E.W. Scripps (SSP) VP, Planning, Budgeting & Forecasting Jason Combs – Presentation from NobleCon17

Good morning everybody, I'm glad to be here today to talk to you about EW Scripps and some of the activity we've had going on recently. Before I jump into it, I wanted to get started by pausing quickly on the safe harbor disclosure, just to mention that the information we're going to review today has been updated for our current view of COVID-19 and the impacts it's had on our business. So as we look at the agenda today, what I plan to go over are some updates on how the business has performed as we've exited 2020, a high level overview of the transformation Scripps has been on the past several years, and then we'll go ahead and take a deeper dive into the Ion business and why we think this has been such an outstanding addition to the Scripps portfolio.

First, I want to start by sharing our coverage map of the U.S. The first thing that jumps out to me is how busy this map is. There's a lot going on. This is post the Ion acquisition, and what jumps out to me is the scale we now have. As you look across the country, pairing the Ion networks with our other existing national brands and our local media segment creates a national broadcaster with immense scale. Over the last two years in the local media business, we've doubled down on the television space, acquiring 27 stations in some really terrific markets. This includes some really high performing stations and some stations that were beneficial in terms of our overall political footprint. This added scale on the local media side has certainly benefited us as we've navigated some choppy waters during the economic downturn of 2020. On the national side, we can now pair Ion's nearly ubiquitous reach with our five extremely successful Katz networks as well as our Newsy brand. I would also point out that Scripps is now the largest holder of spectrum in the country and reaches nearly every American across its brands.

I'm not going to go through each of the bullet points on this slide, but I want to hit on a couple of key items. First and foremost, Scripps had a really strong year in 2020 despite the challenges brought on by the COVID-19 pandemic. We plan to deliver well over $280 million in free cash flow for the year versus our pre-pandemic range of $225 to $250 million, so obviously outstanding results given a very challenging year. Record political in 2020, as well as strong retransmission growth and tight cost controls, provided all of this upside to help us exceed our original estimates. Speaking specifically at Q4, we were extremely pleased with the strength we saw in Q4 and how the numbers rolled in. Specifically in our core revenue, we saw a nice rebound there on the TV side post election-related displacement, and as a result, core revenue significantly beat our expectations that we had provided going into the quarter. On the national brand side, our brands Newsy and Katz continue to post extremely strong results, a really nice bounce back from the Q2 and Q3 drops we saw in revenue, and it actually got to the point of showing year over year growth in Q4. The last thing I'll point out here is that we closed out the year by finishing the sale of WPIX, which is our New York station, to Mission Broadcasting.

Flipping ahead, I want to talk a bit about retransmission. One of the theses behind our TV station acquisitions over the last three years was that a larger footprint would benefit us as we entered into negotiations on our MVPD renewals. In 2020, we renegotiated 42% of our subscriber base, and I believe that we benefited greatly from our new larger footprint that we were able to bring to the table. As you can see from the chart on the left, from 2019 to 2020 there was a significant growth in gross retransmission revenue of about 50% on an as-reported basis, and on a pro forma basis that was still north of 30% growth. Our net retrans revenue also saw a nice upside in 2020 and margin expansion on the back of the subscriber renewals without any significant affiliate renewals in the year. Generally, the way I would think about it is that retrans growth from one year to the next is really dependent on the cadence of the subscriber renewals versus our affiliate renewals. The chart on the right actually shows that timing over the next three years of our subscriber renewals across the bottom of the chart and our affiliate renewals across the top.

Turning to political, Scripps is one of the best positioned broadcasters to serve as a medium for political messaging, especially after doubling the size of our footprint over the last three years. In that doubling, we also gained a substantial amount of highly ranked stations in some really key political markets. In 2020, Scripps benefited from a strong presence in a number of expected presidential swing states, and that helped drive Scripps to a record political year of $266 million, significantly exceeding prior election cycles. As we look ahead to 2022, we're already seeing things lining up very favorably for us in terms of our footprint, with a significant number of governor races and U.S. Senate races, as you can see there in the slide: 17 governor races in 2022 and 18 U.S. Senate races. So again, we are extremely pleased with the way 2020 wrapped up for us on the political front, and we are very bullish as we look ahead to 2022.

Before I transition over to talk about the Ion deal, I wanted to wrap on this enterprise discussion. This management team laid out a strategy several years ago to gain scale and improve on our operating performance, and over the last three years this team has been very busy doing exactly that. We've doubled the size of our TV business, which has provided leverage in our retrans negotiations, and we've created a much more favorable political footprint. On the national side, our businesses have been growing both their top line revenue and their margin at a significant pace. We are doing what we said we would do, and I believe we are very well positioned to continue this path as we move into 2021.

