This piece explains why Nexstar, the largest U.S. local TV station owner, is a 'value trap'—cheap but getting worse. The industry is melting as cable TV subscriptions keep dropping, and Nexstar's growth from mergers, price hikes, and digital efforts is done. Key holdings: Nexstar (stock may fall as the business declines); CW network (struggling, never profitable); NewsNation (too small to matter). The author's advice: sell to Nexstar, don't buy its stock.
Nexstar Media Group is the company with the largest number of local television stations in the United States. A decade of industry consolidation has made it the dominant player outside the four major networks (NBC, CBS, ABC, Fox). Guest Simeon McMillan analyzes the evolution of broadcast television
Simeon McMillan, founder of media research firm Accrued Interest and former Univision executive, decodes Nexstar Media Group — the largest owner of local TV stations in the United States. The main thread of this issue: the evolution of the broadcast television industry from the "hub-and-spoke model" to the "cable TV subset," and the survival strategy of the industry's biggest player on a "melting ice cube." The most weighty judgment of the entire episode: McMillan argues that Nexstar is essentially a "BOTB" (Beneficiary of the Bundle); when the cable bundle breaks apart and the subscriber base halves in a decade, all of its growth paths — M&A, price increases, digital transformation — have hit a ceiling. What remains is merely a "value trap that masks decline with capital returns."
Simeon McMillan argues that the biggest structural change in the broadcast television industry over the past decade has been the transformation of local TV stations from "free over-the-air broadcasting" to a "subset of cable TV."
Historical context: Traditional broadcast networks (NBC, CBS, ABC, Fox), constrained by the FCC's 39% population coverage cap, own and operate (O&O) stations only in major cities, relying on third-party independent affiliates in other markets. These affiliates originally survived solely on advertising revenue.
Mechanism breakdown: In 2005, Nexstar founder Perry Sook pioneered "retransmission fees"—charging MVPDs (multichannel video programming distributors) such as Comcast and YouTube TV on a per-subscriber, per-month basis. Over the following 15 years, local stations evolved from "free users" into paid channels of "cable networks." Currently, Nexstar derives approximately 55% of its revenue from these distribution fees, compared to only 25% a decade ago.
Competitive landscape: This fee model has created a new conflict between local stations and the major networks—the networks argue that the high fees charged by affiliates stem from the content they provide, leading to the introduction of "reverse retransmission fees," requiring affiliates to return 50%-60% of retransmission revenues. This dynamic drove a wave of industry consolidation in the 2010s: smaller stations banded together to strengthen their bargaining power.
McMillan points out that Nexstar is the biggest winner of the industry consolidation wave, but M&A-driven growth has nearly reached its end.
Historical data: Nexstar was founded in 1996, acquired Media General for $4.3 billion in 2017, and acquired Tribune Broadcasting in 2019, making it the "largest station group outside the Big Four" — with about 200 local stations, covering 116 U.S. markets, and signals reaching about 68% of the U.S. population (bypassing the FCC's 39% cap through LMA sidecar agreements).
Financial profile: 2024 revenue of approximately $5.5 billion, adjusted EBITDA of approximately $2.0 billion, EBITDA margin of 37%. Low maintenance capital expenditure, EBITDA-to-free cash flow conversion ratio of about 50%-60%, annual free cash flow of about $1.1-1.2 billion. Leverage of 3.5-4x net debt/EBITDA.
Revenue Composition: Distribution fees 55%, advertising 45% (of which local advertising accounts for 70%, national advertising 25%-30%, and digital advertising only about 10%).
McMillan's assessment: Nexstar's growth engine relies entirely on M&A, and "when you are the biggest player in the industry, you cannot be acquired by others, and it is also difficult to find new targets of comparable scale." "M&A is not a strategy; it is a tool you use to enhance a strategy. When the strategy itself — finding growth in a declining industry — does not exist, M&A is just an anesthetic that delays liquidation."
McMillan uses data to depict the “ice melting” process that the broadcast television industry is undergoing, and points out that every key metric is deteriorating.
Subscriber Base: Over the past 10 years, the total number of pay-TV households has fallen from about 100 million to roughly 65–70 million (a decline of approximately 30%); the traditional cable television segment alone has dropped by more than 50%, leaving only about 50 million households.
Ratings: The decline is more severe than the subscriber loss. In April 2025, YouTube accounted for 12.5% of total viewing time on large-screen televisions, setting a new record for five consecutive months—these viewers are not coming back to cable.
Bargaining Power: In the early days, stations like Nexstar could use the “loss of NFL live broadcasts” as leverage to raise retransmission fees each year to offset subscriber losses. But McMillan believes “this balance has broken”—once the subscriber base is small enough, operators are no longer willing to pay a premium for bundled negotiations. At the same time, the major networks (NBC, CBS, etc.) are moving more sports content to streaming, weakening the local stations’ last trump card.
