Earnings Call Transcript - SSP Q3 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be time for questions. As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Carolyn Micheli. Please go ahead.

Carolyn Micheli, Host

Thanks, Don. 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, CEO

Good morning, everybody. We're pleased today to be reporting third quarter financial results across the company that met or exceeded expectations. Our local ad sales teams executed at a high level despite a soft advertising marketplace. On the network side, Connected TV revenue growth continues to be a bright spot, while the direct response and general market sales teams held their own. In addition, careful expense management supported by the continued pursuit of a more efficient cost structure led to a stronger-than-expected segment profit number. Alongside the rest of the advertising industry, we do face further macroeconomic headwinds as we wind down this year. As you know, the national advertising upfront season was weak across the industry. But as we head into the fourth quarter, we have seen some green shoots in the scatter market. Local Media core advertising is coming into the quarter strong with our four top categories up year-over-year. Jason and Lisa will give more color on the full advertising environment in just a moment. Despite the macroeconomic conditions that we are all contending with, I really like the Scripps setup for free cash flow growth over the year ahead and here's why. Number one, we have a robust new run rate for local media distribution dollars; number two, our local core and distribution revenue and national advertising revenue will benefit from continued disciplined expansion into sports rights, fueling organic growth; three, we are educating audiences about the appeal of free TV and making it easier than ever for people to watch it and for us to profit from it; fourth, we project double-digit growth in our networks' connected TV advertising revenue; and fifth, we will benefit from the high-margin political ad revenue that broadcasters get as the primary beneficiaries of political ad spending, projected now at $10 billion for the coming presidential election year. I'll start with our outlook in the retransmission ecosystem. As we reported to the Street in October, we have now successfully completed distribution agreements, covering about 75% of our local media pay TV households without any blackouts. The net effect of these negotiations for 2023 is as we promised. Growth of 15% in revenue and more than 40% in net distribution dollars. Annualizing that growth next year gives us a strong tailwind. A lot has been said about the future of the MVPD and broadcaster relationship, especially after the Disney Charter dispute. But our experience leads me to believe that investors' fears are off base. The concessions charter negotiated, including SVOD services in the bundle and fitting out the lower view channels will benefit the pay TV consumer, benefit the ecosystem, and therefore benefit broadcasters, especially since our programming represents the very best of the channel lineup. Our negotiations and new deals are a testament to the strength of the MVPD broadcaster proposition. Our renewals come as a result of both good negotiating and the strategic moves the company has been making over the last several years, because now in addition to capturing full market value on rates, we are creating new value by expanding the number of our stations that receive retrans. For example, in Las Vegas, we flipped an ION station to an independent carrying the Vegas Golden Knights as its anchor programming. The new station Vegas 34 joined our ABC affiliate there expanding our advertising opportunity and distribution fees significantly. So despite erosion in the nation's pay TV landscape, Scripps is now getting higher rates and getting paid on more stations than before, a key growth driver for us that comes as a direct result of the flexibility of our broadcast platform in service to our sports strategy. Second, we're creating material new value by tapping into the passion Americans feel for their favorite teams and athletes and their love of the game. This passion has an unparalleled ability to unify us as a community to bring this in front of the television and to do it in real-time. Linear television specifically broadcast TV is made for this. The leagues know it, the teams know it, the fans know it, and so do the distributors and advertisers. And that's the reason Scripps is leading the broadcast renaissance in live sports. On the local side, we now have broadcast partnerships with two National Hockey League teams, the recent Stanley Cup Champion, Vegas Golden Knights, and the Arizona Coyotes in Phoenix. We are broadcasting their games across a multi-state region to both teams' large regional fan bases. And we're seeing tremendous growth in viewership now that every TV household in the markets can receive their games. In Las Vegas, the Golden Knights have more than doubled their local ratings so far this season compared to last, and in Phoenix, the Arizona Coyotes ratings have increased a whopping 900% from their RSN distribution last year. The equation is simple. More audience reach generates higher ratings to deliver Scripps significant new revenue right now primarily through incremental and meaningful core advertising revenue growth and higher distribution revenue for the independent stations on which they air. On the core advertising side, I'm pleased to be able to quantify the value we have just begun to