Paramount Global (PARA) 2005 Q2 法說會逐字稿

Good afternoon.

My name is Micky and I will be your conference facilitator.

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

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

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

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

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

Ms McLaughlin, you may begin your conference.

Thank you and good afternoon.

Before we begin our formal comments, I would like to remind you that in the financial news announcement released today and also on this call and webcast, CNET Network 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 actual or predicted results to differ materially.

These risks are outlined in our second quarter news announcement and accompanying slide presentation as well as in the Company's Securities and Exchange Commission filings including its10 K for the year 2004, which can be obtained from the SEC's website or directly from our investors relations website.

All information discussed on this call and webcast is as of today, July 25, 2005 and CNET Networks undertakes no duty to update this information.

Last but not least, you can find a reconciliation of the non-GAAP financial measures that we used in our news release and on this call to GAAP financials on the last page of today's news announcement as well as in a slide presentation that accompanies today's webcast, located at our investor relations website, ir.cnetnetworks.com.

Speaking on today's call are Shelby Bonnie, Doug Woodrum and George Mazzotta.

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, Cammeron, and thanks, everyone, for joining us.

We are pleased with our second quarter results as we continue into 2005 with good momentum.

And once again illustrate our ability to deliver consistent strong top-line growth and expanding profit margins.

We remain on track to achieve the objectives and goals that we have set out for the Company and believe that our position as the leading interactive contact Company only continues to get stronger.

Let me quickly review some highlights of the quarter.

User and usage metrics were once again strong during the quarter driven by solid organic growth and the addition of new properties.

During the quarter we once again achieved record audience figures, with CNET Networks reaching over 115 million unique users per month turning close to 98 million page views per day.

Total revenues were 84.5 million in the second quarter, up 24% from the second quarter of 2004.

Interactive revenues were up 30% from the second quarter of '04 to 76.8 million.

Overall strength in interactive revenue was the result of growth in both marketing services and licensing fee and user revenue across all categories.

Print revenues down from the year ago quarter to 7.7 million, but ahead of guidance due to strong results out of both our domestic and international print businesses.

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

Operating income before depreciation amortization was 14.2 million, profit growth was strong with margins increasing to 17% during the quarter.

Cash flow from operations equalled 13 million, up from 2.4 million in the second quarter of '04.

Less capital expenditures, this represents free cash flow of 6.5 million.

Net income exceeded guidance, coming in at 7.7 million or $0.05 per share.

This is compared to a loss of $0.01 per share in the second quarter of '04.

Before turning the call over to Doug, I want to take a moment and thank Doug for his service to CNET Networks over the past eight years.

As you are all aware Doug is in the process of transitioning out of the CFO role and passing his responsibilities in that capacity on to George Mazzotta, who joins us from the Gap.

Doug has significantly contributed to the growth of this Company, was instrumental in placing us on our current strong financial growth path and has been a large contributor to our investor and analyst relations.

In fact, this call marks Doug's 32nd quarterly conference call at CNET Networks.

As many of those know listening, he is a first rate person and a pleasure to know and work with.

In the near-term Doug will play an instrumental role in the CFO transition process.

Doug leaves some really big shoes to fill, but I'm confident there will be a smooth transition as George picks up where Doug leaves off.

George, who's been a key member of the executive team at the Gap, will be an enormous asset to CNET Networks as we continue on our path of financial growth.

You will have an opportunity to hear a little bit from George at the end of our prepared remarks and we look forward to introducing him to many of you in the coming months.

With that I would like to turn the call over to Doug.

Thank you, Shelby.

First of all I'll say my shoes aren't that big, so I'm sure they will be filled quite easily by George and it's been a genuine pleasure of mine to have filled this role over the past seven or eight years.

And certainly it's been fantastic to see CNET Networks become what it's become.

I think we are all looking forward to the future as well.

Turning to today 's information, as Shelby said, we are very pleased to report continued growth across all of our key financial and operating metrics for Q2 and these growth trends remain in place as we enter the second half of 2005.

Turning to the financial results, second quarter revenues of $84.5 million were up 24% over last year.

And we're very pleased, as well, with the growth exhibited during Q2 from our existing properties, the contributions made from some recent acquisitions, the launch of some new online properties and the progress made of expanding our advertiser base.

Interactive revenues of $76.8 million for the quarter increased $17.5 million or 30%, as Shelby mentioned, compared to last year.

This increase reflects growth from all areas including Games and Entertainment, personal technology, business technology, and the addition of Webshots.

We continue to experience growth from existing clients, gaining a larger share of their marketing dollars previously spent offline, as well as beginning to attract a new set of advertisers, particularly within Games and Entertainment, personal technology and Webshots.

We also benefited to a lesser degree, but from advertisers supporting the recent launch of new products, such as Car Tech and TV.com.

On a sequential basis interactive revenues increased 12%, driven by a 15% sequential increase in marketing services revenue.

On a pro forma basis, as if Webshots was acquired April 1, 2004, interactive revenues increased 23% compared to last year.

Publishing revenues of $7.7 million were down year-over-year, but above our guidance for the quarter due to better than expected results from our international and domestic publishing businesses.

And as previously discussed, approximately half of our publishing results are generated by print operations in China with the balance coming from Computer Shopper magazine in the United States.

Our print operations are profitable and operate at a low double-digit EBITDA margin.

Moving down the P&L to operating expenses.

Total cash operating expenses of $70.3 million in the second quarter were up 12% from the year ago quarter, but much lower than our revenue increase of 24%.

