This report does not constitute a rating action.

Editor’s note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).

As consumers and advertisers navigate away from pay-TV, S&P Global Ratings expects the two primary contributors of local TV broadcasters' revenue--retransmission and core advertising (excluding political)--will modestly decline over the next few years. We believe the industry will become increasingly reliant on political advertising revenue in even years for cash flow. At the same time, many local TV broadcasters either recently refinanced, or will need to refinance, upcoming debt maturities at higher interest rates.

As a result, we expect EBITDA will gradually decline and cash flow will weaken. Despite these challenges, our ratings outlook for the sector is largely stable following several negative rating actions in 2024. Here, we discuss the various factors we consider in evaluating the business risks of the local TV broadcasters we rate.

Key elements in our rating analyses of these companies include:

• Scale and geographic diversity;
• Revenue contribution from retransmission (the fees local TV stations receive from pay-TV distributors giving the right to retransmit the stations’ broadcast content);
• Station rankings and market duopolies;
• Diversity of network affiliations; and
• Brand recognition and content ownership.

Size, Range, And Reach

Scale provides bargaining power. We believe TV broadcasters with greater household reach are better positioned to negotiate more favorable retransmission agreements with pay-TV distributors. This is especially evident for Nexstar Media Group Inc., with its local TV station portfolio that is significantly larger than its peers. Greater household reach also improves a TV broadcaster's ability to negotiate more favorable reverse retransmission agreements for network programming. Gray Media Inc. is the largest CBS affiliate. TEGNA Inc. is the largest NBC affiliate. Nexstar is the largest Fox and CW affiliate, and Sinclair Inc. is the largest ABC affiliate. We also consider geographic diversity because it reduces exposure to volatile performance in any given market and is more attractive to national advertisers.

Table 1

Distribution Versus Advertising Revenues

Distribution revenue is more stable, while advertising revenue is more volatile. Retransmission revenue provides a relatively predictable source of cash flow, while core advertising revenue (excluding political) is economically cyclical (advertising budgets are predicated on consumer spending projections) and under pressure given declining audience ratings. On average, distribution revenue contributes about 50% to local TV broadcasters' revenue.

We expect retransmission revenue will decline about 0.5% in 2025 before increasing 0.5% in 2026 as the TV broadcasters benefit from a modest improvement in subscriber churn. We expect the rate of subscriber churn will improve slightly to a 6.2% drop in subscribers in 2025 and 5.8% in 2026, following an approximate 7% decline in 2024. Charter Communications Inc.'s new Life Unlimited video strategy, which bundles video and streaming options with the purchase of broadband services, is a key factor. TV broadcasters receive subscriber counts from pay-TV distributors on a few months of lag (or more for virtual offerings). As a result, the benefit will be more pronounced in 2026 than 2025. Our forecast for individual TV broadcasters will largely depend on the cadence of contract renewals with pay-TV distributors.

However, we continue to believe it will be increasingly difficult for local TV broadcasters to increase retransmission rates during contract renewals with pay-TV distributors given declining TV audiences, weaker broadcast network content, and less exclusive broadcast network content.

Table 2

We lowered our forecast for core advertising revenue growth in 2025 to a decline of 1% versus our previous expectation of positive 1.5%. Many companies we rate have noted advertisers’ hesitancy to spend at the end of 2024 and into 2025 given a high degree of uncertainty about the economic outlook in the U.S. S&P Global economists expect the introduction of tariffs will increase unemployment and inflation, slow GDP growth, and cause interest rates to remain higher for longer, which we believe in turn will weaken ad spending (particularly on legacy platforms). Notably, we believe the introduction of tariffs could further hinder spending on automotive advertising, which remains an important category for local TV.

We expect year-over-year comparisons will likely be easier in the second half of 2025 due to a lack of political displacement. After 2025, we expect core advertising revenue will decline low-single-digit percent annually, performing better in odd years without displacement from political advertising revenue. Many companies do not report digital advertising revenue (such as from TV station websites, Connected TV, or other advertising platforms) separately from TV advertising revenue, which will make it difficult to fully evaluate advertising tends.