create through our sports rights deals. Baked into our guide for the fourth quarter is an incremental lift to local media core of four percentage points driven by our two local sports deals. And for the full year 2024, we're projecting at least a three percentage point lift in core advertising for just those two local NHL deals. And on the distribution side, adding retrans to these new independent stations with live sports is both growing our top line revenue and expanding the portfolio's distribution margins, because traditional and virtual MVPDs know how important this programming is for their customers. With each new local rights agreement we signed, core advertising and distribution fees will grow, adding profit and generating free cash flow. Sports is a significant opportunity for us on the national level as well. We're pleased to have completed a very successful first season with WNBA on ION. We harness the power of our over-the-air signal, pay TV carriage, and connected TV distribution to help the league increase its TV reach by nearly 30%. A third of our viewers this season watched the WNBA Friday night spotlight on ION over the air while 10% watched on FAST, all new reach for the league. Here too, live sports rights drove new value for Scripps with 65% of the revenue we generated from sponsorships and advertising coming from new-to-Scripps accounts. And as you know, advertising around live sports commands a hefty premium above our average unit rates. We're already well into the sales cycle for our second season with the WNBA and off to a very good start. In the near future, we expect to tap into ION's powerful reach for similar national rights agreements with leagues that recognize the power of partnership with Scripps Sports, setting us up well for growth in 2024 and beyond. As you can see, Scripps is enthusiastic for good reason about the ongoing value of the advertising-supported TV marketplace. And our third lever for 2024 will create new opportunity for growth in the over-the-air television market. Given our company's outside share of over-the-air viewing, we've told you that we'd be working to accelerate OTA's growth. Last year, our marketing campaigns drove up to a 30% increase in digital antenna sales as reported by the antenna makers we work with. But we still recognize the need to solve some of the challenges consumers face with digital antennas. And we saw an opportunity to revolutionize the free TV experience, especially at this time of rapidly rising streaming costs and relative indifference to the pay TV bundle. That's why in August, we relaunched Tablo, an over-the-air TV device that aggregates OTA and connected TV channels with a DVR in a modern user experience that appeals to both Gen Z and baby boomers. It allows you to stream and watch OTA on any TV, phone, or tablet in your house through an app. For the new Tablo consumer, it's a one-time cost that can be purchased bundled with or without a digital antenna and today has no subscription fees. Tablo owners get free premium network and FAST channel programming for every local NFL game and all of the live professional and college sports on broadcast. In the two months since the soft launch, we are seeing very enthusiastic consumer and media reviews. People have a real passion for this product. Sales have been brisk through our retail partners Amazon, Best Buy, and directly at tablotv.com. Just this week, Tablo was live on the home shopping network and sold out in minutes. It will soon be sold on walmart.com. We're launching the marketing campaign in earnest this quarter and expect to share more metrics on future calls. For now, what's important to know is that Tablo will grow TV viewing over the year, especially for live sports, allowing us to turn more eyeballs into ad dollars. Turning to Connected TV, our fourth free cash flow driver, our efforts to distribute and monetize our linear network SaaS marketplace have quickly created a new $100 million business. We expect double-digit growth on that $100 million next year. And of course, the fifth cash flow driver is the influx of high-margin political advertising in the presidential election year when we and our broadcast peers are best positioned to capitalize on the $10 billion in projected annual election spending. Beyond these five growth drivers for 2024 is the ongoing benefit of our reorganization work, which Lisa will discuss in a moment. We remain focused on both aggressively tackling the near-term challenges in the media marketplace and creating a more efficient, cost-effective, and high-performing business. Scripps is carving out a valuable durable niche in this chaotic media ecosystem. And because of that, I encourage investors not to paint us with the same broad brush as companies that are irrationally expanding into streaming, grappling with constant subscriber churn, and all the while letting off their valuable businesses with no clear path to profitability. At Scripps, our path to real near and long-term value is clear. I'd like to end by recognizing an accomplishment about which I'm very proud. The first National Emmy Award for Scripps news. As you know, we bought Newsy 10 years ago, and rebranded it as Scripps News in January. It's now distributed not just on national platforms, but on our local stations and garnering strong ratings with our local audiences. This Emmy for outstanding science, technology, and environmental coverage is a testament to the impactful news organization we've built and America's need for its objective fact-based reporting. Now, here's Jason.