Now let's spend a little bit more time diving deeper into the Ion acquisition and some of the highlights of that acquisition. Ion Media is a highly performing and extremely attractive brand. We are thrilled to add Ion to the Scripps portfolio, especially at what I believe are the attractive economics that we were able to receive in this deal. Certainly the timing of the deal during the pandemic benefited us on that front. Ion has strong revenue growth, high margins, and significant cash flow. The combination of Ion, Katz networks, and Newsy really repositions the company in the television landscape. When we think of Ion, we think of it as a distribution double threat: it's carried on cable and satellite through must-carry while also capitalizing on cord cutting and the growth in the free over-the-air broadcasting space. Let's go ahead now on the subsequent slides and spend a few minutes on each of the growth drivers ahead for Ion.

First, we'll start with a discussion on their reach. Ion today reaches 96% of the U.S. through over-the-air distribution. Between this high over-the-air coverage as well as carriage on cable and satellite, Ion is able to reach almost every American to deliver well-known and beloved content. Frankly, after the deal was announced, I was surprised by just how many friends I had from all different parts of the country reach out to congratulate me when they saw news of the deal and to also tell me how much they and their family enjoyed watching Ion. I will point out that the distribution of this network is highly efficient, with a single national programming stream originating from our Ion support center in Florida, and this creates an extremely low cost structure, which is a big driver and the reason why Ion has been able to yield industry leading margins.

As I alluded to earlier, Ion has shown strong revenue growth. The slide here notes 6% growth year over year from 2017 to 2019, and because of the highly efficient cost structure that I just talked about, they've been able to generate margins in the low to mid 50% range on a consistent basis. During 2020, Ion felt the impacts of the pandemic on its top line revenue, no different than everybody in the advertising space, but I would say their business rebounded well from their low point in Q2. We expect Ion to be down about 10% in 2020 versus 2019, and in fact in Q4 they had gotten back to flat versus the prior year. Ion also during 2020 did a phenomenal job of managing their expense structure during the revenue downturn, and as a result they were able to maintain their margins above 50%.

Flipping ahead to talk a bit about ratings. From a ratings perspective, Ion ranks as the fifth most watched broadcast network, and across network and cable audiences it is consistently in the top ten. But where Ion has lagged is in terms of their ability to monetize their audience. Looking forward, we see the opportunity to drive continued growth in Ion's revenue stream through increasing their revenue yield. This could come through a variety of avenues, including introducing some different pricing strategies to maximize their CPMs and also the bundling of Ion with our other national networks when we go to market. The creator of the Katz networks, Jonathan Katz, is now the CEO for our new national networks division. Jonathan and I have spoken in the past about the benefit that he saw as he was able to bundle the five existing Katz networks and take them to the upfront. As we speak, Jonathan and his team are working on utilizing that same approach as we begin to bundle Ion into the sales opportunities with those Katz networks.

This slide is just a quick view of the growth we're seeing in over-the-air viewing. The Parks Associates report that is noted here estimates that we'll see a doubling of over-the-air viewing by 2022. Between the Ion acquisition as well as the five existing Katz networks, Scripps is really well positioned to benefit from this growth in over-the-air viewing.

So one common question we get a lot is around market fragmentation. Fragmentation is already a very big part of the television landscape, I think most would attest to that. Consumers have more and more choices all the time, and we've been saying for years that we really don't care what pipe it comes through into their home, whether it's cable, satellite, internet, or over the air. What we're seeing is people are putting those pipes together to create what we call the new consumer bundle. When that bundle includes cable, all of our local media brands and our national networks including Ion can be found there. And when it's a cord cutter bundle, we benefit again because we're over the air with our local media stations and the Katz networks and now Ion. I would say we're a perfect pairing to Netflix, Prime, or Hulu because we're free and we're easier to find in a cord cutter bundle. There are many ways to create value in TV. Netflix actually just saw this morning is going to spend $17 to $18 billion in 2021 on content, and then they're going to charge people for it. Ion pays very little for content and makes it free, and it's familiar popular content that doesn't take a lot of energy or effort to find. We believe people combining their viewing platforms is the future of the ecosystem and will continue to benefit from that.

Now I want to touch a bit on the synergies that we disclosed when we first announced this deal. As you can see in the headline there, we estimate $500 million in synergies over the first six years of the deal, getting to a run rate of $120 million. Ion was an attractive asset to us because of the tremendous amount of cash it generates, its ability to accrete to our free cash flow and free cash flow per share, and it's an adjacency to our largest business, the local media side. But beyond all of those great reasons to pursue this acquisition, Scripps was in a very unique position versus others in our industry to yield significant synergies from this deal. As I noted earlier, we expect the deal to produce more than $500 million in synergies over the first six years. The majority of these synergies are contractually based. Katz networks pays for distribution on other broadcaster spectrum today. Now that we own Ion, we own the distribution channel, and as existing Katz carriage deals expire, we can migrate those Katz channels off of other broadcasters over to the Ion networks, thereby eliminating a significant spend item in the Katz P&L. In addition to these distribution synergies, the deal at the bottom of the slide notes there were also assumed corporate synergies primarily tied to head count reductions. Last week we put out a press release and announced that we had already identified 120 jobs that were being eliminated in the first half of this year as we combined Ion into our operations. So I would say we are well on our way to delivering on that portion of the synergies.

