Earnings Call Transcript - SSP Q2 2023

Operator, Operator

Thank you all for being here, and welcome to the Scripps Second Quarter 2023 Earnings Call. I would now like to hand it over to our Investor Relations Officer, Ms. Carolyn Micheli. Please proceed.

Carolyn Micheli, Investor Relations Officer

Thanks, Brad. 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; and Scripps' Chief Operating Officer, Lisa Knutson. Here's Adam.

Adam Symson, President and CEO

Good morning, everybody. Today, I'd like to provide you with a big-picture perspective on this moment in the television landscape and how Scripps is executing on its plan to capitalize on our industry's evolution. The television industry is experiencing an era of volatility, where the growth of streaming is upending a long successful business model. But as a wise and very successful investor recently reminded me, just because everything is moving towards streaming doesn't mean it in and of itself is a good business. For most in the industry, the math on streaming alone doesn't work. And as media investors are well aware, the path to value creation is far from certain. Content creators are rebelling against the new model, sparking the most significant strikes in Hollywood history. Experts have said the strikes are fueled by existential worries over the industry's future. And it's no doubt that the end result will make the economics for streamers worse. In this chaotic climate, Scripps has carved out its own valuable niche, linear television viewing driven by entertainment, live sports, news and the consumer proposition of free TV. And despite a temporary hurdle driven by inflation and a soft ad market, we see a return to growth ahead fueled by our aggressive all-of-the-above distribution strategy as we attack our opportunity to increase yield from pay TV, expand upon our leadership in free over-the-air television and create new incremental value through a profitable approach to connected TV. To be sure, linear TV audiences are declining. Consumers are spending less time watching traditional television and turning increasingly to subscription services. Under pressure from sub declines, the cable programmers are eroding the quality of their product and shifting attention to still-questionable ambitions in D2C. That's probably because they simply don't have what we have, that all-of-the-above distribution strategy. Scripps' linear business makes use of both pay TV and the growing over-the-air ecosystem. So it's no wonder that in the midst of this carnage from consumer preferences, our portfolio of networks is growing share of viewing. We expect free OTA TV to play an even more significant role in the new bundle ahead. One factor we forecasted many quarters ago is now coming to fruition, the shift of sports rights to broadcast television. By our count, at least six major professional rights deals announced over the last six months went to broadcasters, from NASCAR to college football to our own WNBA on ION, and of course, regional deals like the one we announced that is bringing the Stanley Cup-winning Vegas Golden Knights to Scripps' local broadcast stations in Nevada, Utah and Montana. The teams and owners understand well that D2C will be a lucrative opportunity for the future, but that the reach from broadcast distribution in parallel will be the price of admission to get there. While we expect more live sports to be a catalyst for growth, we will continue to educate consumers on the benefits of free over-the-air television as a way to grow our viewership and audience reach. Our scale in linear distribution, underpinned by our network of 109 television stations across this nation, is a core asset for us. At the same time, we understand that American television viewers will continue to consume and demand more from connected TV. So to tackle that opportunity, we have aggressively claimed territory in that space as well. As of this year, our national networks' brands are widely distributed across streaming, smart TVs, virtual MVPD and other connected TV platforms, and particularly on the rapidly growing FAST channels. We acted quickly to establish a first-mover advantage and now are building audience and seeing significant growth in ad revenue. That's high-margin revenue because our FAST networks open up a new opportunity for us to monetize some costs, relying mostly on our linear programming streams or original content we already own as with our two latest FAST channel launches: Court TV Legendary Trials and Laff More. In the meantime, linear advertising remains a very large and lucrative marketplace, projected by Magnite to be $54 billion this year, enormous even in the midst of anemic macroeconomic conditions. In that linear marketplace, Scripps has continued to garner profit margins that far surpass those of D2C streaming businesses, at least the ones that have profit. Like all industries, we are subject to economic fluctuations. So the current ad industry recession is affecting our growth rates. And as a result of that climate, we recognized an impairment in our Scripps Networks business. Our Networks business remains strong. And as I said, we expect its revenue growth and profitability to rebound along with the national ad marketplace. The networks come together with our local stations to form the foundation of the linear viewing, connected TV and free TV strategies I've been discussing. The WNBA deal with Scripps Sports could not have been executed without our acquisition of ION. And at the local level, we were able to redeploy ION's spectrum in two markets to launch independent stations that will become the home of the Vegas Golden Knights. We have preserved ION's reach in those markets through other channels. And at the same time, we created two new local station duopolies. It's another good example of how the ION acquisition has enhanced our economics. As we pursue the best and highest use of our spectrum for enhanced shareholder value through television, I'm enthusiastic that we'll be able to add data casting through ATSC 3.0 to the list of strategies that make use of our massive distribution platform. We continue to make progress on the work we are doing with Nexstar, HPE and Sony with a core network live in four markets, a necessary first step as we bring this business to the mobile wireless data marketplace. Our latest company reorganization was designed to position us for future growth in all of these distribution areas. Rather than being exclusively focused on the local station group or the Scripps Networks portfolio, our leaders are now charged with executing on opportunities that encompass all of our assets. This repositioning has already proven effective in sports and in news and created efficiencies in distribution, marketing and operations. And we are on track to realize at least the $40 million in annual savings we had projected. The media business is changing dramatically as it has done many times over our company's 145-year history. Our aggressive but steady approach to navigating the convulsions has proven to create value time and again for our shareholders, just as I'm confident it will this time around. Over the last five years, the company's move to dramatically enhance our scale in television has more than doubled revenue, more than tripled segment profit and expanded margins, leaving us well positioned to benefit from the inevitable return of the ad market. I'm sure shareholders along for the ride will benefit, too. Now here's Jason.

