Tribune Media (TRCO) Peter Liguori on Q2 2016 Results - Earnings Call Transcript

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Tribune Media Co. (NYSE:TRCO)

Q2 2016 Earnings Call

August 09, 2016 8:30 am ET

Executives

Gary Weitman - Senior Vice President-Corporate Relations

Peter Liguori - President, Chief Executive Officer & Director

Chandler Bigelow - Executive Vice President and Chief Financial Officer

Edward P. Lazarus - Executive Vice President, General Counsel, Chief Strategy Officer & Corporate Secretary

Analysts

John Janedis - Jefferies LLC

Barry L. Lucas - Gabelli & Company

Ryan Fiftal - Morgan Stanley & Co. LLC

Marci L. Ryvicker - Wells Fargo Securities LLC

Hamed Khorsand - BWS Financial, Inc.

Tracy Young - Evercore ISI

Craig Anthony Huber - Huber Research Partners LLC

Kyle Evans - Stephens, Inc.

Operator

Good morning, and welcome to the Tribune Media Second Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Gary Weitman, Senior Vice President, Corporate Relations. Please go ahead.

Gary Weitman - Senior Vice President-Corporate Relations

Thank you, operator. Good morning, and thank you for joining us for our call to discuss Tribune Media's second quarter 2016 results. With me on the call today are Peter Liguori, President and Chief Executive Officer; Chandler Bigelow, Executive Vice President and Chief Financial Officer; Eddie Lazarus, General Counsel and Chief Strategy Officer; and Brian Litman, Senior Vice President, Controller and Chief Accounting Officer.

Let me begin today by reminding everyone that this call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company's expected future financial and operating performance. Forward-looking statements are subject to known and unknown risks and uncertainties and may be affected by many factors, including those listed in the special note regarding forward-looking statements and risk factors contained in the company's Form 10-Q filed with the U.S. Securities and Exchange Commission on August 9, 2016 and in today's earnings release and presentation deck.

The company's actual results may differ materially from the results contemplated in the forward-looking statements. Information discussed on today's call speaks only as of today, August 9, 2016, and we assume no obligation to update any forward-looking statements whether as a result of new information, future events or any other reason. Any rebroadcast or distribution of information presented on today's call after such date is not intended and will not be construed as updating or confirming such information.

We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP measure in an exhibit to today's earnings release. A copy of our press release and conference call presentation, as well as the Form 10-Q have been posted to the company's corporate website, tribunemedia.com.

And with that, I'll turn the call over to Peter.

Peter Liguori - President, Chief Executive Officer & Director

Good morning, everyone, and thanks for joining the call to discuss our results for the second quarter and first six months of the year. Let me start by saying that our results are clear testimony to the strength of our business and the execution of our strategy.

The second quarter was in line with our expectations. We're on track for a very robust growth in the second half of the year and we are reaffirming our 2016 full year consolidated financial guidance. In addition, we continue taking steps to make Tribune Media a stronger, more resilient modern media company.

Before we get into the numbers, let me give you a quick snapshot of the progress we're making in each of our lines of business. Our local television station business continues to hit its marks, local advertising market share at our TV stations, was again up in the second quarter, up in the aggregate, up in seven of our top 10 markets, and up significantly in the top three, namely in New York, Chicago and Los Angeles.

Political advertising revenue is well positioned for a record year as we're firmly and definitively on track to reach our ambitious year-end goal of $200 million. Retransmission and carriage fee revenues continued their rapid growth and we completed a long-term renewal of our CW Affiliation Agreement at very favorable rates reflecting our size and strong partnership with CBS and Warner Brothers.

At our cable net, WGN America, the success of original programming like Underground, Outsiders and Salem is undeniable. Not only have these shows redefined WGNA's brand as a place of uniquely American stories, but they help to drive CPMs higher and generate increases in advertising and carriage fee revenue. Just as importantly, the halo effect of these shows on our primetime ratings has been significant, expanding our audiences, exposing millions of new viewers to the network and leading to a great up-front.

Our Digital and Data business, Gracenote, keeps growing steady and surely. We're pleased to reaffirm our 2016 financial guidance for this business. Our investments in new verticals such as sports data are starting to pay dividends. For example, as we speak Comcast NBC is integrating data from Gracenote's Sports into its Rio Olympics data feed to viewers. Similarly, Google is using Gracenote's Sports data to power its search results for Olympic athletes.

Gracenote also continues to expand the deployment of its proprietary automatic content recognition technology, better known as ACR. By the end of 2016, Gracenote's ACR technology will be in 20 million Internet-connected smart TVs around the globe. Two of the world's three largest TV manufacturers, namely Samsung and LG, install this Gracenote technology in every Internet-connected smart TV they bring to market and will bring to market. The technology enables Gracenote to instantly identify the content being viewed by reading the glass of the smart TV. This is the purest form of data gathering.

