Paramount Global (PARA) 2002 Q2 法說會逐字稿

Good afternoon, my name isTangy, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to CNET Networks second quarter financial calls.

All lines have been placed on mute to prevent background noise.

After the speaker's remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press the star, then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

I would now like to turn the conference over to Mr. Robert Borchert, Vice President of Investor Relations.

Please go ahead sir.

Thank you, good afternoon.

In our financial news announcement release today, and also on this call, we're providing specific guidance related to expectations of future financial performance.

Any forward-looking statements made as part of our financial news today are subject to risks and uncertainties that could cause actual or particular results that differ materially.

These risks are outlined in our second quarter news announcement as well as in the company's Securities and Exchange Commisions filings.

Which can be obtained from the SEC website or directly from our investor's relations department.

After this Conference call CNET Networks does not expect to provide further guidance until our release of third quarter for the results in October.

Our company also adheres to a quiet period that begins after the second month of each quarter and ends following the release of that Quarters financial results.

If we do decide to update our financial guidance, we will disseminate the information either by news release or by other similar communication methods that meet regulation FC guidelines.

Participating in todays call are Shelby Bonnie, Chairman and CEO,and Douglas Woodrum Chief Financial Officer.

At this time, I would like to hand the call over to Shelby.

Thank you, Robert.

What probably surprises no one that this remains challenging market.

It would apear we are seeing more stability in our business.

Having said that, we do not currently see signs of a rebound.

What we do see is continued pressure on overall marketing budgets for technology companies, but on the good side, we see continued share wins by CNET against other mediums.

With respect to this quarter, we grew revenues from this quarter to the second quarter, we lowered expenses, seeing the benefits from the infra-structures investments we've seen over the last year, we lowered our losses prior to our restructuring charge, we had traction against important product initiatives and goals for the year, and we took steps to realign our business costs for the second half of the year.

As an organization, we remain focused on delivering our goal of operating income before depreciation and amortization during the second half of the year.

We remain optimistic about our long term opportunities, we are in a strong market position and are beginning to see the fruits of the hard work we have done over the past year to restructure and align our business with new revenue streams and a more leverage cost structure.

With that, let me turn it over to Doug to give you an overview of the financial results.

Thank you, Shelby.

As Shelby mentioned, as we work through this difficult business cycle, we continue to focus on achieving operating profitability in the second half of the year.

We also continued to be disguisive on reducing our operating costs, while at the same time, remain focused on building long lasting brands and businesses, and looking back at Q2, we see some pretty positive signs in our operation.

Online advertising, which is our largest revenue stream and is comprised of high quality customers, increased in Q2 compared to Q1.

Our commerce lead, were stable in the second quarter, despite the tech industry slump, our international and channel businesses generated growth in Q2 compared to Q1, and regarding users, including the U.S. media operations and the international media operations, we continue to serve over 55 million unique users on a monthly basis.

Also, as mentioned, expense management continues to be aggressive and ahead of planned and finally, our cash position improved in the second quarter.

Turning to our financial results, Q2 revenue of $57.2 million was distributed as follows: 43% went from U.S. online advertising, 19% was lead based, 19% came from our U.S. prints and broadcast operations, 12% was generated to our international operations, and 7% of our revenues came from our channel businesses.

Growth from theme-based products will further diversify our revenue stream and Shelby will provide an update on our recent gains spots in complete introduction later.

Our Q2 operating expense, including our realliancemen cost of $7.7 million, increased 4% to $73.4 million on a comparable basis with Q1, but we're 19% lower compared to Q2 a year ago excluding the realignment costs, the operating expenses were 3% lower in the second quarter compared to Q1.

In the second quarter, our operating loss before depreciation and amortization, but including the realignment costs equals $16.2 million and the Q2 net loss equals $25.8 million per 19 cents per share.

And also for the first time, we are providing segments on financial information for U.S. media, international media, and channel services operations.

