Paramount Global (PARA) 2004 Q4 法說會逐字稿

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

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

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

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

If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad.

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

Thank you.

Miss McLaughlin, you may begin your conference.

Thank you and good afternoon.

Before we begin our formal comments I'd like to remind you that in the financial news announcement released today and also on this call, CNET Networks is providing specific forward-looking statements, including guidance related to our expectations of future financial performance.

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

These risks are outlined in our fourth quarter news announcement as well as in the Company's Securities and Exchange Commission filings including its 10-K for the year 2003 which can be obtained from the SEC's website or directly from our Investor Relations website.

After this conference call CNET Networks does not expect to provide further guidance until the release of financial results for the first quarter ending March 31, 2005.

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 decide to update our financial guidance we will disseminate the information either by news release or other similar communications methods that meet regulation FD guidelines.

Last but not least, you can find reconciliation of the non-GAAP financial measures that we use in our news release and on this call to GAAP financials on the last page of today's news announcement as well as at our Investor Relations website, IR.cnetnetworks.com.

Hosting today's call are Shelby Bonnie, CNET Networks Chairman and Chief Executive Officer, and Doug Woodrum, our Chief Financial Officer.

Neil Ashe, Senior Vice President Strategy and Development, will also be available during the question and answer session.

Now let me turn the call over to Shelby.

Thanks, Cameron, and thanks, everyone, for joining us.

Our fourth quarter and full year 2004 results demonstrate our ability to deliver consistent solid financial performance at the same time significant growth and expansion in our overall product offering, customer base and audience. 2004 was a very good year for CNET Networks.

We delivered 30 percent growth in interactive revenue, posted increasing profit margins and began generating positive free cash flow in the second half of the year.

And we continue to expand our offering, both domestically and internationally, with new products, partnerships and acquisitions.

We ended the year with an excellent fourth quarter, demonstrating our ability to continue to drive user and traffic growth both organically and through acquisitions and to deliver strong top-line growth and profit improvement.

We are pleased with what we have accomplished during the year.

We ended the year having achieved the major things that we set out to do at the beginning.

We were focused on growth in 2004 and this theme transcended across all key financial operating and user metrics.

We effectively expanded our customer base.

We continue to innovate and lead on the product side and we also utilized acquisitions to expand our opportunity.

Let me quickly review some highlights of the solid performance during the fourth quarter.

User and usage metrics were once again strong during the quarter.

During the quarter we reached 103 million unique users per month, turning approximately 85 million page views per day.

These are impressive figures and prove that we are building scale and reach that will only be more relevant as we continue to focus on broadening our customer base.

Total revenues were 89.2 million, up 21% from the same quarter of 2003.

Interactive revenues were up 29 percent during the fourth quarter to 80.2 million.

And overall strength in interactive revenue was the result of growth in both marketing services and license fee and user revenues.

Prid(ph) revenue was down from the year-ago quarter as a result of lower custom publishing revenue at 9.1 million which is essentially flat from the third quarter.

Our business is set up for long-term sustainable growth and free cash flow generation.

Our strong top-line growth and minimal operating expense growth drove better than expected profits.

Operating income before depreciation and amortization was 20.5 million.

Profit growth from the core business was strong with margins increasing to 23 percent during the quarter.

Net income was 9.2 million or 6 cents per share excluding the goodwill impairment and gain on sale of investments, EPS, was essentially 9 cents per share.

With that let me turn it over to Doug to cover the financial highlights and after that I'll provide some more insight into the operating results and outlook.

Thank you, Shelby.

For the fourth quarter and full year 2004, as Shelby said, we're very pleased to report growth across all key financial and our operating metrics.

Financially, we met our top-line growth target, achieving 30% interactive growth for the year, of which 26 percent is organic.

Our operating profit margins reached 12 percent for 2004 and increased to 23 percent in Q4.

For the year, we delivered 51 percent of incremental revenues to operating income before depreciation and amortization, and we're positioned to generate significant free cash flow in 2005.

Turning to the financial results, fourth quarter revenues of $89.2 million were up 21 percent over last year and above the high-end of our guidance range.

Interactive revenues of 80.1 million for the quarter increased $18.2 million or 29 percent compared to last year.

Within interactive, marketing services grew 28 percent during the quarter.

The increase in marketing services reflects another quarter of strong growth from the areas of personal technology and gains in entertainment.

Business technology remains sluggish but we continue to gain share from print in the enterprise category and deliver solid results considering the market environment.

Licensing fee and user revenue increased 43% due to the addition of Webshots Premium paid services and growth in our database licensing business.

Publishing revenues of $9.12 million were down year-over-year but they were in line with our expectations for the quarter mostly due to the elimination of custom publishing revenue and partially due to the softness from Computer Shopper Magazine.

On a full year basis, revenues equaled $291.2 million up 18 percent from 2003, and as mentioned interactive revenue increased 30% during the year to $256.2 million while publishing revenues declined to 34.9 million mostly due to the elimination of custom publishing.

Moving down the P&L to operating expenses.

Total cash operating expenses of $68.7 million in the fourth quarter were up 14 percent from the year-ago quarter but they were much lower than our revenue increase of 21 percent and the expense increase is primarily from increased personnel costs and sales commissions during the seasonally strong fourth quarter.