Jason Combs, Chief Financial Officer

Thanks, Adam. Good morning, everyone. For the second quarter, we reported financial results that nearly all met or exceeded the expectations we set in May with a significant beat on segment company profit. Our segment profit overperformance was driven by our Scripps Networks segment, which delivered stronger-than-expected revenue because of higher ratings and increased demand in the scatter market. The Networks portfolio grew connected TV revenue by 18% from Q2 of last year. While a very strong growth rate, it is less than we had projected for networks' CTV. We're sunsetting a low-margin legacy programmatic advertising product because it's no longer in line with our evolution of CTV advertising. Backing out the impact of that product, CTV revenue was up about 80%. In total, Scripps Networks revenue was $231 million, down 3%. Scripps Networks segment expenses were $171 million, up about 3% from the prior year quarter because of higher employee costs and distribution fees as well as the incremental expenses for the WNBA on ION. Segment profit for Networks was $60 million. In our Local Media division, revenue was down just 1% from the prior year quarter. And core advertising was down 5% as local and national businesses continued to deal with ongoing inflationary pressures on consumer spending. Local distribution revenue in Q2 was up 14% to $195 million, fueled mainly by contractual rate step-ups. Local Media expenses declined by 1.4%, aided by our move to comScore and by tight expense management in this economic environment. Local Media segment profit was $81 million. In other, we reported a loss of $6.3 million. Shared services and corporate expenses were $23 million. The loss attributable to shareholders of Scripps was $682 million or $8.10 per share. A noncash goodwill impairment charge and restructuring costs for the quarter accounted for $8.01 per share. Despite the better-than-expected Q2 performance, the implications of the ongoing economic downturn and resulting impact on the national advertising marketplace has led to the impairment charge in our Q2 financials. The restructuring charge in the quarter was $8 million. We announced in January a company-wide reorganization, and restructuring costs are related to that work. As of quarter end, cash and cash equivalents totaled $39 million. Our net debt at quarter end was $2.9 billion and our net leverage was 5.3x per the calculations in our credit agreements. That has run a bit higher for the last two quarters because in our trailing eight-quarter calculation, we have begun to lose the benefit of several quarters where the economy was bouncing back after the pandemic. Effective July 31, the company decided to increase the size of its revolver to $585 million and use the revolver to pay down its term loan B-1, which was scheduled to mature in October of 2024. The new revolver better aligns with the company's current scale and provides additional financial flexibility. Looking ahead to the third quarter of 2023. In the Scripps Networks division, we expect revenue to be down in the 10% range and expenses to be up low single digits. Our revenue guidance compares against a very strong third quarter last year, when Networks revenue was up 4%. We expect total Local Media revenue to be down in the mid-single-digit range and Q3 local core ad revenue also to be down mid-single digits. By later this quarter, we expect to have renewed nearly all the pay TV households we are resetting this year. We continue to expect full year gross distribution revenue to be up in the mid-teens range and net distribution dollars to increase by more than 40%. For Q3, we expect Local Media expenses to be up in the low single digits. That includes the cost of pay increases for key news-gathering roles at our local stations, aimed at attracting and retaining top journalists to serve our communities. Third quarter shared services costs are expected to be about $22 million. We expect an $8 million loss in other in Q3. Please see today's press release guidance tables for updates on a few below-the-line items. For the full year, we continue to expect our free cash flow to fall in the range of 50 million to 100 million. We continue to place our highest capital allocation priority on paying down debt. We are on track with our expectations of realizing at least $40 million in annual savings from our company reorganization. We expect those savings to be mostly operationalized by the middle of next year. And we still expect to reach a year-end 2023 run rate of around $20 million in savings. Now here's Lisa to share some highlights from both Local Media and Scripps Networks operations.