This technology can tell if the TV is on or off, whether someone is watching live programming, streaming content or playing a video game. In brief, ACR technology is the door opener to smart TV viewership data, video personalization and eventually, one-on-one targeted advertising similar to what can be done on the Internet. These capabilities hold tremendous promise for advertisers and others, and Gracenote is right in the thick of it. So with that, let's get into some of the top line numbers.

For the sixth quarter in a row, excluding political advertising, consolidated revenue was up year-over-year. This quarter consolidated revenue was $526 million, up 5% compared to Q2 last year. With that kind of revenue growth, and a reduction of our expenses, especially in programming, consolidated adjusted EBITDA for the quarter increased a healthy 38% compared to Q2 2015. Once again, revenues were up in both segments of our business compared to second quarter 2015.

In TV and Entertainment, revenues were up 5% despite two fewer days in the quarter, due to the change in our fiscal year in 2015. As we indicated in our first quarter earnings call, core advertising was flat, adjusting for the two days. Political advertising, digital advertising and retransmission consent fee and carriage revenue were all up. We continue to be pleased with the progress we're making at WGN America, and more on that in a moment.

Finally, second quarter revenues at Gracenote were up 9%, largely due to acquisitions we made last year. Chandler will provide you with more specific details on our quarterly results in a moment. But looking ahead, we expect the second half of this year to be extremely strong, with consolidated adjusted EBITDA growth in the range of 41% to 52% compared to last year. And here's why we believe our expectations for that kind of robust growth are straightforward and imminently achievable.

First, our local stick (8:57) TV stations will continue to outperform, building market share in an advertising environment that continues to bounce around somewhat flattish. We'll hit our record target of $200 million in gross political advertising. We'll keep on our steady course of growth at WGN America. And just as it did in 2014 and 2015, Gracenote will deliver its customary uptick in the second half of the year.

As I said, we are reaffirming all of our financial guidance for 2016. As you know, this includes full year consolidated adjusted EBITDA growth in the range of 25% to 31%, or in dollar terms, $615 million to $645 million.

Now I'd like to focus the rest of my time on three topics. First, the financial impact of the success we're achieving at WGN America; second, political advertising and why we're extremely well positioned heading into the fall election; and finally, our substantial progress in monetizing our real estate assets.

First, let's take a look at WGN America, where as I said, with the success of our original programming, we have redefined the network. Underground, Outsiders, and Salem, which will be back for its third season on November 2, were unqualified hits no matter how you define them. And the halo effect they've had on the expansion of our audience has been significant.

Primetime ratings were up, in fact up 33% in second quarter. That's the kind of audience expansion that enabled WGNA to recently close the most successful advertising upfront in the cable network's history. While other broadcasts and cable networks saw CPM increases in the single to low double-digits, CPMs at WGN America were up more than 20% in primetime, and up nearly 30% for our originals. We doubled the amount of upfront sellouts in primetime, going from 31% last year to 62% this year. And importantly, new advertisers are finding WGN America in big numbers, with 35 new clients joining the network in this year's upfront.

We've been saying for some time that our investment in popular movies, high quality syndicated programming and original content will deliver audiences and generate increased revenues, and that's exactly what's taking place at WGN America.

I'd like to spend a minute talking about our strength in political advertising, and why we're so confident that we will hit our target, record-breaking target, of $200 million in gross political spending for the year. I'd like to remind you that we've been quite transparent about our projections for 2016 political advertising since the middle of last year.

First, I want to point out that we earned $34 million in gross political advertising during the first half of this year. That's 22% more than we brought in during the first six months of 2012, the last presidential election. And to the ease of this discussion all comparisons I'm going to make are made to 2012 on a pro forma basis for our acquisition of Local TV. In addition, thanks to overall improvement at our TV stations and the expansion and addition of local news across our portfolio, our share of political advertising in our markets increased 2 full percentage points compared to the first half of 2012.

One good benchmark for our confidence in our $200 million gross target is that in 2012, 17% of our total political advertising of $166 million came during the first half of the year and what about this year? The $34 million of political we've earned in the first six months of 2016 happens to be exactly 17% of our goal of $200 million. Further confirming our confidence is the fact that through July 31 our gross political advertising including future commitments totals $73 million. That's roughly 38% more than the $53 million we had through July 2012.

Pacing has picked up as well. In fact our pacing for political between August 1 and the November election is double, double from what we saw in the same period in 2012. Now political advertising is all about geography and our local TV station with its political footprint is exceptionally palatable. For your convenience we've illustrated that footprint as part of the financial presentation available on our website. The map shows the location of our stations, the presidential battleground states where we expect heavy spending and key Senate and gubernatorial races.

