Paramount Global (PARA) 2003 Q2 法說會逐字稿

Good afternoon.

My name is Mary Ann and I will be your conference facilitator today.

At this time I would like to welcome everyone to the CNET Networks second quarter conference call.

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

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

If you would like to ask a question, press star and the number 1 on the telephone keypad.

To withdraw, press the pound key.

Thank you.

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

You may begin your conference.

Thank you, Mary Ann, and good afternoon, everyone.

Before our formal remarks I'd like to remind you in our financial news announcement released today and also on this call, CNET Networks is providing specific guidance related to our expectation of future financial performances .

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

These risks are outlined in our second quarter news announcement as well as in the company's Securities and Exchange filings, which can be obtained from the SCC's website or directly from our Investor Relations department.

After this call, CNET Networks does not expect to receive further guidance until our release of the third quarter, ending September 30.

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

If we update our guidance, we'll disseminate the guidance by news release or other similar communication method that meets regulation fairness guidelines.

Last but not least, you can find our reconciliations of the non-GAAP financial measures that we use in our news release and on this call to GAAP financials in the announcement as well as our investor's website at ir.cnet.com.

Hosting today's call is Shelby Bonnie, Chairman and Chief Executive Officer and Doug Woodman, Chief Financial Officer.

Let me hand the call over to Shelby.

Thank you, everyone for joining us.

This is overall a good quarter for us.

I'm pleased with the revenue performance this quarter and especially, trends beginning to appear with respect to our ability to translate growth to the bottom line.

A couple of highlights from the second quarter.

We saw a second consecutive quarter of year over year revenue growth of 2%.

Though the quarter to quarter growth was a modest 3%, it was growth and the growth figure maps two divergent trends in the quarter.

We saw growth in our internet media and [commerce] revenue which was 12%growth from the first quarter to the second quarter and we correspondingly saw an overall decrease in print revenue which declined 21% from the first to second quarter.

More importantly we realized a significant improvement from the bottom line perspective.

Our operating loss before depreciation and amortization was $4.1 million, which included a $4.3 million restructuring charge, which was related to severance and real estate charges.

By subtracting the two, you come up with normalized operating results.

From an outlook standpoint, we see positive long term trends with respect to shifts towards internet advertising toward traditional budgets and more importantly, shifts we see in the branding area.

Having said that, from a short-term perspective, we remain cautious with respect to overall levels of advertising within the broad technology market.

We're in a much stronger position than we were in the last three years.

Our products continue to be recognized as editorial leaders.

Revenue has stabilized and showing signs of growth.

We have spent two years restructuring the organization from personnel and technology systems standpoint, we are seeing the ability to capture leverage economics and we are well positioned from a competitive [INAUDIBLE] and entry standpoint.

With that, let me turn it over to Doug to cover the financial highlights and after that I'll provide more insight to operating results and the out look, going forward.

Thanks, Shelby.

As mentioned, Q2 represents a continuation of revenue growth and cost management.

Q2 revenues of $58.4 million were up $1.2 million over last year, while our cash operating expenses of $62.5 million were down $10.9 million or down 15%.

The combination of higher revenues and lower costs, resulted in a Q2 operating loss before depreciation and amortization of $4.1 million, which is an improvement of $12.1 million compared to last year's operating loss of 16.2.

Our Q2 operating loss before depreciation and amortization of 4.1, as Shelby mentioned, includes $4.3 million of realignment cost related to severance and abandoned real estate.

We don't expect realignment in the second half of 2003.

Importantly, we continue to place high priority and focus on delivering a significant amount of income growth from every dollar of revenue growth.

Looking at our primary components of revenue, internet and publishing, during Q2, revenues of $46.9 million increased $2.5 million or 6% compared to last year, which is due to higher online advertising revenues, while our publishing revenues of $11.5 million was down 1.3 million, due to lower cuts in publishing revenue and softness from Computer Shopper Magazines.

The trend of higher internet revenues and lower publishing revenues, reflects the gains made by the online industry, compared to publishing which is consistent with our expectations, going forward.

In Q2, the largest 100 customers represented 60% of total revenue and our largest customer, Gateway, represented about 10% of revenue in the quarter and that's down from 16% of revenue in Q1.

This reduction reflects lower cuts in publishing revenue.

Our online revenues from Gateway were unchanged in Q2 compared to Q1.