To go ahead and wrap up on Ion, we're extremely optimistic about what lies ahead for the new Scripps. The Ion deal with its cash flow generation and attractive economics really enhances the broader enterprise's durability and increases our reach. This is a highly accretive transaction. I referenced this earlier: our free cash flow per share on a pro forma 2020-2021 basis is increasing 60% versus if we look at that same metric on a legacy Scripps standalone basis. In addition to the short-term value creation, we believe as the largest spectrum holder and with our huge national reach, Scripps is really well positioned to lead the way in the development of ATSC 3.0 and the future of television viewing. So with that, Mike, I think that's the end of my presentation. If we want to go to some Q&A.

Yeah, Mike. I think Scripps has shown in the past a willingness to flex this balance sheet for the right investment, and this deal we believe is a great deal for many reasons. I would agree doing a deal during tough economic times in the middle of a pandemic is difficult, but as I alluded to earlier, I actually think it played into our favor a bit. Specific to Ion and how they're progressing, they were down in Q2 of 2020 about 20% versus the prior year. That was generally in line with what a lot in the national media space saw. But what we saw was improvement from Q2 to Q3, and then in Q4 they were back to flat year over year. So nice progress there. When we look ahead to 2021, I think there's a general consensus that 2021 is a recovery year for the ad marketplace, and it probably takes more than one year to fully rebound to pre-pandemic levels. What I can tell you is we've been really pleasantly surprised by what we've seen so far in two weeks post deal close in terms of the 2021 outlook for Ion. Frankly, it's better than what we thought it would be when we announced the deal back in September. So we're optimistic as we go into the year about the pace of rebound and the pace of revenue for Ion in 2021. Above and beyond that, I think we have opportunities, I referred to some of them during my presentation, to potentially drive the revenue even higher. An example would be we have a lot of expertise in the direct response advertising space. Ion has a very low percentage of their revenue tied to direct response, it's about 15%, so it's kind of the inverse of what Katz has. We've shown through our results we delivered in 2020 that the direct response category has been extremely resilient and growing. So there may be some things as an example there we do in terms of their approach to direct response that drive even more revenue upside than what we're seeing right now in their outlook.

Yeah, so direct response is a crucial piece of the advertising mix for Katz. We have five networks there, five very different networks within Katz, and the mix of direct response to general market advertising varies between them from anywhere from about 50% up to 100% or near 100%. But in general, if you net them all together, it's about 75% of Katz's revenue stream tied to direct response. We haven't actually seen a material change in that mix pre and post pandemic. What I can tell you though is that being the largest revenue stream within Katz has proven to be a really strong category during this economic downturn. Katz for the year is going to post double-digit revenue growth, which during a pandemic, frankly I think it'd be really tough for you to find another ad-based media company showing that kind of growth. Pre-pandemic, in Q1 of 2020 and Q4 of 2019, they were showing 30% growth year over year. So it really highlights to me the strength of direct response. I think it's still to be seen exactly how much we shift in terms of the mix within Ion. That's some of what we're really looking at now, but we're optimistic around both the Katz business and their growth trajectory as well as what we think Ion can accomplish in 2021 and beyond.

I think first of all, I'd point out that the over-the-air universe is much smaller. It probably resembles more the early days of cable. In most markets, there are 15 to 20 quality channels that you can find over the air, so discoverability is much easier than if you're talking about cable or satellite. Certainly there is some time with the adjacent channel and the impact we have there, but I would also say that we consider Ion to be an extremely strong broadcast name, so we think placing the Katz networks next to the Ion name can yield benefit. I would also say as you look across our existing Katz footprint, we have channels who are adjacent to a Big Four, we also have channels who are adjacent to Univision, and we've been able to drive that business and be successful regardless of where that channel placement is. So looking at it now and looking ahead to that migration, which will take some time as contracts roll off to see that movement, we don't really anticipate any changes in viewership tied to the channel position.

Yeah, so first of all, in terms of Comcast, that comes up for renewal in a couple of years in early 2023. I'll first point backwards to 2020 and say that I think we realized a ton of value in our added scale in 2020. We had obviously the Comcast rate which reset, but we also had three other very large MVPD renewals representing 42% of our overall sub-footprint, and that yielded for us a 31% increase in our gross retrans revenue. So we certainly saw the benefit there. I would also say you can refer back to a couple years back. I think we're a vastly different company now than we were three years ago. We've doubled down on the local media side of the business, we've diversified our affiliate base within the local media side, we've obviously grown our national brands quite a bit in that time, and I think we've gotten to the point where we've become a much more compelling free cash flow story. So while this year and next are a bit quieter on the sub renewal front, we look ahead two years to 2023, we'll have 70% of our sub base renewing at that time, and I would expect that drives significant growth in our gross and net retrans.