The data we provided in our news announcements show that each of these operations move closer to operating profitability in Q1 compared to Q2, compared to Q1.

Overall, our marketing partners remain steady during the second quarter, and our revenue quality continues to improve.

We work with approximately 1600 unique customers during the second quarter consistent with Q1 and up 18% from the comparable period in Q2 last year. 91% of our top 1 advertisers from Q1 renewed in Q2, another strong endorsement of CNET Networks value propositions and technology companies considering the difficult environment, our top 100 customers represented about 72% of our U.S. media revenue in the second quarter compared to 74% in the first quarter.

And we continue to gain share from our largest advertisers.

According to ADSCOPE, the top 20 technology companies in terms of print magazine ad expenditures spent about 33% less in April and May of 2002 than in the same period of 2001.

That same list of top 20 technology companies spent about 14% more on CNET Networks in the second quarter of 2002 versus the same period last year.

Revenue from barter was approximately 5% of total revenue equal to our Q1 percentage, our leads business generated 25.5 million commerce leads for our customers in the quarter, up 1% from Q1.

Leads per day in the second quarter were approximately 280,000, a similar level compared to Q1, and our average revenue per lead was 43 cents in the second quarter unchanged from the first quarter.

Internationally, our Asian businesses regained strength in Q2 following a seasonally low first quarter and Europe had a stable quarter.

We expect these markets to remain challenging, we'll expect slight growth this year.

In channel businesses, revenue grew sequentially in Q2 compared to Q1, and also increased year over year.

Our data businesses increased its total licenses in Q2 to 201, is up 34% year over year, and up 7% sequentially.

We continue to expect steady, incremental growth going forward.

Looking at the balance sheet, we ended Q2 with $223 million of cash, the cash equivalent of marketable debt securities including restricted cash, this represents a $14 million increase when compared to a Q1ending cash balance of $209 million, primarily due to a $31 million tax refund received in June.

Capital expenditures are expected to be in the $8 to $9 million range for the second half of 2002, and 2003 capital expenditures should decline to around $3 million per quarter on average.

Our accounts receivable equals $46.7 million at the end of Q2, representing a $7 million decline compared to Q1.

Our DSOs declined from 77 at the end of Q1 to 74 at the end of Q2 using 180-day average and our cash balances remain sufficient to fund our growth plants.

Our updated financial guidance reflects our focus on revenue growth and expense management as we continue to work within the framework of a challenging economic and technology environment.

We anticipate Q3 revenue to be in the range of $56 to $60 million, and Q4 revenue to be in the range of 63 to $69 million.

These revenue ranges assume no improvement in the current environment, but do assume a modest seasonality benefit from advertising and commerce during the last quarter of the year.

Our Q3 cash operating expenses excluding depreciation and amortization, should be in the range of 61 to $63 million, and our Q4 cash operating expenses should be in the range of 61 to $64 million.

Also, our Q2 second quarter results reflect a 30% tax rate because we reported a loss in Q2, our tax rate generated a benefit.

This is in recognition that the loss is generated in the second quarter can be carried back to recapture taxes paid in prior years.

As of June 30, 2002, our losses were sufficient to carry back and recapture all taxes paid in prior years, so in Q3 and Q4 this year, we will no longer record a tax benefit against reported losses and our tax rate will be close to zero.

Looking forward, while our near term goal is to generate operating profitabilities in the second half of 2002, we are clearly focused on generating that income on a per share basis longer term.

Helping us accomplish our near-term and longer-term goals is our belief that by reducing the operating costs of our businesses, but maintaining revenue capacity, we have positioned each business to generate expanding profit margins from each dollar of revenue growth.

And with that summary, I would like to turn the call back over to Shelby.

Thank you, Doug.

This wasn't an easy quarter.

Our clients are under business pressure, and we see them making abrupt decisions, usually driven outside of the marketing department.

Traditional patterns haven't applied in the same way.

For this last quarter we would have traditionally seen a revenue bump in June, which we didn't see.