Market Share Matters

Higher-ranked stations and duopolies provide greater revenue opportunities and higher margins. Highly ranked stations typically receive a higher percentage of advertising spending and tend to have higher power ratios (advertising share divided by audience share). TV broadcasters with duopolies (more than one TV station in a market) can also share cost efficiencies among their stations in a particular market and, in our view, charge higher advertising rates due to greater market share.

The current Republican administration could support in-market consolidation, which would increase the number of duopolies. The Federal Communications Commission (FCC) can consider this on a case-by-case basis following the Supreme Court’s 2021 ruling in favor of the FCC to relax certain media ownership rules, including the ability to own more than one top-four rated TV station in a single market. This could potentially include acquiring stations under current joint sales agreements (JSAs), shared services agreements (SSAs), or local marketing agreements (LMAs) or swapping stations with other TV broadcasters.

This March, the FCC approved the first combination of top-four rated TV stations in more than five years. It granted a waiver to Gray to acquire KXLT-TV (a FOX affiliate) in Rochester, Minn., where Gray already owns a NBC-affiliated station. However, this waiver was granted based on the grounds that KXLT-TV qualified as a failing station (audience share and financial performance has been struggling for an extended time).

Given elevated leverage among many local TV broadcasters, we believe there is limited ability to pursue leveraging transactions.

Gray and Nexstar have the highest number of duopolies, which isn't surprising because they have the highest number of stations. However, TEGNA and Gray have the highest percentage of No. 1 and No. 2 ranked stations. This results in high EBITDA margins for these companies.

Table 3

Diversity Bests Concentration

Network diversity provides more stability than network concentration. It also reduces potential volatility from the popularity of a network's programming slate, including its primetime shows and sports airings. Local TV broadcasters remit a higher percentage of retransmission revenue to the big-four network affiliates (NBC, CBS, FOX, and ABC) than the CW network.

However, the dynamics of the CW network could change over the next couple of years as Nexstar (77% owner of the CW) resets affiliation agreements with two-thirds of the CW’s subscriber base in 2025, after enhancing the quality of the network’s programming. Nexstar's greatest network exposure is to CBS, TEGNA's and Gray's are to NBC, Sinclair's is to Fox, and E.W. Scripps' is to ABC.

We believe local TV broadcasters could drop network affiliations for a handful of TV stations over the next couple of years, particularly to accommodate acquired local sports rights (so the timing of games doesn't conflict with network programming). While we do not expect a meaningful shift toward independent stations over the next several years, we believe local TV broadcasters could increasingly consider this option if they believe reverse compensation payments will exceed the value of network programming. In 2023 and 2024, Nexstar improved the economics of its TV station group by moving CW affiliations to 17 of its TV stations.

Mix Of Business Risks

Nexstar is the only TV broadcaster with a satisfactory business risk. We view Nexstar's business more favorably than those of its local TV broadcast peers given its greater household reach, geographic diversity, and industry-leading margins (even without dividends received from Food Network). Additionally, its ownership of The CW provides additional growth prospects, particularly through its recent acquisitions of sports rights.

Sinclair, TEGNA, and Gray have fair business risks. These companies have notably less geographic reach than Nexstar, which, in our view, results in weaker negotiating leverage with pay-TV distributors. They also have lower EBITDA margins and do not own a broadcast network.

E.W. Scripps' weak business risk reflects its higher mix of lower-rated affiliates, higher percentage of advertising revenue (given its ownership of the ION Television Network), and lagging EBITDA margins. Core advertising revenue represented about 35% of its local media segment but about 55% of its total revenue in 2024.

CMG Media Corp.'s (Cox Media Group) weak business risk primarily reflects the limited scale of its TV station portfolio and its exposure to broadcast radio advertising. We view the exposure less favorably than broadcast TV as radio advertising dollars shift more rapidly to alternative forms of media.