Custom publishing is a program that has lower profit margins but has provided a good means to broaden relationships.

Returning to the income statement, Q2 net loss equals $11.6 million or 8 cents per share, that compares to our guidance of between 8-10 cent loss per share and this compares to a $25.8 million or 19 cent loss last year.

From a balance sheet perspective, our cash position at the end of Q 2, equals $148.6 million, an increase of $6 million from March 31, due to the receipt of an $8.6 million federal tax refund as expected.

In Q2, we also completed two small acquisitions totaling about $2 million, which compliment GameSpot.

Our day sales outstanding equaled 67 as of June 30, an improvement compared to 69 as of March 31, and down from 73, a year ago.

During Q2 our capital expenditures came in at $3.7 million, which is higher than Q1, but within the guidance range of $3.5 to $4 million, we provided going into Q2 and during Q 2 we largely completed the remaining components of our unified publishing platform.

We continue to expect that full year 2003 capital expenditures will be less than $12 million and our total debt remains at approximately $118 million.

From a financing perspective, although we have sufficient resources to achieve our growth plan, we recently undertook an effort to issue $100 million of convertible debt on an opportunistic basis , and as you may know, we chose not to proceed with the transaction, because the market deteriorated quickly during the offering process and the financing terms moved below our level of interest.

Going forward, our financing views remain the same which are to remain opportunistic and do what's best in the interest of shareholders.

Turning to guidance for the third quarter of 2003, we anticipate revenues of between $57 million and $59 million and operating income, before depreciation and amortization, of between a loss of $1 million and income of $500,000.

Our full year 2003 guidance, equals total revenues of between 235-245 million and operating income, before depreciation and amortization, of break even to $5 million including the first half realignment cost of $9.8 million.

With that I'd like to turn the call ban back to Shelby.

Thank you, Doug.

In the past three years, CNET Networks has consolidated position within its category.

On the internet we're the number 1 tech content publisher.

In fact, the number one original content publisher overall on the internet.

We had 60 plus million unique users per month, we have significant scale for both the user and platform perspective, we have used editorial as a way to differentiate what we produce and really focus that editorial on making our users smarter.

Our core competency has been our ability to manage content and in doing that we manage a diverse set of brands against a diverse audiences.

Clearly as you look at content on the internet, the most important long-term revenue stream remains internet advertising.

I thought what I might do is spend a couple minutes on internet advertising in terms of what we are seeing and what we think the prognosis is over all for the business.

I'd say when you look at the long terms of internet advertising, the trends are very good.

We're seeing a slow build during the last two years as more stuff has been done to underscore and build a foundation on which to grow the media.

We haven't seen explosive growth, but what we are seeing is nice long-term trends overall

As you look at internet advertising, Search has been the winner on the front end of this cycle, but we believe you'll see much more movement toward branding as you get deeper into the cycle and we think the content environments are well positioned to capture disproportionate shares of branding dollars as they move from traditional mediums to the internet.

As we look at overall mix of revenue streams, this is a time where you want to have increased exposure to internet advertising and we think with a series of assets and brands that we have against different audiences, we are actually in a good position to do that.

We are also within the medium really, viewed as a recognized leader and innovator within advertising.

We are the people who came up with the original leads model.

Additionally as most of you know, the IAB recently introduced the universal add package, which is four units which can be run across all sites and notable that CNET Networks is actually responsible for creating three of the four add unit that is under scores our position as an innovator and leader within the sector.

At the same time that we look and recognize the long-term aspects are good, we still are heavily influenced by the short-term prognosis of our different advertising sectors.

When you look at the different sectors, that the overall picture remains mixed.

The Enterprise sector, which we focus our different Enterprise products, like News.com [INAUDIBLE] that sector has remained weak.

We've done a good job in the last quarter of introducing new innovations and we've seen some nice growth as you compare our first quarter results to second quarter, but overall in terms of how we'd like to see that market, the overall condition of the market does remain weak.

When you look at the broader tech market, the consumer PC market and consumer electronics market, overall that market remains relatively steady.

We are putting a great deal of focus organizationally on taking more share in the consumer electronics space, which we think continues to be under spent, relative to what we should see from an overall share standpoint and this is something we've talked about on prior calls and remains a real focus for us and an opportunity going forward.

The games market has remained steady, but we've seen nice share shift wins in the last year as our team really executed well against moving dollars.