We didn't get what we wanted to get on the revenue side, but we took necessary steps within the quarter to lower costs and manage the lost guidance we provided at the beginning of the quarter.

Having said that, concerning the environment, it was a pretty good quarter.

We increased revenues from the first quarter to the second quarter, we lowered costs, we lowered our losses prior to restructuring charge, we saw some important product introductions and are happy with the overall quality of the products.

We started also to see the real benefits of infa structure investments.

We also continued to make traction against the goals we laid out at the beginning of the year.

Profitability, shift in advertising share dollars, commerce initiatives, paid services for both users and marketers and finally, infrastructure investments.

And these remain the same core focuses with the number one goal of profitability clearly being the most important.

Let me spend a little time highlighting the some particular areas within the business.

Advertising clearly remains one of our most important revenue streams.

In spite of the current market condition and the pressure on overall budget amounts, shares spent against online continues to increase.

We have seen real increases against our most important customers.

As Doug mentioned, top 20 advertisers spent 14% more with us during the second quarter of this year than the second quarter of last year, during the same -- or during the April-May time frame for print, they spent 33% less.

We also seen higher renewal rates among our top 100 customers coming in at 91%, which I think does speaks to the quality of relationships we're getting.

We may not be getting the size of budget that we would like, but clearly from a relationship standpoint, we're delivering good value to each of our customers.

During the past year, we've also seen a focus on our part on our larger accounts, and building relationships with our larger accounts and in the statistics that Doug gave, you see that revenue is concentrated among our top 100 accounts.

Over time and as the economy improves, we think it's going to be important to broaden past that top 100 account list, and we think that is an opportunity for us from a revenue base on going forward.

We also some nice incremental growth out of our international property.

I think international has been a place where we have done a lot of work, this is a global industry.

And Asia has been a particular bright spot for us.

We're seeing really interesting, both innovation but also financial results coming out of our Asian operations.

With respect to the traditional advertising market in the last year, the last year and 1/2 has really been frustrating.

We have led the online industry in moving the median forward with the launch of new ad units, supporting research and simplified processors for our client.

We have gained significant respect both from other companies within the industry and most importantly, from our clients, but given the pressure within the overall technology advertising catagory, it has not translated into the revenue traction we would have liked.

But we still believe the path we are pursuing against the advertising revenue stream is the right one.

The I. T. category is one of the largest categories in our economy, at $1 trillion, and it's certainly not going away.

From an audience and marketers' needs perspective, it fits well with the services that we provide.

This remains our highest incremental margin revenue stream and the place we will probably get the most earnings leverage as we look out over the next three years, I think in today's environment, it's hard to see that, but -- but clearly as we add additional revenue dollars, the incremental margin to us is very high.

It's time that we focus with patience and discipline against sticking to our strategy.

I think we're doing the right things, taking the right steps, we're getting closer to our customers.

We need to remain disciplined and focused on that.

At the same time, we need to continually supplement our revenues with the additional revenue streams that come out of nontraditional advertising buckets, whether thats from clients or additionally from users.

One good example of us moving away from the traditional advertising model has been our commerce and lead business.

This continues to be a core part of our organization, um, accounting for nearly 19% of revenues in the last quarter, and that's been pretty consistent over time.

The properties within this area include brands like shopper.com, cnet.com, [vnetshoppers], and my simon and though we typically see second quarter being a down volume, um, um, quarter, from the first quarter because of seasonality, we actually saw an up 1% from an overall lead volume standpoint, which in itself is a victory.

Improving the product and revenue production, um, within the lead and commerce area has been a key for us this year, and we're starting to see the benefit of that focus.

I think that's reflected in flat leads from first quarter-second quarter.

We have also seen, um, flat per lead amounts, which I think is also positive.

During the second half of the year, we will be rolling out the editorial and price-comparison advances in both areas of which we're really excited about it, and think that there are good things coming forward on that.

This is a model that works, and one we're expanding into other areas and the particular focus right now is against the enterprise category.