Yeah, so first of all, I would say Q4 from a cash flow perspective came in better than expected, and that was due to a couple reasons. The biggest reasons being the political revenue we saw, which was record political revenue for us, as well as the sale of WPIX which closed in the fourth quarter. At the end of the fourth quarter, we chose not to apply that cash towards our debt but instead maintain it for the Ion transaction close which we knew was coming in the first quarter of 2021. At the Ion deal close, our cash was $240 million and our total net leverage is 5 times. That's better than when we announced the deal back in September. I believe we guided to a deal close net leverage of about 5.3 times, so the really strong performance we saw in the back half of Q3 and in Q4 helped to push us down to a much better place from a leverage perspective. Looking ahead, certainly I would expect that at the end of Q1 we would look to apply cash to our debt balances, excess cash once we've figured out our working capital needs for the Ion deal close and Scripps' general cash needs in the quarter. You did mention Berkshire. I know there have been some headlines around Berkshire and the filing they did. They did a standard 13G filing which basically says that their warrants, which are for 23.1 million shares, just acknowledging the ownership of those warrants because they fall over a certain threshold that requires that filing. They haven't exercised those warrants at this time. I don't want to speak for them, but my assumption is those warrants are at $13 and they're looking for a nice move in stock price before they would consider exercising those. So right now before the warrants, we have a little over 80 million shares outstanding. On a fully diluted basis, you would add the 23 million shares to that. In terms of our diluted EPS, we'll be doing a calculation at the end of the first quarter to determine using the treasury stock method how much of that actually falls into the diluted EPS calculation. And I think the last question is about debt levels. At the deal close, we had just under $3.8 billion in total debt.

Yeah, so first I want to focus on Q4 before I focus on Q1. You alluded to political displacement. I said earlier we did $266 million in political, which was up from our all-time previous high of $196 million. Of that $266 million political, $137 million was recognized between October 1st and the election date. So that is an enormous amount of political in a short window, and obviously that causes displacement particularly in those heavy political markets. But what we saw is once we moved past the election, a very robust rebound in our core. November and December ended up being our highest core months of the year. Going into the quarter, we had guided to be down mid-teens inclusive of the displacement we expected, and what I could say is we are going to significantly beat that guide based on how we shook out for Q4. In terms of categories, when we saw that post-election bounce, services, auto, and home improvement all were strong categories coming out of the election. Services, which I like to remind people is our largest category, I think a lot of times people don't realize that, was actually up mid-single digits in November and December. Automotive was still down a bit, but compared to where it was earlier in the year where you saw a lot of folks reporting auto down greater than 50% in Q2 and Q3, to just be down a bit in the quarter is a nice rebound there. Retail continues to be a challenged category for us based on everything going on within the economy, but we did see it tick up from October to November to December, so we were pleased with that progress. In terms of the Q1 comp, certainly Bloomberg spent a lot of money with us. We had just under $19 million in political revenue in Q1, which was kind of unprecedented. Typically Q1 is a slow quarter for political in any political year, so that makes for a tough comp for us. But if you really focus for me on the core side, I think we're very pleased with what we're seeing shake out so far in Q1. That momentum we saw in November and December has certainly carried over. We've had some really nice pacings the last several weeks in terms of our bookings. In fact, I would say we have a higher percent of business booked now than we typically have at this point. First quarter tends to break kind of late, and it's breaking early for us. So I'm optimistic about the momentum we saw from Q4 and how it's kind of carried forward into what we're seeing right now in Q1.

So I can speak to that, and then I may toss it to Carolyn Michelle who heads up our government relations if she has anything else to add there. I certainly think we're in a wait and see mode like everybody else. I think there is a common view that a lot of the regulation, specifically around the broadcast space, is very outdated and has not kept up with the times, but it also hasn't moved much. So to me, it's a wait and see. I'm not going to make any speculation about where I think it will go. Carolyn, anything else to add there?

Yes, so the first thing I would say there is that we've done a lot of M&A the last three years, obviously two big acquisitions on the local media side, but we've also done some smaller one-off station acquisitions, and we're happy with the scale that we currently sit at. We cover on the local media side 25% of the country after the WPIX sale in New York, and we think that is a level that gives us the leverage we need when we enter into negotiations with the MVPDs. That being said, we will always look into what's on the market, we will always look at TV M&A and what's out there, but I really think we'd be focused more around the edges, shoring up our local media portfolio, strengthening margins. That could play its way out through the buy, sell, swap strategy that you reference. I think anytime you're able to add a second station in an existing market, whether it's a CW as an example, you can drive more margin and more efficiency. So we would look at opportunities, but I think we're not where we were a couple years ago where we were actively seeking local media expansion because we didn't feel that we had sufficient scale. We feel like we have sufficient scale, so anything we're doing now would be kind of shoring up around the edges.