As we look at the overall advertising market, the long-term prognosis remains very good and we remain confident in our ability to further grow share and we think that really bodes well for both the contents base overall and for our underlying businesses.

When you then look at our business, a core differentiator for us as a company has been our investment and dedication to editorial.

A couple of things worth pointing out, when you think of editorial, there is really two aspects, how do you think about quality and how do you think about quantity.

From a quality standpoint, to kind of give you a sense of execution that we've been able to do as an organization, in the last six months we've won twelve awards on the quality of our products for online and offline organizations and notably we won an award in the last month from the National Press Club and that really speaks to the overall quality of our product and what we've been able to do from an editorial voice standpoint.

We have at the same time been able to increase our editorial coverage during the past year.

If you look especially during the last quarter, we broaden our coverage, we included significantly more coverage in areas like televisions, like digital cameras and like digital camcorders.

During the second quarter we launched buying advice on an additional 1300 products, dramatically increasing our breadth of coverage.

To give you a sense of the quantity of content that we've produced, I'm only going to reflect what we've done in the U.S.

In the second quarter we produced about 3500 news stories and from reviews, previews and buying advice formats, we produced content on over 2200 different products in the quarter.

So we've really dramatically been able to, not only maintain quality and if anything increase the quality of our editorial, but at the same time seen dramatic increases in the quantity of editorial as we look to use that as even a greater advantage from a competitive standpoint.

Let me spend a bit of time focusing on core businesses.

I want to start with [commerce]. [Commerce] continues to be a very important part of our business.

We've seen a meaningful presence, clearly in a text base, but what is not an insignificant presence in the nontext base.

There's really two parts of the business, the notion of what to buy , how do we provide advice on the front end to help someone decide what the right product, how they think about comparing the products and overall level of advice.

Secondly the where to buy.

Helping actually facilitate the transaction by providing access to numbers of different vendors with pricing and availability information.

Those are two different sectors.

From a competitive standpoint, we put a lot more focus on the what to buy and that's where our editorial energies have really been focused.

I'd also say that as we look forward, what excites us about that area is that more manufacturers are spending more dollars from a branding perspective, that is going to be the environment in which you capture it.

In the where to buy, that's been a part we talked about, going back a couple years ago, it's going to continue to get more and more commoditized.

I think we have through the different products, you know it's a competitive space, but I think we have the ability to be highly competitive in that, that you can own the front end on what to buy, this gives us advantage on the where to buy.

Our unique position again, really is proprietary content and we'll continue to focus and you'll hear as we go through different product areas, how do we continue to make that a more important part, that's what builds barriers to entry.

We also look at opportunities, we talked a bit a minute ago about consumer electronics, as we look to broaden our audiences and broaden the coverage from a product standpoint, we are doing what we believe is innovative new coverage as we go into the second half of the year and much is focused on the lifestyle area and how do we think about lifestyle, especially convergence of technology products into the living room.

So, we'll be introducing lots of new ways to look at content and also new advice on how to make decisions around products, with a heavy emphasis of broadband, which we think both has an opportunity, from a user stand point, to provide touch and feel for products, but also clearly more and more compelling from a marketing standpoint.

We also recognize that we need to step up our efforts from a marketing standpoint within the [commerce] area.

We hear lots of people say the following: I love the content and advice, just wish more people knew about it.

We recognize the same thing and going more on the offense during the second half of the year as we up our level of marketing.

It's being done under the guidance we are providing overall.

Part of the benefit, as we look to restructure our organization and to take out costs on simplified systems as we're able to free up resources to do things, like more marketing support for fantastic products.

GameSpot which focuses on the console and video game market is an important product area for us.

I wanted to spend a minute on this.

They've done just a tremendous job from an editorial standpoint.

In the second quarter we produced over 1,000 reviews or previews around different products.

At E 3 alone, in addition to the thousand products, we covered 837 games during a three-day period which is a testament to that team.

As Doug mentioned, we've done further consolidation both through taking share and also two small acquisitions.

Unique users stands at 6.7 million unique users per month and we are also seeing good traction on the advertising side.

It's a good example of what you are seeing broader in the internet sector continuing media shift dollars, especially in the consumer areas and that trend is only going to continue.

GameSpot and the gaming products can be a good recipient of that.

On the subscriber side we have GameSpot Complete.

At the end of the first quarter, they did 53.5,000 subscribers.