Jason Combs, CFO

Good morning, everyone. For the third quarter, we reported financial results that all met or exceeded the expectations we set in August, with another significant beat on company segment profit as we had in Q2. Our segment profit overperformance was driven by stronger-than-expected advertising revenue from Local Media core and in the Scripps Networks segment, as well as continued expense management. For the third quarter, Scripps Networks revenue was $215 million exceeding our guidance because of better-than-expected connected TV and direct response revenue. Networks connected TV revenue was up 75% from Q3 of 2022 if you back out the impact of our low-margin programmatic product which we began to sunset in Q2. Scripps Networks segment expenses were $166 million, up only about 1% from the prior year quarter. Segment profit in Networks was about $50 million. In our Local Media division, total revenue was down 7% from the prior year quarter, mainly due to the absence of the election year political advertising revenue. Local core advertising revenue was down about 3% from the prior year period. Local Media Distribution revenue was up 20% to $198 million fueled by renewals in our cable and satellite agreements. We have now completed the renewals for all 75% of the subscriber houses that were up this year and we are very pleased with the results. Local Media expenses were flat to the prior year quarter. Local Media segment profit was $75 million. In the segment labeled, Other, we reported a third quarter loss of $6.3 million. Shared services and corporate expenses were $21 million. The loss attributable to shareholders of Scripps was $16 million or $0.19 per share. Restructuring costs for the quarter accounted for $0.04 of the per share loss. We announced in January a company-wide reorganization and the restructuring costs are related to that work. As of quarter end, cash and cash equivalents totaled $16 million. Our net debt at quarter end was $2.9 billion and our net leverage was 5.4 times per the calculations in our credit agreement. Looking ahead to the fourth quarter of 2023. In the Scripps Networks division, we expect revenue to be down in the 10% range but only down about 8% if you back out the impact of the programmatic advertising products we discussed. The fourth quarter is being impacted by the industry-wide weak upfront season and ongoing softness in direct response. We expect fourth quarter Networks segment expenses to be flat. We expect total Local Media revenue to be down in the low to mid-double-digit percent range, since this is not a big election year. We expect local core ad revenue to be up low to mid-single digits. In a tough ad industry environment, we expect to see the benefit of a four percentage point lift in Q4 core due to our two local Scripps sports agreements. Lisa will give more color in a moment about our strong start to the quarter with key core categories including Ohio. Now I'd like to touch on two full-year local meeting revenue items. We've had stronger-than-expected 2023 political spending, especially from a contentious valid issue in Ohio and we now expect full year political ad revenue to reach at least $30 million. Also, since completing our retransmission renewals, we said we expect full year gross distribution revenue of $750 million and net distribution dollars to increase by more than 40% from 2022. Back to the fourth quarter, we expect Local Media expenses to be up in the mid-single-digit range. That includes the cost of pay increases for key news gathering roles at our local station and costs associated with Scripps Sports. Fourth quarter shared services costs are expected to be about $22 million. We expect the segment labeled Other to generate a loss of about $10 million as we continue to educate consumers about free over-the-air viewing and promote our Tableau device as Adam discussed. Due to the ongoing macroeconomic headwinds facing our Scripps Networks division, we're also adjusting our full year free cash flow guidance. We still expect it to fall within our previous range, but at the low end between $50 million and $60 million. Because of the economy and because we continue to drop strong quarters from 2021 from our trailing eight-quarter leverage calculation, we expect some upward pressure on our leverage ratio by year-end. However, we see a strong glide path to bring that down a full turn to under 5 times from Q4 of this year to the end of next year. That's due to the five free cash flow drivers that Adam listed including our high-margin revenue from the presidential year political advertising, connected TV and distribution revenue, and continued expansion of our sports rights revenue. And I want to strongly reiterate that we continue to place our highest capital allocation priority on paying down debt. We're on track with our expectations of realizing more than $40 million in annual savings from our company reorganization. We expect those savings to be mostly operationalized by the middle of 2024. And we are on track as we've discussed to reach a year-end 2023 run rate of around $20 million in annualized savings. Now here's Lisa to share highlights from both the Local Media and Scripps Networks operations.