Lisa Knutson, Chief Operating Officer

Thanks, Jason, and good morning, everyone. We were very pleased that the Scripps Networks segment exceeded our expectations for second quarter financial performance. Scatter market advertising was the largest we've seen since late 2021. And we also outperformed our expectations for audience ratings in several key areas. Despite outperforming on revenue, our Networks business still faces headwinds in the national advertising marketplace. We do see a few bright spots, however, including premium live sports, which has become the new prime time in terms of advertising rates and continues to attract younger viewers. I'll talk more in a moment about our Scripps Sports strategy, which is designed to take advantage of that marketplace. And we continue to benefit at Bounce from advertisers who want and need to reach multicultural audiences. Bounce provides high-quality programming created specifically for Black viewers. And we're seeing nice CPM growth for those shows. In fact, in the midst of a challenging upfront for the industry, Bounce is commanding low to mid-single-digit rate increases. Turning to the upfronts more generally. In the past years, we've seen that a softer upfront season has led to a rebound in scatter as advertisers get a better read on consumer spending. So we are cautiously optimistic about the outlook for the scatter market in Q3 and Q4. Overall, during the quarter, general market ad categories were down, although we did see increases in consumer packaged goods as well as the entertainment and media category. In direct response, we continued to expect weakness until inflationary pressures ease and consumer confidence returns. As Jason mentioned, our connected TV advertising revenue is being impacted by a change in strategy that led us to sunset a legacy CTV advertising product. Although this product in the past has accounted for a significant amount of revenue, it is low margin and out of step with the evolution of the CTV advertising landscape. So we are focused on more profitable efforts around our networks' nearly ubiquitous CTV distribution. In fact, the launch of our networks across these platforms over the last year drove nearly 300% year-over-year increase in total hours of viewing. We expect network CTV revenue, excluding the low-margin programmatic product, to be up about 50% in the third quarter. Turning to the Local Media segment. I'd like to hit some highlights in our local core ad performance. We were pleased to realize for the fourth consecutive quarter of growth in automotive, which was up 13% in Q2 and made up 16% of our core revenue. Home improvement was up 8%. And we benefited from the Denver Nuggets' appearance in the NBA Finals this year. Average unit rates for premier sports in our markets can be more than 10 times the average unit rate when we don't have a local team competing. This dynamic is an important driver in our Scripps Sports strategy. Our largest category, services, was down 12% as it continues to be hit by inflationary factors. In addition, we continue to see local advertisers exercise caution and book advertising closer to airtime, giving us less visibility into our outlook. Also in local, we're continuing to grow our connected TV audience. Scripps local stations delivered a 29% increase in hours of viewing from Q2 of '22 to Q2 of '23. Today, we are getting about 0.5 million hours of CTV viewing a week across our local station group. One more note about our local stations. We were proud to have won 98 regional Emmy and Murrow Awards as well as a Gold Telly. And on the Networks side, Scripps News won awards from GLAAD, SPJ and the Telly Awards and has been nominated for two national Emmys. And ION won three prestigious Promax marketing awards. We appreciate this recognition of our employees' hard work and audience impact. Turning to our reorganization. Our focus is on collaboration and centralization. By bringing leadership from Scripps Networks and Local Media together into one enterprise-level management team, we are creating efficiencies and cost savings. And equally important, we're creating new business growth opportunities that leverage the power of all of our assets. Our Scripps News network and our Scripps Sports division provide two great examples of how this is working. Scripps News is part of our Scripps Networks portfolio. As of late June, its programming also appears on 31 of our 42 news-producing local stations. Scripps News shows, including Morning Rush and In Real Life, are running daily on these stations. They are performing well with the local audiences and are offsetting local programming expenses. In addition, Scripps News reporting is appearing frequently on our local news programs. For example, Scripps News and local teams have been working together to tell the story of this summer's weather extremes. We've covered warming waters off the coast of Florida, sustained high temperatures in the Southwest and the impact of the Canadian wildfires on our air quality here. Leveraging the strength of our local market depth with our Scripps News broad national reach is resulting in stories with greater context and impact. In addition, we are freeing up local resources to concentrate on high-quality local news production. And we're building the Scripps News brand with local audiences across the country. At Scripps Sports, we're looking ahead to the premiere of the Vegas Golden Knights on our second station in Las Vegas and Salt Lake City as well as seven other Scripps markets. We have converted our ION signals in Las Vegas and Salt Lake into independent stations that air live local sports. And we are still broadcasting ION in these markets, keeping our national reach intact. This is a great example of how Scripps drives value through its strategy to best monetize our large spectrum holdings by taking a broad view of all of our assets. And through our new approach, we are creating incremental cash flow, growing our over-the-air audience and increasing our value through live local sports. Also in the Sports division today marks 10 weeks of WNBA Friday Night Spotlight on ION. Ratings for these games have grown 42% since our first broadcast on May 26. Advertising demand is strong and Sports premium average unit rates are running 70% above those of our typical ION programming, delivering younger and more diverse WNBA fans. As we move through our reorganization work and into operationalizing our changes, we are on track to realize the $40 million-plus in savings we previously outlined. And we remain focused on both aggressively tackling the near-term challenges in the media marketplace and creating a more efficient, cost-effective, high-performing business, one that is well positioned for long-term value creation. And now operator, we're ready for questions.