As you can see, we are all in the critical presidential battleground states where the race will be won or lost. States like Pennsylvania, Ohio, Iowa, North Carolina, Virginia and Colorado. In many cases we operate multiple TV stations in those states. We have three stations in Missouri, Pennsylvania and Virginia. We have two each in Indiana and Colorado and we essentially have two in Iowa, one in Des Moines and one in Quad Cities. And now we only have one station in Ohio, it's a real powerhouse. It generated more than $30 million in gross political in 2012.

When you combine the strength of that political footprint, with the power of our local news franchises, the opportunity in front of us comes into even sharper focus. In 20 of our 33 markets, many of them battleground states, our local news is ranked either number one or number two in viewership. The bottom line is that our stations have the audiences that Trump and Clinton need to reach in the states that are most critical to their success.

In addition to all of that, our ability to hit our goal of $200 million isn't predicated on presidential campaign spending alone. Two-thirds of our plan is built around spending in tight races for the U.S. Senate or House, state gubernatorial races, local referenda, and PAC spending. In Indiana, for example, we have two big opportunities that have just arose. First, Donald Trump's choice of Mike Pence as a running mate has created a very competitive race to replace him as the state's Governor. Second, also in Indiana, the race for Senate just got much tighter when the Democratic Primary winner dropped out and was replaced by former U.S. Senator and Indiana Governor, Evan Bayh. These developments definitely benefit our two stations in Indianapolis, a Fox affiliate and a CBS affiliate, which ranked number one and number three respectively, for news among adults 25 to 54.

And let me just dimensionalize the increase in PAC spending for a moment. I gave our GM at WPHL in Philly, Vince Giannini, a call, and asked him what the 2012 station brought in in PAC spending. He told me that $40,000 came in 2012. What was it this year? On 2016 the station already has commitments for more than $1.6 million in PAC spending, $40,000 in 2012, $1.6 million in 2016. When you put it all together, our careful planning and previous election experience, the scale we built in broadcasting, being in the battleground states and the strength of our local news broadcast, we're extremely confident that the $200 million in gross political advertising is very, very achievable.

And with that, let's turn to the monetization of our real estate assets, which is a key element of our strategic review process. As you know, we have consistently said it is our intention to monetize these assets by matching them with the right buyer, at the price, at the right time. Year-to-date we've sold six of our smaller properties at excellent prices for close to $90 million in gross proceeds. Even better, both the north block of our Los Angeles Times Square property in Downtown LA and nearby Olympic Printing Plant are now under contract with non-refundable deposits are expected to close in the third quarter of 2016. We've estimated the value of our real estate portfolio at roughly $1 billion, and we're getting prices consistent with that valuation. Chandler will provide you with more detail on these sales and their impact on our EBITDA momentarily.

Now in closing, I want to briefly touch on two other subjects. The first is our status with DISH. Now DISH is an important partner for us. We supply them both with programming, with data services that power their programming guides. But from a financial standpoint, the impact of our not being on their distribution for part of Q2 was actually quite small, roughly about $1 million net.

As the current quarter we're losing the benefit of some retransmission consent and carriage fees, which is partly offset by our lower reverse compensation expense. Naturally we don't like losing any revenue, but the situation is manageable and it's the unfortunate price we need to pay to reach a fair market, long-term deal with DISH.

We're working every day to try to reach that agreement. We have historically had a very good relationship with DISH and they're an important player in today's television ecosystem. They serve a largely underserved constituency, and they really do help to keep the marketplace competitive. We continue negotiating with DISH using fair market goalposts and we're very hopeful that we can come to an agreement soon for the sake of DISH's subscribers and our audiences.

The second subject I want to touch on is our reevaluation of our tax position related to Tribune's 2008 Newsday transaction and our decision to establish a tax reserve for this matter. We expect resolution of this issue in the second half of this year, and we believe the reserve will be sufficient to cover all net payments resulting from a potential resolution.

Importantly, given a strong liquidity of our balance sheet, these actions will have no impact on our ongoing business. Ultimately we view the potential resolution of this matter and eliminating the uncertainty around it as a very positive development for all of our shareholders. Chandler will provide you with more detail regarding this issue in a moment.

To quickly wrap up, we're right where we expected to be and right where we told you we would be for the first half of 2016. Our business is performing, we continue building advertising market share in our local television station business, political advertising is pacing extraordinarily strong and retrains and carriage fee revenue keep growing. WGNA continues to enhance its brand and expand its audience and Gracenote is solidly on track. As a result, we expect consolidated EBITDA growth in the second half of this year to accelerate significantly and we're reconfirming our full year consolidated financial guidance.