So Triton is a business that has done really well in the few years we've owned it. It makes a nice profit margin and it's had good revenue growth, so we've benefited from that in our P&L. I think with the Stitcher sale, there is maybe less adjacency, but we still find it to be a solid business, a growing business, and one that is looking at measurement that may have some adjacency to the space we still play in.

So from a Newsy standpoint, while we still have a decent sized footprint on cable, I think what's been a real growth engine for Newsy the last several years and what's allowed them to have significant double-digit growth has really been on the OTT space. So I think that will continue to be a focus for us. Some of that is around the audience. Newsy tends to be a younger skewing audience, and it is easier to capture that audience on OTT platforms, that's where the younger audience typically is. So while we will continue to maintain our cable footprint, when we look forward in terms of the real growth opportunities, it's more on the OTT side.

Thanks Mike. Thank you Mike, good to see you.

Good morning everybody, I'm glad to be here today to talk to you about EW Scripps and some of the activity we've had going on recently. Before I jump into it, I wanted to start by pausing quickly on the safe harbor disclosure, just to mention that the information we're going to review today has been updated for our current view of COVID-19 and the impacts it has had on our business.

As we look at the agenda today, what I plan to go over are some updates on how the business has performed as we've exited 2020, a high-level overview of the transformation Scripps has been on the past several years, and then we will take a deeper dive into the ION business and why we think this has been such an outstanding addition to the Scripps portfolio.

First I want to start by sharing our coverage map of the US. The first thing that jumps out to me is how busy this map is. There's a lot going on. This is post the ION acquisition, so what jumps out to me is the scale we now have, as you look across the country pairing the ION networks with our other existing national brands and our local media segment, creating a national broadcaster with immense scale. Over the last two years, in the local media business, we have doubled down on the television space, acquiring 27 stations in some really terrific markets. This includes some really high-performing stations and some stations that were beneficial in terms of our overall political footprint. This added scale on the local media side has certainly benefited us as we've navigated some choppy waters during the economic downturn of 2020. On the national side, we can now pair ION's nearly ubiquitous reach with our five extremely successful Katz networks, as well as our Newsy brand. I would also point out that Scripps is now the largest holder of spectrum in the country and reaches nearly every American across its brands.

I'm not going to go through each of the bullet points on this slide, but I want to hit on a couple of key items. First and foremost, Scripps had a really strong year in 2020 despite the challenges brought on by the COVID-19 pandemic. We plan to deliver well over $280 million in free cash flow for the year, versus our pre-pandemic range of $225 to $250 million, so obviously outstanding results given a very challenging year. Record political in 2020, as well as strong retransmission growth and tight cost controls, provided all of this upside to help us exceed our original estimates. Speaking specifically at Q4, we were extremely pleased with the strength we saw in Q4 and how the numbers rolled in. Specifically in our core revenue, we saw a nice rebound there on the TV side post-election related displacement, and as a result, saw core revenue significantly beat our expectations that we had provided going into the quarter. On the national brand side, our brands Newsy and Katz continue to post extremely strong results, a really nice bounce back from the Q2, Q3 drops we saw in revenue, and it actually got to the point of showing year-over-year growth in Q4. The last thing I'll point out here is that we closed out the year by completing the sale of WPIX, which is our New York station, to Mission Broadcasting.

Flipping ahead, I want to talk a bit about retransmission. One of the theses behind our TV station acquisitions over the last three years was that a larger footprint would benefit us as we entered into negotiations on our MVPD renewals. In 2020, we renegotiated 42% of our subscriber base, and I believe we benefited greatly from our new larger footprint that we were able to bring to the table. As you can see from the chart on the left, from 2019 to 2020 there was significant growth in gross retransmission revenue of about 50% on an as-reported basis, and on a pro forma basis that was still north of 30% growth. Our net retrans revenue also saw a nice upside in 2020 and margin expansion on the back of the subscriber renewals without any significant affiliate renewals in the year. Generally, the way I would think about it is that retrans growth from one year to the next is really dependent on the cadence of the subscriber renewals versus our affiliate renewals. The chart on the right actually shows that timing over the next three years of our subscriber renewals across the bottom and our affiliate renewals across the top.

Turning to political, Scripps is one of the best-positioned broadcasters to serve as a medium for political messaging, especially after doubling the size of our footprint over the last three years. In that doubling, we also gained a substantial number of highly-ranked stations in some really key political markets. In 2020, Scripps benefited from this strong presence in a number of expected presidential swing states, and that helped drive Scripps to a record political year of $266 million, significantly exceeding prior election cycles. As we look ahead to 2022, we are already seeing things lining up very favorably for us in terms of our footprint, with a significant number of governor races and US Senate races: 17 governor races in 2022 and 18 US Senate races. So again, we are extremely pleased with the way 2020 wrapped up for us on the political front, and we are very bullish as we look ahead to 2022.