So, less on the individual purposes, and more on what people would be buying for an enterprise.

We'll focus on areas like the white paper, white paper catalogs, web casts, data-mining products, with, um, models like the CNET direct business that would launch in Asia.

We think that's a nice encrement to our business and provides an additional kind of augment to traditional advertising dollars as we go forward.

I think channel is also another example of this.

As Doug mentioned, we continue to see traction on the channel side.

We think it provides a different and powerful platform from marketers we're looking to influence the sales process through the channels, so that's an area which we think, going forward, provides an incremental new revenue string.

The last category really is the user side.

And if we look, we have had kind of traditional advertising, kind of nontraditional marketing services and then the user side.

It's one we talked about over the last six months.

We saw an important launch within that area within this last quarter.

We launched game spot complete, which was a paid model against our very popular gamespot.com service, which provides content for people interested in the gaming market.

So console game, um, PC games, et cetera, um, the premium product has video and special content, behind a [payed walled ] exclusive product pre-releases, access to high-speed downloads, um, and it's a nice augmented service for the 3 million unique users that use game spot on a monthly basis.

We launched the game spot complete product on a trial basis beginning early in May, they went to a paid basis on June 1st, and as of June 30th, we had approximately 22,500 paying members, and we think that is a really positive trend.

We're getting, um, on an annual subscription, $19.95 per year, on a monthly basis, $4.95 per month, and there is a mix between the two.

We expect to see incremental growth.

These aren't as you imagine, do the math, they aren't huge numbers, but they provide a nice, steady, um, foundation from a business perspective as we go into 2003.

It also has important implications for other parts of our business.

I think the trend of being able to move content from a purely free model to a paid model.

In addition to that we think is a really powerful opportunity for us, and we continue to work on our products, um, that apply to other parts of our service, whether it's the news services or certain of buying, um, products, as in commerce products, the download products and then the high-end I. T. products like the [tech republic].

I think there will be more stuff we see over the next six months around that, and there's clear benefit from this.

Not only do you provide a nice, steady revenue stream, but we're also seeing that it provides some really interesting marketing opportunities, we're seeing nontraditional ways that marketers are able to participate within a paid environment, and kind of thirdly and most importantly, it's a lot -- produced a really good product.

The game spot complete product is probably the best product we have been able to produce for the gaming market, and we have been able to do it because we have been able to add additional functionality and services that would work in a paid model but don't work in a free model this.

Has been a great win for users, but also, we think it's a real additive model for our overall business.

The final thing I wanted to kind of highlight is really the infrastructure side.

We talked about infrastructure investments over the last year and a half.

As we have gone through the merging processes of CDNET-- CNET and [ZDNET] it's been a really important aspect as we look to, as Doug mentioned, maintain revenue capacity, at the same time bring greater efficiency and cost leverage to our overall business.

There's been three areas we've focused on.

One is unified publishing system.

So bring all of the [different] brands and services under a single publishing platform.

We have--- in the last six months launched our news services, our dowload services, universal user registration, and certain our paid services on kind of a new single platform.

And we've nice traction on that.

We are currently working on the comerce side.

And how do we bring all our commerce and [INAUDIBLE]onto a single platform.

And we get alot of benefit, as you can imagine, it gives us greater leverage.

You can kind of build once, use many times.

It's easier to provide better products for users.

It takes alot of costs out of the system at the same time it actually improves the quality of the product verses decreases the quality of product.

Second area [INAUDIBLE] [ unified] at serving.

Up until about two months ago, we were [serving ] three different ad delivery systems.

And with the new system that we began rolling out about a month and a half ago, we'll go to one single [ ad serving] system and we should be done with that launch by the end of November.

And we're currently, kind of mid-launch, we've launched on a number of different services which account for about 35% of our traffic.

So this is tested with volume.