Lisa Knutson, COO

Thanks, Jason and good morning, everyone. I'd like to start this morning with some color on how the fourth quarter is shaping up. Then I'll give an update on our ongoing restructuring work. In Local Media, core advertising categories we're seeing positive trends coming out of October. Services was up 9%. Auto was up 10%. And if Q4 ends in positive territory, it would be the sixth consecutive quarter of auto growth. Home Improvement, our third largest category in Q4, so far was up 13% in October and retail was up 2%. We're also seeing good news in political advertising. The third quarter revenue of $9 million was higher than in Q3 of the past two off-cycle election years. We now expect to reach at least $30 million in political ad revenue this year. We're also optimistic about the large projected spending levels for next year's presidential election since local broadcasters continue to capture the lion's share of those dollars. Turning to the Networks division, our third quarter Connected TV and direct response revenue bolstered our results enough to beat guidance by two percentage points. Ion, Ion Mystery, Bounce, and Core TV in particular outperformed our growth expectations in CTV. For the networks fourth quarter, we began to see the impact of the weak industry-wide upfront season. We are far from alone among the national networks in seeing declines in upfront revenue this year. The overall volume of dollars in the whole ecosystem is estimated to be down about 10%. Two areas of growth for Scripps in the upfronts were Bounce whose upfront dollars rose 6% and CPMs nearly 50%. And Connected TV revenue for our portfolio of networks was up nearly 60% year-over-year. Connected TV continues to be a big growth area for us outside the upfront as well. In the third quarter alone, the weekly hours of viewing of our networks on SaaS platforms increased 17% from the prior quarter and 179% year-over-year. As we have said, we expect to end the year at nearly $100 million in total Network CTV revenue. And for 2024, we are projecting a mid-teens percentage year-over-year increase in total dollars and more than a 30% increase if you back out the impact of the legacy programmatic product that's sunsetting. These projections include some new agreements that will be coming online early in the year. Now, I'd like to give you an update on our restructuring work as we close out the year. Back in January, we announced a reorganization of the company aimed at aligning all of our assets and the people to best capture the opportunities in the media ecosystem. The reorganization is unfolding as we intended to transform our company and improve margins, fuel growth, and leverage the strength of our position in serving our audiences and communities. As Jason said, we are expecting to realize more than $40 million in savings through the reorganization with about 80% of that coming from eliminating positions and the rest from external spending such as vendor contracts. But as you know, a company can't cut its way to growth. And the most important part of our work is what we're doing to reposition ourselves to thrive in the changing media landscape. Our approach to the reorganization has been fourfold. First, we have combined many corporate management roles that were separately housed in Local Media and Scripps Networks divisions. So, we now have leaders who are responsible for their areas across the enterprise. For example, we hired a Chief Revenue Officer from NBC Universal who oversees both local station and network sales and is charged with thinking holistically about the company's revenue growth. His work already is leading to benefits ranging from better use of sales technology to more effective sales messaging and execution to the consolidation of vendor contracts. Second, as our leaders have taken on these broader roles, they have centralized teams in our local stations including Human Resources, Finance, and Marketing in a way that is appropriate for a company of our size and in line with our local broadcast peers. Third, our local media station newsrooms are rethinking how we adapt to what our audiences and communities want from their local news. We've undertaken extensive audience research over the last six years including focuses on black, Hispanic, and rural households. These learnings have informed our approach to local coverage and how we will serve viewers and audiences in the future. One key change is the redeployment of our anchor roles in some markets so we can put more journalists in the field rather than broadcasting from a studio with a traditional anchor desk. More of our newscasts are filled with reporters telling stories from out in their cities and neighborhoods. We're also running Scripps news on our local stations. This has three benefits: it puts the Scripps news brand in front of larger new audiences; it allows local stations to use the quality objective national content Scripps news produces; and it saves on programming cost. We're now airing 63 hours a week of Scripps news live on 48 local stations with advertising sold by the local teams and the ratings are steadily growing. For example, stations that use Scripps News morning rush program saw viewership grow by 12% from June to September and Scripps news live programming is delivering sustained year-over-year ratings growth of 4%. The fourth and very important part of the reorganization was the emergence of Scripps Sports led by Brian Lawlor. It has been crucial for Brian and his team as they build out our reputation as a sports media partner to have support from people who think about all of our assets from the market depth of our local stations to the national and demographic reach of ION other networks. As we are putting together local and national deals, we are creatively deploying assets from both local media and Scripps Networks unencumbered by where they sit in the organization. We will wrap up most of our global work this year and we will realize our full savings after our local stations complete their transitions in the first half of next year. But the true value of our transformation will come as these changes take root. We are forming new and even deeper connections with our audiences and advertisers through news, sports, and other quality entertainment programming on every platform where Americans watch TV. The enterprise value we're creating will propel our growth and perpetuation. I'd like to close by calling out the most recent awards for our impactful journalism. As Adam said, we are very proud to win our first national news Emmy at Scripps News. In addition, two Scripps local stations were recognized with National Murrow awards. WTVR in Richmond won for an investigation into a string of sniper shootings and KTBQ in Billings won for coverage of the devastating flooding there in 2022. Phil Williams, Chief Investigative Reporter at WTVF in Nashville was awarded Columbia University's John Chancellor award for Excellence in journalism. Phil is the first local TV news reporter to be honored with this award.