It grew 9% with in the second quarter of 58.4,000 subscribers.

Notably we launched GameSpot Tracks, which is a business intelligence product ,for measuring and monitoring engagements by users around specific games.

It was introduced in the market as a tool for publishers, for advertising agencies, PR agencies and resellers for deciding how they think about what games they should be providing shelf space and giving meaningful, I think, advantage on an ad sale side and it's also providing a better tool for us ourselves, to do a better job producing content and managing our services.

Download in the download areas is also an important area.

We talked previous this year about the listings program and we really looked at the program as phase 1 in a two-phase process, which is listings is akin to a paid in conclusion product and then we shift and we introduce in the second quarter a paper completed download product, much of what you think of as leads a la or a la paid search.

We currently are in over 10% of our categories.

It's still early, but we like what we see from a tractions standpoint, a further evolution of the download market and our expectation is that we'll have that model deployed in 50% of our different categories by the end of the year.

We are also on the on the download side, introducing reviews and ratings, which we'll roll out at the end of this quarter, which again, uses editorial and proprietary editorial as a way to differentiate and build entry during each of our businesses.

As Doug mentioned, we've seen overall declines in print revenue from a percentage basis.

Clearly, one of the things we talk a lot about as an organization, is our ability to shift dollars from print to online and ability to take share.

It wouldn't surprise you, we ourselves are not immune to these shifts, but I would say that they've done a nice job of gaining share and sold more average ad pages per issue than any other print competitive and we've been able to use our strong position to both lower costs and create we think strength against products like Computer Shopper.

As Doug mentioned, custom publishing is down disproportionately and a lot of decline you're seeing is out of the custom publishing side.

The final thing from an operating standpoint, I wanted to spend a minute on the overall cost and operating leverage equation.

That clearly, as an organization has been an important focus for us and one, we've looked over the last two years, how do we position our organization to make sure we have the right cost structure, make sure the organization is in the position to be nimble and also in a position to scale and to capture disproportionate margin from increased revenue dollars.

I'd say that we've made really good strides and we are pleased and we think that shows in the numbers and we've been able to get restructuring done in the first half of this year and as Doug mentioned, our systems work is largely complete in the end of the second quarter.

This positions us, again, to disproportionate capture margin from revenue dollars, both from organic growth and opportunity, through acquisitions, to be able to leverage existing infrastructure and disproportionately to create value.

Shifting gears to outlook.

If we look at the third quarter, third quarter is traditionally a weak quarter for us and that is reflected in our guidance and that is really consistent with what you see from a seasonality standpoint within our media.

We expect continued weakness on the print side and as I mentioned a minute ago, we expect to put more dollars to work marketing our [commerce] products and that's a good opportunity for us.

As we look at the remainder of the year fourth quarter has been the strongest and should be the strongest of our quarters and I think we remain comfortable that we will see some nice growth going from the third quarter to the fourth quarter.

Then we look forward to 2004.

It's still early.

We all come out of a couple years where no one has had great visibility, but what we do see is that our revenue, overall growth and revenue remains dependent on people's prognosis for both the economy and the overall text sector.

We believe, we have seen lots of evidence we will continue to take share as a medium from other mediums and we think we have a possibility to see some greater growth as we see the possibility of more healthy overall market.

I'd say importantly, from a cost standpoint of 2004, we see the full year benefits of the platform and cost restructuring work that we have done specifically during the first half of this year.

We think that's a real advantage and I believe this means we are structured to translate revenue growth into operating income before depreciation under advantageous terms.

In conclusion, the long-term opportunity for businesses and for both the brands and the assets we have remains strong.

Internet advertising is finally, gaining real traction among traditional marketers and that's a real positive.

We are strong believers that content environments will be the real beneficiaries of gains in terms of branding dollars spent.

We have a strong competitive position in each of our categories.

We have effectively used our investment in editorial to differentiate and build competitive barriers and we have done the necessary work on the personnel and systems side to provide an ability to scale and grow profitably.

That wraps up our formal comments and we'd like to turn it over to the operator so we can open it up for questions.

At this time I would like to remind everyone, in order to ask a question, please press star and the number 1 on the telephone keypad.

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

Your first question comes from Anthony Noto of Goldman Sachs.

This is Eric Webber.

We are hearing that Gateway is planning 50 new consumer product launches within the next year.

