Scripps (Part 1) - The Thesis

Security analysis, especially of the 'cigar-butt' variety (as Buffett would describe) has always been an interest of mine. Taking a cue from Michael Burry's old MSN MoneyCentral articles, I'd like to elucidate on my own theses, in order for me to reinforce my own arguments and build a track record of my performance going forward.

One of the most important aspects to selecting an equity is in recognising the catalysts that will provide the upside. The hard work in scouting undervalued equities, conducting accounting forensics or calculating DCF (discount cash flow) isn't worth much, if the equity just languishes, coasting above its lows.

On this account, I've decided to work backwards in a way, and identify the catalyst first instead. From there, I'd seek out an underperforming sector with tied exposure to said catalyst, and rummage for anything that might pique my interest. Call it event-driven investment, if you will.

The Catalyst - U.S. Midterm Elections

The catalyst I've selected are the United States 2026 Midterm Elections. This is a structural catalyst, constitutionally mandated to occur every two years (whether Trump likes to or not). In today's heightened polarisation, we can extrapolate that political advertising spending will increase.

AdImpact expects political advertising spending to reach $10.8B (20% YoY), making it the most expensive midterm on record. On the last cycle, their projection of $10.7B came within 5% of the actual $11.2B spend.

Broadcast television still carries the lion's share of political advertising in the United States (approx. 49% and $5.4B spending). Specifically local TV broadcasters / broadcast station groups. However, Connected TV (CTV) is the fastest-growing media type, and where spending is estimated to surge to $2.6B this year.

Looking across the map, states with competitive races and key ballot issues are likely to capture the most spend. California, and swing states such as Georgia, Arizona, Michigan, Nevada, Ohio and Wisconsin lead the table.

The Industry - Broadcasting

The cyclicity of political advertising is embedded in the Broadcasting industry, and it's very easy to observe this pattern from their financials. FY2025 was the trough, and we're on the ascent as political spending steps into gear for FY2026. In a sense, judging a broadcaster on off-year earnings alone, is like measuring a ski resort's revenue in July and concluding the business is failing.

The industry could do with a break too. Share-prices have collapsed across the board and valuation multiples have been squeezed, as the market narrative has shifted. But this downside is essential for finding asymmetric investment opportunities too.

Before jumping ahead though, it's worthwhile to pause and consider how the industry ended up here.

Firstly, local broadcasters have three primary revenue sources:

1. Advertising

• Local advertising (auto dealers, local businesses .etc)
• National advertising sold through networks
• Political advertising during election cycles

2. Retransmission fees

• Cable/satellite/streaming TV distributors paying broadcasters to carry their local stations

3. Digital Media Operations

Local TV is extremely scale-driven, and these retransmissions fees (i.e. large predictable cash streams) in particular had been critical to funding acquisitions in aggressive expansion.

The basic logic being:

1. Borrow money
2. Buy stations
3. Increase scale
4. Increase retransmission fees
5. Pay down debt with cash flow

Cheap debt combined with regulatory shifts (FCC relaxed ownership rules) encouraged consolidation, and balance sheets quickly ballooned.

However this all came to a peak in 2020/2021 when advertising got cut and interest rates started taking off.

And the market isn't being irrational either. It's pricing in the structural risks:

1. Cord-cutting

• Pay-TV subscriber numbers are dropping; eroding the all-important retransmission revenue

2. Digital Migration

• The secular trend of advertising dollars gradually migrating over to digital platforms

3. Leverage Amplification

• Debt that used to look manageable at lower interest rates is suddenly dangerous. Interest expenses have soared, and equity has become fragile.

Hence this is where we are now, and broadcast TV is pictured as yet another declining legacy industry on its way out the door.

Interestingly, this gives rise to peculiar paradoxes. On face value when exploring companies, I noticed that many still generate strong cash flow, with very low valuation multiples. Even normalising for the political cycle, stations are still highly profitable. I hypothesise this disparity is down to the equity market discounting the long-term decline risk plus the heavy leverage.