We are very pleased with the financial leverage that was delivered in the second quarter.

The expense increase is due to an increase in personnel costs, particularly in the areas where we are investing aggressively, such as Games and Entertainment and personal technology and plus the addition of Webshots.

These investments will allow us to take advantage of multiple growth opportunities both near-term and long-term and leverage our user base and scalable technology platforms.

From a profit perspective, as a result of higher revenues, second quarter operating income before depreciation and amortization equalled $14.2 million above the high-end of our guidance and compares very favorably to $5.5 million last year.

And our margins expanded to 17% in Q2, that's up from 8% in the year ago quarter.

We are very pleased with the continued increase in our profit margins.

During the second quarter, we produced a 53% incremental margin and remain on track to achieve a 50% incremental margin for the full year 2005.

But keep in mind, our incremental margin could be less than 50% in Q3 based on the seasonality of certain costs such as our annual compensation adjustments, which occur during Q3 and overall marketing efforts during the second half of the year.

Our operating income equalled $7.6 million in Q2.

That compares to an operating loss of $261,000 in the second quarter of 2004.

This reflects strong revenue growth and lower levels of operating expense than anticipated.

Net income for the second quarter equalled $7.7 million or $0.05 per share, ahead of guidance for the quarter.

Q2 2005 net income was positively impacted by a tax benefit during the quarter related to the settlement of two tax contingencies.

But excluding the tax benefits, earnings per share still equalled $0.05.

Also during the quarter, importantly, we generated cash from operating activities of $13 million and we purchased $6.5 million in property and equipment, which resulted in generating $6.5 million of free cash flow for the quarter.

For the first half of 2005, free cash flow equalled $10.8 million.

And from a cash productivity perspective, 53% of our operating income before depreciation and amortization was converted to free cash flow.

This is real cash that can and will be reinvested in the business for future growth.

This high level of cash productivity is another measurement that our business model is working and is healthy, exhibiting fast growing revenues and rapidly expanding profit margins.

Our ability to generate free cash flow will increase going forward.

Turning to some nonfinancial metrics and user statistics.

Monthly unique users, as Shelby mentioned, increased 55% year-over-year to over 115 million.

And our average daily page views were up 134% to 98 million pages per day.

It's also noteworthy to mention that both unique users and average daily page views increased sequentially from Q1 to Q2, which can be a seasonally softer period of growth for users and usage.

The increase in users and usage reflects growth across all properties including the benefits of launching new products such as TV.com within Games and Entertainment, and Car Tech within CNET.com.

In addition, but to a smaller extent, we also benefited from an increase in video content during the quarter which attracted new users, as well as the ancillary benefit of additional page views from existing users in those areas offering video content.

This type of user and usage growth far exceeds industry growth rates, particularly for online networks the size of CNET Networks.

During the second quarter CNET Networks 100 largest customers represented 55% of total revenue which is similar to previous quarters.

We continue to experience a very high renewal rate from our top advertisers, 95% of our top 100 Q1 advertisers renewed with us in Q2.

The loyalty is shown by our user base continues to be equally demonstrated by our expanding advertiser base.

Turning to the balance sheet, our cash position at the end of Q2 decreased to $2.8 million sequentially to $94.1 million.

Free cash flow generated in Q2 of $6.5 million and proceeds from stock options exercised of $4 million were reinvested in acquisitions during Q2, principally with PC Home.

Our day sales outstanding equalled 67 as of June 30th, which is an improvement from 72 as of March 31, 2005.

Capital expenditures in the second quarter, as mentioned earlier, came in at $6.5 million.

We expect 2005 capital expenditures of approximately 23 to $25 million, which is a $3 million increase from our earlier estimates, due to the continued launch of new products and strong growth in users and usage.

Turning to CNET's guidance for the third quarter of 2005, we anticipate the following results, which are total revenues of between 85.5 to 87.5 million.

This translates into interactive revenues of between 78 to $79.5 million, representing a growth rate of 27 to 30%, publishing revenues of between 7.5 to $8 million and Q3 operating income before depreciation and amortization between 13 million and $15.5 million for the quarter.

Q3 earnings per share is estimated at $0.03 to $0.04.

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

We expect total revenues of between 347 to $355 million.

This compares favorably to our previous guidance, which was 345 to $355 million, which was provided in April.

We are adjusting our interactive revenue guidance from a current range of 315 to $323 million to a new range of 317 to $323 million, which represents an annual growth rate of 25 to 27%.

We are maintaining our publishing revenue guidance at 30 to $32 million for the year. 2005 operating income before depreciation and amortization is being increased from the current range of 64 to $69 million to a revised range of between 65 to $70 million.

And full year 2005 earnings per share is being increased from the current range of $0.20 to $0.23 per share to a higher range of $0.21 to $0.24 per share.

And also, as we've stated in the past, we are very focused on sustaining long-term interactive revenue growth of 20% plus and believe that we can continue to achieve incremental profit margins of approximately 50%.

These trends bode well for us going into 2006 and as it relates to our financial results and future free cash flow generation capabilities.

With that I would like to turn the call back to Shelby.

Thanks, Doug.

This past June marked the 10th anniversary of CNET Networks presence on the web and the launch of CNET.com.

A milestone event like that provides an excellent opportunity for us to not only look back at how far we have come as an organization or as an industry over the past ten years, but also provides an even better opportunity for us to look forward.