Operator, Operator

We'll first go to Dan Kurnos with Benchmark Company.

Daniel Kurnos, Analyst

Adam, two high-level questions for you. One, obviously, and given these comments around live sports and CPMs and where all the dollars are flowing, we know historically what your view has been about license acquisition. Obviously, some of your peers have decided to move upstream in terms of A, B for some of those deals. I'm just curious, given the landscape right now, sort of what your appetite is for maybe potentially being a little bit more aggressive if you think that you can monetize better or more effectively some of those licenses that may be a little bit more costly upfront.

Adam Symson, President and CEO

Thanks, Dan. I believe we've taken an appropriately aggressive approach. However, it's important to maintain discipline in our discussions. We are just two months away from the start of the NHL season, and our sales for sponsorships and advertisements in Las Vegas for the Vegas Golden Knights have gone exceptionally well. This success gives us better insights into the opportunities available with further rights negotiations both locally and nationally. We have also been pleased, as Lisa mentioned, that every ION WNBA telecast in July has outperformed ESPN's top WNBA broadcast, supporting our strategy of bringing these sports events to a wider audience through over-the-air channels. Additionally, this has led to a 70% increase in average unit rates for prime time WNBA broadcasts compared to ION's traditional prime time audience, demonstrating our return on investment. However, we are committed to avoiding irrational investments, as this is what led to the current situation for the RSNs. We recognize the value we bring to teams and leagues by providing linear distribution that can reach nearly all households in a market or nationwide, which is essential to our strategy. Another success we've experienced is in our linear broadcasts on CTV, where we're offering a product—live sports—that no one else is providing to FAST. We've received very positive feedback from our distribution partners as well. We believe we are well-positioned to continue pursuing aggressive opportunities while also being prudent in our approach.

Daniel Kurnos, Analyst

Got it. That's helpful. I wanted to follow up with a broader question. There’s a lot going on with the writers' and actors' strikes. You all have shown a strong ability in managing your content rights, particularly with the FAST topic, Adam. As we move toward more unscripted programming, I would like your insights on the current state of the ecosystem, especially beyond just the financial aspects related to live sports. It seems you have a substantial amount of content ready that could serve as an outlet for advertising.

