Tribune Media Quarterly Underlying Profit Rises on Retrans Fees, Lower Programming Costs
The company posts a loss though amid income tax charges of $193 million related to a 2008 newspaper deal as CEO Peter Liguori discusses political ad trends and the impact of a carriage dispute with Dish.
Tribune Media, the TV and entertainment division of Tribune Co. that was spun off from the group's publishing assets in 2014, posted a second-quarter loss Tuesday amid a hefty tax bill, but reported improved underlying financials.
President and CEO Peter Liguori also discussed the impact of a carriage dispute with Dish Network that saw the company's stations and WGN America network go dark in the pay TV giant's markets in mid-June. “Dish is an important partner for us," he said on an earnings conference call, adding that the company was working "every day" toward reaching a deal.
The impact on Tribune Media's second-quarter financials was “actually quite small" and pretty much "negligible," amounting to roughly $1 million on a net basis, he said. In the current third quarter, the company is seeing lower retransmission consent revenue due to the Dish dispute but is also making somewhat lower reverse compensation payments as a result. Overall, Liguori said the situation was unfortunate but “manageable."
Calling Dish chairman Charlie Ergen "a great long-term partner," he told analysts he was "hopeful" that the showdown could be brought to an end "soon."
Tribune Media on Tuesday reaffirmed its full-year financial guidance but also mentioned that the Dish dispute could have an impact if not resolved, saying: "If we are unable to enter into a new contract with Dish Network, our retransmission consent and carriage fees and other revenues will be impacted in future periods." It didn't provide more detailed guidance.
Tribune Media's 42 owned or operated TV stations and the WGN America cable network went dark in pay TV giant Dish's homes in June. About 5 million Dish subscribers in 33 markets across 34 states and the District of Columbia lost access to their local Tribune stations, while roughly 7 million Dish subscribers nationwide lost the ability to watch WGN America, whose hit shows include Underground and Outsiders.
Dish lost 281,000 net pay TV subscribers in the second quarter to end it with more than 13.59 million. Asked about the subscriber impact from the Tribune Media blackout, Ergen said on his company's recent earnings call that such disputes always have a negative effect, but didn't estimate its size. He called the showdown an "honest" dispute and said WGN America was "not a super-popular channel for Dish customers," meaning Dish subs don't see as much value in it as Tribune Media executives or other people.
In the case of blackouts, "we have to be prepared that we will never put that channel back up again," he said, adding that any Dish subscriber who really wants WGN America has likely already left. "We are certainly prepared to live without" Tribune Media and WGA America, Ergen said, but he added that at the right price the company would renew a carriage deal. He also lauded the long-standing relationship Tribune Media and Dish have.
The company saw second-quarter operating profit jump to $46.1 million, compared with $19.8 million in the second quarter of 2015, thanks to higher TV and entertainment revenue and lower programming costs. Tribune Media has been expanding original programming at its WGN America channel but saw lower programming costs in the latest period and increased retransmission consent and carriage fees.
But one-off income tax charges of $2.11 per share, or $193 million overall, related to predecessor company Tribune Co.’s 2008 sale of Long Island newspaper Newsday to Cablevision, hit earnings and turned Tribune's adjusted profit into a quarterly loss of $161.6 million, or $1.76 per share, compared with a year-ago loss of $3.3 million, or 4 cents.
Excluding the Newsday-related charges and certain other adjustments, earnings hit 42 cents per share, compared with 19 cents in the year-ago period and ahead of Wall Street estimates.
Consolidated adjusted earnings before interest, taxes, depreciation and amortization, another profitability metric the company and analysts use, increased 38 percent to $127.5 million in the second quarter. Tribune Media also posted second-quarter revenue of $526.1 million, up 5 percent from the year-ago period.
“Our operating results for the second quarter and first-half of this year demonstrate that our fundamental strategies continue to drive solid growth in revenue and adjusted EBITDA,” said Liguori. "Television and entertainment net core advertising was up in the first six months of the year and flat in the second quarter after adjusting for the two fewer days in the quarter. Gross political advertising revenue is on track to be a record year and to meet our $200 million target."
He added: "Retransmission consent and carriage fee revenues continue to increase, and WGN America is capitalizing on the success of Underground, Outsiders and Salem. Thanks to disciplined cost management, coupled with lower programming expenses, quarterly operating expenses are down from the second quarter of 2015."
Tribune Media previously said it would explore asset sales, spin-offs and other strategic alternatives amid a weak stock price. "The strategic and financial alternatives under consideration include, but are not limited to, the sale or separation of select lines of business or assets, strategic partnerships, programming alliances and return of capital initiatives," the company said. "The board of directors and the company have retained Moelis & Co. and Guggenheim Securities as financial advisors to assist in this process."
The company's assets include 42 local TV stations, the WGN America cable network and such digital businesses as music and video recognition software firm Gracenote.
Liguori said Tuesday: "We continue to make progress on our ongoing strategic review, including the monetization of our valuable real estate portfolio, in what have been highly competitive bidding processes."
“There is no timeline” for the strategic review, Liguori added on the earnings call. “Things are progressing nicely.”
Tribune Media also disclosed Tuesday that it has reached agreements for the sales of the Los Angeles Times Square property and the Olympic Printing Plant facility located in L.A., along with "certain broadcasting properties located in Chicago, Ill. and Denver, Colo. and properties in Baltimore, Md." All of these transactions are expected to close during the third quarter, subject to certain adjustments, the company said without providing further details.
On the call, the CEO also reiterated the "significant" benefits of WGN America's original content strategy. Liguori in that context touted what he said was the most successful upfront ever in WGN America's history, with primetime ad rates up more than 20 percent, and nearly 30 percent for its original shows.
Discussing political advertising revenue, Liguori said that it has crossed the $70 million mark as of July, up from $53 million at the same point during the 2012 election year. He cited Tribune Media's stations in such battleground states as Pennsylvania, Virginia, Ohio, Indiana and Colorado and Donald Trump's decision to name Mike Pence his running mate, which makes for a competitive race to replace Pence as Indiana's governor.
Overall, Liguori said Tribune Media's target for political ad revenue of $200 million in 2016 was "very, very achievable."