From a profitability perspective, as a result of higher revenues, the fourth quarter operating income before depreciation, amortization and asset impairment reached $20.5 million which is the highest quarterly level in company history and 55 percent above last year's $13.2 million.

As mentioned our margins increased to 23 percent in Q4 up from 18 percent in the year-ago quarter.

Turning to profitability by geographic segment, our U.S. margin reached 26 percent during the quarter while our international margin came in at 13 percent, both benefiting from strong business trends and positive seasonality and we expect continued margin expansion to occur from our U.S. and international segments during 2005.

During the fourth quarter, each $1 of revenue increase generated 46 cents of additional operating income before depreciation and amortization.

This performance allowed us to slightly exceed our goal of a 50 percent incremental margin for the full year delivering a 51 percent incremental margin for 2004.

And we are, again, targeting a 50 percent incremental margin for the full year 2005.

A significant driver of our financial leverage is compensation costs which is our largest expense item which continues to yield productivity improvements relative to growth in revenues as well as in operating income before depreciation and amortization.

Our headcount ended the year at approximately 2,100 which is up 340 from December of 2003 and roughly 60 percent of this increase is attributable to investments made in the faster growing areas of gains and entertainment and personal technology.

The balance coming from acquisitions.

Our revenue employee per average employee increased 10 percent in 2004 compared to 2003, which is a nice increase considering the acquisitions brought into the mix often generate lower revenue per employee level than the overall CNET average but should become more productive under our ownership.

And we're pleased with progress with this metric as an indicator of the productive and strategic allocation of resources across all of our properties and anticipate additional improvements during 2005.

Operating income equaled $5.3 million for the quarter including the impact of a $8.9 million non-cash asset impairment charge associated with Computer Shopper Magazine.

Excluding this charge operating income equaled $14.3 million compared to operating income of $8.1 million during the same period in 2003.

The non-cash impairment charge associated with Computer Shopper came as a result of our quarterly evaluation of goodyear -- of goodwill.

While Computer Shopper remains profitable it has been impacted by the shift of advertisers from print to online.

And similar to most publishers, Computer Shopper is not immune to the secular online advertising shift currently underway.

For full year 2004, our operating income before depreciation, amortization and asset impairment increased to $35.5 million, above the high-end of the guidance range and up significantly from 2.8 million reported in 2003 which did include $9.8 million of realignment costs.

Margins increased to 12% in 2004 compared to 1% in 2003.

Net income for the fourth quarter equaled $9.2 million or 6 cents per share.

And this net income includes a loss of $5.4 million or a loss of 3 cents per share related to the $8.9 million non-cash asset impairment charge partially offset by a $3.5 million cash gain on the sale of investments.

Excluding these items, net income for the fourth quarter was $14.6 million, or 9 cents per diluted share.

This compares to net income of $6.9 million or 5 cents per diluted share for the same period of 2003.

Net income for the full year 2004 equaled $11.7 million or 8 cents per share.

This compares to a net loss of $26.3 million or a 19 cent per share loss in 2003.

During the fourth quarter, our 100 largest customers represented about 54 percent of total revenue which is similar to previous quarters and we continue to experience a very high renewal rate from our top advertisers. 96 percent of our top 100 Q3 advertisers renewed with us in Q4.

In addition and importantly, reflecting the expanding relationships with new advertisers.

During 2004 CNET increased its penetration of the 100 largest advertisers in the U.S. to 48.

And that compares to 30 in 2003.

And the vast majority of these new advertisers are non-technology companies in the areas of financial services, auto, consumer package goods and retail.

Turning to the balance sheet, our cash position at the end of 2004 increased sequentially to $93.8 million, day sales outstanding equaled 67 as of December 31, which is up two days from 65 days as of September 30th, and equal to the year ago DSO total of 67.

Capital expenditures in the fourth quarter came in at $3.6 million, in line with our guidance of 3.5 to 4 million.

Our full year 2004 capital expenditures came in at $14.2 million or five percent of revenue.

For 2005, we anticipate capital expenditures of approximately 20 to $22 million which would be approximately five to six percent of total revenue.

Before turning to guidance, let me cover a couple of other items.

First, related to Computer Shopper Magazine.

As described in our press release, we're in the process of completing our analysis of internal controls as required by section 404 of Sarbanes-Oxley and expect to complete that evaluation prior to filing our 2004 10-K which will be on or before March 16.

But as you may have also read in today's press release, we disclosed that during the course of our 2004 year-end audit, KPMG discovered an error in the calculation of Computer Shopper's non-cash asset impairment charge under step 2 of SFAS 142.

Importantly, the mistake was corrected by the company prior to finalizing today's financial statements and this does not have any impact on today's results or on previously reported financial results.

While it's uncertain whether the error results in a material weakness in internal controls as defined by the PC AOB standard number 2, we chose to err on the side of caution and disclose this item prior e to filing our 10-K.

The other item relates to in Q4 2004, will be the last quarter in which we plan to break out total paid leads as a statistical highlight.

The relevance of this item has really diminished over the past several quarters and has reached a point where it no longer provides a meaningful insight into our marketing services revenues due to the increased number of advertising and commerce programs being packaged together for many of our advertisers.

So consequently the logic to continue highlighting this as a separate tracking metric is no longer significant.

Turning to CNET's guidance.

For the first quarter of 2005, we anticipate the following results.