Advertising: Streaming ad loads are far lower than linear television, meaning the ad inventory that can be monetized per viewing hour is shrinking. Local advertising (car dealers, small and medium-sized businesses) is the core revenue source, but national ad growth is slow. Digital advertising accounts for only 10%, and this “digital” is essentially website display ads, not the precision targeting of Google/Facebook.
McMillan believes that all of Nexstar's organic growth investments attempting to "break out of the cable bundle" have so far failed to generate material returns.
CW Network: In 2022, acquired a 70% stake from Warner Bros. Discovery at a near-zero purchase price (only assuming about $100 million in debt). The CW has never been profitable historically, sustained by expensive teen dramas and superhero shows. Nexstar pivoted it to low-cost unscripted programming, sports-adjacent programming (NASCAR, college football), and golf, but "ratings remain extremely poor, and the turnaround is still in its very early stages, with no evidence that success can be achieved this late."
NewsNation: Transformed from its predecessor WGN America into a "neutral" cable news channel, benchmarking against Newsmax. It is extremely small in scale and not material to Nexstar's overall business.
The Hill and Digital Assets: The Hill is a small Politico-style political news website, contributing negligibly; the 31% stake in Food Network is a legacy from the Tribune acquisition, and while it continues to pay dividends, it has no growth potential.
ATSC 3.0 (Next-Generation TV Broadcast Standard): Hailed by industry bulls as the cornerstone of "digital transformation." McMillan, who participated in the spectrum auction during his time at Univision, judges this to be a "decade-long pipe dream":
McMillan draws from his own experience to propose a counterintuitive conclusion: in declining industries, wasting cash is more dangerous than returning cash, and being able to sell is the best capital allocation.
McMillan's self-analysis: In 2013, while at Columbia Business School, he bet on Tribune Broadcasting as a "long-term buy" at $55/share, winning the Irisone Creative Competition. The stock briefly rose above $100, but Nexstar acquired it in 2019 for approximately $47/share (close to the starting price) — 6-year total return significantly underperformed the S&P 500. "I learned a painful lesson: on melting ice, return on capital is just an illusion; the ultimate return depends on whether you can sell."
Key analogy: Rupert Murdoch selling 21st Century Fox to Disney was a "smart move"; AT&T spinning off Warner Bros. Discovery, after which AT&T's stock outperformed WBD, was a "textbook case". "The smartest TV operators are those who know when to sell."
Judgment on Nexstar: McMillan expects the company will eventually undergo another round of M&A (possibly through regulatory easing), but "you can't forever use leverage to buy declining assets and then lay off people, expecting that to be a strategy." "The best investment strategy is to sell to Nexstar, not to be its shareholder."
| Target | Guest Attitude | Key Data |
|---|---|---|
| Nexstar Media Group | Risk Warning (Value Trap) | Market cap $5.2 billion, enterprise value $12 billion; 2024 revenue $5.5 billion, EBITDA $2 billion, EBITDA margin 37%; Leverage 3.5–4x n.d./EBITDA; Annual free cash flow approx. $1.1–1.2 billion |
| CW Network | Risk Warning (No Hope for Turnaround) | Nexstar holds 70%; historically never profitable; acquisition price almost zero (only assumed $100 million in debt) |
| NewsNation | Risk Warning (Very Small Scale) | Scale is not material |
| The Hill | Neutral (Non-Material) | Revenue contribution is not material |
| Food Network 31% Stake | Neutral (Non-Core) | Pays consistent dividends, but no growth potential |
1. "Broadcast television has gone from free-to-air to a subset of cable TV" (McMillan). Over 50% of revenue comes from retransmission fees, not advertising; the industry's fate is entirely tied to the cable bundle.
2. "In 10 years, pay-TV subscribers dropped from 100 million to 65 million, and traditional cable dropped from 100 million to 50 million" (McMillan). After the subscriber base halved, the logic of compensating losses through price hikes has collapsed.
3. "YouTube now accounts for 12.5% of big-screen TV viewing time, hitting new highs—these viewers are not coming back" (McMillan). Streaming is siphoning linear TV's audience, with ad loads far lower than traditional TV.
4. "Nexstar is a BOTB (beneficiary of the bundle), but the bundle is breaking" (McMillan). All its core assets—NFL, local news, retransmission fees—depend on the integrity of the cable bundle, and that structure is unraveling.
5. "ATSC 3.0 is a ten-year pipe dream" (McMillan). The industry never unified on a transition standard, TV manufacturers don't install the chips, users don't adopt, and encrypted signals instead ruin the user experience.
6. "Capital allocation is not strategy. Strategy is 'how do you grow future earnings,' and capital allocation is just a tool to enhance strategy" (McMillan). In a declining industry, buybacks and dividends alone cannot reverse a stock's trajectory.
7. "The smartest TV operators are those who know when to sell" (McMillan). He cites his own failed bet on Tribune in 2013: bought at $55, sold at $47, underperforming the S&P 500 over 6 years.
8. "The best investment strategy is to sell to Nexstar, not to be its shareholder" (McMillan). The only strong buyer in the industry is also the biggest escape hatch.