When we started this business the plan was to launch a 24 hour cable network with a companion online service on the topic of computers and digital technologies.

Our big idea at the time was how to use the power of TV and online to provide rich content experiences that could take the best from text, audio and video.

We spent a great deal of time trying to understand the economics of cable channels and what it took to produce video inexpensively but with high production values.

Based on the challenges of securing distribution, the cable industry and our strong beliefs in the possibility on the internet, we quickly focused our efforts towards online.

Seems like a long time ago and we certainly have seen a lot of things in this industry change.

We took one strong brand, CNET.com, and used it to build a stable of some of the best individual content brands in some of the most important categories.

We have leveraged the internet's interactive capabilities to create a different kind of media Company.

We have always pursued a multi brand strategy because no single brand can effectively and authentically serve the needs of each of the distinct categories and the passionate hard to reach audiences that care about them.

It was incredibly exciting in 1995 to launch CNET.com into an industry where we had no real idea how it would evolve, yet we knew we were part of something big.

Having said that, we see much more opportunity in the medium today and it remains as, if not more, exciting than it was in 1995.

Let me provide a quick update of some of the notable things that are going on within our business.

Let me start with users and usage.

As we continue to focus on improving the quality of our user experience and getting more users to sample our products, we are seeing strong increases in both users and usage network-wide.

Our properties continue to scale from user and usage perspective both organically and through acquisitions.

During the second quarter we had over 115 million monthly visitors across our network generating close to 98 million page views per day.

Excluding acquisitions over the past 12 months, both users and usage grew over 20% in the quarter.

CNET Networks ranks among the top ten global internet sites according to comScore Media Metrix.

Contributing to the growth in users and usage is our continued efforts to expand our content licensing agreements.

During the second quarter CNET.com entered into licensing agreements with USAToday.com, Forbes.com, NBC Universal Digital and Rodal, publisher of Runners World, Men's Health, Backpacker and Organic Style.

GameSpot also continued to extend content relationships during the quarter and added Wal-Mart, MTV, Target and MSN Games as licensing partners.

The excellence that our content and user experience evokes is being continually recognized by outside sources.

During the second quarter CNET.com, CNETDownload.com and GameSpot received Webby awards from the International Academy of Digital Arts and Sciences.

In addition, CNET's new Digital Home and TV.com were recognized by Time Magazine as part of its list of the coolest websites for 2005.

Also, both CNET.com and CNETNews.com were recognized with Maggies by the Western Publication's Association earlier in this quarter.

Let me next cover our personal technology category.

Our CNET branded properties continue to scale and grow and we continue to focus on building out the experience here both for users and marketers.

During the quarter CNET.com launched several key initiatives that continue to broaden the coverage plan and demonstrate how pervasive technology is becoming as part of a life-style.

It is not only about the desk top but throughout the home, work and automobiles etc..

CNET.com launched Car Tech, which provides content about technologies in cars from audio and video to navigation to wireless support.

With good early success with the launch of Car Tech providing an additional opportunity to attract out of category advertisers, initial site advertisers included Honda, Audi, and Volkswagen.

CNET.com also added a new Digital Home future on the site, adding more do-it-yourself and how to content, videos and interactive features including user generated content.

There's some exciting issues underway at CNETDownload.com, as well.

We redesigned the site, which we launched two weeks ago, which is focused on improving the experience both for users and marketers.

Additionally, we will be launching video as a new downloadable category.

This service will provide downloadable trailers, independent videos and how to content.

You will see a big launch for this service in the third quarter.

We also continue our efforts to extend Webshots position as the leading photo community online and make enhancements to the site that will only further enhance the user and marketer experience.

Our team continues to strengthen the performance and scalability of the platform to support the growth we are seeing.

As an example of the growth, we are now averaging over 750 photos uploaded by users daily, double what it was when we acquired it less than a year ago.

We also added several new features to the front door of Webshots which provide new advertising opportunities and puts more of the robust community content front and center.

The growth in users and usage continues to provide a great marketing platform for advertising growth, especially out of category advertisers.

While the sales effort remains early we remain optimistic.

Next let's talk about our Games and Entertainment group.

We have a leading presence in this category and continue to extend our category leadership into more content areas.

GameSpot continues to innovate and provide its audience with one of the best experiences online.

We had a great E3 this year and believe that the video coverage we did of the show was extremely strong.

We had over 24 million video streams from E3 alone.

As part of our efforts to provide our users with even more cutting edge features, GameSpot just launched in beta a new gaming service called GameCenter.

GameCenter is a platform that combines all of the content, community and features of GameSpot with a game play platform via a downloadable client.

We have had some very early success with GameCenter around the beta launch of Battlefield 2, an Electronic Arts game.

There were over 300,000 started downloads in the first four hours of it being available and more than 2 million over the first 24 hours, making the demo one of the most popular PC multi-player games in the world within the first week of its release.

GameCenter will have both a free service and a subscription service.

We are not announcing the pricing or plans at this time.

GameCenter was created in partnership with SCI, a company in which CNET Networks has a minority position.

We have been offering a closed beta of the product to GameSpot complete members since late June and a good percentage of our complete members have signed up for the preview of the product.

It is still early to provide any meaningful trends or statistics, but we are excited for the full rollout of the product expected later this year.

We will update you over time as it relates to it's progress.

One of the most exciting developments among our Games and Entertainment properties during the quarter was the launch of TV.com, the online community and information resource for television fans.

Modeled after what GameSpot does for the gaming category, this service provides a site focused on TV shows.