Total revenues of 71 to $74 million, this translates into interactive revenues of 66 to 68 million and publishing revenue of between 5 and 6 million.

Operating income before depreciation and amortization, between4 and $6 million for the first quarter.

Q1, 2005, financial contribution to the full year 2005 results reflects the seasonality of the advertising business and the first quarter's revenues and profits typically represent the lowest quarterly level during the year as can be seen in looking at our 2004 quarterly results.

Before turning to the full year guidance, first a comment on our quarterly incremental margins for 2005.

Looking back to 2004, our higher levels of incremental margin were generated in the first half of the year, reflecting cost reductions made in the latter half of 2003.

Therefore, making margin comparisons more favorable in the first half of 2004.

In 2005, our incremental margins are expected to be lower in the first half of the year, and then build progressively during the second half of the year reflecting the seasonality of revenues of Q1 and the additional investments made across our products in the second half of 2004.

These investments should generate more meaningful revenue as the quarters progress in 2005.

And as mentioned earlier, we continue to target a full year incremental margin of 50% for 2005.

For the full year 2005, we are adjusting our guidance as follows.

We expect total revenue of between 340 to $355 million which is similar to our initial guidance provided in October.

However, we are increasing our interactive revenue expectations from the original range of 305 to 318 million to a higher level of 310 to 320 million.

Correspondingly, we are reducing our publishing revenue guidance which was 35 to 37 million to 30 to 35 million.

And our operating income before depreciation and amortization is being adjusted from our original guidance of 62 to 69 million to revise expectations of between 63 and 69 million, and as mentioned in our press release, our full year 2005 guidance excludes the impact of stock options-related expenses.

And with that I'd like to turn the call back to Shelby.

Thank you, Doug. 2004 stands out as a year where CNET Networks delivered consistent performance, grew across all key metrics and executed on what we set out to do.

During this call, I will review some of the key themes that emerged throughout our business during the year as well as some key industry drivers that are benefiting CNET Networks and in many cases the industry in general.

During 2004, we delivered consistent performance across the board.

The key theme for CNET Networks going into 2004 was growth.

And we executed on a theme of growth and the results can be seen in our financial performance and growth in users, usage, customers, products and brands.

Let me take some time to review some of the areas of growth further as it is directly related to our business in 2004.

The first area I want to cover is growth and product offerings and content coverage.

During 2004 there was a clear focus on growing the scope of our content coverage and the size of our overall opportunity.

We believe in the fundamental attractiveness of the content space and continue to pursue it through a strategy of multiple brands that consistently delivery rich authentic content experiences for our users and marketers.

We added several new properties, products and services to our portfolio in 2004 further solidifying our position as the premier interactive content company.

We did this through a combination of organic product expansion, new product build and acquisitions.

During 2004 we were appropriately described by many as a content consolidator and we believe that we smartly and diligently delivered on this.

We believe in the attractiveness of the content for this for the long-term.

And have focused our strategic efforts during 2004 on expanding our exposure toward this.

In 2004, we spent just under $100 million on acquisitions which added significant reach and revenue capacity as well as expanded our content categories, customer base and monitorization opportunities.

We expanded out the digital life style theme through the relaunch of CNET.com in September, adding more video, richer content, help and how-tos, all centered around digital lifestyle.

Since the launch we have seen strong lift in all user metrics with significant growth in users, page used and engagement since the launch.

We saw users grow close to 30% and average monthly page views increased over 40 percent. since launch.

And we're seeing strong loyalty trends with repeat visitors, those visiting more than two times per month increasing.

I will talk a bit more about video features that we have added and some of the trends we're seeing a little bit later in the call.

We also in this year expanded our games and entertainment vertical with the launch of MP3.com.

We added the site by acquiring a brand name from modest amount, rebuilding the site on our existing platform and launching with minimal additional investment.

We have seen a 70 percent increase in MP3.com users from July to December as we continue to expand the product and overall user experience.

During the year we also added more features and services to our existing sites making the user experience even better and helping drive further engagement and loyalty among our user base.

We expanded our community and personalization offerings adding even more features to sites like GameSpot, MP3.com and TechRepublic.

As an example, by the of 2004 we had over 5.5 million registered GameSpot and MP3.com members.

We're seeing strong increases in user engagement.

One metric for this is the increasing time spent across our network.

According to Nielson net ratings, time spent on CNET Networks properties increased 15% over the year ago fourth quarter, which is above the industry average.

The above average growth in user engagement is testament of the rich deep content environment that we create with features such as video, community and personalization.We also added a number of blocking and RSS features on sites like news.com, ZDNet and TechRepublic.

We have aggressively embraced those blocking and RSS and believe that both are very positive for the overall content arena.

Though we have been very aggressive of the network around things like RSS and will continue to do so, it still provides a relatively small amount of our overall network traffic.

During the year we also grew through acquisitions of attractive properties.

One of them was Webshots, a leading community site for sharing photos which further expanded our personal technology vertical.

It was attractive from a financial standpoint and added significant reach and scale to our network.

Our network platform has provided significant benefits to Webshots, allowing it to scale its service.

In just four months time we have seen users and usage grow over 45 percent.

We have used Webshots also to expand out out-of-category advertisers with marketers like Kodak, Duracell, Western Union, Eddie Bauer and Staple's to name a few.