And with that, I'm going to turn it over to our CFO, Chandler Bigelow.

Chandler Bigelow - Executive Vice President and Chief Financial Officer

Thank you, Peter, and good morning, everyone. As a quick reminder, we have filed our second quarter 2016 10-Q and posted a presentation to our website. It contains supporting materials for today's discussion. As Peter noted, we are pleased to report another strong quarter with year-over-year growth in both consolidated revenue as well as consolidated adjusted EBITDA.

Thanks to strong revenue gains in our Television and Entertainment segment, from higher advertising revenue, higher retransmission consent revenue and higher carriage fee revenue.

As Peter mentioned, our Television and Entertainment segment advertising revenue on a reported basis is down 2% on a year-over-year basis. However, when normalizing for the two fewer days in the quarter, we estimate that our core advertising was flat when compared to last year as the two days represented about $8 million in net core advertising.

Consolidated adjusted EBITDA increased approximately $35 million, or 38% to $128 million in the quarter and our consolidated adjusted EBITDA margin was 24% in the quarter, expanding by 600 basis points as compared to last year. In addition to increased revenue in the quarter, we also benefited from lower consolidated operating expenses, primarily due to declines in our programming expenses and promotion expenses versus last year. This is in contrast to the first quarter of 2016, when we saw the impact from higher license fees and marketing and promotion costs due to the premiers of our two new original programs, Outsiders and Underground.

Second quarter programming expenses were down on a year-over-year basis by $15 million, or 11%, primarily due to the timing of when our original programming aired and lower deficit funding. For the remainder of the year, we expect programming expenses to be up modestly as compared to the second half of last year, as higher reverse comp expense will be almost entirely offset by lower license fees for original programming.

As Peter mentioned, we are pleased to reaffirm our full year consolidated adjusted EBITDA guidance for 2016, and we are doing this despite the impact of the ongoing negotiations with DISH, which had a modest impact in the second quarter. And I would reiterate what Peter said, that we expect to deliver growth in our consolidated adjusted EBITDA in the second half of 2016 of between 41% and 52% on a year-over-year basis.

In addition, I'd point out that we received $36 million of cash distributions in the second quarter from our equity investment in TV Food Network, which brings our total distributions from TV Food for the first half of this year to approximately $126 million.

Now turning to EPS, for the second quarter we reported a diluted loss per share of $1.76. This loss was driven by a $193 million, or $2.11 per common share, of income tax charges we recorded in the second quarter related to the 2008 Newsday transaction, and I'd like to take a moment to explain.

In light of our extensive and recent discussions with the administrative appeals division of the Internal Revenue Service, we reevaluated our tax litigation position related to the Newsday transaction and re-measured the most probable outcome of such proceedings. As a result, we recorded a net $102 million charge which is reflected on our balance sheet as a $125 million current income tax reserve, partially offset by a $23 million reduction in our deferred income tax liabilities, which are classified on our balance sheet as long-term for accounting purposes.

This income tax reserve covers the total net payments that we expect to make as part of our resolution of this matter, and we expect to make these payments by the end of 2016. I would point out that the company had about $367 million of cash on the balance sheet as of June 30, and therefore has ample liquidity to satisfy any payment to the resolution of this matter without any impact to our ongoing business. And we view the eventual conclusion of this matter as a positive for shareholders, as it resolves an uncertainty.

Now along with the recording of this reserve, the company also recorded a non-cash charge of $91 million included in income tax expense to increase the company's deferred tax liability on the balance sheet to reflect the reduction in the tax basis of the company's overall assets. Importantly, our decision to take a reserve with respect to Newsday does not impact our position related to our ongoing dispute with the IRS with respect to the 2009 Cubs transaction. These are two different tax matters, as reflected by the fact we are proceeding down a very different path with the Cubs matter, by deciding to proceed directly to tax court. We plan to file a petition in U.S. tax court during the third quarter of this year and accordingly, we continue to believe that no reserve is required, which reflects the strength of our tax position.

Now, excluding the one-time effect of the Newsday charges and certain other adjustments, our non-GAAP adjusted EPS for the second quarter of 2016 totaled $0.42 per share, compared to $0.19 per share in the second quarter of 2015.

In terms of our first half 2016 consolidated results, revenues increased 7%, or $72 million, to $1.05 billion and adjusted EBITDA increased 5% to $233 million. Non-GAAP adjusted EPS for the first six months of 2016 was $0.61 per share versus $0.59 per share for the first half of 2015.

Now turning to our segments, I'll begin with Television and Entertainment. In the second quarter of 2016, revenue was $467 million, an increase of 5%, primarily due to higher net political advertising, as well as increased retransmission consent revenue of $13 million, or 19%, and carriage fee revenue of $9 million, or 41% growth. Partially offset – this was partially offset by lower core advertising due to the two fewer days in the quarter we previously mentioned.

