Paramount Global (PARA) 2007 Q3 法說會逐字稿

Welcome to the CBS Corporation third quarter 2007 earnings release teleconference.

Today's call is being recorded.

At this time I would like to turn the call over to the Executive Vice President of Investor Relations, Mr.

Marty Shea.

Please go ahead sir.

Good afternoon, everyone, and thank you for taking time to join us for our third quarter 2007 earnings call.

Joining me for today's discussion is Sumner Redstone, our Executive Chairman, Leslie Moonves, the President and CEO of CBS, and Fred Reynolds, our Executive Vice President and CFO.

Sumner will have some opening remarks and then turn the call over to Les and Fred for strategic and financial issues.

We will then open up the call to questions.

Let me note that statements on this conference call relating to matters which are not historical facts are considered forward-looking statements, which involve risks and uncertainties that could cause actual results to differ.

Risks and uncertainties are disclosed in CBS Corporation's news releases and security filings.

A summary of CBS Corporation's third quarter 2007 results should have been sent to all of you.

If you did not receive the results, please call [Poonam Desai] at 975-3667, and she will get it to you.

A Webcast of the call, the earnings release and other information related to the presentation, can be found on CBS Corporation's corporate Web site at the address cbscorporation.com.

Now I will turn the call over to Sumner.

Thanks, Marty.

Good afternoon, everyone.

Thank you for joining us.

It's really hard to believe two years have passed since the CBS Corporation was formed.

The progress that has been made since then is equally hard to believe.

This company is doing exactly what we set out to do, which is to perform at the top of our respective industries while generating healthy free cash flow, returning value to shareholders, (inaudible) increasing, always increasing dividends and buybacks.

We're able to do that because CBS makes and distributes some of the best mass-appeal content in the world.

At the same time, our businesses are evolving and changing to capitalize upon the remarkable opportunities presented by the new media age.

CBS content is available wherever, however, and whenever audiences want to get it, and we're getting paid for it in all of these ways, too.

Making this possible is, of course, a highly committed, highly creative team of top-tier professionals, led by my very good friend, the incomparable Les Moonves.

I'm truly excited really about what the future holds for this great company.

Now Les will tell you all about it.

Thank you very much, Sumner, for the nice words.

Hello everybody.

Thank you for joining us on the call this afternoon.

Today I'm going to take you through the highlights of our financial results and then discuss a few of the most significant developments at CBS during the quarter.

After my remarks, my colleague and our CFO Fred Reynolds will discuss the financials in greater detail, and then we will open up the call to your questions.

When we became the CBS Corporation seven quarters ago, we set out to manage all our operations with distinction, to expand our profit margins, and to return value to our shareholders.

During this past quarter, we delivered on each of these goals.

We're achieving these results by continually evaluating and refining our asset portfolio.

As we exit slower growth areas, we're better able to manage the assets we have, and then utilize our extraordinary cash flow to focus on higher growth opportunities for the future.

This refocusing of our assets is well underway.

During the quarter we acquired SignStorey, which we renamed CBS Outernet, a video in-store advertising company.

And we further invested in our online properties to help build our aggregate audience, and we significantly built out our digital billboards and transit displays around the world.

Each of these actions is complementary to our existing businesses, which we are actively moving into the future.

As we all know, the media industry is changing more rapidly than ever.

These changes represent opportunity, and we welcome them.

I am particularly pleased with the way we're building on our strong core businesses and moving them into the interactive age that clearly lies ahead.

Going forward, we will continue to position ourselves for faster growth of revenues across all the emerging platforms.

While we do this, we continue to turn in solid operating performances that allow us to invest in our businesses and return value to shareholders.

During this third quarter, we also implemented a $1.6 billion accelerated share repurchase program, and increased our quarterly cash dividend by 14% to $0.25 per share.

Since January 1, 2006, we have raised our quarterly dividend five times, a total increase of nearly 80%.

We were able to accomplish this by utilizing our excellent free cash flow, which continues to be one of our great stories.

Free cash flow has now reached almost $1.6 billion for the first nine months of the year.

Our earnings also grew during the quarter.

Net earnings from continuing operations was up 5% to $340 million, and EPS from continuing operations was up 14%, to $0.48 per diluted share.

OIBDA of 758 million was also up from last year.

Operating income was flat despite healthy performances in Television, Outdoor and Publishing, due to continued challenges at radio, which I will say more about in a few minutes.

These good profit, earnings and cash flow performances were accomplished in spite of the fact that revenue is down slightly as we rolled over noncomparable items, including the sales of TV and radio stations, the shutdown of UPN television network, and the non-renewal of marginally profitable transit contracts.