In essence then, all companies in the industry are in the same race; chase scale and delever debt faster than earnings erode. Given this fact, the distribution of outcomes is bimodal; there's likely no 'moderate' return from these stocks. They either re-rate violently upward or go to zero. So winners and losers.

This is the crux of determining whether you've found an actual value opportunity or walked into a structural trap. Is it really a case of narrative dislocation and mispricing, or have I just settled on a dud?

Harder still, it's difficult to ascertain a concrete margin of safety. Easy flags like NCAV (net current asset value) or tangible book value aren't in the least bit meaningful for such heavily debt-burdened equities.

With that said, let me do my best in evaluating a prospective company.

E. W. Scripps Company (SSP)

The Market Story

"Scripps is a declining legacy TV broadcaster buried in $2.7B of debt with a $717M preferred stock obligation to Warren Buffett. Even worse, this noose is tightening as a 9% cumulative coupon compounds and deferred dividends accrue. Meanwhile cord-cutting is killing it, and it can't even cover its interest in off-years. The market prices common equity as a near-zero residual claim on a business that mostly belongs to creditors and Berkshire Hathaway"

Company Overview

E.W. Scripps Company (NASDAQ: SSP) is a diversified media company founded in 1878 and headquartered in Cincinnati, Ohio. It is one of the nation's largest local TV broadcasters and the largest holder of broadcast spectrum in the United States. FY2025 operating revenue was $2.15B, with adjusted EBITDA of $331M (15.4% margin). The company operates across two major segments:

Local Media (~68% of Revenue normalised)

Includes more than 60 local television stations across 40+ markets, affiliated with ABC (18), NBC (11), CBS (9), FOX (4), Independents (12) and another 10 additional low power stations.

Approx 38% of U.S. TV household penetration, including top markets such as Tampa, Phoenix, Detroit, Denver, Cleveland and Nashville.

Revenue mix (normalised across on-years/off-years):

• Core Advertising (~36% of segment revenue)
• Political Advertising (~21% of segment revenue, ~35 in on-years, near zero in off-years)
• Retransmission/Distribution feeds (~42% of segment revenue)
• Other (~0.7%)

Scripps Networks (~32% of Revenue normalised)

Includes Scripps News and the entertainment networks ION, Bounce, Grit and Laff, among others. ION is the crown jewel; the 5th largest broadcast network by primetime audience, with nearly 99% U.S. household reach via free OTA broadcast and mandated carriage (i.e. 'must-carry'). Distribution is essentially free and there's zero retransmission exposure.

Revenue here is almost entirely advertising-driven, making the segment a pure play on audience scale and ad-rates.

Business Headwinds

Cord Cutting

Scripps is a mature company facing real secular headwinds. Cord-cutting is the big one. Pay-TV subscribers are declining at mid-single-digit rates annually, and since retransmission fees are tied to subscriber counts, that revenue stream is under pressure. Distribution revenue in Local Media fell 2% YoY in FY2025 to $748.5M, even after rate increases of 3.6% partially offset the subscriber losses.

The maths is straightforward:

Gross Retrans = Subscribers x Per-Subscriber Rate

So if subscribers decline 5%/yr and per-sub rates increase 3.6%/yr:

Net change = (1 - 0.05) x (1 + 0.036) - 1 = 0.95 x 1.036 - 1 = -1.6%

Manageable, not catastrophic, but the direction is clear. And importantly, this assumes the current rate of decline holds. It's realistic to forecast it mightn't.

For starters, Pay-TV subscriber losses have only been accelerating: ~3-4%/yr in 2013-2018, ~5-6%/yr in 2018-2022, and ~6-8%/yr since 2022.

If we venture that the rate of decline reaches 10-12%/yr, (plausible as the remaining subscriber base ages out), and that the rate increases caps out at 3-4% as distributors push back, net retransmission erosion jumps to 5-7%/yr. At that pace, the maths collapses.