I think the [INAUDIBLE] has gone smoothly and I think very happy with the way it going and think thats also going to give us kind of better effeciency in terms of how we operate and deal with clients, better effenciey in terms of how we manage inventory, and also allow us to do alot of broader selling against our network.

And then the [finaler] is really been the sales force automation side.

This has really been how do we get better tools to our sales force, allow them to do more actual selling and less kind of, back office process stuff.

It allows us to create a more effecient relationship with our customers, lower DSO's, and increase customer satisfaction.

And we've finished the development of that program.

We're in training right now for a mid-August launch and I think we're very comfortable and happy with the way things are going.

The final area really to kind of touch on-- and kind of -- the theme is really the cost reduction side.

We announced at the end of June we'd be taking steps for additional personel and non-personel cost reductions during the second half of the year.

Those for the most part were completed toward the end of June and the beginning of July.

Our philosophy has been very consistent over the last year and a half.

And that has been reduce costs at the same time maintain maximum revenue generating capacity.

We've taken a very managed, orderly, and methodical approach to how we bring greater efficiency to our business.

So we've-- as we've looked--and kind of looked at all our different models.

We've looked at how do we bring better efficiency, how do we make things operate better, and how do we get better leverage out of our existing businesses.

I think we've done that.

So we've able to though we've dramatically taken costs out over the last year and a half, I would argue in most places, our product is actually improved for both users and for marketers.

We've-- I think you know as most people guess--we've certainly narrowed the scope of offerings we've had in certain catagories.

But I think all of those have been really optimized against what we think the maximum revenue generating capacity is.

So it been methodical and we continue to focus on it as a process.

And we've--kind of-- on a more global side, really focus on how do we simplify our business.

How do we align our businesses against customer groups and revenues streams?

And how do we increase the nimbleness and speed thast we have as an organization and make this a better company to do business with and a better place to work.

From an outlook standpoint, going forward, if you look at a long term perspective, we're in a very strong competitive position.

We have great products that serve the needs of our customers.

We are seeing trends moving our direction, not as quickly as we'd like, but all the trends are going in the right direction in terms of both cunsuption of our medium from users and also marketers shares of budget.

We continue to add products that expand away from a dependence of traditional advertising.

So though we support and believe in the traditional advertising model, we continue to add new incremental revenue streams that we think both bring more revenue also greater stability of revenue.

At the same time, when you look from a short term perspective, there are certain things we control, certain thingts we have influence over, and certain things we don't control.

In the no control catagory, we don't control the overall size of marketing budgets.

And as much as we'd like to, those are decisions being made by technology companies based on the health of their own business.

And I think right now if you look at an outlook standpoint, you have to be cautiuous.

I think when you look at size of budgets, we've actually seen decreased budgets verses already decreased last year budgets.

So you know, its a challenging market, and I think you see that when you hear the rhetoric from tecnnoloy companies based on their own results.

In the influence catagory, we actually can influence overall share of budgets.

And I think we've been ab;le to do that.

We've made in the face of a head wind, we've made real traction over the past year, based on relationships with our customers, supporting research, better products, better ad formats, and thing that really better meet the needs of our customer base.

And I think that because of that we've been able to shift budgets and share budgets.

And then finally in the control side, the most obvoious thing we control is costs.

And I think we've done a good job of managing our costs during the last yeasr and a half.

And we've done it in a way where we've actually preserved the long term opportunity and capacitry of our business.

Which I think has been the right decision.

I think we believe in the catagory and we're being aggresive but at the same time measured in how we approach cost reduction.

We also control research allocation, and we spend a lot of time analyzing all of different businesses and deciding where do we put money against and where do we not put money against and how do we think of that in the context of our overall balance sheet.

And I think as an organization we've done a nice job of controlling that.

And as managers, you have to manage kind of short term necessities and long term opportunities.

ANd those are things we control and those are things that we have been aggresive on.

And I think the final thing we control, we control the addition of new revenue streams.

And the ability for us to expand outside the areas we don't control.

So an example would be gamesspot. new revenue stream not dependent on what youy think of as traditional merketing budgets.