Operator, Operator

Thank you, Lisa. We will now start the question-and-answer session. Our first participant is Dan Kurnos from Benchmark. Please go ahead.

Dan Kurnos, Analyst

Great. Thanks. Good morning. You discussed various accolades, but I want to recognize you, Adam, for being named B&C Broadcaster of the Year. I would like to focus on the sports angle and appreciate the additional data you've provided regarding local markets. I would like to spend some time discussing the local versus national strategy. Clearly, many aspects depend on the current contracts. It seems that we might reach the end of extensions for Diamond around February of next year. Can you share your thoughts on the local opportunities you see, including any specific markets you are targeting? After that, I have a national question to follow up with.

Adam Symson, CEO

Thanks, Dan, and thanks for the kind words. Look, I think you should absolutely assume that we'll continue to execute this strategy where we see opportunities for our local brands to align with local sports. We're obviously dedicated to approaching each of the deals with discipline. And I would say we've developed a real reputation that's appreciated among the owners and the leagues for partnership and shared risk and shared reward that frankly really feels good to them especially after the trauma that they're coming off of with the chaotic illusion of the RSN business. There are definitely markets where we see significant opportunity, markets where we think we can do what we've done in Las Vegas. In other words, flip an ION station to a local independent without negatively impacting the ION reach, because we move the programming stream to different spectrum. And then with sports as the anchor tenant of the programming of that independent station, really disrupting that local marketplace and significantly taking local advertising share and increasing our take of local retrans in that market. And so that's why I referenced earlier from a local perspective with every new rights deal that we signed, we would expect to see core revenue growth and the opportunity for continued expansion for revenue for distribution even between contracts. So I think that's an important thing to point out. Typically, you would only see us expand retrans revenue based on step-ups or based on new contracts. And in this situation, we have the opportunity to increase our retrans revenue every time we sign a new local sports deal. And so the opportunity there to dramatically impact, I think core revenue growth is sizable. On the national level, the revenue growth we're seeing is just as important. But given the exposure of a single national deal, which is essentially like one night over 15 weeks, it's obviously not going to show up as impactful to the overall revenue growth of the Scripps networks. But that said, we really think it's about the opportunity to leverage the national rights as a way to solidify linear viewing, grow diversify the audience and more broadly raise the rates of ION. So we talked about the fact that 30% audience growth for the WNBA in my prepared remarks came from ION's rights. For us, the season also represented good diversification and expansion opportunity. The season drew in two million new viewers to ION, a significant expansion of the audience. And as I said in my remarks, 65% of the revenue we generated during that season was from new description advertisers. So we would expect to look again with discipline for additional rights opportunities on the national side as well consistent with the brand we're building for ION, and we hope to have more to say about that in the near future.

Dan Kurnos, Analyst

Got it. That's super helpful. And then just on the CTV stuff. I mean, at least I really appreciate the incremental color. Maybe you can just give us some more granularity on just how you plan on achieving the let's call it, 30% ex-fund setting growth next year and just what some of the drivers are there. I don't know if that's encompassing some of the aforementioned sports rights expectations or if that's just simply figuring out the right way to go to market with expanded products and better lineup that you guys have?

Lisa Knutson, COO

All of the above, Dan. You just covered it. We're experiencing organic growth in our CTV revenue for 2024, which we expect to continue. Additionally, I mentioned in my prepared remarks that we've set a solid foundation in CTV with a year-over-year growth of 60% in our upfront strategy. We're also benefiting from the ongoing launch of new fast channels. Last quarter, we mentioned the launch of two new FAST networks, Laff More, which now allows us to carry each of our networks on FAST, except for DeFi. Laff More is now available on FAST. We also created a new SaaS channel called Core TV Legendary Trials using our owned IP related to Core TV, and we're leveraging that asset to create value. We launched these two channels in the last quarter and will continue to introduce new ones this quarter and into next year.

Dan Kurnos, Analyst

Got it. Really appreciate that. And just one housekeeping Jason, this may be better off-line but I think you have another synergy tranche next year from the spectrum side of the ION acquisition is there any way to size that?

Jason Combs, CFO

We mentioned when we first announced the ION acquisition that we anticipated an incremental revenue range of $15 million to $20 million next year, primarily associated with a significant contract that is approaching.