Importantly, TV&E segment operating expenses were down 4% in the quarter, thanks primarily to lower programming expenses, and segment adjusted EBITDA was up 36% in the quarter. I would also note that our segment broadcast cash flow, which adjusts for the timing differences between cash payments and book amortization for programming, was up 47% in the quarter on a year-over-year basis.

Now, turning to our Digital and Data segment, revenues increased 9% during the quarter to $47 million primarily due to the favorable impact of acquisitions made in 2015 and higher video revenues. As I'm often asked, I want to point out that Digital and Data had organic revenue growth in the quarter of 3% and segment adjusted EBITDA for the segment was $2.4 million down approximately $4.3 million from last year.

Now in discussing Digital and Data, I want to remind you that a significant portion of the segments full year adjusted EBITDA comes in the second half of the year and, in particular, the fourth quarter as a large number of customer contract renewals take effect in the fourth quarter annually. And 2016 is no different which gives us confidence to reaffirm our full year Digital and Data financial guidance.

Turning to Corporate and Other, which includes the results of our real estate operations, in the second quarter of 2016 our real estate revenue was down slightly to just under $12 million, reflecting some of the sales that we had in the quarter. Adjusted EBITDA for the Corporate and Other was a loss of $17 million in the quarter compared to a loss of $19 million in the quarter, which was mainly due to lower technology and shared services expenses.

I also want to provide an update on our strategy to monetize certain of our real estate assets. On our last earnings call, we announced the sale of our Deerfield, Florida property, which generated $24 million of net proceeds. And in addition in the second quarter, we also sold our Allentown, Pennsylvania property for net proceeds of $8 million. More recently, we sold our Seattle real estate property for net proceeds of $19 million as well as two of our Orlando, Florida properties for net proceeds of $34 million.

As you can see in our financial guidance, the impact of these closed sales is about $2 million of adjusted EBITDA in 2016. Additionally, as Peter mentioned, we've entered into agreements for the sales of the Los Angeles Times Square property, the north block, the Olympic Plant Printing facility located in Los Angeles, California and certain broadcast properties in Chicago and Denver and in addition, properties in Baltimore. Overall, the monetization of our real estate assets is an important part of our ongoing strategic review, and we are very pleased with our progress.

Turning to our balance sheet and free cash flow. As I mentioned, we ended the quarter with about $367 million of cash, which is up $42 million from the end of the first quarter and up $104 million from the end of 2015. Our total debt outstanding remains at about $3.5 billion. Now, we're often asked how we think about the capital structure given such strong operational liquidity and the very significant real estate sales that are pending. As I've said before, we remain comfortable with our overall leverage, our overall net leverage, in the 4x to 5.5x [Later changed by the Company to 4x to 4.5x] range and that any decisions around the use of proceeds will be informed by this capital structure view.

Importantly, our decisions around stock repurchases and dividends are also informed by our views on the capital structure. As we've said numerous times, we take a very balanced approach to the utilization of our strong overall liquidity. Over the past two years we have made strategic acquisitions, paid a special dividend, paid quarterly common stock dividends, repurchased almost 10 million shares, which is equal to about 10% of our total shares outstanding, and we've paid down some debt.

Today we announced yet another quarterly stock dividend, and we continue to be in the market with our previously announced $400 million stock repurchase program. In the second quarter we repurchased approximately 1.5 million shares or about 1.5% of our total shares outstanding for an aggregate purchase price of approximately $56 million, and we have already repurchased approximately 750,000 shares in the third quarter. We believe that this is a strong indication of our confidence in the company and that Tribune stock represents an excellent investment.

And with that, I'll wrap up by echoing Peter and my excitement for the rest of 2016. We remain well positioned to deliver on our financial guidance and our operational goals and build on our strong first-half performance.

That concludes my formal remarks, and we'll now open up the lines for questions

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. Please limit yourself to one question and a follow-up. The first question comes from John Janedis of Jefferies. Please go ahead.

John Janedis - Jefferies LLC

Thank you. Peter, you've talked in the past about your programming strategy at WGNA, but given the success of Underground and the Outsiders, and then the CPM increases, would you consider upping the originals to help with the affiliate fee renegotiations?

Peter Liguori - President, Chief Executive Officer & Director

John, thanks for the question. We're taking a very, very sober, calculated look at how we invest in original programming. Again, how I've seen it best both at my time at FX and I think reiterated here at WGN America is have success build upon success. What we have now is basically a programming strategy to accommodate two to three originals per year. The only way I would be looking at expanding that out further is if in fact we have two factors in our favor: one, is renewing series that are already on the air, which is the surest way to bottom line profit; and then two, having something in hand, which we're very excited about.