Do you see that translating into revenue for CNET over that time span?

Yes, we mentioned in the last quarter we got a lot of discussions in the last quarter about Gateway and what we see as Gateway business transitions and clearly they are being much more aggressive on the consumer electronics side and that will be an important catalyst as we look to shift more dollars from the consumer electronics side.

So, I think two forms, we have the ability given the position we have within the broader consumer electronics category to capture those dollars, but secondarily they could be an important change agent in getting other people to shift those dollars.

I think the other advantage when you think of that second point is they do understand how to market within our medium and there aren't a lot of consumer products companies that are familiar with that, so I think they can be a good example as we point to and try to get greater traction in consumer electronics space.

Next question comes from Lanny Baker of Smith Barney.

Two questions.

First, on the print business over the next couple quarters, does the trend go further down from here or what shall we expect.

Seems like it's bumpier and harder to predict on the outside what you all are thinking.

Our views on the publishing are the trends that our online business is in the foundation and beginning to grow on the online side.

On the publishing side, custom publishing, it's probably going to taper off in the second half, I guess, is the way we see it today, still in tact, but not at the same levels and custom and Computer Shopper magazines will continue to hold its own in its marketplace.

But, you know, similar to its competitors, we'll have challenge keeping its revenues on an even keel year-over-year.

Okay.

The last time you had a big marketing campaign, it was a world of difference, probably a world of difference in the terms of the money you spent, it seemed to stimulate advertiser interest as much or more as it stimulated consumer usage which you have always had good share of.

Is this marketing effort you're talking about aimed at consumers or aimed at [ Inaudible ]?

More aimed at consumers.

One of the things as we look at and move into broader exposure for consumer electronics products, we have an ability to grow share in terms of helping facilitate that what to buy, people deciding, yeah, we see incredible trends, this is being done, I'd say, in a strategic way.

You can imagine it's not going to be done anywhere near the levels of dollars, but we've gotten smarter in terms of how we used those dollars and at the same time tactical in how we support and get more and more people sampling our products.

It's a real, as we look at innovations on the product side and provide air cover for that, with a base marketing campaign, gives us nice opportunities, especially as we look to 2004 and kind of build the right foundation in the second half of this year, we're positioned to realize some of the value in 2004.

Are you implying, then, in that area of consumer electronic, you might be supply constrained in terms of usage or inventory?

Is that something you feel in the business?

No, you can imagine when you look at a lot of programs like the Premier programs or Lead programs that they are relatively elastic based on use.

It gives us the ability as we invest in marketing to recognize we have a base level to spend in elastic, more users, more revenue, so I would say one of the things we've done is looking back over the last two years, looking back, we've done a good job managing supply versus demand.

If anything you would argue we shrunk supply, because we can do that economically.

As we've gotten greater traction both from a manufacturers side, from a resource side, it gives us more confidence as we grow that market and the more relevant the better opportunity we are to get even greater share from the electronics companies.

Thanks, lot.

Next question comes from Gordon Hodge of Thomas Weisel, Partners.

Good afternoon.

One item to talk about trends in leads versus UPM-base advertising.

Also, if you could give us a little sense on what's going on internationally, looks like the losses shrank and the revenue grew quite a bit.

I'd say on the lead side, we provided a gross number of leads in the second quarter versus first quarter, you saw that down from 441 thousand average daily leads to 49 thousand, that's consistent with seasonal trends over the last three years, that's very consistent from what you see from an overall pattern side.

I do think that it speaks to the fact we are getting strong growth in our ability to translate branding manufacturing dollars.

So I'd say consistent patterns from the seasonality side, at the same time, we will in the next six months be rolling out more functionality around our core shopping platforms, really focus on, again, with that, with the marketing support, how do we make sure we enter 2004 at the right projectory levels.

I'll let Doug speak on the number side, internationally.

We had a pretty good quarter internationally, as you can see.

It really comes from three of four different areas.

One is the UK operation, it continues to strengthen for us, as you know, there's a product mix on that operation, there's been a lot of focus and attention placed against it over the last twelve months.

We've added a couple of new products, launched a couple of new products on the online advertising on the events side.

So, the U.K was a nice contributor to the over all 2 million plus revenue pick up, international overall.

In addition, we launched a Japan service in the second half of last year and we are starting to see some near term results from that activity, although it's still in it's infancy.