A second example of acquisitions are the acquisitions of ZOL and Fengniao, which were two nice acquisitions that expanded our online presence in China.

Both of these fit nicely into CNET's area of expertise around personal technology.

They also allow us to build off our 10 year presence in China and capitalize on the potential of the Chinese market.

These investments in product and innovation has led to our second highlight area which is growth in user and usage.

During the year, we had a 55 percent increase in users and pages were up 94 percent which were both very good numbers and reflective of strong momentum on the product and brand side.

The strong increase in visibility from any of our brands contributed to that overall growth in users and usage.

In the last year we've been much more aggressive with respect to content partnerships with other media organizations.

Partners seek us out because our brands are content leaders in their respective areas and we use it as a way to increase the exposure to our brands to more people.

We currently have an impressive set of partners with companies such as abcnews.com, MarketWatch, New York Times Digital and Premier Retail Networks just to name few of the new ones.

In addition, as many of you probably have noticed, CNET.com and GameSpot received significant media coverage during the fourth quarter with hundreds of appearances on network, regional and cable television, radio and national and regional print publications.

The good news is that when you look at our user metrics it's working and this is becoming a very effective and efficient marketing venue for us.

The third area to highlight is growth and broadening of our customer base.

One of the more important themes this year and also going into 2005 has been the growth and diversification of our customer base.

We saw significant shifts in our customer base during the last year broadening beyond the strong tech focus we historically had through the addition of more out of category advertisers.

We have become less and less reliant on enterprise technology customers the year.

The fact is examplified by 30% interactive gross for the year while our enterprise category actually declined, proving that we had diversified our advertiser base and are delivering solid growth rates in our other categories.

Growth in the Yeng(ph) category segments like consumer electronic categories remain strong driven by our concerted effort to continue to focus and broaden our lifestyle coverage in areas like CNET.com.

While still early, we continue to see good results from our efforts to add more out of category advertisers.

We added new names into the mix in 2004.

Advertisers such as Pepsi, Gillette, Johnson & Johnson and Unilever, all spending with CNET Networks.

As Doug mentioned, we saw the number of adage top 100 US advertisers spending with CNET Networks increase by 60 percent in 2004 with close to half of the top 100 doing business with us in the last year.

One of the nice trends that we were seeing is those advertisers are spending across many of our brands, brands like CNET.com, CNETNews.com, Webshots in addition to their clear spending on the games entertainment area.

And the final highlight is growth and financial metrics.

We're pleased to have delivered above industry growth for the year posting 30% interactive revenue versus the mid-20s online advertising growth rates expected by many research firms like Universal McCann.

The leverage in our model shined and it was evident in the improvement and profit margins throughout the year which allowed us to exit 2004 with full year operating cash flow margin of 12 percent.

In addition, while we continue to reinvest in our business and to make acquisitions to broaden our platform and product offering, we met our goal of at least 50 percent incremental margin for the year, as Doug mentioned, with the number coming in at 51 percent.

We are very pleased with the overall health of our business and all the tremendous growth that we saw across-the-board and our ability to deliver on the growth promise we made at the beginning of the year.

After spending a bit of time on what we were seeing in our business I'd like to spend just a few minutes on the industry.

There are a lot of things going on in the industry in general, right now, that make us excited to be in the content business.

I'd like focus on three of them.

The first is the continuing shift in media consumption towards online content.

Besides the obvious shift of time from offline to online, which we all read about, we're also seeing greater consumption of online contents specifically.

According to the OPA internet activity index, for the first time ever in 2004 content surpassed communications as the leading Internet activity as measured by share time spent online and was well above both search and commerce.

Content clearly has seen strong increases in share of time versus each of these other categories.

The second area is the increased acceptance of online advertising.

During 2004 online advertising grew at a faster rate than the industry in general, that being the advertising industry, and began to emerge as a permanent and important part of media planning budgets.

However, while online ad spending is growing with much of that impact coming out of paid search, online ad dollars still make up less than three percent of total US ad spending.

So, there's still large amounts of dollars to come, over time, and most of that is reflected in brand spending, which for the most part has not moved in great numbers, where people are focusing on spending dollars to actually generate demand for a category, a product or a brand.

As we've said before, we strongly believe the content environments are uniquely positioned to satisfy this type of marketer need, that of branding.

The third theme is increasing use of broadband.

One of the key trends that is benefiting the content category in particular is the growth in broadband adoption.

More than half of all active users across the Internet are accessing it via broadband and our network is averaging an even higher rate of 65 percent.

This disproportionately benefits content environment as they can produce richer, more video intensive environments for users and marketers.

Clearly, as a company, we have made a large push into this area over the past two years.

You see with the relaunch of CNET.com in September, you see it in all of our games and entertainment properties, and you see it in the increasing use of the webcast on sites like our enterprise products.

Since the beginning of 2003, or 2004, we have seen a 500 percent increase in the number of videos streamed across our network.

The OPA recently conducted a survey of its members and their video use.

GameSpot, specifically, came in incredibly well.

Almost half of GameSpot users surveyed watch a video at least once per week well above the industry average of 12 percent.

In fact, GameSpot had the single highest weekly video viewership among any of the sites surveyed.

Broadband is also providing a more powerful environment for marketers.

More streams now include advertising.