The sales of these assets has set us up to pursue a far more attractive business model to grow our top-line in the future.

We will continue to operate our businesses efficiently, increase margins, and produce significant levels of cash.

Our continued solid performance in all these areas should tell you a lot about why we're so confident in where CBS is headed.

Now let's take a look at each of those businesses, starting with Television.

For the quarter, OIBDA and operating income were each up 4%, while revenues were up 3%, due in part to the noncomparable items I just mentioned.

The growth in OIBDA and operating income at Television reflected higher profits from the mix of titles in syndication and underlying advertising revenue growth.

I want to say a few words now about the state of our network business, which has been the subject of some confusion lately.

The landscape is changing.

We think these changes will produce tremendous opportunities for content companies like ours.

Before I continue, however, I want to mention the possibility of a WGA Writers Guild strike.

We continue to engage in serious negotiations and hope that an agreement is reached soon.

But make no mistake, we are prepared.

We have a full slate of new first-run programming ready to go, both now and at mid-season.

Our dramas and comedies repeat extremely well.

The bottom line is this.

In the event of a strike, we're fully prepared to offer alternative programming options, and we would anticipate no material impact on the Company for the remainder of the television season.

Now, about that season.

It's clear to anyone who follows television that we're in the middle of the most significant period of change since the advent of Nielsen people meters 20 years ago.

Overnight ratings mean less and less everyday as people use a variety of new technologies to view, stream or download a sometimes bewildering array of content.

People are watching it at their own convenience, and they're arranging their own schedules.

But one thing is not changing.

No matter what device they're using, they're still watching their favorite network shows.

And every new way they do so represents a new way for us to monetize that content.

New viewing habits have mandated new ways of measuring our audience.

As you know, this year for the first time, television ratings are based on a whole new scale.

In the new math, it's the people who watch commercials who count to our advertisers.

These viewers are much more valuable to the advertisers, since they are far more engaged with the commercial itself.

This is good news for the broadcasting business.

Only our medium continues to deliver the kind of mass audience national advertisers require.

Better still, the numbers tell us that the big broadcast networks are retaining viewers during commercials much more efficiently than cable does, because our viewers are significantly more engaged in what they are watching.

Advertisers clearly understand this.

In the last several months, scatter pricing continues to be way up into double digits -- right now, north of 35%, which is clearly far in excess of what advertisers paid during the upfront.

Remember, this inventory is sold without guarantees regardless of ratings.

Advertisers understand how essential the networks are in this complicated media landscape.

The DVR is at the center of many of these changes.

As we have said, the growth of DVR penetration is only helping us to count and monetize our changing audience.

Here, too, the broadcast networks are the winners.

The new numbers show that, as we've suspected, people are using DVRs to timeshift and view a disproportionate amount of programming from broadcast television.

The biggest winners turn out to be the strong existing hits that people love.

The five broadcast networks are now getting 78% of all prime-time playback.

When you compare this number to the fact that the five broadcast networks receive about half of all live viewing, you can see how DVRs are providing the networks with a new competitive advantage.

I'm particularly pleased that among our peers, CBS has delivered the highest lift in viewers from DVR playback.

And even without the DVR, our established shows continued to claim the top spots early in the season.

CSI is still the top-rated show, with more than 20 million live viewers and another 3.2 million through playback, for a total of just under 24 million viewers.

That's a big number in any season.

CBS continues to have the most stable lineup with the most breadth of successful programs on television.

We're number one on three nights of the week, and number two on four.

It's clear that in the complicated new media environment, people are gravitating to hits and to big live events.

This make sports programming more valuable than ever, and people are watching more and more of it.

And sports programming continues to have very high commercial audience retention.

That's good news for CBS as well.

Our broadcast of the New England Patriots/Dallas Cowboys game on October 14 was the most watched NFL regular season game in more than a decade, with an average of 29 million viewers.

In fact, it was the largest audience for anything on broadcast TV since the American Idol finale in May.

The Patriots/Cowboys game also brought a healthy lift to our TV stations that aired the game.

And this Sunday's showdown between the undefeated Patriots and undefeated Colts should post terrific numbers, too.

This is the latest point in the season that two unbeaten teams have played each other in NFL history, and it is on the CBS Television Network.

Overall, CBS Sports coverage of the NFL is up 10% from this time last year, The NFL Today is up 4%, both of which are the best increases among all NFL broadcasters.

And through this past Sunday, more people have watched NFL games on CBS than any other network.

Meanwhile, the sports advertising marketplace continues to be extremely strong, with NFL CPMs up double digits year-over-year.

Having this week's game, plus all the big AFC games through the AFC championship, is very exciting.