Owning Content Beats Redistribution

Local TV broadcasters primarily redistribute content, which we view less favorably than owning content. We believe companies that own content are better positioned to build a differentiated brand and pursue a multiplatform distribution strategy (including direct-to-consumer or subscription video-on-demand services). This strategy helps offset secular shifts in advertising and distribution revenue, including the ongoing fragmentation of television viewing as audiences migrate away from traditional television to alternate entertainment sources. For these reasons, we view the business risks of local TV broadcasters modestly less favorably than those of the large, diversified U.S. media companies, including Paramount Global, Warner Bros. Discovery Inc., and Fox Corp., who also have global operations and more business lines.

Table 4

Despite increasing risks to broadcast TV, we still view it more favorably than other TV subsectors, such as general entertainment, given its focus on local news and sports, which is more exclusive to TV and overwhelmingly watched live. Broadcast TV has the broadcast rights for key sports leagues, including the National Football League, which will remain on broadcast TV through the 2033-2034 season (the NFL has an out option after the 2029-2030 season).

Additionally, we believe it is important to U.S. federal regulators, in particular the FCC, that broadcast TV remain widely available to the entire U.S. population for the broad dissemination of information. As a result, we expect it will remain a key component of pay-TV distributors' video offerings. We also believe there is a base of pay-TV subscribers (primarily sports enthusiasts and families with a variety of viewing preferences) that will continue to value the pay-TV bundle.

Credit Metrics Matter

Leverage and cash flow profiles are the primary differentiator between our ratings on local TV broadcasters. TEGNA and Nexstar have stronger leverage and cash flow profiles. We believe lower leverage levels and healthy FOCF will support debt reduction. Sinclair’s leverage is higher than that of Nexstar and TEGNA, but lower than the rest of its peer group. The company recently completed a refinancing of its entire capital structure to extend debt maturities. E.W. Scripps, Gray, and CMG have significantly weaker leverage and cash flow profiles.

Gray’s leverage increased in 2021 following several acquisitions, and the company subsequently had difficulty reducing leverage due to high capital spending to construct its Assembly Atlanta Studios, which depressed FOCF. While the company managed to extend near-term maturities in 2024, it did so at higher rates that concurrently with secular pressures will impact EBITDA and limit FOCF for debt reduction, particularly in nonelection years.

E.W. Scripps’ leverage has been elevated given multiyear revenue declines in its networks segment, resulting in lower EBITDA and limited FOCF for debt reduction. To prioritize debt repayment, the company has paid the interest on its preferred stock in kind over the last several quarters, resulting in an increasing liability. While the company is in the process of extending the maturity on its closest debt in 2026, it still has a sizable maturity in 2027.

While CMG’s leverage is currently elevated, we expect it to repay debt and lower leverage over the next few years given additional credit protections and excess cash flow sweeps put in place during its debt restructuring in 2024.

Table 5

Related Research

• Economic Outlook U.S. Q2 2025: Losing Steam Amid Shifting Policies, March 25, 2025
• The E.W. Scripps Co. Rating Lowered To 'CC' From 'B-' On Announced Debt Restructuring; Outlook Negative, March 14, 2025
• Stemming The Cord-Cutting Bleed: Charter Could Offer A Bandage, Jan. 16, 2025
• Sinclair Inc. Downgraded To 'B-', Outlook Stable, Jan. 15, 2025
• Gray Television Inc. Downgraded To 'B-' From 'B'; Outlook Stable, Dec. 6, 2024
• CMG Media Corp. Upgraded To 'B-' From 'SD' On Completed Debt Exchanges; Outlook Stable, Nov. 18, 2024
• Secular Pressures Reduce Recovery Prospects For U.S. Local TV Broadcasters, Oct. 9, 2024
• Nexstar Media Group Inc., Oct. 8, 2024
• TEGNA Inc., Sept. 16, 2024
• Outlooks Diverge For U.S. Local TV Broadcasters As Industry Faces Secular Challenges, April 15, 2024