We remain focused on the same goals that started ther year with.

So I think there is a certain degree of consistancy in how we focus and prioritize what we do.

And I think we've been consistant on that and clearly number one on the list has been driving toward prifitablity.Which we continue to do and continue to kind of lower over all loss levels going forward.

As we look at the longer term, the business vision remains the same, we as a company stand between buyers, sellers, and suppliers of technology and we will optimize our business based on our ability to monitize our customer base through traditional advertising, through marketing solutions, and finally through [INAUDIBLE].

And I think each of the efforts we've made in the last year and a half has really focused on this.

And our core leverage point comes from the fact that we havew an unparalleled global internet presence which gets us closer to the customer. [INAUDIBLE] It is the center of what becomes, we think, the most important media provider of information and services for this industry.

So in summary, this is an environment that challenges businesses, challenges managements teams and challenges investors.

The technology category is currently under pressure but is still a long-term attractive sector, and one uniquely suited for the types of things we can address as a business.

We continue to control what we can control, and we continue to influence what we can influence.

We will contine to add additional revenue streams that allow us to, um, to grow our business and make our business steadier.

We also, um, are putting our business in a position based on cost reductions and incremental revenue additions to allow us to be profitable even in a bad cycle.

At the same time, we're building leverage and revenue capacity to create significant margin upside on what will be an inevitable rebound in the technology sector.

With that, I would like to open up for questions.

At this time, I would like to remind everyone in order to ask the question, please press the star and the number one on your telephone keypad.

We'll pause for just a moment to compile a Q, and A roster.

NottoThe first question is from Anthony of Goldman Sachs.

This is actually Eric Webber for Anthony Notto.

Um, you expect operating expenses to remain this low going forward, and when do you see yourself increasing expenses to increase long-term growth?

Well as you know, we have taken a very steady path really over the last year and a half to continually decrease our cost.

I think we've done it--we've done it in a way by bringing kind of bewtter efficiency and leverage to the organization.

So I would say that we haven't really sacrificed what I think of as kind of long-term growth in how we've addressed our expense reduction.

Um, I would say we are investing in new things at the same time, and there are, you know, you look at our overall spending base, you know, we clearly have areas, um, that we're investing against because we believe they're important as we look at 2003 and 2004, so, you know, I think the guidance you see going out throughout the year is really consistent with -- we're kind of taking our expenses to a place we think is appropriate for kind of---- you know-- where the business sits now, but also at the same time conitnue to invest against the things we think are important for 2003, 2004 and beyond.

Thank you.

Your next question is from -- [ Mandy Hermosee ] of [LeNard]

Hi, guys, a couple of questions.

One, I was wondering if you can -- indicate what the lead times are on the ads you're getting, last quarter you also mentioned that, at least in terms of the conversations we were having with the advertisers, there was leaning towards bigger commitments, but there seems to be a little concentration.

So I was wondering where that stands, and finally, you indicate the share, increase share relative to print, but do you have a sense of where that share is relative to what technology companies are spending overall.

Not just relative to print?

Thank you.

Yeah, um, let me ask -- answer the last question first, which is kind of shifts in market share.

We're actually -- we're seeing aggregate increases over last year in terms of actual spending from the top 20 accounts, I would say, as I mentioned, um in my comments that, you know, I think it's pretty clear that people are spending less money this year than they spent last year, and less money, um, um, last year than they spent the year before that, so we have seen decreasing budget sizes, um, so though in aggregate there is much more dollars against the print category, so we're not being able to fully capture the shift in dollars because part of that is being sucked up by people spending less, we're actually seeing increases against the most important account.

Um, on the lead-time basis, you know, I think we have seen among the top advertisers and ability for us to, you know, enter into longer-term contracts.

We have taken efforts to actually increase scarcity in how we manage inventory, um, you know, because part of, from a healthy industry standpoint, you need manage supply and demand.