Dan Kurnos, Analyst

Perfect. All right. Thanks very much and nice results in the quarter guys.

Jason Combs, CFO

Thanks, Dan.

Operator, Operator

Thank you. And next, we go on to the line for Steven Cahall Wells Fargo. Please go ahead.

Steven Cahall, Analyst

Yeah. Thank you. So Lisa, I was wondering if you could talk a little bit more about just the Q4 guide for networks. It's a little bit worse than what you did in Q3. Q3 came in a little better than what you had expected. So just trying to understand, if the market has gotten worse you're trying to be a little bit conservative. I know you talked a bit about CTV as well. So just any more color you can provide there. And then more broadly, as more sports come on to the local side how do you see the opportunity for moving more of ION's delivery to like across ad sales platform where you're using both local and ION together in the sales process to maybe deleverage yourself from direct response a little bit over time? And then Adam, so I know you all are very excited about Tableau. Will you be sending that for sell-side analysts for trial? And then more seriously wondering what kind of marketing dollars you might be looking to put into that to get shelf space or promoted in some of the key retail channels over time? Because it seems like free TV is compelling but it's also pretty misunderstood or unknown by a lot of the population. Thank you.

Lisa Knutson, COO

Yes, Steven, I'll begin and then hand it over to Adam. As you know, the fourth quarter marks the beginning of our new upfront season. In my prepared remarks, I noted that overall, the spending in the upfronts has declined, likely around 10% industry-wide, or even more depending on the networks. A positive aspect for us is the increase in CTV dollars for the upcoming upfront starting this fourth quarter and into next year, alongside manageable pricing levels. We are commencing with lower volume due to the upfront reset in the third quarter, yet we have observed strong performance in our scatter revenue during the second and third quarters. We anticipate that the scatter pricing will remain robust in the fourth quarter, in terms of CPMs compared to our upfront figures. For example, in the third quarter, we experienced about a 55% increase over our upfront dollars in terms of CPMs in the scatter market. Additionally, the guidance indicates that typically in the fourth quarter, there is a spike in advertising dollars on the DR side due to Medicare, but that has softened this quarter, affecting our projections. Nevertheless, CTV continues to be a bright spot, with growth expected not just in Q4 of this year but also into 2024. Regarding your next question about selling ION local, that is definitely part of our strategy. We made strides this year with significant advertisers interested in leveraging both the nationwide reach of ION, which covers 97% of the U.S., and our strong local market presence. This presents a unique go-to-market strategy that we are developing with our new Chief Revenue Officer for 2024 and beyond, as we see it as a major opportunity that others may find challenging to replicate.

Adam Symson, CEO

Dan, thanks for the question on Tableau. In the fourth quarter, we'll continue to leverage our own inventory across our local stations, national networks, digital media, alongside targeted paid media on linear TV, connected TV, social and digital platforms and some work we're doing with influencers to sell Tableau. The balance of the loss in the other segment is this work. We've essentially transitioned from the spend we had dedicated to broadly speaking the growth of the over-the-air marketplace to the spend that we are considering consistent with growing the over-the-air marketplace, except now through retail sales and through sales of Tableau. So this is really consistent with what we've talked about before. We expect to continue to track carefully the ARPU for Tableau. We're tracking the CAC or the average customer acquisition costs, and want to manage it effectively so that we are ensuring that we're doing activities here that are adding to the value of the company. And I'm able to share some of that information in future calls. Look, Tableau is not only consistent with our focus on growth of the over-the-air marketplace. It also is consistent with growth that we expect in the connected TV marketplace. And I would say, for people who don't quite understand how it works, definitely visit tablotv.com and I'm happy to provide sell-siders with the full package antenna plus Tablo if you can't afford the $99.

Operator, Operator

Thank you. And next, we go into the line for Nick Zangler from Stephens. Please go ahead.

Nick Zangler, Analyst

Hey, guys. I got a few here. First just a high-level one. You kind of touched on it in the call but just wanted to see if you could expand on the commentary regarding your thoughts on Disney+ streaming service accessibility via the charter subscription. Just specifically, do you expect and do you think that we're entering a time where MVPDs and streaming services are going to collectively pivot their model such that it's accessible via a distributor, the streaming services that is? And would this be a potential catalyst for stabilization across MVPDs in what seems to be in the face of what is accelerating churn I guess across distributors in this last quarter?