A place to meet people with similar interest, discuss favorite shows, find new programs, view video clips and access information on more than 2500 TV series, dating back to the 1940s.

Surprisingly, the television category is the category with a lot of user interest.

But prior to the launch of TV.com., there's been a real derth of good content.

It is a category that works for users and also one that can provide a strong platform for marketers.

TV.com launched with HBO, The Discovery Channel and Vivendi as sponsors and continues to have good traction with advertisers.

There are many natural endemic advertisers from television studios to television program DVD's as well as a great out of category opportunity given the demographics and CICAGraphics of the audience.

With over 3.6 million visitors in the month of June, according to comScore, we are quite pleased with the launch so far.

Our business technology properties are evolving with the changing nature of the medium and are broadening out into other at work audience.

BNET.com, a destination with a vast library of white papers and content for a variety of professionals, continued to scale and add new sponsorships during the quarter and has had early success in the executive education and professional services categories in particular.

In addition, BNET's users and usage trends are encouraging since launch, with a 30% year-over-year increase in monthly unique users during the second quarter of 2005.

Our international business continues to grow and we continue to increase our online exposure in key markets.

We are pleased with the progress of both Zole(ph) and PC Home in China and are encouraged by the results and future prospects for the market and business.

We have an outstanding portfolio of assets in China and remain encouraged by the future growth trends there.

In addition, during the second quarter we launched CNET.co.uk in the United Kingdom, which leverages many of the successes of CNET in the U.S., with key features like first looks from the lab, product review, Blogs, etc..

Reaction from the UK advertising market has been strong and initial launch sponsors included Samsung, Apple and Panasonic.

This joins our established UK brand, ZDNET and Silicon.

Let me talk a little bit about some of the exciting trends we're seeing on the horizon.

First, the proliferation of wireless, wireless devices and digital TV is changing the way users access our content services.

We see the internet moving from primarily a computer based medium to a medium that will serve multiple screens, including TVs, cell phones and PDAs.

This is an area where the industry is still learning and experimenting.

You will see us focus more on mobile in the next year.

One example of this, from the second quarter, was the launch of CNETmobile.

This is a free service for shoppers to access CNET.com's content while on the go or at the point of purchasing at a offline retailer.

Using CNETmobile shoppers can quickly access the same expert editorial advice and unbiased opinions right there in the stores and know they're getting the best possible deal.

Users can search by product name, key word, manufacturer, category or part number and will be able to access product specifications, in-stock status, prices and also receive full product information via e-mail.

Second, the increasing speeds and lowering prices of broadband is fundamentally changing how we think about content within our network.

We see sites getting richer, more interactive with significantly more video and audio.

As it stands now, CNET Networks is one of the top video streamers online, with over 100 million video streams across our properties during the second quarter.

We will continue to extend our video offering network-wide and made efforts during the second quarter in this area.

Our most recent site launch, TV.com, launched a video feature on the site which includes short video clips from a range of television programs.

We believe that TV.com is a site that sits in a very unique position as it relates to platform convergence between television and the internet.

During E3 in May, GameSpot had a record day in terms of video streams with over 6 million video streams on a single day during the gaming show.

During the quarter, MP3.com entered into an agreement with Universal to provide music video content to MP3.com users.

Universal is making available hundreds of music videos for MP3.com users.

Currently MP3.com is the exclusive provider of a new music video by rap artist, Fifty Cents, beginning today through Wednesday.

This arrangement further highlights the fact that MP3.com is increasingly being recognized as a leading music destination online.

Our video efforts continue to scale on our CNET branded and business technology properties as well as we continue to add video features on CNET.com, CNETDownload.com and ZDNET.

While video advertising as a percentage of revenue is still immaterial, we believe there is a large opportunity here as more advertisers look toward this medium.

We've had some good early traction as it relates to video advertising with Microsoft, Phillips and Cadillac advertising on our CNET branded properties during the quarter.

And Dodge, Lucas Film, Nestle and Wrigley advertising in video format on our Games Entertainment sites.

While it's still early we remain encouraged.

Third and finally, the increasing size and importance of the internet to our everyday lives is changing the way marketers are approaching the media.

If you look back at how the cable networks evolved, there was a point where individual networks reached a potential audience of around 40 million homes that they were able to reach critical mass.

They were large enough from a reach standpoint that they were worth the effort of marketers.

Marketers bought against specific demographic CICAGraphics profiles.

And when that happened with enough network, it changed the way marketers thought about and used the cable medium.

That industry has seen attractive long-term growth of over 20 years.

I think we are at a similar point today.

As an industry, most of the success to date on the advertising base has come out of endemic advertisers in places like CNET or GameSpot or through search, which one might argue is the purest form of endemic advertising.

What is changing today is that advertisers are starting to think about it in a broader way.

You might argue that we are reaching that critical mass point that we saw in the cable industry.

We see advertisers beginning to approach it in the same they approached cable, as they look at opportunities to provide reach against very specific demographics and CICAGraphics.

As an industry and as a Company we are still very early in this trend.

CNET Networks has put a more significant focus against that this year.

We've had some nice early wins, but they are still small.

Examples of new advertisers that we've added in the second quarter include Coors Brewing, Taco Bell, Comedy Central and Air Force on our Games Entertainment properties and Holiday Inn, General Electric, Sears, and State Farm Insurance on our CNET branded properties.

You could see it playing out over the next two years, but to look at our current results is still to see growth largely coming from the endemic advertisers.