Before I transition to talk about the ION deal, I wanted to wrap up this enterprise discussion. This management team laid out a strategy several years ago to gain scale and improve our operating performance. Over the last three years, this team has been very busy doing exactly that. We've doubled the size of our TV business, which has provided leverage in our retrans negotiations, and we've created a much more favorable political footprint. On the national side, our businesses have been growing both their top-line revenue and their margin at a significant pace. We are doing what we said we would do, and I believe we are very well positioned to continue this path as we move into 2021. Now let's spend a little more time diving deeper into the ION acquisition and some of the highlights. ION Media is a highly performing and extremely attractive brand. We are thrilled to add ION to the Scripps portfolio, especially at what I believe are the attractive economics that we were able to receive in this deal. Certainly, the timing of the deal during the pandemic benefited us on that front. ION has strong revenue growth, high margins, and significant cash flow. The combination of ION, Katz networks, and Newsy really repositions the company in the television landscape. When we think of ION, we think of it as a distribution double threat: it's carried on cable and satellite through must-carry while also capitalizing on cord cutting and growth in the free over-the-air broadcasting space. Let's go ahead now on the subsequent slides and spend a few minutes on each of the growth drivers ahead for ION.

First, we will start with a discussion on their reach. ION today reaches 96% of the US through over-the-air distribution. Between this high over-the-air coverage and carriage on cable and satellite, ION is able to reach almost every American and deliver well-known and beloved content. Frankly, after the deal was announced, I was surprised by just how many friends from all different parts of the country reached out to congratulate me when they saw news of the deal, and to tell me how much they and their family enjoyed watching ION. I will point out that the distribution of this network is highly efficient, with a single national programming stream originating from our ION support center in Florida. This creates an extremely low-cost structure, which is a big driver and the reason ION has been able to yield industry-leading margins.

As I alluded to earlier, ION has shown strong revenue growth: six percent growth year over year from 2017 to 2019. Because of the highly efficient cost structure, they've been able to generate margins in the low-to-mid 50% range on a consistent basis. During 2020, ION felt the impacts of the pandemic on its top-line revenue, no different than everybody in the advertising space, but I would say their business rebounded well from their low point in Q2. We expect ION to be down about 10% in 2020 versus 2019, and in fact, in Q4 they had gotten back to flat versus the prior year. ION also did a phenomenal job managing their expense structure during the revenue downturn, and as a result, they were able to maintain their margins above 50%.

Flipping ahead to talk about ratings, from a ratings perspective ION ranks as the fifth most watched broadcast network, and across network and cable audiences, it is consistently in the top ten. But where ION has lagged is in their ability to monetize their audience. Looking forward, we see opportunities to drive continued growth in ION's revenue stream through increasing their revenue yield. This could come through a variety of avenues, including introducing different pricing strategies to maximize their CPMs and bundling ION with our other national networks when we go to market. The creator of the Katz networks, Jonathan Katz, is now the CEO for our new National Networks division. Jonathan and I have spoken in the past about the benefit he saw as he was able to bundle the five existing Katz networks and take them to the upfront. As we speak, Jonathan and his team are working on utilizing that same approach as we begin to bundle ION into the sales opportunities with those Katz networks.

This slide is just a quick view of the growth we are seeing in over-the-air viewing. The Parks Associates report here estimates that we will see a doubling of over-the-air viewing by 2022. Between the ION acquisition as well as the five existing Katz networks, Scripps is really well positioned to benefit from this growth in over-the-air viewing.

One common question we get a lot is about market fragmentation. Fragmentation is already a very big part of the television landscape, and I think most would attest to that. Consumers have more and more choices all the time, and we have been saying for years that we really don't care what pipe it comes through into their home—whether it's cable, satellite, internet, or over the air. What we are seeing is people putting those pipes together to create what we call the new consumer bundle. When that bundle includes cable, all of our local media brands and our national networks including ION can be found there. When it's a cord-cutter bundle, we benefit again because we are over the air with our local media stations and the Katz networks and now ION. I would say we are a perfect pairing to Netflix, Prime, or Hulu because we're free and easier to find in a cord-cutter bundle. There are many ways to create value in TV. Netflix, I just saw this morning, is going to spend $17 to $18 billion a year in 2021 on content, and then they're going to charge people for it. ION pays very little for content and makes it free, with familiar popular content that doesn't take a lot of energy or effort to find. We believe people combining their viewing platforms is the future of the ecosystem and will continue to benefit from that.

Now I want to touch on the synergies that we disclosed when we first announced this deal. As you can see in the headline, we estimate $500 million in synergies over the first six years, getting to a run rate of $120 million. ION was an attractive asset to us because of the tremendous amount of cash it generates, its ability to contribute to our free cash flow and free cash flow per share, and it's an adjacency to our largest business, the local media side. Beyond all of those great reasons to pursue this acquisition, Scripps was in a very unique position versus others in our industry to yield significant synergies from this deal. The majority of these synergies are contractually based. Katz networks pays for distribution on other broadcasters' spectrum today. Now that we own ION, we own the distribution channel, and as existing Katz carriage deals expire, we can migrate those Katz channels off of other broadcasters onto the ION networks, thereby eliminating a significant spend item in the Katz P&L. In addition to these distribution synergies, the deal also assumed corporate synergies primarily tied to headcount reductions. Last week we put out a press release and announced that we had already identified 120 jobs that were being eliminated in the first half of this year as we combined ION into our operations. I would say we are well on our way to delivering on that portion of the synergies.