Adam Symson, CEO

Yes, Nick, I think you're absolutely correct. The prices of streaming services and the a la carte offerings have increased significantly, leading us to create a new, more expensive bundle. The pay TV ecosystem will definitely benefit from integrating SVOD services with pay TV subscriptions. We believe that the resolution of the Charter and Disney blackout reinforces the future of the retransmission ecosystem. This agreement demonstrated that content from broadcast stations remains the most viewed and valuable for distributors. Additionally, the strength of the linear cable platform was evident in Disney's choice to include Disney+ in their offerings, which we think will help reduce cord cutting and provide the stability you mentioned. I also want to highlight that Charter's decision to drop Disney's viewed cable networks allows for ad dollars to be reallocated to more valuable programming. We have long advocated for a rationalization of the cable lineup, and Charter has presented a strong case for value. Bundling will enhance the pay TV ecosystem for consumers and ultimately support broadcasters, so I believe broadcasters will benefit from the outcomes of this negotiation.

Nick Zangler, Analyst

Thank you for that. I have a question regarding the network aspect, particularly about the upfront weakness you've mentioned, which seems to be a common theme. I'm curious if this indicates that advertisers are seeking more flexibility and are hesitant to commit to upfront deals like they have in previous years. As a result, this could lead to less visibility, which may be influencing your guidance. Is your guidance primarily due to this uncertainty? If the demand in the scatter market picks up, could that serve as a catalyst for stronger results compared to your current guidance in that area? Additionally, as we look toward 2024, how should we approach the modeling of networks in light of this trend? What insights can you share about modeling for 2024 based on your outlook for the fourth quarter? Thank you.

Lisa Knutson, COO

Yes, I believe you're correct. The lack of visibility has been an issue for several quarters and has likely influenced a more cautious approach in our guidance for Q2 and Q3. This lack of visibility persists. The weaker upfront market offers a chance to secure more in scatter. We see significant premiums in CPM for scatter compared to our committed upfront dollars. Advertisers looking for flexibility are willing to pay higher rates for scatter, and we are open to that. Our guidance suggests a decline in the 10% range, but if we exclude the impact of our lower-margin CTV product, we would be closer to an 8% decline. We are closely monitoring the marketplace and are focused on achieving the highest possible CPM, whether through scatter or direct response, especially if certain categories become more active.

Jason Combs, CFO

And Nick I think in regard to your 2024 question, it's Jason. I think because of that uncertainty that Lisa referenced, it's really too early for us to really comment on 2024. Certainly, when we get to the February call, I think we'll be in a much better position to give you some insight into how we see the year shaping out.

Nick Zangler, Analyst

Great. Thanks very much. Much appreciated.

Operator, Operator

Thank you. And next we go on to the line for Michael Kupinski NOBLE Capital Markets. Please go ahead.

Michael Kupinski, Analyst

Thank you and thank you for taking the questions. Nice quarter. Adam, thanks for providing more color on your right strategy. I think it's amazing that the few that you already have so far are having such a meaningful impact on the total company revenues. A question on that. If you can provide what are your margin assumptions as you enter these sports rights arrangements? Are they different from the local strategy versus your national platforms? And I kind of think that this would be helpful for investors to understand that because many broadcasters have historically viewed sports rights in some instances as a loss leader to drive advertising and ratings. And I think it would be helpful just to kind of lay out your strategy for getting into sports rights.

Jason Combs, CFO

Hey, Mike, this is Jason. I'll start and then Adam can add on. I would say, when we look at the sports right opportunities, we're not giving any specific on individual deal margins. What I can tell you is that when we model these out, we model them out to be positive year one and to create incremental value and cash flow for the company. There is a different calculation that goes into a local deal versus a national deal because in a local deal we're essentially starting from scratch and adding this on top, versus on the national side we're replacing something that already makes good money over on ION. And so the math works a little differently. You have a higher hurdle rate you need to clear on the national side, but all the deals that we've modeled out thus far we've modeled out to be profit positive year.

Adam Symson, CEO

Yes, Mike let me just be really clear. With our strategy, sports is not a loss leader. We don't think there's a reason for sports to be a loss leader at this time especially for a platform like ours with such significant reach in this fragmented marketplace. We think that the owners have recognized the value of the reach and we think that the leagues are seeking partners that can provide that kind of reach. So in no scenario would we do a deal in which we would say that sports over the life of a contract is a loss leader for us; these deals have to stand on their own.

Michael Kupinski, Analyst

Thanks for the color. I think it's important that that's stressed out there. I appreciate that. That's all I have. Thank you.

Adam Symson, CEO

Thanks, Mike.