The near-term picture is more favourable. Around 70% of pay-TV households are up for renewal in 2026, and management is guiding a low-teens percent increase in net distribution revenue off the back of those negotiations.

Of course, this is very much just a one-time hit that buys some breathing time for now. But over a much longer horizon, you simply can't keep running on this treadmill. Rate increases can only compensate the subscriber volume loss for so long, before distributors push back or walk away entirely.

From the FY2025 10-K figures, distribution revenue (Local Media) accounts for ~35% of total company revenue. That sounds like a lot, but I believe it to overstate the actual economic exposure.

For a start, Scripps Networks which makes up 37% of total revenue, has zero retransmission dependency; ION operates under FCC must-carry rules and earns entirely from advertising.

Even within Local Media, gross retransmission overstates what Scripps actually keeps. A substantial cut is paid back to ABC, NBC, CBS and FOX as reverse compensation (network affiliation fees). Scripps doesn't separately disclose this figure, but peer data from Gray Media (which does) shows a net retention rate of ~38%. Conservatively applying a more generous 45-55% net margin to Scripps' $748.5M gross distribution revenue gives ~$337-412M retained, or roughly 16-19% of total company revenue. That's the real cord-cutting exposure.

There's an interesting cue here too. What Scripps keeps from retransmission is simply: gross retrans minus reverse comp. Typically, reverse comp is variable; it moves with gross retrans. So when subscribers leave and gross retrans falls, reverse comp falls too, cushioning the blow.

CEO Symson claims Scripps has broken from this; locking in flat affiliate fees for FY2025; what he called a "fundamental shift in the network-affiliate dynamic". That means reverse comp is now essentially a fixed cost. When gross retrans fell $16M (-2% YoY), the full $16M hit net retrans with no cushion. Worse on the way down.

But flip it around for 2026, where Scripps is guiding low-teens percent growth in distribution revenue from renewals. If affiliate fees stay flat, every incremental dollar of gross retrans flows straight to Scripps. No clawback from the networks. Better on the way up.

Digital Ad Migration

The broader advertising market is also shifting. The usual digital platforms, YouTube, Meta, Google, TikTok, Amazon .etc continue to absorb ad money that would have gone to linear TV, and they don't need broadcast spectrum to do it either. Scripps isn't immune; Scripps Networks revenue fell 3.8% in FY2025 as lower linear ratings weighed on pricing.

Scripps' counter has been to meet the audience where it's going. Its networks are now distributed across 10 major CTV/streaming platforms (YouTubeTV, Samsung TV Plus, Roku Channel, Tubi, Pluto, among others), and CTV revenue grew 30% in FY2025 as a result.

Of course, it's still off a much smaller base, so not yet a full offset to linear declines. But on the Local Media side, core advertising actually grew, up $2.3M YoY on a full-year basis, accelerating to +12% in Q4, with top categories like services (+20%) and gambling (+32%) leading.

So the next question now is whether there are any structural factors that slow, offset, or partially reverse these declines. There are a few potential avenues worth examining.

Building Beyond Cable

The headwinds outlined are real, and the market has priced them in accordingly. However, Scripps hasn't been sitting around idle. It's obvious to me that the company has been deliberately repositioning itself around the channels and content that cord-cutters are migrating to, not just defending the ones they're leaving.

OTA

Start with OTA (over-the-air). What's old is new again, and it isn't nostalgia; it's a predictable economic response. Consumers fed up with expensive cable packages and subscription creep are discovering that a one-time $30 antenna gives them free access to the same major network programming (e.g. ABC, NBC, CBS, FOX) in uncompressed HD or even 4K, with zero monthly fees. For sports fans especially, OTA delivers live NFL games, local college match-ups and more without the lag that plagues streaming.

The numbers bear this out. 18.1% of U.S. TV households now receive their signal exclusively via OTA, up 26% YoY as of November 2025. Perhaps surprisingly, adoption skews younger; the 18-49 demographic is among the fastest-growing cohort, precisely the audience you'd expect to have abandoned traditional TV entirely.