There is growing comfort around the efficacy of the 15 second spot.

Advertisers are bracing them for brand campaign.

You're seeing a wide range of advertisers participating from car companies to tech companies to consumer package goods companies. 2004 is the year when advertisers started to really embrace video and realize its unique ability to deliver a real above -- kind of above quality branding experience on the web.

We will look to continue to surround the content experience with rich and deep features adding more and more video and community features to continue to drive engagement.

All of these factors play well into our business and content businesses in general and it positions us well as we enter 2005 and look beyond.

So as we look at 2005, we will continue to focus on growth and expansion of our products and customer base as well as add additional ways to further monetize and engage our users.

Specifically, we are focused on continuing to grow user and usage, building in category and out of category advertiser base across the network with attractive packaging.

Continuing to expand our content categories, one example being the obvious expansion you see going on in our games and entertainment area.

We have a great organization and have proven in 2004 that we can turn revenue growth into profits while at the same time continuing to innovate, invest against our brands and grow our user base.

The attractiveness of the opportunity in the content space underscores the importance of continuing to invest towards the future, which we have done and we will continue to do, which is reflected in the guidance numbers that Doug has presented.

The leverage in our model provides for an attractive long-term picture composed of sustainable top-line growth, margin expansion and significant free cash flow generation.

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.

Thank you.

At this time I would like to remind everyone if you would like to ask a question, press star then the number 1 on your telephone keypad.

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

Your first question comes from the line of Lanny Baker with Smith Barney.

Thanks, actually it's Bill for Lanny.

Couple questions.

Could you talk a little bit, Doug or Shelby, about the leads in the quarter?

I know you mentioned you're not going to be -- you feel like that is becoming a less important part of your business and the investment story, but if you could talk a little bit as to why you feel that way?

It looks to us like that number was accelerating for the last two quarters and then kind of dropped off significantly in the most recent quarter.

So, just kind of curious what was going on there.

And secondly, you also talked a lot about broadband and the video ads that you guys have been showing on your network.

Curious if you could kind of break out --maybe talk about what percent of your business today is video ads and where you kind of see that going over the next year or two.

Thanks.

Okay, yes.

On the lead side, our thinking on that is as as mentioned, we have more and more of our marketing programs being put together and delivered for our advertisers that are combination of advertising and commerce-related elements.

And the -- looking at our leads only number as a metric isn't as insightful really as the growth of our overall marketing services.

Leads aspect are portion of our marketing services revenues.

And we -- I think we felt pretty good actually about the growth on leads in Q4, is a seasonally high for us, and we have pretty good traction with some of the new products that were rolled on on CNET.com and the engagement with users during the quarter.

So, I think, actually, we pretty good about the trajectory of that particular element and engagement with users.

I think we also can see where it's not singularly a linear application of revenue as it relates with marketing services growth going forward.

And I'lI just add a little something before getting to the broadband question.

You also saw at the relaunch of CNET.com that we really are kind of positioning that service higher up in what you think of as buying funnel and we've added much more lifestyle content, got a how to helps, really with an effort to extend our role and our relationships with users beyond that of just selling them something or kind.

Or kind of acting as a facilitator in that.

And I think that some of the best news we actually saw out of the fourth quarter was that that is working.

We have seen not only an ability to bring in kind of a broader set of in-category advertisers.

So, traction we're seeing, for instance, more in the consumer electronics space and other areas.

But, also importantly, our affiliate begin to bring in out of category advertisers with a lot of the names we mentioned.

So, I think what Doug's talking about is we're seeing an overall shift in terms of how we think about positioning for the future and we want to make sure the metrics we provide are consistent with how we're really thinking about and running our business.

When you look at the broadband video ads, clearly it's a place, I think, as a company that not only do we think we've been successful, but we also think it's an important place for us to differentiate ourselves competitively.

So we've been able to use video to create richer, more authentic brand experiences and ability for someone who's reading reviewed actually see a product or hear from someone who designed it and it's providing real value to us.

Having said that, it's still relatively small.

And when you look at kind of, you know, the amounts of money that we'll make from, you know, selling standard units, whether it's rich media or other things, throughout our network, you know, broadband is still a relatively small area.

It's growing but I would say in the big scheme of things was not, you know, a significantly material number in 2004.

But, you know, I think we are, as I mentioned in my talk, we're very encouraged with what we see in 2005, and I think one of the things that's most encouraging is that it's allowing advertisers to view the medium in a different way, to view the medium as a brand experience and to get away purely from a more direct marketing ROI focus and it's introduced more creatives and gotten them more excited about the business so I think that, you know, I think broadband is one of the great positive trends going on.

I think you're going to see us do lots more video.

At the same time I think symbolically, and from a positioning standpoint, it's having incredibly positive impact overall on content environment.

Great, thanks.

One last follow up.

Can you -- I think you guys disclosed in the past what percent of your revenues came from goodwill.

I don't know if you're doing that this quarter or not but if so if you could help us there and that's it, Thanks a lot.

Good question.

Google was a meaningful customer for us again in the fourth quarter as it was throughout 2004, but it is less than a 10 percent customer today.

So that's why we didn't call it out specifically.

Thanks a lot.

Your next question comes from the line of Gordon Hodge with Thomas Weisel Partners.

Thanks, good afternoon.

Just a question on Webshots and the integration there.