I have always felt that there is no reason to put an artificial number of shows out there as a target, because frequently that could lead you to stretch for content that you may not have the right level or highest levels of confidence in. So in net, we will take a look at where our current shows stand, what we'll renew and what's in development. And we are always looking to replenish what we have with better content that will drive ad revenue, stronger affiliate fees and better shareholder value. Thanks, John.

John Janedis - Jefferies LLC

Thanks, Peter. And maybe one other quickie, if you don't mind. Given your reiteration of TV segment revenues, what is the underlying assumption for DISH resolution?

Peter Liguori - President, Chief Executive Officer & Director

The underlying assumption is this, look, we're in consistent discussions with Charlie. As we discussed in second quarter, the impact has basically been negligible. It's about $1 million net, and again I use net because obviously we're not receiving carriage fees but also we're not paying out reverse comp. For us, DISH is a little bit of an odd bird, in that we're a big market station group. In New York, by way of example, DISH is around 3% of the marketplace. In LA and Chicago they're around 9%.

Fortunately, our rating performance has been strong, so we've been able to deliver to advertisers what in fact they pay for. And going in, we expect that our past behaviors and past history with DISH would replicate itself; that we're out to get a deal done that we set up a fair market goalpost which we and DISH should be able to work through. Charlie's been a great long-term partner. We expect that partnership to continue and hope that we can have a resolution soon. But know that we are prepared for the further discussions. We are managing the business in accordance with that and I hope we can get back to you with positive news soon.

John Janedis - Jefferies LLC

Thanks a lot.

Operator

The next question comes from Barry Lucas of Gabelli & Company. Please go ahead.

Barry L. Lucas - Gabelli & Company

Thank you and good morning. Just two quickies. Peter, could you talk a little bit more about the strategic review process? The real estate sales have always been part of the deck, but we're now five months in from February, give or take, and is there a timeline when this comes to a conclusion and when might that be?

Peter Liguori - President, Chief Executive Officer & Director

No, there's no timeline. We continue to work with our financial advisors to unlock shareholder value. We're not necessarily going to speculate on what's happening. We're assessing a variety of options, all of which we're fully confident can and would unlock shareholder value. And let's not underestimate the power of the real estate moves that we've made. These are significant sales of significant properties with more likely to come, but things are progressing nicely. We like the options that are on the table and have every confidence that we'll unlock shareholder value. Thanks, Barry.

Barry L. Lucas - Gabelli & Company

Thanks. If I can squeeze another quickie in. Monster is selling itself to a Dutch company as of this morning. I'm just wondering how you think that reflects on your holdings in CareerBuilder? And does that change or alter your opinions at all with regard to this biz (39:19)?

Peter Liguori - President, Chief Executive Officer & Director

No. It doesn't change or alter our view of it, but CareerBuilder's doing quite well. As you heard through TechNews Report, they have been growing both revenue and bottom line. It's a strong business. I'm glad to hear that Monster has garnered interest. It can only be a positive for how one views CareerBuilder, but it's being managed incredibly well and we're grateful to Gracia and her folks for the continued support of that important asset to us.

Operator

The next question comes from Ryan Fiftal of Morgan Stanley. Please go ahead.

Ryan Fiftal - Morgan Stanley & Co. LLC

Great. Thank you and good morning. I have one follow-up on DISH and then one question on the CW deal. So just following up on DISH, you talked about the retrans side of the equation but not as much on the advertising side. So, hypothetically, if DISH were to stay dark, do you think it could have a meaningful impact on your ratings? I think you mentioned that they under-index on your footprint, so potentially you think maybe that would help (40:29) the impact.

And then on the CW, now that you have a deal done, do you still think that you're trending towards 50% retrans margins in the long-term? And strategically, does getting that deal done free your hand to consider more strategic transactions with those stations that maybe wouldn't have been possible with the renewal as an overhang? Thank you.

Peter Liguori - President, Chief Executive Officer & Director

Thanks. Okay, so those are three. I'll try to remember them all. First, on DISH on the advertising front, I'm quite pleased with how we've stood up. We have made tweaks to the schedule. We've improved some programming, brought some new stuff on. We've also expanded news to take advantage of what's going on politically. So to-date, our performance has been quite strong, thereby helping us make up that gap in distribution.

Moving forward, we expect that to continue. Now granted, once the fall season starts and once football starts, not being on the air could have a greater impact, but also, us having that more fertile programming, we believe, will help accelerate us to get to a deal. When you look at the strength of the NFL, when you look at the fall premieres that are coming up, it's programming like that which we believe will help accelerate our negotiations and get us to a deal that both DISH and we can live with.