We have taken steps to create better scaersity and create compelling reasons for people to enter into long term contracts where they can preserve inventory that they want.

At the same time, you know, I think everyone agrees, given, you know, what happened during the first six months of this year.

There is a very volatile time within business in general, especially within the technology sector, and you see a lot of volatility, and so, you know, people are making abrupt decisions quite often driven by, you know, the finance department coming down from on high and saying stop all spending or, you know, cut what you can cut, and so, um, I think with the -- the more steady advertisers, I think we're seeing increases.

There continues to be volatility within that.

Thank you.

At this time, if you would like to ask a question, please press star 1 on your telephone keypad.

We'll pause for just a moment to compile the Q, and A roster.

Your next question is from Gordon Hodge of Thomas Weisel and Partners.

Hi, this is Sherry Lynn for Gordon Hodge I just had a couple questions.

I was wondering how the lease business is going, um, and I had a couple of more questions after that, um, I can ask it all at once if you would like.

Go ahead and ask.

We're writing as you go.

We'll keep track of all your questions.

Okay, the second question is I wondering if you think your cost structure is stabilizing now, um, another question about the broadcasting published revenues, publishing revenues, how that shaping up, you know, in the second half, and um, and the last question, I mean, he's a -- just a -- just curious, but what percentage of your ad revenues are the top 10 customers.

The last thing, um, [INAUDIBLE] the business that you launched last quarter, how that's doing and how you see it shaping up for the rest of the year.

Okay.

Um, I will bounce around with these.

On the percentage from revenue from customers, we don't release the results.

We give a top 100, which is, um --

72% this quarter. 74% in the first quarter.

Um, from a game spot complete standpoint, um, we launched it kind of early on in May on a trial basis.

It went on a pay basis on June 1st, and in terms of people whose, you know, credit cards, um, we hit at -- we had 22,500 by the end of June, so on June 30th, and we think actually kind of for an introduction of a service, we were happy with the results and, um, I think it's a really good service, I encourage any gamers on the um call to actually sign up, I think they have done a, um, a really nice job, um, against it.

Are these mostly monthly subscribers or annual?

We're seeing about 75 to 85% signing up for the annual, and 20 to 25% signing up for the monthly, which we think is a very good sign.

That's actually -- what's interesting is when you actually look at the competitive service to game spot complete would be IGN who, during all of last quarter, signed up 11,000 overall subscribers, so and they're seeing much more of a shift towards kind of the monthly.

I think it's a good sign, you know, 22,000, um, you know, 500 during, you know --

these are paying subscribers, right?

they're paying subscribers.

Great.

On the cost structure side, it's something we continue to evaluate.

I think we have given what we see in the business environment, you know, we clearly have made, you know, decisions that we announced at the end of June, about what changes we need to make, um, and with the -- the investments we made from an infrastructure standpoint, continues to be how do you build greater efficiency and leverage in your business.

And it's something we continue to evaluate, but I think, you know, we have taken the right steps in terms of, um, you know, where the business is, given what we know right now, I think they will continue to evaluate it, those were the decisions that we made.

On the lead business side, um, we entered the year and said commerce was a really important initiative for us, and between, you know, brands like My Simon and brands like shopper.com and cnet.com and Z.net shopper, it remains an important category for us at 19% of overall revenue.

It's also from a business model standpoint, we think a very attractive business, and it's more elastic.

You don't have to sell out risks, with hundreds of merchants, you can lose a merchant, you can add merchants and overall it doesn't have dramatic impact on the overall service.

And we traditionally, we look now, the leads, we typically will see a, um, decrease in leads from the first quarter to the second quarter, and this year we saw a 1% increase, um, and we have made some already product enhancements over this -- over the last six months and as we mentioned, the enhancements showing through the remainder of the six months.

So I think we're feeling good about that.

I mean it's still, um, you know, it's still an area that is really important, an area that we like, um, and I think, you know, we'll continue to put a lot of focus, never behind.

The final question was the second half of the year broadcasting in publishing revenue.