I'm just curious as to how much of their ad inventory your bundling with your own now and selling through CNET sales force and how much are you still putting with the ad networks.

And I'm curious also if you could comment on any CPM trends there and what the contribution Webshots had in the quarter, in total, products and advertising, et cetera.

Thanks.

Really, in the fourth was the first time we began to actually sell it as a network and I'd say we're still doing a split between the original relationships with the ad networks and then what we've been able to do with our own sales force.

As you can imagine it takes time to get it into packages, it takes time to get your sales force and your clients aware of the products.

I think we saw some traction in the fourth quarter in terms of our ability to sell it direct.

And I think importantly what we're seeing is we're being able to use it as an effective tool to also bring in a broader set of out of category advertisers.

So, you know, I think the things that we thought we'd do with respect to -- from a sales perspective, we've been able to do.

I think the integration has gone very smoothly.

I think you've also seen some really nice ways that our services have been able to work with one another.

There was an example called out on The Wall Street Journal where news.com has been -- actually being able to use a lot of the photos from Webshots as part of news stories and so I think we're seeing them, and we're excited about it.

I think it's working the way that we wanted it to work, and I think we're really encouraged in our ability to further package it kind of in broader digital lifestyle rotations as we go on to 2005.

And the contribution in the quarter, I don't know if you could break that out or --

Yes, we didn't -- we're not breaking that out.

Okay.

Thanks.

Your next question comes from the line of Anthony Noto with Goldman Sachs.

Hi, this is actually Jennifer Connelly in for Anthony Noto.

This question is also related to CPM with Webshots.

Just how they compared -- how they are now compared to what they were before the acquisition.

And also if you can talk to out-of-category advertisers and how you think you guys can compete on a CPM basis versus other properties that they would be interested in going to or other portals.

This is Neil.

On the Webshot CPM, as Shelby indicated part of the reason that we acquired Webshots was to expand our reach and avail ourselves of a large portion of inventory that was priced at different rates than ours.

If you look at our combined rpm across the whole company you'll see that the whole network has gone down from roughly $15 prior to when we acquired to Webshots to roughly $10 now.

So you can see how the mix element has changed.

So we've seen two things go on.

First is we've seen prices increase when we sell the Webshots inventory vis-a-vis what they were earning before.

While at the same time we've been able to package advertisers together both in our existing high value properties such as CNET.com, as well as Webshots.

So we're seeing an ability to sell those advertisers at the appropriate CPMs for each of the properties, while meeting the price points that they desire.

So, we're pretty enthusiastic about our ability to reach larger consumer oriented advertisers through the combination of both Webshots together with our high value properties.

And I guess I would add that one of the really, I think, most important kind of fundamental trends that we saw in 2004 really was the ability we've see to grow all of our services.

And we're seeing from a product standpoint, an ability, whether it's CNET.com or the games entertainment groups or Webshots or downloader news, we're seeing really nice momentum and that means we've seen a dramatic increase, also, in inventory available.

So it's allowing us to be very smart as we think about packaging to be able to in the very high value areas, you know, realize the premium pricing which we've been historically able to achieve while at the same time we can take greater share of budget by being able to be smart about how we use this increase in inventory to create more attractive packages.

Okay.

Great, thank you.

Your next question comes from the line of Rhanjim Renavasian with Morgan Stanley.

This is Rhanjim on behalf of Mary Meeker.

I was just wondering if you guys could give us an update a little bit on China, the properties you touched on a goal, and the opportunities there.

And second part of my question is if you guys have done any kind of sensitivity analysis in terms of thinking of how your revenue growth scales with broadband?

Thanks.

Yes, let me-I'll start out on the China side and I'll let Neil provide maybe a little more color.

You know, we -- when you look at the acquisitions of both Fengniao and Zol, we view them as great opportunities.

We've had a 10 year presence in China, we have a great team there.

We have great relationships with marketers.

You know, through what we've been able to do on the magazine side and we've been able to sit and wait in order to be opportunistic when we thought the right opportunity came along that really allowed us to do what we've been able to do in the United States and other parts of the world so well around the online space.

And we were able to buy two very strong services there.

We continue to focus on how do we build against those in terms of taking advantage of their online presence to do more things in China.

And I think that -- I think there's great opportunity there.

It's still early and I think you're still looking at, you know, from our perspective a relatively modest overall advertising bucket as you see it in China around online.

But I think we know how this movie ends and I think we're very encouraged with what we've seen from an overall activity standpoint.

I don't know, Neil, if you had anything.

The important -- it'll come as no surprise to note that the important thing about these properties is that they're large.

So, they provide significant revenue opportunity.

The question is when that is realized and as Shelby indicated and as you guys have -- know from your research that the online advertising business in China is very small, although broadband penetration is expected to surpass the U.S. in what, the next two or three years.

So, obviously the opportunity is large.

So, this is our way to position ourselves in front of that -- in front of what we expect to be a shift, not dissimilar from the shift here in the United States with high quality properties at appropriate prices, grow users and usage and wait for monetization to turn in our favor.

To the broadband question, you know part of the transition that you see happening right now that makes it hard to actually, you know, do a direct forecast.

That if you thought back three or four years ago, a content service like ourselves would essentially try to programs to the lowest common denominators.

So, we thought about page load speeds and how we could most efficiently deliver content to an user.