While both out of category and video ad dollars are immaterial contributors currently, they provide a platform for growth going forward.

All of these factors really play well into our business for the long-term, particularly as we are at the forefront of change and evolution that lies in the hands of the consumer.

Interactive content environment, like CNET Networks' properties, are uniquely positioned and will be beneficiaries of the trends going forward.

We remain focused on growth and expansion of our product and customer base, as well as additional ways to further monetize and engage our user base.

We have proven once again this quarter that we can turn revenue growth into profits while at the same time continuing to innovate, invest against our brands, launch new 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 and we will continue to reinvest in order to stay ahead of the industry trends.

The long-term financial picture of this business is an attractive one, composed of sustainable top-line growth, margin expansion and significant free cash flow generation.

Before we start the Q&A, I would like to turn the call over to George Mazzotta to say a few words.

We are incredibly pleased to have George join CNET Networks and look forward to introducing him to many of you coming soon.

So, with that let me hand it over to George.

Thank you, Shelby.

I'm very excited to join CNET Networks, which in my view stands out as a truly innovative and entrepreneurial Company with significant growth prospects.

My enthusiasm for joining this team comes from two beliefs.

First, consumer utilization of the internet has evolved considerably and the media industry is quickly adapting to this change in behavior.

As a result, transformational change is underway which has seen an ongoing shift in marketing dollars towards digital media.

This shift in spending represents a tremendous growth opportunity and I believe that CNET Networks is well positioned to capitalized on this trend.

Second, I believe that the capability of this management team is exceptionally strong.

This is a team, who under Shelby's leadership, has demonstrated a unique ability to evolve existing businesses and to develop new businesses profitably.

I also want to say that I consider myself fortunate to assume leadership of a finance organization that Doug has managed with a great deal of commitment and integrity.

My objective is to continue this development and build our finance organization with all the capabilities necessary to manage the growth that we see in our future.

Again, I'm absolutely thrilled to be part of the leadership team of CNET Networks and I look forward to meeting many of you in the coming months.

Let me now turn the call back to Shelby.

Good.

Well, that's the end of our formal comments.

We would like to turn it over to the operator so that we can open up for questions.

At this time I would like to remind everyone, if you'd like to ask a question press star, one on your telephone keypad.

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

Your first question comes from Mark Mahaney with Citigroup.

Great, thank you.

Two quick questions.

First, could you talk about international profitability, it looks like that nicely turned back in the June quarter.

We recognize that there's seasonality with the international business in terms of the print and the non-print businesses, but do you think you're at a point now in terms of scale where you can have profitability for the international segment for the full year?

And then secondly, could you provide just a little bit more color behind the metrics performance.

Across the board you seem to have had real consistent re-acceleration in the metrics, your revenue, your RPM's increased, to some extent this appears to be a sign of the model shifting towards more of a consumer base.

But -- and you talk about some of the details on the call.

But other things you can breakout just to explain, particularly the strong performance relative to the March quarter year-over-year trends?

Thank you.

Okay, Mark, I'll speak to the international question that you have.

Yes, we're pleased that international turned profitable in the quarter for us, as you can see from where it was a year ago, its essentially breakeven.

Kind of stepping back overall we embedded into our expectations for 2005 is for international to be profitable for the whole year.

You can look at a variety of things, several of which Shelby mentioned, on some of the newer benefits on launching some of the sites in the UK and in France.

The traction that we are beginning to get with the acquisitions made in China on getting a good foundation built for an online business there with Zole and PC Homes.

So, although the numbers aren't large in context, overall results they're headed in the right direction.

We look for that group to be profitable this year.

With respect to the metrics, if you step back and think about it in the context of the first quarter, As we mentioned in the first quarter call we have had some shift in the overall kind of makeup of our business as we have seen slightly more of our business around the consumer side.

So I think in some respects you saw a little bit of a flip of that in this quarter.

But I'd say overall we are very encouraged in terms of what we are seeing with respect to overall metrics.

We are seeing really good metrics on the user and usage front.

I think as you alluded to we've seen a tic up in We have seen a particular up in overall RPM's.

On the RPM point, two things that we have been incredibly focused on, one is I'd say we are more focused on growth of overall revenues than we are specifically on growth and RPMs.

Two is as we have been saying for the last couple years, we made a very concerted effort to continue to grow user and usage and inventory and exposure against the overall opportunity.

We're still at a relatively immature stage within the industry development, so I think you are going to see RPM's bounce around a little bit, so I wouldn't read too much in that.

I would say overall we were very encouraged.

I think metrics we're seeing.

I think our business is performing in a very healthy way, yet I think we are still seeing a lot of opportunity as we look forward not only to the second half of this year but into next year.

Thank you.

Your next question comes from Gordon Hodge with Thomas Weisel.

Hi, it's Lloyd in for Gordon, thanks.

I was wondering if you could comment a little bit on where you see enterprise technology spending and if you could also comment on how the bundling of inventory with Webshots and CNET Red Ball properties is coming along.

To the first question, I think on the enterprise side, and I will speak less to the industry side and more to what we're seeing in our own business.

I think similar to the first quarter where we saw a slightly positive quarter, I think we saw a similar one in the second quarter.

I would say overall it's relatively encouraging in terms of our ability, we think, to have gotten that business stabilized and I think through things like what we've been able to do with ZDNET and Tech Republic and also with the launch of BNET.

I think there's some encouraging stuff in terms of the efforts that team has made in terms of getting that business right, which gets us encouraged as we look forward.