We also added Korea, which is an important milestone for us in the fourth quarter last year.

Again, combining our company's operations with another company's operations and ending up with a nice portfolio of businesses in Korea.

So, we've had some good results in those areas, overall our Asian countries continue to perform well.

They were all profitable in the second quarter, as was the UK.

As mentioned, Japan is still in a build out phase and I think we would say France and Germany remain sluggish, although, there's been some progress made in restructuring those operations.

So, that's an update on international.

I would say it's very rare to actually point to , these are the problems, but we actually did see some impact of SARS in the second quarter.

Part of the compliment of businesses we have there, is as you'd guess, some events businesses, which were impacted and also we saw some impact in our operations in China, in terms of it's impact on your ability to operate business, to function and to produce what you do.

Your next question is from Jacob Caldenbar of [INAUDIBLE] Equity Research.

Good afternoon gentlemen.

I had a couple of questions, the first was regarding the GameSpot Track, are you offering it more as a service or is there a defined asp surrounding that offering?

GameSpot Tracks was rolled out in the beginning of the year in under a beta format.

At the time we said we are going to charge for this, because it was in beta, we are going to provide it early on, on a sample basis for free.

Part of what we've done has been evaluate what the impact has been overall from a marketing stand point.

Right now we are in the evaluation stage of how do we go back to customers with it.

I think you probably anticipate that we kind of do a tiered structure, where for certain levels of spend you get an access to the content and for other levels, you pay for on a subscription basis.

It's done as an asp, so we give you a user name and pass word and ability to access it.

I would say we’ve found an ability to really give marketers, pr agencies and other people, greater access into how they think about user behavior.

It's been a really important tool for us.

One of the trends you hear a lot about is , the notion, how do I impose ROI against marketing spend.

The key part of the discussion of ROI is how do you define r?

If you think about all the different things that can happen in marketing, whether it's your ability to influence awareness or your ability to influence inclusion in consideration set trial or purchase or post purchase use.

What the Game Tracks product has done is given marketers a window into how to evaluate those different aspects.

It's really allowed us, in many ways, to redefine and re-talk about r, within the context of ROI.

We think overall, for businesses like ourselves, it's a real positive.

It's interesting that you bring that up, because that raises a question in my mind.

It seems that you guys are building a lot of core competences around on line marketing in general, but yet currently they are limited to the two categories that you addressed, technology and online gaming.

Is there any thought in terms of leveraging that experience and capability and sophistication, surrounding online marketing, into other category areas or as a service for other companies?

I think one of the aspects you'd look at business wise, is we actually manage a portfolio of brands against different audiences.

So, you'd look kind of on the consumer side whether it's a CNET.com or a my Simon, whether you look on the business to business side like a news. com . or a tech republic or whether you look at the game side, we do have the U.S. and we do that outside of the U.S. and I think what we have found over time is that we have an ability to find those points of leverage and those points where we can actually make businesses better and also in places where it is kind of, I would argue, quote, unquote stake synergy.

So we're very much looking at how do we grow our business how do we look for things that relate to what we do that allow us to extend both coming from a platform standpoint and an audience standpoint and clearly with products like my Simon and GameSpot and other things, we've already started to expand that definition.

If I can think back to 1995 when we launched cnet.com, we never would have imagined that TVs and audio devices would be something that we would cover.

Clearly that is something that we have naturally grown into and as you look at our position we are number one within our broadly defined technology space.

We also, under any metric would be the largest content provider overall when you look at somebody who manages multiple brands.

Your next question comes from Brian Goncht of Corsair Capital.

Hey guys, great quarter, just a couple of things.

Can you break out the non-recurring expense, the re-alignment expenses between cost of sales and G&A?

We can, and it's also contained in the segment information in its aggregate form. $4.3 million, two of which is severance, or excuse me, which is related to real estate would have been all in the G&A area and the balance of the severance amount of $2.3 million is roughly broken between cost of sales and SG&A and that will be specifically documented in our 10-Q when we file it.

OK, great.

Can you quantify how much advertising you deliver that was rich media in the quarter and what the trends are there?

That's not a piece of information we disclose.

What I will say is it is becoming a more significant part of our business.

One of the things especially within the business side with products like Tech Republic, [ZD.net], and news.com is we've done a very vibrant business in the webcast side in using webcast as kind of a richer media type for marketers to communicate a deeper kind of richer message and we're seeing more and more demand for different types of products whether webcast or impact launch units or other things where we've utilized some form of rich media.