As more and more people are going to broadband you're seeing significantly different services and you're seeing an ability for us to rely on video and to create much richer experiences than would have been able to -- you would have been able to do, you know, four or five years ago.

And at the same time, you know, I think as you look at the broader content space, you have a lot of offline players who are text players, so print players, who are playing in the online space and who have been able to be modestly competitive overall in the content environment.

And now you're seeing companies like ourselves who've really focused on building interactive content from the beginning able to do build richer and better experiences than you could simply do in text.

So, I think you're going to -- over the next three or four years I think you are going to see lots of heat and excitement around kind of an ability for companies like us to build great sites I've seen at dot.com or in the game entertainment area or services around Webshots or other things that will take much more share going forward and I think they will not only be much more compelling for users but I also think you're going to see marketers get really excited about what I would articulate is kind of the next generation of a vertical cable channel.

Great, thanks.

Your next question comes from the line of Imran Khan with J.P. Morgan.

Hi, this is Joe in for Imran.

I had a question on the change in the guidance between interactive and publishing.

And I was wondering if that was attributable to something that happened specifically in the fourth quarter or a change in strategy going forward.

It really was representative of new information in, you know, in January as we speak compared to where we were in October which is we ended 2004 at a higher level with our interactive revenues than we had guided towards in October for the fourth quarter and that led us into our planning for the full year 2004.

Hence, we increased our interactive guidance to 3.10 to 3.20.

Correspondingly as mentioned Computer Shopper Magazine, you know, is being impacted by this secular shift of print dollars going to online, and in putting together our planning for 05 related to publishing, we, you know, recognize the change in the trend of that business.

I think our strategy remains the same which is really focused on being an online interactive content company and that's really represented now by our revenue guidance is over 90% of our '05 revenue guidance is interactive.

Okay.

If I could have a quick follow-up on what you guys are seeing thus far in the first quarter related to CPM pricing.

Yeah, I would say we -- are seeing the same things that we've seen over the past several quarters which is, you know, there's more demand coming to online from offline.

The value points of our high proven areas across the network, you know, CNET.com areas, the values in pricing remain good there.

I think we've seen some pricing in the lower priced areas inventory to really solidify and improve a bit.

Hence, we've, you know, we've seen growth in the games entertainment area in both volume and a bit, you know, on the demand side driving pricing in those -- those broader programs.

So, you know, I wouldn't say there's anything different in the trend per se as we enter January and February than what we exited 2004.

No, and I just say in general that clearly first quarter is always a very seasonal quarter for us.

At the same time, we're very encouraged by the year.

I think the -- you know, we like all the trends we're seeing in the content space, you know, kind of as a category.

At the same time I think we have very strong momentum in a way that a lot of other content players don't on the user and usage side.

So, I think we're doing the right things to satisfy our users.

I think we are seeing really good momentum and I think there's some very good raw fundamentals all around what's happening in the advertiser space, what's happening around broadband and other things that clearly get us very excited about what the implications are for content overall.

Okay.

Thank you.

Your next question comes from the line of Kit Spring with Stifel Nicolaus.

Okay, guys, thanks for taking my questions.

First, on the guidance for first quarter interactive revenues, if you take the mid point of the range, I think that's about a 20 percent year-over-year growth rate relative to 29 percent in 4Q.

Why the big deceleration?

I know the business is seasonal but the -- was seasonal last year as well.

And then secondly, on the publishing revenues, again it's seasonal but last year the first quarter was, I think it was something like 22 percent of the yearly revenues.

The guidance that you've given for the first quarter would be about 16 percent of the yearly revenues that you're expecting, which would indicate that maybe the publishing revenues for the remainder of the year are too high.

Could you explain?

Thanks.

Yeah.

I would say, you know, we think our guidance is representative of where we are so I would say starting with the publishing guidance, we think we're tracking within that range.

That's why we provided it today and I think you did make a correct observation.

I mentioned earlier on publishing revenues as an example with Computer Shopper Magazine, we're, you know, we're seeing sluggish results with that property.

Hence, you're seeing our guidance related to it come down for 2005 beginning with the first quarter.

As it relates to our Q1 guidance on interactive, you're right, our guidance there is -- the midpoint is 20ish percent for the first quarter.

Reflective of a couple things.

A, it is our seasonally the lightest quarter of the year and we see that in the advertising business both domestically as well as internationally.

But we're, you know, I think we're pretty happy about where we are positioned not just for Q1 going into the year but as our full year guidance for interactive being in the 21 to 25 percent range.

So I think it's a bit reflective of we're early in the year, and we're in the lightest quarter of the year.

But we feel pretty solid where we are with, you know, a hundred million users and 85 million pages and better content, improved broadband opportunities to really satisfy what the marketers are looking for.

And I think if you step back for a second, as we talk to investors about our business, we very much focused over time on this idea that we want to grow 20 to 25 percent on a consistent basis and make sure we're building brands and assets that can endure and grow at very attractive rates over a very long period of time.

And I think everything you see and kind of how we think about the first quarter and how we think about 2005 are consistent, kind of overall with that guidance we provide.

And I think we continue to be very encouraged, I think as Doug mentioned.

First quarter is weak and I think one of the things you had relative to 2003 to 2004 is you had much easier comparisons in 2003 because the market really hadn't turned much.