To wrap up on ION, we are extremely optimistic about what lies ahead for the new Scripps. The ION deal with its cash flow generation and attractive economics really enhances the enterprise's overall durability and increases our reach. This is a highly accretive transaction. I referenced this earlier: our free cash flow per share on a pro forma 2020-2021 basis is increasing 60% versus if we look at that same metric on a legacy Scripps standalone basis. In addition to the short-term value creation, we believe as the largest spectrum holder and with our huge national reach, Scripps is really well positioned to lead the way in the development of ATSC 3.0 and the future of television viewing. So with that, Mike, I think that is the end of my presentation, if we want to go to some Q&A.

Yeah, Mike, I think Scripps has shown in the past a willingness to flex this balance sheet for the right investment, and this deal we believe is a great deal for many reasons. I would agree that doing a deal during tough economic times in the middle of a pandemic is difficult, but as I alluded to earlier, I actually think it played into our favor a bit. Specifically to ION and how they're progressing, they were down in Q2 of 2020 about 20% versus the prior year. That was generally in line with what a lot in the national media space saw. But what we saw was improvement from Q2 to Q3, and then in Q4 they were back to flat year over year. So nice progress there. When we look ahead to 2021, I think there is a general consensus that 2021 is a recovering year for the ad marketplace, and it probably takes more than one year to fully rebound to pre-pandemic levels. What I can tell you is we've been really pleasantly surprised by what we've seen so far in the two weeks post-deal close in terms of the 2021 outlook for ION; frankly, it's better than what we thought it would be when we announced the deal back in September. So we are optimistic as we go into the year about the pace of rebound and the pace of revenue for ION in 2021. Above and beyond that, we have opportunities I referred to during my presentation to potentially drive the revenue even higher. An example would be we have a lot of expertise in the direct response advertising space. ION has a very low percentage of their revenue tied to direct response, about 15%, which is the inverse of what Katz has. We've shown through our results in 2020 that the direct response category has been extremely resilient and growing. So there may be some things in terms of their approach to direct response that drive even more revenue upside than what we are seeing right now in their outlook.

Direct response is a crucial piece of the advertising mix for Katz. We have five networks within Katz, and the mix of direct response to general market advertising varies between them from anywhere from about 50% up to 100% or near 100%. In general, if you net them all together, it's about 75% of Katz's revenue stream tied to direct response. We haven't actually seen a material change in that mix pre- and post-pandemic. What I can tell you is that being the largest revenue stream within Katz has proven to be a really strong category during this economic downturn. Katz is going to post double-digit revenue growth for the year, which in a pandemic would be really tough to find in another ad-based media company showing that kind of growth. Pre-pandemic, in Q1 of 2020 and Q4 of 2019, they were showing 30% growth year over year, so that really highlights the strength of direct response. It remains to be seen exactly how much we shift in terms of the mix within ION; that's some of what we are really looking at now. But we are optimistic about both the Katz business and their growth trajectory, as well as what we think ION can accomplish in 2021 and beyond.

First of all, I'd point out that the over-the-air universe is much smaller; it probably resembles the early days of cable. In most markets, there are 15 to 20 quality channels you can find over the air, so discoverability is much easier than on cable or satellite. Certainly, there is some time with the adjacent channel and the impact we have there, but I would also say we consider ION to be an extremely strong broadcast name, so we think placing the Katz networks next to the ION name can yield benefit. As you look across our existing Katz footprint, we have channels adjacent to a big four network and channels adjacent to Univision, and we've been able to drive that business and be successful regardless of channel placement. Looking at it now and ahead to that migration, which will take some time as contracts roll off, we don't really anticipate any changes in viewership tied to channel position.

In terms of Comcast, that comes up for renewal in a couple of years, in early 2023. I'll first point backwards to 2020 and say we realized a ton of value in our added scale. We had the Comcast rate reset, but we also had three other very large MVPD renewals representing 42% of our overall subscriber footprint, and that yielded a 31% increase in our gross retrans revenue. So we certainly saw the benefit. I would also say we are a vastly different company now than we were three years ago. We've doubled down on the local media side, diversified our affiliate base, grown our national brands quite a bit, and become a much more compelling free cash flow story. While this year and next are quieter on the sub renewal front, when we look ahead two years to 2023, we will have 70% of our sub base doing renewals at that time, and I would expect that to drive significant growth in our gross and net retrans.