Operator, Operator

Thank you. And our last question we'll go to the line for Craig Huber, Huber Research Partners. Please go ahead.

Craig Huber, Analyst

Great. Thank you. Good morning. I thought it was interesting you guys obviously talked about a 4% lift to core advertising for your TV stations in the fourth quarter. I just want to make sure you're pretty happy with the profitability that you get off those two NHL deals you have here it's all incremental. And I'm bringing that up because you're talking about costs in the fourth quarter for TV up mid-single digits. So maybe Jason maybe just walk me through why is cost in TV stations going to be up mid-single digits in the fourth quarter year-over-year.

Jason Combs, CFO

Yes. There are several factors to consider. One relates to costs for some of our front-line reporters and the compensation adjustments we made earlier this year, which we are now seeing the effects of year-over-year. Additionally, we are starting to see costs associated with sports. As I mentioned earlier, we expect these to be profitable for the season; however, there is some timing involved. When launching a new sports franchise, significant marketing is needed initially to attract viewers and facilitate customer acquisition. Therefore, we are assessing sports performance over the entire season rather than just focusing on Q4. From Q4 through Q1 of next year, these initiatives are expected to be profitable. Specifically for the Coyote deal, we announced it just eight days prior to the launch, resulting in revenue that will be more back-end loaded as we work to market and sell the franchise in Arizona. There are also other costs in the fourth quarter unrelated to sports that have increased a bit. Hence, the situation is complex, and I wouldn't interpret the Q4 performance as indicative of a broader trend.

Craig Huber, Analyst

Okay. I mean, obviously, the extra 4% lift on the core advertising side as you call it another $6 million to $7 million of added revenue. Your costs though up mid-single digits take the midpoint of that 5% sort of $14 million extra cost. You're saying it's a lot more than just sports cost that's bumping that up even though the year ago we did have some political related costs in assuming.

Jason Combs, CFO

There wouldn't be any significant political costs in the fourth quarter last year, as political advertising has high margins and almost no expenses. It's other factors that I mentioned.

Craig Huber, Analyst

Okay. Appreciate that. Adam on the ATSC 3.0 side of things, can you maybe just update us on what percent of the households in your markets of that signal? And where do you think it will be at the end of say next year please?

Adam Symson, CEO

What percent of the market?

Craig Huber, Analyst

What percentage of ATSC 3.0 signals are being broadcast to households in your markets? Where do you think that percentage will be by the end of next year? What is your goal in this area?

Adam Symson, CEO

Craig, I can get that to you later this afternoon. It's not necessarily a Scripps goal. It's ultimately done market by market with the rest industry because the station doesn't flip to 3.0 on its own, but we can get you an up-to-date version of what the industry's transition looks like thus far and about where we think it's going by next year.

Craig Huber, Analyst

Okay. Can you tell me how much the auto segment increased in the last quarter? I remember you mentioned it was up 10% for October, similar to last quarter.

Lisa Knutson, COO

Yes. Actually, auto was up 14% in Q3, which was really strong. As I mentioned, we're seeing continued increases, especially in October. So we expect to end the year on a positive note.

Jason Combs, CFO

It was 18% of our core in the quarter which is probably the high percent it's been in quite some time.

Craig Huber, Analyst

And I guess my last question on TV stations in the third quarter, can you just break out national core advertising trend there versus the local? I mean how much worse was national? 3Q…

Jason Combs, CFO

In the third quarter, there was not a significant difference between the year-over-year change in local and national. Earlier in the year, there had been a distinction, but in the third quarter, they were roughly aligned in terms of year-over-year decline.

Craig Huber, Analyst

Okay. Great. Last question, please. Regarding retransmission subscribers, you've mentioned in recent quarters that they are down mid-single digits year-over-year. What was the number in the third quarter, please?

Jason Combs, CFO

It continues to be down in that mid-single-digit range on a trailing 12-month basis.

Craig Huber, Analyst

Is it the high end? I mean, is there much variability there? That's obviously been a concern of investors.

Jason Combs, CFO

I would say we did not see a material change in it from what we communicated last quarter to this quarter now.

Craig Huber, Analyst

Okay. Great. Thanks a lot.

Operator, Operator

Thank you. And there are no more questions in queue. You may continue.

Carolyn Micheli, Host

Thank you very much, Don. Thanks everyone for joining us today.

Operator, Operator

And that does conclude our conference for today. Thank you for your participation and for using AT&T Conference and service. You may now disconnect.