Nexstar’s Next Battle: Making The CW Numbers Work

Nexstar’s Next Battle: Making The CW Numbers Work

In the end, Nexstar was paid $54 million to take The CW off of Paramount and Warner Bros. Discovery’s hands.

Actually, that’s an oversimplification. In fact, Nexstar, led by CEO Perry Sook, was given its 75 percent stake in the network for free, but after factoring in its cash on hand, accounts receivable and accounts payable (and other liabilities), the local TV giant ended up with its $54 million gain “on bargain purchase,” reflecting just how seriously its former corporate owners were ready to move on.

The national broadcast network (a distant number 5) had long been known to be a money pit, but a review of unaudited financial statements shed some light on the complex finances of the network, and just how big of a challenge it will be for Nexstar to turn its fortunes around to meet its goal of profitability by 2025.

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According to a Hollywood Reporter analysis of the financial statements that were included in Nexstar’s latest quarterly filing with the SEC on Nov. 9, The CW had revenue of about $100 million per quarter in 2021-22, for an annual run rate of $370 million to $405 million. However, it had annualized losses of between $300 million and $400 million. In other words, for every dollar it took in, as many as $2 were flowing out. (The CW has never turned a profit since being formed in 2006.) The largest source of expenses for The CW was programming, and it acquired that programming from Warners and Paramount, making it economical for the joint owners.

The network has consisted exclusively of scripted originals produced by both Warners and CBS Studios, supplemented by a few unscripted shows and low-cost Canadian series acquired to help flesh out its slate. While the network wasn’t designed to turn a profit, both studios were making money thanks in part to a 2010 $1 billion Netflix output deal, as well as international sales for well-known titles like Dynasty.

While that model proved extremely fruitful, the network’s parent companies opted against extending the Netflix deal in order to bolster their respective streamers, HBO Max and Paramount+, with CW programming instead of seeing all of their originals land on Netflix. What’s more, the need for all streamers to retain global programming rights as platforms expand into foreign markets meant an end to those lucrative international sales. Without revenue streams from Netflix and foreign sales, The CW’s business model no longer made sense, and Warners and CBS Studios began exploring sale options, leading to the sale to Nexstar.

And while other suitors (including at least one private equity firm) kicked the tires, the local TV giant emerged victorious, benefitting from being the largest owner of CW stations in the country (where it can more efficiently monetize political ads, for example). “Nexstar believes it was able to acquire The CW for $0 purchase consideration due to the recurring losses of The CW and its position as the largest affiliate of The CW which it believes limited the number of interested acquirers,” the company wrote in its 10-Q.

Now comes the hard part, as the local TV giant needs to find a way to stem the steep losses The CW is facing. For now, it has agreed to carry 12 scripted series from the previous owners, primarily for the 2022-23 season. But after that, it will turn to new entertainment chief Brad Schwartz to chart a new, much less expensive content strategy. “We just have to be scrappier. If we do scripted, we have to figure out a smart way of doing it,” Schwartz told THR on Nov.  2. “We just have to be scrappier. If we do scripted, we have to figure out a smart way of doing it.”

Nexstar CFO Lee Ann Gliha told a financial conference that the company intends to take $155 million from the sale of property in Chicago and funnel it to the network. “That goes a long way to funding the investment that we’re going to have in the CW,” the executive said.

And the company also plans to use The CW to enter the increasingly crowded ad-supported streaming market. “The acquisition is expected to solidify Nexstar’s revenue opportunities as the largest CW affiliate, diversify its content outside of news, establish it as a participant in advertising video-on-demand services via The CW App and create value by improving The CW ratings, revenue, and profitability,” Nexstar wrote in the filing.

And sooner rather than later, the company is likely to acquire the 25 percent of The CW that WBD and Paramount are holding on to. Per its filing, Nexstar has a call option in August 2024 to acquire the remaining stake, and the sellers have an option in June 2026 to force Nexstar to acquire the remaining equity.

Lesley Goldberg contributed to this report.

A version of this story first appeared in the Nov. 21 issue of The Hollywood Reporter magazine. Click here to subscribe.