I'd say on the Webshots side, I think the first thing, as we mentioned in our formal comments, on the good side we've seen really good growth from a user and usage standpoint with respect to Webshots.

A lot of where we spent our time in the last really nine months has really been getting the platform stabilized.

You have seen a lot of growth, you have seen our number of uploads per day double.

In the second quarter you saw redesign of the front door in a way that we made it much more conducive to bringing in advertising.

So, you know, I would say overall we're pretty optimistic.

I would say we still have work to do in terms of getting the overall packaging right, but I think the signs are encouraging at this point.

So I think it's turned out very much like we thought it would and we think there's still a lot of opportunity around it going forward.

Your next question comes from Mary Meeker of Morgan Stanley.

Hi, guys, it's Brian Fitzgerald for Mary Meeker.

A couple quick questions.

First question is on TV.com, do you breakout the 100 million video streams across your space do you breakout which portion of those are coming from TV.com versus the other portion?

And then I have one follow-up.

We don't break it out.

I don't know how much you use TV.com, but I would say it's still from an overall contribution of video streams is still relatively small.

We have been since launch adding more and more video clips and we are doing anywhere from 15 second to 20 second video clips and I'd say we're encouraged in what we're seeing, but I would say it's still early.

Where you're still seeing from the overall level of video streams across our network really are what you think of as the Games and Entertainment properties like GameSpot and MP3, the CNET red ball properties.

Kind of what you think of is our mainstay properties within that area.

It continues -- video continues to be a very important focus of ours.

As I said earlier, I think TV.com is uniquely positioned to really play that convergence of TV and online.

I think there's some really exciting stuff for us to do around it.

We continue to look for more ways to increase kind of the richness and amount of video within our overall services, ala the beta launch of things like CNETDownloads Video service in the -- you will see beta launch in the third quarter.

Okay.

Then the second question I had was your inventory grew very nicely this quarter.

Do you see a point where one year, two years out where it starts to move more in tandem with your revenue growth?

One of the things, I think the numbers you see overall in user and usage trends you should not assume continue at the same level.

I think we have been extremely happy with what we have seen, but those are very high numbers.

So I do not think it will continue at the same rate.

Having said that, we are very big believers in the overall opportunity around internet advertising and believe that your ability to grow inventory and exposure to the overall opportunity will be cheaper today than it will be two or three years from now.

We have our product teams very much focused on grow your user and usage, increase your engagement, put in more video and things like that.

I think as long as we can continue to do that effectively and really cost effectively, I think you will continue to see us do that as we really lay the foundation for continued growth over kind of a long period of time.

Great, thanks, guys.

Your next question comes from Safa Rashtchy with Piper Jaffray.

Hi, guys.

Aaron Kessler for Safa Rashtchy.

A couple quick questions.

One, can you talk a little about some of the facts from some of the things you have done to increase your modernization in terms of our site redesigns.

Also, it looks like you put an intro page on the CNET page, I don't know how recent that is.

And also, can you give us an indication of how many users are accessing the site with -- that are broadband users versus dial-up?

Yes, I would say that the two big efforts that we have been focused on with respect to increased modernization, one is we continue to look for ways to do smarter and better packaging.

How do we think about what inventory you bundle, how you bundle it, and how you position it, kind of all those things.

We have done a lot of really good supporting research against that.

We have also done things like supporting research on what's the proper type of creative to do against individual sites.

We are doing a lot of things that are really smart ways to better sell, better introduce, better talk about each of our different properties.

I would say the second area is we have also focused on new types of ad units, new types of formats, how can we do things where you can buy against multiple services.

And you have seen a lot of new creative ad types.

You've seen what we refer to as skinning, which you saw in things like GameSpot, MP3.com and TV.com.

So I think there's been a lot of smart redesign, same thing with things like the front door of Webshots..

If you recently saw we also redesigned download.com, CNETDownload.com, which I also think makes it a more interesting and attractive place for marketers.

We have been very much focused on that.

If there's a third piece, which is also probably equally important, and that is really how we think about doing a better job of optimizing our network.

How we think about pricing in relative areas, what are the right number of ad units, when to use what type of ad unit.

There's a whole aspect of this business that's just purely math oriented.

We have done, I think, a good job on that.

We have a lot more to do.

I would say the industry is still at a very early stage with respect to, you know, what we can do with respect to optimization.

On the overall broadband side, we are about 65% network-wide.

It varies a little bit by site, so I think some sites like CNET.com you will see as much as 80%, you'll see other numbers kind of depending on what the different services.

If you -- following and looking at our sites you will see us do more things that really make the assumption that a user coming to our site is actually a broadband user.

So you see our sites getting richer.

You see us putting video in more prime places on front doors.

And that will be a continuing trend you will see as we continue to shift and take advantage of what we think is the increasing broadband nature of our overall audience.

Your next question comes from Anthony Noto with Goldman Sachs.

Shelby, I guess my first question is given the fact that you have sort of proven out the profitability of the model with over 50% incremental margins again for this quarter (inaudible) 2005, as you go into 2006 would you dial back a little bit on the profitability and maybe put a greater balance towards investing in some original content to continue to be able to grow the audience?

That's question number one.

The second question is it looks like you had very strong paging growth, which you guys discussed specifically, but it does look like the RPM has on a year-over-year basis deteriorated down 45% year-over-year, a little bit of a greater decline than the first quarter at 43%, and I was just wondering has that allowed you to bring in a number of new advertisers that are at a category and if so could you quantify it, if not just let us know.