Adam Symson, President and CEO

I'm looking forward to the fall premieres, even though there won't be many. The audience on ION is accustomed to their regular nightly programming. ION ranks as the fifth broadcast network and often also holds the fifth spot among cable networks when excluding live sports and news. This consistency should be beneficial for us in terms of audience share as we approach the fall, which can usually be affected by new network premieres. As I noted earlier, the strike will likely lead to increased costs for streaming services, and there will be advancements in streaming residuals. Our long-standing strategy has been to secure FAST rights for the content we're already funding and to integrate that into our linear streams without incurring extra costs, yielding high-margin revenue. I also believe that as streaming services face rising expenses, they will seek new ways to manage those costs or generate revenue from their investments. This situation could present new programming opportunities for linear broadcasters like us. It's becoming clear to streamers that distribution through linear channels, especially over-the-air, does not harm their direct-to-consumer offerings; instead, it can serve as a valuable platform to promote those products. We expect to benefit from content acquisition in this regard as well.

Daniel Kurnos, Analyst

Got it. If I could ask one last question, I’m not sure if it's for Adam or Lisa. Regarding the network or the Networks guide, we’ve heard that national has been improving sequentially. You had a really strong quarter, relatively speaking, and you’ve been gaining market share. I understand you’re facing tough comparisons, and there’s certainly some impact from the phase-out of the legacy CTV product. But is there any other noise affecting Q3? Based on your upfronts and other indicators, it seems Q4 should be significantly better. It feels like things are improving overall compared to the guide, and I’m just trying to reconcile all of this.

Lisa Knutson, Chief Operating Officer

Thank you for your question. Some of the challenges we’re facing are due to the CTV product we are discontinuing, which is affecting our low-margin revenue. Additionally, the direct response marketplace is struggling because inflation is limiting consumers' spending. However, we are starting to notice some positive signs in the direct response area. Historically, the late third and fourth quarters tend to be stronger for direct response advertising. We continue to see robust activity in the scatter market. As we approach the final quarter of the broadcast calendar upfront, we have to manage cancellations from the third quarter, which may be affecting our current figures in the scatter market. It’s important to note that scatter typically sells at about a 30% premium compared to upfront sales, which could indicate potential growth for us in the third and into the fourth quarter. I hope this clarifies things a bit. With a significant portion of our revenue coming from the upfront and scatter markets, I believe we have real opportunities for improvement in the coming quarters.

Operator, Operator

And next, we'll go to Steven Cahall with Wells Fargo.

Steven Cahall, Analyst

Lisa, I just wanted to maybe dig into those comments just a little bit more. So if we think about the Q3 guide, which does imply that the revenue growth rate at Networks gets worse quarter-on-quarter, can you maybe help us back out what that transition in the CTV product does to that? I know that there's some risks and opportunities from what you're saying in the third quarter, and you want to be a little bit conservative. But are you trying to imply that the ad market is worse in Q3 than it is in Q2? Or is it just kind of the mix of all that, that's getting to that guidance number?

Lisa Knutson, Chief Operating Officer

Yes, I think it's the mix of all of that. I am not implying that it's getting worse. In fact, as I said in, I think, my prepared remarks, we are cautiously optimistic about third and fourth quarter scatter. I think advertisers continue to book later and later in the cycle. And even the upfronts, I'm sure you reported on this with some of our national peers, even the advertisers were waiting longer and longer in the upfront negotiations to really book the dollars. And so some of that is the visibility that we see into third and fourth quarter and some of it is certainly the DR comments that I made earlier. The CTV piece of this again is really about a decision strategy that we are employing in terms of really looking at all of our products and making sure that we have high-margin products. And those that we believe are not as profitable, we're certainly taking a hard look at those over the course, both on the local and national side for sure.

Steven Cahall, Analyst

And then Adam, I think you've tried to remain at the forefront of free TV and getting a lot of your broadcast content into connected TV, too. So I'm just wondering how you envision getting a lot of this network content onto CTV going forward, especially as you start to add more sports into the portfolio, and maybe in this period where there is less content, making sure it shows up on folks' home screens when they log into a connected TV and so they know it's there and can find it.