So when we talked earlier on the call of a greater focus on lifestyle and part of that emphasis on broadband, what we recognize is the richer forms of ad delivery, we think there's going to be greater and greater demand for going forward.

My last question, I'm just trying to get a sense for a lot of growth looks like it came from international.

Is it safe to say that domestically purely the advertising component of online revenue, was that up year over year?

Yes.

Yes, it was.

How much was it up by?

Well, we don't break out at that level of detail, but it's consistent with the sequential growth rate that Shelby talked about as well as year over year growth rate that I had referred to earlier.

Thanks, guys.

Next question comes from Steven Rosen of Quinn Capital Management.

Good progress.

A couple of questions.

Shelby, you talked about the emphasis that you have on the consumer electronics space, can you help us understand what the important milestones of progress are going to be as you develop that area and secondly you talked about the systems work being primarily finished, can you go into more depth in terms of the implications that might have, the second half of this year and also for 2004?

Thank you.

First on the consumer electronics side, we've made, over time, if you look at it, we've seen from a user stand, a shift over time as we've had more and more of our audience focused on traditional consumer electronics products.

At the same time the bulk of the dollar really is supported by what you think of as traditional computer tech side, the pc market and the peripheral market.

Some of the big milestones when you think about it kind of a two-fold traction, both from an ability to further grow from a user side is going to be our ability to expand our audience and to use lifestyle and different content types to broaden the audiences with which we can provide content.

I say the second piece really is a marketer side.

The way you'll see it is, by greater traction.

You'll see greater traction from companies like Gateway as they go in to support, but also bellwethers like Sony.

We've made good traction on Sony.

Sony could be a much more significant account for us than what they are right now.

We look at, there's going to be a couple of key accounts that are really going to help define and be thaw leaders and we are very focused on how do we break those accounts and get more and more dollars from that.

Specifically, also how do we make sure we are tapping into their branding buckets in support of their overall program.

From a platform side, we've had really, if you look back over the last two and a half years, we've done a rehaul to a lot of systems.

The series we completed at the end of last year and beginning of this year, which very much focused on the ad side, we put a lot of effort behind ad delivery, ad measurement, that side and also order management systems, how it integrated or financials or other things.

One of the benefits of early wins, as you've seen our ability to take down our day sales outstanding in the last two quarters, a lot of that is based on us taking traction out of the system.

From a product standpoint, the really big, the biggest project is a rebuild of our [commerce] systems and our ability to consolidate what we do for CNET and my Simon and ZDNet on a common system.

The advantage to that is, we spent higher dollars on what we like on maintenance support of the different systems.

We've also spent dollars on the integration and innovation side or integration side.

What it allows for now, is a real focus really on innovation and how do we focus on better products for marketers, better products for users, and how can be grow through more and more innovation through different products.

Again, very much focused on how do you use advice and, kind of from a broad standpoint, to differentiate and add value in the equation.

One of the notable examples is our ability to dramatically increase our product coverage and that's coming from our ability to leverage technology and tools to be able to serve more products and do it more efficiently.

Thank you.

Your next question comes from Charles Carter of Credit Suisse First Boston.

Most of my question has been answered, but I wanted to ask what the percentage of revenue for each addition comes from advertising and on the publishing side, can you say to what magnitude how well the advertising revenue did there?

Thanks.

The revenue that we provide on a distribution of revenue basis is included on our press release.

You can take a look at that but it breaks down that our U.S. media and [commerce] component is 63%.

Our US print component is 14 and international is 15% and Channel services is at 7.

If you switch and look, the number we provide for subscriptions and licensing comes in at 19% so as you can imagine, other 81% [ INAUDIBLE] broader marketing dollars.

That includes a lot of ways to look at marketing, whether it is leads finish revenue or brand advertising, whether it is support of white papers or sponsorship of white papers or integrated content or other things, so it's a much broader definition, clearly that's an important area.

We think, as you look over the next two years, the whole content area is going to be a place or whole internet place, is going to be on a long-term positive secular trend up.

The brand advertising, what percentage is that?

We don't break that out.

Then how well did trend advertising do for the quarter, just to some agree degree?

We provided the overall numbers, I'd think you say we saw larger decreases in the cost of [INAUDIBLE], as Doug mentioned.