Then last, Doug, you mentioned some organic growth rates versus acquisition growth rates or reported growth rates.

I just wanted you to clarify that, I wasn't sure what you meant by 23%.

Thanks.

With respect to overall the reinvestment targets, I think we have overall been very pleased in the level of reinvestment we have been able to do against our business.

I think you have seen in the last couple years us be able to launch some very attractive new properties.

And we have been -- I think you have seen us from a feature side, we have really been able to I think demonstrate not only ability to deliver revenue growth, but at the same time deliver profit and be able to launch new services, new brands and new features.

I think that really plays out.

I think the question you have to ask is when you look at things like users and usage is it playing out in terms of the overall results.

We feel great about what we have seen with respect to the engagement levels we're seeing with our audience, the ability to do smart sampling with other -- kind of with new users and introduce them to our properties.

If anything, I think we see our users and usage ahead of where we are from an overall monetization stand point.

I think we have been very happy with what we're seeing.

I think for what we see right now, as Doug mentioned, I think 50% remains a appropriate target for us going forward.

Anthony, on the page view growth and new properties front, yes, we are very pleased with the page view growth that we have had both from the acquisitions we have made as well as from growth on our existing properties.

We will look to do that again next year.

As we look at opportunities, what they will be can we continue to add new and interesting places for both endemic advertisers as well as that of category advertisers.

As you mentioned the RPM, as Shelby mentioned in response to an RPM question earlier, while the RPM is down slightly, it's bounced up sequentially for the first time.

As we've said consistently, we continue to grow -- focus on gross revenue growth as well as user and usage growth.

So RPM will bounce around, but you make a good point which is as we have increased our inventory capacity, we have had the ability to reach out to a number of new advertisers.

The quality in names and the quality in number are very impressive, but it still remains a relatively small portion of our revenue.

We expect that to be a key growth component for us in next year and the years beyond.

Then your final question I think related to a statistic that I'd mentioned earlier, and that is on a pro forma basis if we had owned Webshots, you know, as of April 1, 2004, our interactive revenue growth rate increased 23%.

Your next question comes from William Drewry with CSFB.

Hi, it's actually John Claymont for Bill.

If you could tell me what percent of your total interactive revenue comes from consumer advertisers?

Then how does that compare to say one and then two years ago?

And than I actually have a follow-up.

Yeah, when you're referring to consumer advertising, if you are referring to out of category advertisers, so non-endemics.

As we said in the formal comments, it's still a relatively small, I think you put it almost in the immaterial category overall.

So I would say it's still not a big contributor.

When you look at overall growth we have seen in our business, it's largely because of growth around our endemic advertising and the addition of new endemic sites, like TV.com or other things.

So I would say it's still very small percentage, but we -- something clearly we see as a big opportunity for the coming year and going forward from there.

As I mentioned in my formal comments, I think we are at that tipping point in the industry of having reached critical mass where you really make sense for a marketer kind of from their ability to reach a demographic CICAGraphics that's worth their time and worth their investment.

I would say we're encouraged bout it, but it's still not a big contributor to our overall numbers.

Great, thanks.

You actually answered both.

Your next question comes from Mike Gallant with CIBC.

Great, thanks.

I think the last couple questions are trying to get at your reliance to enterprise tech advertisers and what the growth profile looks there.

So asking it in a different way.

If you looked at your year-over-year revenue growth in the first half of the year, are you seeing growth in enterprise tech advertisers?

And then if we look at the RPM statistic and the comments about how that's come down year-over-year, is that just that the incremental inventory that is sold is just being sold at much lower CPM's and it really has nothing to do with anything -- to do with what's going on with the enterprise tech advertisers?

To the first question, when you think about enterprise what you're really talking about is our business technology group.

So kind of the ZDNet, Tech Republic, and BNET, that portfolio.

As we mentioned earlier, we saw in the first quarter that we saw kind of flat to a slight amount of growth in the first quarter.

We saw similar in the second quarter.

I would say we saw growth, but it's still kind of a lower contributor and a lower growth rate than what we're seeing in the rest of our overall categories.

Having said that, that is a better profile than we saw through last year.

So last year where we saw the enterprise category and the business technology group declining, we're seeing growth, those small amounts of growth, we are seeing growth out of that overall category.

I'd say we are getting more encouraged with things like being -- what the ZDNET and Tech Republic teams are doing, I think we're seeing some really good innovative encouraging things out of that group.

So I think we're overall, you know, we remain -- you know, I think we're encouraged.

It's still the litezor(ph) categories.

To the second question, which is the overall RPM's, if you think about this year versus last year, remember that in the last year we at this point didn't have Webshots.

So we have done a lot of things to aggressively grow both users and usage in the last year.

So we saw in the process of that to a point that Neal made a second ago, we have been very much focused on overall revenue growth.

I think in doing that, focusing on revenue growth, focusing on growth in users and usage, we know that RPM's are going to bounce around.

We think those are the right investments for us to make at this point.

So I don't think there's-- there's not a part of that I think concerns us in terms of what we're seeing overall in terms of the numbers.

When you then look at kind of overall revenue growth rates, I think if you look at what we saw in this last quarter, I think we are very encouraged, if you look at 28% growth around marketing services.

Our focus on overall revenue growth, the thing that's getting us to numbers that we think are quite attractive for overall business.

Your next question comes from William Morrison with JMP Securities.