Adam Symson, President and CEO

Yes, I mean, I think you're right. We have been particularly active over the last 1.5 years since we acquired ION, first, very quietly acquiring the rights to the programming for the FAST marketplace, which was essentially relatively nascent at the time. And now obviously growing very quickly, I think there's ample evidence that audiences appreciate free, which I think will continue to benefit our holdings and our streams on CTV as well as OTA. With respect to sports, I mean, part of what we negotiate for is the rights to ensure that nationally, when we are acquiring national sports rights as we did with the WNBA, we have the right to distribute that into the FAST marketplace. We then have worked with our distribution partners to ensure that it's accretive to the overall deal. I would tell you the FAST marketplace itself has become very competitive. So I'm really, really glad that we've had that first-mover advantage and are in where we are. At this point, our brands are garnering significant hours of viewing and the content is premium. So I think it puts us in a really good position from an operating leverage perspective as we work with those distribution partners. They want brands that are well-known. They want content that is well-loved. And that's what they get with the Scripps Networks brands. So it feels a little bit like the early days of even like YouTube, right, when everything was sort of a pile of stuff. And then that became the culling-down, where more premium content got better positioning. What we see today is that given that ION, for example, is the only broadcast network in the FAST marketplace because we have those rights and no other broadcast network can do that and given that we've been so aggressive moving our multi-cast channels, which is monetization of sunk cost into the FAST marketplace, we think we've got really good placement on these platforms. So between OTA and CTV, we expect to continue to see significant growth in the consumers' adoption of free television, supported by advertising.

Steven Cahall, Analyst

Great. And then maybe lastly for Jason, just as you're doing the big year for retrans with the net number up, I think 40%, as you said, is there anything that's different than what you expected, better or worse? And within that, what's your expectation for subscriber attrition this year?

Jason Combs, Chief Financial Officer

Yes. So subscriber churn for us continues to be down in kind of that mid-single-digit range, it has been for a while and continues to be. In terms of the progress we're making, so as of the end of the second quarter, we've renewed about two-thirds of the total subs who were up for renewal. And by the end of the third quarter, we'll be north of 90%. I'd say generally, we're really pleased with the progress we're making. And we talk often about maximizing our opportunity in pay TV ecosystem. And when you look at the progress we're making on both gross and net distribution dollars, I think you can really see that kind of coming to fruition.

Operator, Operator

And next, we can go to Michael Kupinski with NOBLE Capital Markets.

Michael Kupinski, Analyst

I have a broader question regarding the current cycle. This one seems quite different, particularly because we've seen a prolonged weakness in national advertising without a significant drop in local advertising. I'm curious if you could share your insights on how this cycle compares to past ones, especially since you suggest that national advertising may be showing signs of improvement. Do you think local advertising will also rebound, or might it continue to decline for a while?

Lisa Knutson, Chief Operating Officer

Mike, it's Lisa. I want to highlight a few things. Firstly, one of our largest advertising categories, automotive, has shown significant recovery over the past few quarters. In the second quarter, automotive grew by 13% compared to Q2 of 2022, thanks to strong performance in April, May, and June. This trend is continuing as we enter the third quarter, positively impacting the local advertising sector. Additionally, the home improvement category has also rebounded considerably for local advertising and remains one of our top five categories. However, the services category, which includes medical, financial, and legal sectors, has faced some challenges, likely due to discretionary spending and inflation affecting consumer budgets. Overall, it's a mixed situation. For instance, while the national advertising market for automotive reportedly declined by high teens over the summer, we've observed growth in the local market, mainly driven by efforts to reduce inventory. Domestic dealer groups have increased by about 35% in the quarter, while foreign groups saw a slight decline. However, domestic manufacturers in the automotive sector experienced a 26% increase. This suggests a degree of resilience in local advertising, especially with the recovery in automotive and home improvement sectors.

Michael Kupinski, Analyst

Lisa, I appreciate the comments on the auto. And so in terms of that percentage growth, is it coming more so from the dealerships? Or is it coming from manufacturers? And it's interesting that some have said that in terms of moving cars off the lot, others have said that maybe there's just not enough cars. And so maybe it's a function of different markets. Are you seeing auto rebounding differently in certain markets? And then if you could just kind of go back and then tell us whether or not it's more promotional advertising. Or is it more manufacturers versus dealers?