Now, on the CW front, it's got no change on our guidance, on where we think we're going to net out. We got a very solid deal with the CW, and we're grateful to be in business with both Warner and CBS on that front. I think it's a mutually beneficial agreement.

In terms of station swaps, et cetera, we're consistently looking at ways to maximize our portfolio, as I'm sure Nexstar is and Gray and everyone in the group. I think post spectrum, everyone can sit down and reevaluate that portfolio toward each individual group's best advantage and just know that diligently, and I would say at minimum monthly, we too take a look at it to figure out how to best create efficiencies and profitability for our shareholders.

Operator

The next question comes from Marci Ryvicker of Wells Fargo. Please go ahead.

Marci L. Ryvicker - Wells Fargo Securities LLC

Thanks. I have two questions. The first for political, can you talk about how much of the full year has historically fell in that fourth quarter, and where that might end up for 2016? And then secondly, can you talk a little bit about underlying advertising trends at the stations, how you view demand, maybe how auto is doing, what your core pacing is, et cetera? Thanks.

Peter Liguori - President, Chief Executive Officer & Director

Okay. Thanks, Marci. Fourth quarter political is about half. And again, we're incredibly heartened by the pace of what we're booking from August through November at this point. We are in fact double where we were in 2012. So all signs are pointing positive. And again, we have confirmed and reconfirm that we think we're in good stead for a record year.

In terms of overall advertising, when you look at core, again, in the marketplace, things were kind of flattish in second quarter. I'm pleased that our local stations were able to gain market share. It's important in seven of the top 10 that we grew, certainly in our top three. So as we work our schedule, as we work news, as we continue to try to improve our programming and our sales effort, I'm pleased that things are on the positive swing there.

When you look at things like auto, auto was solid for us in the second quarter. I think we were up 1% or 2%. When you look down the road, despite what FAAR (45:02) discusses, this is a local battle. This is local dealer versus local dealer, to grab the fair share of market. We're just incredibly well positioned for that. So we have a fair amount of confidence that what we said we'd deliver to the market and deliver to shareholders, we'll get there. Demand has been good. Pricing has been good, especially given the amount of political that we're writing. It does work to create some upward pressure on pricing. Right now, we stick by our guidance.

Thanks, Marci.

Operator

The next question comes from Hamed Khorsand of BWS Financial. Please go ahead.

Hamed Khorsand - BWS Financial, Inc.

Hi. Good morning. Two questions. One is, can you talk about the automotive advertising environment? How that played out for you in the quarter, and this coming quarter. And if there's any kind of timeline to add additional programming?

Peter Liguori - President, Chief Executive Officer & Director

On WGNA?

Hamed Khorsand - BWS Financial, Inc.

Yes.

Peter Liguori - President, Chief Executive Officer & Director

Okay. Look, as I stated to Marci, in auto, we were up about 1% as we look toward third quarter and fourth quarter. Again, we think that auto should in fact perform solidly. We are getting in advertising from local dealers, and feel that we should be able to hit all of our marks, and are doing so by reconfirming guidance.

Timeline of more original programming, your best indicator is going to be the success of the shows that we had and whether we're renewing. Again, what we plan on doing is, have success build upon success. We think that our relationships both with our advertisers and our affiliates speak to the fact that we are going to deliver value and same value on that front. That's why our carriage fees are up about 40% in the quarter. That's why they've consistently grown on WGNA. It's not just the promise of solid investment and popular movies and quality syndication and high quality hit originals. It is the consistency of that. We're delivering it. We're very grateful. Matt and his team have done a terrific job and have every expectation that we're going to be able to have that success upon success built for the future.

Thanks, Hamed.

Operator

The next question comes from Tracy Young of Evercore ISI. Please go ahead.

Tracy Young - Evercore ISI

Yes. So, in fashion, I'm going to ask two questions. The first relates to political guidance. You mentioned Indiana had shown up as maybe a market that wasn't as strong historically. Is there a race that you saw, a couple of races which didn't materialize the way that you thought. Also on Gracenote, you mentioned Google Sports, are there any other clients that we should be thinking of that you got during the quarter? Thanks.

Peter Liguori - President, Chief Executive Officer & Director

Yeah. Okay. Well, in continuing and answering to more than one question, I'll hit them both. Yeah, Indiana clearly, a major positive. Also I think you've got to look at Illinois. Illinois when the state Senate race with Kirk, et cetera. has really caused a tremendous influx in spending. The race is tight. It is fertile. I'll also at the expense of someone getting way too excited because he's a political junkie, Eddie Lazarus, our Chief Strategic Officer is also here. Lives in the beltway, lives in (49:06) so are there any other races that you would point to?