Thanks.

Few questions.

First, I was hoping, Shelby, maybe you could give us a little bit more insight into Webshots' contribution to your page view and user growth or maybe just -- I think you said last quarter that Webshots was just a little bit less than 50% of your page views.

I'm curious what it is this quarter, if it's gone north of 50% or just where it is.

And secondly, you alluded in your comments to the fact that you guys -- it sounds like you are beginning to sell -- that your sales force is beginning to sell Webshots as a part of the broader kind of portfolio of CNET properties.

Just wanted to clarify whether in fact you guys are actually selling or if you're still using an ad network to monetize the majority of Webshots.

And then I guess along that same lines, is there any reason a year from now that you guys won't be selling all the inventory on Webshots or is there just something strategically there that it's better monetized through an ad network long-term.

Then lastly, was curious if you have any comments on ad locking software.

I've noticed here at our corporation, at least, that I can no longer see ads at work and curious what your thoughts are there, thanks.

To the first question we don't actually breakout page views between our sites.

What we did, one of the stats we gave on this call, though, is if you look at overall growth in both page views and users and you took out acquisitions in the last 12 months which would things like Webshots, we still saw 20% growth -- at least 20% growth in both users and usage on kind of, you know, all of our different services combined.

I think as we said, the numbers you see right now, you know, we don't suggest that they're going to continue at the same rates in terms of overall growth.

Having said that, I think we are seeing nice growth across the board with respect to our different services.

On the Webshots selling side, we have begun to sell it as part of overall packages.

We have a very small internal sales force that's focused on selling it on a standalone basis.

We have had some nice wins.

If you see things like Air Canada and some other things within the service, you know, we have had some good wins there.

We did a program for the Incredibles when the DVD launched, so we're seeing some ability to sell it.

Having said that, I would say the majority of the sales still is coming out of the ad sales, the networks.

It's an interesting question on do we see that continuing long-term, we use forms of ad networks in lots of places.

You could suggest that our relationship with Google is another form of how we can work with outside vendors to increase overall monetization rates and to bring in different types of advertising under different programs.

The degree to which in light of wanting to do a better job of optimizing our overall network, I think the agreements(ph) we think that we can use things like ad networks in a way that is incremental to that and brings in a different set of advertisers.

That's something we will continue to look at.

With respect to the fourth, it's really -- and that's the ad blocking question.

Actually it's a very important issue.

And we've, I think, as an industry it's something that the industry is talking a lot about.

As you probably know, I have been extremely involved with the interactive advertising bureau and that's a topic we are spending a lot of time on.

You are seeing with this whole -- with issues between Ad Aware and Spyware and all these things, I think some really valid uses and some valid forms of advertising being blocked out of programs.

It's clearly something, as an industry, is not lost upon us.

We think in many ways it can, you know, degrade overall value and kind of user experience.

It can affect the way pages look, there's a lot of aspects to it.

It's something clearly as an industry and as a Company that we care about and its something we will continue to be focused on.

I think it underscores an issue that we have talked about a lot, which is it is that much more important for marketers to really focus on, one is are they relevant and two is are they adding value overall with their ad programs.

I think the degree to which they're not doing that, I think you will see more efforts to block ads.

But I think the degree that people do that, I think you will find that advertising is a really important and integral part of the overall content experience.

Operator, we have time for one more question.

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

Hi, guys, this is Joe in for Imran.

He is jumping calls.

I have three real quick questions on Webshots.

I was wondering if you guys have broken out the number of paying subscribers you guys have to that service?

And then to that point, is your focus more on the monetization of the pages for Webshots or is it increasing the sub count?

Then finally, the increase in the number of uploads per day of photos on Webshots, I was wondering if you could comment on the other metrics, such as the number of users to the service and that growth.

With respect to paying subs, as you probably know when we acquired it, it's not an immaterial part of the overall service.

I think one where we think we have been able to provide a valuable service in terms of increased storage and ad blocking and other things.

But having said that, I think the most leverage in something like Webshots is really around the advertising model.

Our biggest focus is how do we think about from a packaging, how do we think about ads units, how do we think about what we can do from a positioning standpoint.

I think we've made a lot of really good strides against that in the past three months with the redesign of the front door and other things.

We are seeing an ability and, I think, real opportunity around what we can do from a brand advertising standpoint on Webshots.

I think that's been one of our bigger pushes.

It's an interesting property.

In some ways it's a very emotive environment, it's a place where people are very expressive of themselves and their lives and the things they care about and stuff like that.

I think as we are out and telling that story more, we are finding that there really is a way for that to resonate and it does resonate with a lot of advertisers.

I would say that we remain encouraged with respect to what we can do with respect to brand advertising.

On the final question, on the user and usage growth.

I think in a similar way we continue as we've in the last nine months really focused on scaling the property, increasing page load speeds, doing more things to release stream line, both the uploading process and photo viewing process and other things.

We have seen nice increases in both users and usage.

We have been able to maintain our position as the leading photo sharing site, even though there's been clearly a lot of attention by a lot of other companies in the space, I think Webshots has only continued to get stronger with respect to its relationships with users and usage.

So, I think there's a lot more opportunity around that and I think we remain very encouraged.

Okay, great.

Thanks guys.

So that's our last question.

With that we would like to thank everyone.

I think it was overall a good quarter.

I would like to thank Doug again for his great contribution as CFO to this organization, we look forward to talking to everyone next quarter, thank you.

This concludes today's conference, you may now disconnect.