Q4 from a cash flow perspective came in better than expected, due to a couple of reasons. The biggest were the record political revenue we saw and the sale of WPIX, which closed in Q4. At the end of Q4, we chose not to apply that cash towards our debt but instead maintain it for the ION transaction close, which we knew was coming in Q1 of 2021. At the ION deal close, our cash was $240 million, and our total net leverage was 5 times. That's better than when we announced the deal back in September; I believe we guided to deal close net leverage of about 5.3 times. So the really strong performance we saw in the back half of Q3 and in Q4 helped push us to a much better place from a leverage perspective. Looking ahead, I would expect that at the end of Q1 we would apply excess cash to our debt balances once we've figured out working capital needs for the ION deal close and Scripps' general cash needs in the quarter.

You mentioned Berkshire. There have been headlines around Berkshire and the filing they did. They did a standard 13G filing, which basically acknowledges their ownership of warrants for 23.1 million shares because they fall over a certain threshold that requires that filing. They haven't exercised those warrants at this time. I don't want to speak for them, but my assumption is those warrants are at $13 and they are looking for a nice move in stock price before they would consider exercising. Right now before the warrants, we have a little over 80 million shares outstanding, so on a fully diluted basis, you would add the 23 million shares. In terms of our diluted EPS, we will do a calculation at the end of Q1 to determine how much of that actually falls into the diluted EPS calculation using the treasury stock method. The last question is about debt levels. At deal close, we had just under $3.8 billion in total debt.

First, I want to focus on Q4. We did $266 million in political, which was up from our all-time previous high of $196 million. Of that $266 million, $137 million was recognized between October 1st and the election date. That is an enormous amount of political in a short window, causing displacement in heavy political markets. But what we saw is once we moved past the election, a very robust rebound in our core. November and December ended up being our highest core months of the year. Going into the quarter, we had guided to be down mid-teens inclusive of the displacement we expected, and I can say we are going to significantly beat that guide based on how we shook out for Q4. In terms of categories, when we saw that post-election bounce, services, auto, and home improvement were all strong categories. Services, which I like to remind people is our largest category, was actually up mid-single digits in November and December. Automotive was still down a bit, but compared to where it was earlier in the year, when you saw many folks reporting auto down greater than 50% in Q2 and Q3, to be down just a bit in the quarter is a nice rebound. Retail continues to be a challenged category for us based on everything going on in the economy, but we did see it tick up from October to November to December, so we were pleased with that progress. In terms of the Q1 comp, Bloomberg spent a lot of money with us. We had just under $19 million in political revenue in Q1, which is unprecedented; typically Q1 is a slow quarter for political in any political year. So that makes for a tough net revenue comp, but if you focus on the core side, we are very pleased with what we're seeing so far in Q1. That momentum we saw in November and December has carried over. We've had some really nice pacings the last several weeks in terms of our bookings. In fact, I would say we have a higher percent of business booked now than we typically have at this point in Q1. Q1 tends to break late, and it's breaking early for us. So I'm optimistic about the momentum from Q4 and how it's continued into what we're seeing right now in Q1.

I can speak to that, and then I may toss it to Carolyn if she has anything else to add. I think we are in a wait-and-see mode like everybody else. There is a common view that a lot of the regulation, specifically around the broadcast space, is very outdated and has not kept up with the times, but it also hasn't moved much. So to me, it's a wait-and-see. I'm not going to speculate on where it will go. Carolyn, anything to add?

The first thing I would say is we've done a lot of M&A the last three years, with two big acquisitions on the local media side and some smaller one-off station acquisitions, and we are happy with the scale we currently sit at. On the local media side, we cover 25% of the country after the WPIX sale in New York, and we think that gives us the leverage we need when we enter into negotiations with MVPDs. That being said, we will always look at what's on the market and what's out there in TV M&A, but I really think we would be focused more around the edges—shoring up our local media portfolio and strengthening margins, which could play out through the buy, sell, swap strategy you reference. Anytime you can add a second station, whether it's a CW in an existing market, you can drive more margin and efficiency. So we would look at opportunities, but we are not where we were a couple of years ago, actively seeking local media expansion because we didn't feel we had sufficient scale. We feel we have sufficient scale now, so anything we do would be shoring up around the edges.

Triton is a business that has done really well in the few years we've owned it. It generates a nice profit margin and has had good revenue growth, so we've benefited from that in our P&L. With the Stitcher sale, there is maybe less adjacency, but we still find it to be a solid, growing business that is looking at measurement, which may have some adjacency to the space we play in. The only other business we didn't talk about is Newsy. At one point we looked at cable distribution as a platform. What is the strategy for growing Newsy now?

From a Newsy standpoint, while we still have a decent-sized footprint on cable, what has been a real growth engine for Newsy the last several years and allowed it to have significant double-digit growth is really the OTT space. So I think that will continue to be a focus for us. Newsy tends to have a younger-skewing audience, and it's easier to capture that audience on OTT platforms, where the younger audience typically is. While we will continue to maintain our cable footprint, when we look forward in terms of real growth opportunities, it's more on the OTT side.

Thanks, Mike. Thank you, Mike. Good to see you.