Lastly, there's the ascendancy of ATSC 3.0, or NextGen TV. This represents a fundamental upgrade to OTA itself. It enables 4K HDR picture quality, immersive audio, and can even blend OTA signals with broadband for interactive features like on-demand replays and targeted ads.

However, this new standard is still in its infancy. While coverage stands at over 75% of U.S. households, transmission is miles ahead of reception; most consumers don't yet own ATSC 3.0-compatible TVs, and the ones that do often lack awareness that the feature exists. The major broadcast groups (Scripps, Nexstar, Gray, Sinclair) are lobbying the FCC for a mandatory ATSC 1.0 shutdown (top 55 markets by February 2028, the rest by 2030) which would force the upgrade cycle. But until that happens, ATSC 3.0 remains more promise than revenue.

At a minimum though, it opens a growth avenue away from atrophying cable. The expanding OTA audience is a built-in addressable market for ATSC 3.0's key capabilities, especially targeted advertising. Features that previously required an internet connection.

OTA adoption growth and ATSC 3.0 should be mutually reinforcing. More OTA households bring a larger audience to NextGen TV, while the improved experience it delivers makes OTA itself a more compelling alternative to cable.

So how is Scripps positioned for OTA?

Rather well, so it seems. Scripps is the largest holder of broadcast spectrum in the U.S., which translates directly into OTA capacity. More channels means more data throughput for ATSC 3.0 services, and a distribution footprint no peer can match. ION's near-99% household reach via FCC must-carry rules means Scripps can launch new OTA networks without paying other broadcasters for carriage; a cost advantage that compounds as its OTA audience grows.

Scripps has also optimised for station presence in several of the markets where OTA penetration is highest; exactly where the secular shift away from cable is most advanced.

Of the top 50 U.S. markets by DMA rank, Scripps operates stations in six of the top ten highest-OTA-penetration markets:

The INYO Re-Acquisition

When Scripps acquired ION in 2021, the FCC basically said it owned too many stations. So Scripps simultaneously divested 23 ION stations to INYO Broadcast Holdings to comply with ownership caps. But the divestiture was a work of regulatory fiction. INYO's stations continued to air ION programming under long-term affiliation agreements, Scripps continued to sell advertising against that audience, and consumers had no idea the stations had changed hands. INYO was a pass-through middleman.

At the time, Scripps valued this affiliation arrangement at $422M, recorded as an intangible asset being amortised at ~$21M/yr over 20 years ($317M carrying value remaining). That $422M reflects the economic value of having 23 stations carrying ION content; it's a measure of how much the arrangement was worth to Scripps even without owning the stations directly.

In February 2026, Scripps exercised its call options to re-acquire all 23 stations for a bargain $54M, or ~$2.3M per station. So now:

• Fees that Scripps used to pay to INYO for carriage stop entirely, and that cash remains with Scripps
• The stations' direct economics flow to Scripps instead of INYO taking a cut
• The ~$21M/yr amortisation on the $422M affiliation intangible eventually gets replaced by amortisation on the $54M purchase price; a dramatically lower non-cash charge
• Scripps picks up 23 additional FCC licences and their associated spectrum

It's easy to see how this deal is immediately accretive to Networks segment margins. And $54M for 23 operating stations that Scripps itself valued at $422M in affiliation terms is an extraordinary price.

There's a broader signal here too. Scripps exercising all 23 options at once suggests confidence that the current FCC will approve the transactions, which implies ownership rules are relaxing under this administration. That matters beyond Scripps; looser ownership caps would re-open the consolidation pathway across the entire broadcasting sector (directly relevant to Sinclair's persistent bid for Scripps itself).

Scripps has also invested in reducing friction on the consumer side. Its Tablo device enables whole-home OTA viewing and recording without a subscription or monthly fees; essentially a modern DVR for cord-cutters. No peer has made a comparable consumer play.

Station presence in high-OTA markets is one thing; giving cord-cutters a reason to actually switch is another. And live sports is the last reason people keep cable.