Also from a shares standpoint, we had the highest average of advertising pages per issue, of any of the other competitors.

So, we are doing a pretty good job there from a share side, but at the same time you know, we're also as a company, doing an effective job of articulating and driving the shift from print budgets to online budgets.

Got you.

Thanks.

Next question comes from David Marsh, Friedman Billings.

Thank you.

Guys, can you tell you me what portion of the $4.3 million charge was cash during the quarter?

Most of it is non-cash.

Most will be paid in July, if it hasn't paid already related to the severance and real estate charge.

Can you tell me what your letter of credit balance was outstanding in the quarter?

We have restricted cash on our balance sheet of $18.9 million at June 30.

So that would mirror the LC balance?

Yeah.

What are your expectations for capital expenditures for the rest of the year?

Looks like it may have ticked up just a hair quarter on quarter.

Do you have some sense of what you expect for the remainder of the year?

Yeah.

As they were a little bit higher in Q2, we spent about 3.7 million on cap ex during Q2 and largely to complete our unified publishing platform and year to date cap ex stands at 6.2 million and we anticipate that our full year cap ex will be less than 12.

So we'll spend less in the second half of the year.

All right.

And, lastly, just from the GameSpot side, you guys have talked about in the last quarter call was the upcoming renewals for this year?

Some of the first year subscriptions were due to come up for renewal.

I wonder if you had a sense of what the renewal rate was?

We saw the renewals happened in the first round happened within the second quarter.

When you look at our aggregate numbers which is an increase of 9% overall, those take into account because it would be end of quarter on each, those take into account what you're seeing through the first renewal cycle.

Overall unplanned and I don't think we've seen any surprises negatively within that, so I think that's fairly encouraging as we go forward.

So you were able to pass on a modest price increase pretty successfully, then.

Is that correct?

It was a renewal model.

Yeah, it went up $5.05 or whatever the number was.

Great.

Good quarter.

Thanks.

Next question comes from Safra Rodgky from Piper Jaffray.

My question might have been answered, but I wanted to, if you could talk about the sales process, the sales cycle if it is getting shorter.

You were always more complete, but more complicated in that it is not just simple impressions and branding but a cycle of trial impressions, direct marketing, et cetera.

Are you seeing any acceleration in basically your pitch to the market?

Are you able to close any faster and to what degree do you see any acceleration migration from offline to online given that you just talked about the [INAUDIBLE] advertising being down?

I would say overall, we're probably not doing a good job if people don't know us or never heard of us.

We've done a very effective job in the last three years where we have invested from a customer relations side and building stronger relationships and building a sense of partnership overall within the market, so we've done a good job on that.

I would say overall, if you go back a year, but I don't think this would surprise anyone, you're starting to see, you know, people make more tactable buys, people able to pull money out where they weren't pulling money out before.

We've also, one of the programs, especially when you look at categories like the Enterprise side, we introduced a year ago a white paper program that really allowed us to build a broader set of relationships within the organizations really around product and product marketing people.

I think what we've been able to do is really kind of build better relationships where people know us, know more about us, get to product people and that's been a real event.

The other thing overall is you're seeing a wealth of good research from us and organizations like the [IB] and LPA, which helped take some of the doubt away from an overall branding perspective, where as you go in and sell, there's not, you're not having to, gosh, I need to convince them to have the meeting, I have to spend the first 30 minutes getting out of the cynicism of the internet.

I would say you're seeing much more broad acceptance of buy marketers and buy agencies, that this is and continue to be an important part of their budgets.

I think that's really good news.

I still say as a medium, we still have friction in places and things we need to do to continue to move that cycle along, but I wouldn't say I think we've made as an industry important strides and CNET Networks has been a big leader and that is really viewed by the industry as such.

Great.

Thanks.

Your next question comes from Chris Cook of [INAUDIBLE].

Thanks for taking my question.

Will this end the income tax refunds?

The $80.6 million you got this quarter?

Yeah, the 8.6 million represents the remaining amount of losses we could carry back and gain refunds from.

Thanks.

At this time, there are no further questions.

Gentleman, are there any closing remarks?

We'd like to say thank you.

We appreciate everyone taking the time, we know this is a busy season and a lot of different calls and we appreciate everybody's carving out time or taking the time to spend with us and we are looking forward to speaking to you next quarter.

Thank you.

This concludes today's CNET Networks conference call.