Lisa Knutson, Chief Operating Officer

Sure. I would say we're not really noticing any geographic trends to highlight. Overall, it's generally increasing across the country. Local dealer groups, just to elaborate on the second quarter, saw a growth of 6%. We believe this presents a great opportunity in the coming months, particularly as they clear out last year's models and introduce next year's models. Domestic dealer groups were up 35% year-over-year, providing insight into both dealer groups and local dealers. However, foreign dealers are slightly down, about 5% year-over-year. On the other hand, manufacturers experienced a 26% increase year-over-year, while foreign manufacturers rose by 58%. This indicates that there isn't a geographic issue at play; rather, we are seeing strength across the board in our local markets.

Operator, Operator

I'll move now to Craig Huber with Huber Research Partners.

Craig Huber, Analyst

Maybe to start, I'd love to hear your comments on the Hollywood strike, obviously part of it has been going for three months here. Do you view that it's going to end up being a significant headwind for you guys or beneficial or sort of neutral impact if this thing keeps dragging on and on?

Adam Symson, President and CEO

I don't see it as a significant challenge for us, certainly not in the near term. In fact, I believe it could actually be beneficial for our audience in the third quarter. Over the long term, depending on the specifics of the deal, it could also be advantageous. We benefit when companies producing content seek to offset their costs through distribution agreements. I believe that streamers have realized the economic and marketing value of partnering with their content in the linear marketplace, as it is not a zero-sum game. Additionally, I think it could provide the promotional channel that many believe direct-to-consumer platforms need. While it's not ideal for our local stations not to kick off the season, some networks have been shifting content to their streaming platforms and reducing exclusivity. I am confident that we will have quality programming and compelling content. Overall, I expect this situation will have a mostly neutral impact on our company, though it may not be neutral for others. In the near term, I see it as neutral to positive.

Lisa Knutson, Chief Operating Officer

And Craig, it's Lisa. One of the theories that I have is, after this is over, and as Adam said, as studios need to monetize or recoup perhaps some of the increase in costs, I think that there may be a proliferation or a flooding of the market of new content and shows available to us, which I would assume, given the amount of supply, may also drive cost down. So that's something that we're keeping definitely an eye on.

Craig Huber, Analyst

Do you have any concerns that the strike and the reduced availability of original scripted content could lead to an increase in cord-cutting? Do you consider this to be a significant issue for your company?

Adam Symson, President and CEO

I don't believe this strike will benefit the streamers. People still want to be entertained and watch television, so I don't see it leading to an increase in cord-cutting. There are other factors in the market related to cord-cutting, but I don't view the absence of new content this fall or even beyond it, as a critical issue for cord-cutting, since much of the content is already prepared.

Craig Huber, Analyst

Then also your local TV stations, I guess, that down 5% core advertising performance in the second quarter in a rocky environment out there, can you just break apart, if you would, how local did versus the national categories?

Lisa Knutson, Chief Operating Officer

When we compare local to national performance, we've noticed that both have faced challenges over the past few quarters, much like what we're observing in the Networks segment. The same macroeconomic trends affecting the national side are also impacting local markets, leading to a greater decline. However, similar to my comments about Scripps Networks, there are signs of improvement on the national side, with declines becoming less pronounced compared to previous quarters.

Craig Huber, Analyst

And my last nitpick question, the sunsetting of the CTV product. Can you quantify that for us, either a percentage or a dollar basis, how much that's impacting the revenues in the coming quarter?

Jason Combs, Chief Financial Officer

We discussed our growth for Q2, both with and without the impact of the sunsetting. While we are not providing specific breakdowns moving forward, we mentioned a 17% growth inclusive of the sunsetting and an 18% increase when factoring it in. Without that impact, our CTV revenue would have risen by 80%, but we are not offering further details on this.

Operator, Operator

And currently, no further questions in queue.

Carolyn Micheli, Investor Relations Officer

Thank you, Brad. Thanks, everyone, for joining us today. Brad is going to go over the replay information now. Have a good day.

Operator, Operator

And ladies and gentlemen, this conference will be available for replay after 11:30 Eastern this morning and running through September 3 at midnight. You can access the AT&T playback system by dialing 1-866-207-1041 and entering the access code 7872133. International parties may dial 402-970-0847. That does conclude our call for today. Thanks for your participation and for using AT&T Teleconference. You may now disconnect.