator: All right. Next up, we have John Kornreich. Your line is now open.
John Kornreich: Two questions, I guess, for Jim. One, should we expect leverage to get a little bit under five by the end of this year? And secondly, can we be hopeful that net retrans, which by your forecast, will — I guess, decline by about 3% this year could resume some small growth in ’25 and ’26?
Jeff Gignac: Yes, John, it’s Jeff. I’ll take your first one, in terms of leverage towards the end of the year. I don’t think we quite get below 5%, but we should be getting into the low 4s by the end of the year. Sorry, low 5 by the end of the year. Sorry about that. Yes, low 5.
John Kornreich: You had me excited for a minute.
Jeff Gignac: Yeah. My apologies.
John Kornreich: And the other question is, anybody can take it, I guess.
Jim Ryan: So this is Jim. I’ll lead off and Kevin can provide a little bit more color. Given the pace of our sub renewals after we finish the remaining roughly 30% this year, rate renewals, I mean we have about 18 months where we don’t have any re-trans agreements up for renewal. So I think, the re-trans is going to be more stable in 2025. And then I think, as you get past 2025 and into 2026, 2027, we have an opportunity again to grow. Kevin feel free to add more color.
Kevin Latek: Yes, I think that’s correct. The fixed fee network contracts were set at a time when we all anticipated that retrans would be in a different position or I should say, the traditional MVPD sub numbers will be higher than they are today. And we fully expect that we will be resetting those prices when we renew in 2025 and that should allow us to return to net retrans growth going forward.
John Kornreich: After ’25?
Kevin Latek: I would say after ’25, whether it occurs in ’25 will depend on a couple of puts and takes with our renewals this year and sub-losses also sub migrations, subs that move from traditional to the virtual, just how that flows. So it — I think this year, we’re looking at — we talked about stable to maybe low single-digit decline on that next year. There is still some puts and takes. I’d say, as we look over a number of years, we should see net retrans returning to a growth trajectory.
John Kornreich: Kevin, what is your calculated the sub-decline of late?
Kevin Latek: Gray’s experience is fairly consistent with the overall industry. Our TV households break down about 45% roughly in large markets, 45% in midsized markets and the balance in small markets and that skews a little bit more towards midsized markets than the overall the US population distribution, but our experience with the MVPDs is, I’d say, pretty similar to what you read overall and estimates for the overall industry.
John Kornreich : Thank you very much for your answers.
Operator: All right. Next up, we have Davis Hebert. Your line is now open.
Davis Hebert: Hi everybody. Thanks for taking the question. I wanted to ask a follow-up on the retrans because I think your guidance shows a mid-single digit decline in the second quarter. And you could just give some data on cord cutting, but are you able to sort of segment out what the pressure is between cord cutting versus mix shift of linear subs moving to virtual because I know YouTube has had some nice growth over the past couple of quarters Sunday Ticket. So I just wanted to ask for a comment there.
Kevin Latek: Haven’t really thought through philosophically, what’s the bigger driver or what the relative breakdown is the traditional MVPD subs are declining double-digits, that’s fairly well known. And the virtuals and the DTCs are growing at a pretty healthy clip. That’s also fairly well known. So the – we are not immune to that at all, and we’re exposed to it at kind of the same level as everybody else. We probably are a bit more exposed than others in terms of the price difference, the revenue difference we get from a traditional sub versus a virtual sub because our traditional rates are at the high-end of the industry. There are some broadcasters who probably are still looking at kind of parity between traditional rates and what they receive from the networks for the virtuals, I think that the large groups have more success in driving their traditional retrans rates.
And so those who have higher rates are obviously going to have a bigger delta when they move to essentially the same fee that’s paid to all affiliates in all markets of all quality levels. So we probably are a bit more exposed in that area. On the flip side, sooner we can — as those fees on the virtual side, can move closer to a market rate. Gray would benefit more than others. So we are all rolling in the same direction as an industry, meaning broadcast affiliates — return our rights to us that is our ability to negotiate for the distribution of our signals on all platforms, not just all platforms minus three or four. And when we succeed there, which unfortunately will not be quick because it is a Washington solution. I think, we will see good benefits for Gray, as well as the whole industry.
But your following questions can be when is that going to happen, and I can’t tell you what anything is going to happen in Washington.