Edward P. Lazarus - Executive Vice President, General Counsel, Chief Strategy Officer & Corporate Secretary

So I just want to make sure I understood the question because I think you were asking whether there're any places that did not show up. In other words we had mentioned, we have plenty that are (49:17), is that right, Tracy?

Tracy Young - Evercore ISI

Yes, so both showing up and not showing up to get to your $200 million.

Edward P. Lazarus - Executive Vice President, General Counsel, Chief Strategy Officer & Corporate Secretary

So look, there're always ones that turn out not to be quite as strong as you expected, and others that turn out to be a lot stronger than you expected. It's too early to say whether any of the ones that we thought would be big are going to turn out not to be big. I mean people have started to talk about Colorado as a possibility of not coming in as big, but we've got another ton of booking in our Denver duopoly, so we haven't seen any drop-off there yet. It may turn out that the Senate (49:56) race isn't as strong as some people thought, that that will dip, but it'll get made up elsewhere. I mean we look at it as a portfolio approach, it has to be done that way, and our portfolio just has so many winners that's why we feel so good about where we are right now.

Peter Liguori - President, Chief Executive Officer & Director

Yeah. And Eddie pointed out before we got on the phone that in 2012 we had 18 Senate races out of our 20 areas and this time it's 20 races in 2016. On the Gracenote question, let me kind of break out what new business we have globally, North America and then let's look at Latin America. Globally, we increased our business with Amazon, we increased it with Sharp, and highly importantly Apple. In North America I touched on Comcast, but we also have a more expansive deal in place with Cablevision, and when you look to Latin America, we completed a deal with DirecTV in Argentina. So Rich and crew on the video front are hitting on all cylinders there.

Thanks, Tracy.

Operator

The next question comes from Craig Huber of Huber Research Partners. Please go ahead.

Craig Anthony Huber - Huber Research Partners LLC

Yes. Hi. Just a first point of clarification, when you talk about gross political goal being $200 million this year versus $166 million four years ago, I believe you reported on a net basis, right? So it wasn't a comparable number on what you reported on in 2012, $138 million?

Chandler Bigelow - Executive Vice President and Chief Financial Officer

Craig, it's about 85%, give or take, with respect to the net vis-à-vis gross, and that would be right on a pro forma basis, yes.

Craig Anthony Huber - Huber Research Partners LLC

But people should take 85% of the $200 million is what the goal to people that you actually report?

Chandler Bigelow - Executive Vice President and Chief Financial Officer

Give or take that is a reasonable percentage.

Craig Anthony Huber - Huber Research Partners LLC

And my other two quick questions please, if you could just bear with me. WGN, what was the percent change there for ad revenue year-over-year in the quarter, adjusting for the extra week?

Chandler Bigelow - Executive Vice President and Chief Financial Officer

Craig, as you know, we report on a segment basis, and so we don't break out that performance. I'd say that echoing Peter's comments, we are very pleased with both the operational, financial performance at network, and those results are in our TV&E segment. Notwithstanding how we feel about the cable network, it's obviously a very relatively modest contributor to the overall TV&E segment, and this is how we manage the business, and per accounting rules this is how we report the financials.

Craig Anthony Huber - Huber Research Partners LLC

And then lastly, if I could just ask, is there anything you'd want to call out on the cost front within your broadcasting division that's out of the ordinary programming and what have you, in the third quarter or second half of the year versus a year ago that you want to call out that's not directly comparable?

Chandler Bigelow - Executive Vice President and Chief Financial Officer

No. I don't think so. I mean just recapping 2016 as we talked about, we did have our two new originals premiering in the first quarter of this year. And as a result of that, we obviously had a relatively significant year-over-year increase in programming expense in the first quarter. That trend was different in this last second quarter primarily due to some timing with respect to the airing of the originals. And as we look at the back half, I'd say that as I mentioned it'd be about flat to last year, and I don't think there's anything that I'd point out that's super unusual with respect to that.

Peter Liguori - President, Chief Executive Officer & Director

Thanks, Craig.

Operator

The next question comes from Kyle Evans of Stephens. Please go ahead.

Kyle Evans - Stephens, Inc.

Hi. Thanks. I have just one question. Could you please provide an update on retransmission subscriber volumes that's historically been flat to up for the group? And could you please give some color on your largest seven markets versus your smaller markets on retrans subvolumes. Thanks.

Peter Liguori - President, Chief Executive Officer & Director

Basically flat, we're pretty much in line with everyone else. If you want, we can go back and get back to you on seven of our top – or look at our top 10, but absolutely nothing stands out as being different from where we are nationally. It's basically flat. It's a non-story.

Thanks, Kyle.

Operator

As there are no further individuals in the question queue, this concludes the conference call. Thank you for attending, you may now disconnect your line.

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