I would say we've actually seen nice leverage because of kind of our internet presence, to really do some unique and creative things within the overall publishing site, so, we launched last quarter's E-net week in France, which took content from both U.S. and from Europe, put it in a kind of newsletter format magazine, and distributed it based on subscriber list that we generated for use of registration on our French site.

We have seen nice both, um, user feedback and also importantly, a new launch that is profitable from a overall revenue standpoint.

Last week, we launched the same product in Asia, C/Net Asia week, um, which I think looks really nice, you know, has a lot of advertising in it.

We have been able to do some creative things as we work with some of our commerce customers, who have been kind of the custom publishing side, and you know, are there ways we can do leveraging content, leveraging lists, leveraging online catalogs and leveraging other things.

So I think overall, um, you know, it's been an area where we've raelly been able to leverage user relationships, already produced contents, you know, um, it's somewhat ironic for an internet company being, you know, doing more stuff in the publishing space.

But I think we have been able to get kind of the good cost leverage behind what we have done.

Great.

Thank you very much.

Thanks.

The next question is from Jane Rippey of CSFB

Hi, thanks.

Actually it's Bill Drury here.

Just sort of a. [ INAUDIBLE ] You think give what is going on in the ad market that, you know, internet buys in general or internet platforms ad buys have sort of moved to the back of the line here as far as priorities for the media buyers, I mean if you look at the up-front TV market, pretty strong and the TV [pacings], albeit, driven by political, but spot TV markets kind of heating up, the newspapers are getting back to sort of flat, it seems like based on your numbers and Yahoo!'s numbers, that the internet advertising are sort of the worst of the lot right now.

You think that is a short-term phenomenon, or do you think there is a bigger, sort of maybe intermediate term phenomenon, that media buyers just aren't not paying much attention to the medium right now as you try to get back to some sort of recovery in [INAUDIBLE] ad market?

I think there are a couple of things going on.

One is that our industry has been very techsentric.

Even when you look at some of the broader portholes, you see a greater concentration among technology advertisers [than this space], I think overall, um, that probably has been the single hardest hit factor, so I think that's had a dampening effect on kind of, you know, overall numbers in terms what have people have been able to do, um, I -- I also think that it's, um, you know, we come at it with a very, um, you know, narrowulence, which is we see it from a technology standpoint, um, there is actually, you know, overall, more good times and bad times.

The research in the last year has been kind of very supportive um, you have seen the industry really taking steps with the new ad formats or, um, you know, measurement definitions and things to address issues, um, you know, at the same time I think, you know, lots of times people kind of go back to what they're most comfortable with, I think you have seen as dollars have shrunk, um, certain industries have done a better job of maintaining and managing scarcity, um, against our mediums.

If you kind of do the forest for the trees and do a step back, um, with what's really clear is the eyeballs have moved.

I mean this is a, um, you know, depending on the [INAUDIBLE] -- this is [INAUDIBLE] the users are now using, um, the internet has become, you know, a dominant medium from an overall use standpoint.

I think also, the OPA did some really interesting research about the ability of, for advertisers to actually reach people at work and this is the only medium that really has effectively allowed people to reach from 8:30 to 5:30 in a place relatively uncluttered of advertising.

There was also the EMSN study done during the first quarter with Dove,that I think, came out with some really important research, talking about the overall efficacy from an overall standpoint.

From a long-term respective, there is actually good signs.

We have seen our most important customers, um, you know, real traction of discussion, you know, I think there is a lot of moving pieces right now, you know, business fortunately, unfortunately changes, you know, quickly, and I think the industries that have done a better job of managing scarcity, um, which I don't think our medium has done a good job as they should be doing, to be able to get more people locked in, therefore making it more harder for them to defer more overall change spend levels.

Great, thank you.

At this time, there are no further questions.

Good, well, um, we thank everyone for the call, we will talk to you next quarter.

At this time, this concludes today's conference, you may now disconnect.