I don't think there's anything we're seeing in first quarter right now that's particularly surprising from an overall seasonality standpoint, from a growth -- from a growth standpoint or from an incremental margin standpoint and I think we remain very encouraged about our ability to continue deliver on kind of 20 to 25 percent growth over an extended period of time.

What gives you the confidence on the publishing side that you won't continue to see declines throughout the rest of the year?

Well, we have a bit more visibility in the magazine as you close down, you know, publications, you know, a month or two in advance.

And it's a pretty stable business, by and large, and, you know, we have one property in the U.S.

We also have more properties actually in China.

And the magazine business there is on a bit firmer ground.

The, you know, the migration from offline to online is a later stage development in that region of the world.

So, our print portfolio which is, you know, comprised of one title here and probably about seven titles in China, is in a different environment, in a different mode and so we're confident of the deliverables on those properties in China.

So -- and it's, you know, it's a slightly seasonal business as well in Asian as it is in the U.S. so, you'll see natural building of the revenues not only in the U.S. on print but as well as non-U.S. print as time goes on.

So we're, you know, we feel comfortable and confident related to the print.

Okay.

And is it possible for you guys to break out the publishing EBITDA so that we could see what the potential risk is to the business model if there is a continued decline?

My guess is that on a -- well, actually, I was just wondering if you could answer that question?

Thanks.

Yes, we don't break out profitability between interactive and publishing.

Both are profitable.

And, you know -- .

Is one more profitable than the other?

The print in some situations as a more mature properties have a bit higher margins but, you know, as evidenced in -- and as Q4 has evolved our overall company margin has increased reflective of the nature of interactive growing and its contributions of revenues and profits.

Thanks a lot, guys.

Your next question comes from the line of Gordon Hodge of Thomas Weisel Partners.

Just a quick follow-up.

I'm curious, Shelby, you mentioned that enterprise technology or the business technology ad spending was down for the year.

I'm curious was it also down -- I think it was flat in the third quarter was it down in the fourth quarter or are you seeing any improvement there?

Thanks.

The enterprise in Q4 was down slightly compared to the prior year fourth quarter.

Got it, thanks.

Your next question comes from the line of Aaron Kessler with Piper Jaffray.

Hi, Doug and Shelby.

Couple quick questions.

What type of visibility at this point, if any, do you have in Q2 marketing services revenues?

Another just kind of housekeeping question.

On the licensing side what is the revenue split in there between the licensing revenues and interactive revenues for the Webshots business?

On the latter point, when we brought Webshots in in Q3, the revenue distribution between marketing services was about 55-45, 60-40, 55 marketing services, 45ish, in that neighborhood, both meaningful components.

But the advertising piece clearly is the area of focus for future growth.

So it'll be more of a marketing services-driven product.

More like 70-30 maybe, going forward or even more, maybe?

Yeah, you know --

I think there's clearly the most leverage on the advertising side and so we'd like it as high as we could get it because I think it does speak to we'd get -- the higher we can do from a percentage standpoint the more profitable it is.

Okay.

So that -- we love it high.

On the first question which is visibility, I'd say, you know, our business, you know, every year is getting -- we're getting better visibility overall with respect to kind of core set of advertisers, you know, expectation on spending levels.

I think it's interesting, if you view the trends over the last year in terms of what we've seen from our top 100 advertisers renewing.

We've had very high renewal rates and so I think you begin to get a sense, even when we've got a good bunch of advertisers all on long term contracts but even then we're seeing real consistency among our advertisers.

So I think we're getting a, you know, a much better sense of kind of overall visibility in our business.

And so I think it gives us confidence in terms of how we think about operating and managing, you know, even at the beginning of the year.

Great and how much of the growth and the guidance for the core business is expected to come from volume growth verse any increases in CPM pricing.

If you think about, again, the strategy we're doing from a overall CPM side, we have, I think as a company, done a very good job of delivering premium pricing in our high value areas.

And so if you look at whether it's CNET.com or high value areas and GameSpot or news.com or you pick it, we've traditionally, I'd argue better than anyone, have done a really good job of delivering consistent, you know, high premium pricing.

At the same time we've been very aggressively at growing overall usage levels and beginning to shift the mix from an inventory standpoint to give us more flexibility to meet the market with a broader set of advertisers and so through kind of smart packaging we have an ability to continue to deliver high value context areas.

So, a marketer that wants to be in notebooks with a integrated program at the same time we can package in a lot of kind of broader run of site inventory, or run of network inventory where I think, we have and will have the ability to be competitive in pricing.

Great , thank you.

Your next question comes from the line of Peter Treadway from Tracer Capital.

Hi.

I may have missed this number as I jumped on the call a little late but did you release the Google as percentage of total revenue number?

Yeah, Google was less than 10 percent this quarter.

Great, thank you.

At this time I would like to remind, everyone, if you would like to ask a question, press star then the number 1 on your telephone keypad.

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

I think that's it.

If you haven't noticed, I'm a little hoarse today and I'm lucky we didn't have this call yesterday or you wouldn't have actually been able to hear me.

I want to thank you, everyone for their participation.

We're very pleased with our business and where it's going to.

We appreciate all the support we've been given from the financial community.

So, thank you, and we look forward to talking to you next quarter.

This concludes today's conference call.

You may now disconnect.