On that score, Scripps has been systematically acquiring sports content and making it freely available over OTA, under its 'Scripps Sports' brand; outpacing all of its broadcasting peers in the process.

Locally, Scripps has signed four NHL teams under its Scripps Sports brand, with viewership surging 80% YoY for Vegas and 600%+ for Utah. Nationally, ION has become the home of women's professional sports on broadcast TV.

For instance, its WNBA Friday Night Spotlight expanded the league's audience by 30% and doubled Scripps' revenue between the 2023 and 2024 seasons, while the NWSL Saturday franchise now carries 50+ games, making ION the league's most visible broadcast partner. Most recently, Scripps secured the PWHL Walter Cup Finals for ION in May 2026, which will be the first time a women's professional hockey championship will air on national U.S. broadcast television.

The payoff is showing. Core advertising was up 12% in Q4 2025, with management attributing continued Q1 2026 growth to its sports partnerships. And the underlying economics support it; Scripps Networks delivered ~700bps of margin expansion YoY in Q4, hitting 32% segment margins even as revenue dipped 7.7%.

The Spectrum Asset

It's worth pausing on what Scripps actually owns here. The ION acquisition didn't just buy them a new network; it also made Scripps the largest holder of broadcast spectrum in the United States. Over 100 stations, each holding a 6 MHz licence in the UHF band, which by the way, is spectrum with propagation characteristics (long range, building penetration) that make it extremely valuable for wireless applications.

So how valuable is it? The 2017 FCC incentive auction offers a convenient reference point. That auction raised $19.8B, with $10.05B paid to the 175 stations that voluntarily surrendered their spectrum. Wireless providers priced 600 MHz spectrum at roughly $0.85-0.90 per MHz-pop. Scripps holds more spectrum than what was cleared in that entire auction. Apply even a fraction of that rate to its national footprint and you'd arrive at a number that dwarfs the ~$400M market cap, potentially by an order of magnitude.

On the balance sheet, FCC licences are carried at $765M as indefinite-lived intangibles, so that's historical cost, not market value. The gap between carrying value and implied market value is enormous. Alas, there's a structural catch. Spectrum cannot be separated from the broadcasting business under current FCC rules. You can't sell it onto T-Mobile and keep broadcasting. The 2017 auction was a one-off mechanism designed by Congress specifically to enable that trade-off, and no equivalent exists today. So the 'value' is real in a theoretical sense, but there's no extraction pathway for equity holders.

This also means that any sum-of-parts analysis that values the operating business at some EBITDA multiple and then adds spectrum value separately is double-counting. The EBITDA Scripps generates is the spectrum's economic expression. An EV/EBITDA multiple already captures the value of the spectrum through the cash flows it enables. Spectrum only becomes genuinely additive to equity holders if it's redeployed to non-broadcast uses, which would mean shrinking the broadcasting business.

Which brings us neatly onto EdgeBeam. In January 2025, Scripps co-founded EdgeBeam Wireless (25% ownership) alongside Gray Media, Sinclair and Nexstar. EdgeBeam commercialises ATSC 3.0 datacasting, in other words, repurposing broadcast spectrum for enterprise data distribution. Think automotive OTA software updates, enhanced GPS, IoT, public safety networks .etc. By combining all four broadcasters' footprints, EdgeBeam achieves near-nationwide coverage that no individual broadcaster could on its own. The total addressable market for CDN services alone is estimated at up to $3.65B per year, with connected vehicles, IoT distribution and streaming offload as additional verticals.

EdgeBeam made its first commercial sale in late 2025; data delivery receivers to Digital Mapping Group for high-accuracy GPS. It's still nascent technology, but at least structurally, it's the first mechanism by which Scripps' spectrum could generate revenue that is not tied to television viewership or advertising. If EdgeBeam scales, the spectrum value becomes additive to the broadcasting business rather than embedded within it.

That covers the catalyst, the industry, and the operational picture. In Part 2, I'll dig into the capital structure, valuation, ownership signals, and whether this actually makes sense as a trade.