At this pricing we will be seeing benefits from now through the end of January '08.

Turning to syndication.

CBS Television distribution continues to have eight of the top 10 highest rated shows virtually every week.

And we have some promising new shows in development, including a spinoff of the very successful Dr.

Phil franchise that is already sold in more than 50% of the nation.

Demand for our programming [in] fast-growing international marketplaces is extremely strong as well.

I just got back from MIPCOM, which is the largest international distribution trade show in the industry, and it was the biggest MIPCOM ever.

The demand for American television programming is very healthy throughout the world.

CSI Miami is now the number-one exported show in the world.

And since we became the sole distributor of the entire CSI franchise throughout the world, we will realize an even greater piece of the global pie.

This arena represents one of our most encouraging opportunities for growth.

In cable, we're especially pleased with the performance being turned in by Showtime, whose original programming is performing at unprecedented numbers and has probably its best buzz ever among critics and fans.

Season two of Dexter outperformed its original debut by 67% and has quickly become the network's top-rated show.

Brotherhood is also showing marked improvements from last season and is up 31%.

Weeds, now in its third season, is averaging 20% more viewers than last season.

And finally, the series debut of Californication -- yes, that's the name of the show -- delivered the network's biggest scripted comedy debut since 2001.

It's no wonder that many are now saying Showtime is clearly the hottest premier premium cable network in America.

It's also hot on iTunes, by the way.

Meanwhile, subscriber numbers and fees continue to climb upward.

I'll tell you something interesting about that subscriber growth.

A significant part of it is coming from the new telcos, which are starting to show very strong gains.

As telcos like FiOS grow, Showtime will benefit and so will CBS.

These telcos are the same companies that have struck retransmission consent deals for CBS programming as well.

They have actually built the price of retransmission fees into their business models.

We believe this recognition of the value of our content can only help us as we move forward collecting retrans from their cable competitors.

Television is our primary business, but we're making inroads in other areas of the future value as well.

Over in our new film business, we're very fortunate to have named Amy Baer, a former top executive at Sony Feature Films, as the president of the division.

Amy will be in charge of creating broad appeal movies in the 10 to $50 million range, which will be distributed through all of our channels -- Showtime, International, Online DVD and, of course, theaters.

We think this business fits nicely with our core strength, and this is another good way to diversify our portfolio.

As I mentioned, across all of our segments we've been investing in our Internet businesses as well.

I'm pleased to say that we're seeing dramatic increases in their performance across the board.

During the third quarter Big Brother was the most visited online television site this past summer, and video streams are up triple-digits year-over-year on CBS.com as a whole.

We've really improved our Web player and made more of our shows available online in more places than ever before.

As consumption habits change, we continue to learn about our audience.

For example, our data shows that online streams spike right before a television broadcast, as viewers look to catch up on previous episodes before the live one.

And the good news is that this is incremental viewing.

We're also experiencing a tremendous volume of users choosing to interact with our short-form content.

So, we are increasingly syndicating these clips across the CBS Audience Network, which can only be monetized with ads, but can promote the television network as well.

CBS Sports.com has been a terrific story for us as well.

According to September data from Nielsen's ratings, CBS Sports.com is the number one sports site in terms of visits per person and time spent per person.

These are metrics that advertisers love.

When you have the largest number of NFL viewers out there, it makes sense that you'll have superior Web traffic as well.

And our social networking music destination, Last.fm, continues its rapid growth.

I had the opportunity to visit with Last.fm founders in London last month and was truly impressed with how they're building out their audience.

Audio streaming is up 400% from last year and 100% since we acquired it.

And since the acquisition, time spent on the site has grown 150%, and we're seeing strong growth in video streams.

Now let's look at radio, where we clearly face significant challenges.

On a same-station basis, excluding divested stations, revenue is down 7%, which is not acceptable to us.

But under the leadership of Dan Mason, we believe that the turnaround of the division is underway.

We're beginning to see some very positive signs in our largest markets.

We've refined our asset portfolio, as you know, which is allowing us to concentrate our efforts in the areas where we can make the biggest difference, and Dan is doing just that.

He is a programmer.

He is focused on delivering the formats and programming that local listeners want to hear.

Early indications are good.

The most recent ratings books from Arbitron indicate that those moves are paying off.

CBS Radio's six-station cluster in New York gained 23% year-over-year in adults 25 to 54.

Since changing formats, WCBS FM has moved from 20th place to sixth place, and increased its share of New York audiences by 85%.

WFAN finished up 13% year-over-year among its target demo, men 25 to 54, moving into second place.

And as Dan turns his attention to the number-two market, we're also seeing gains in key demos in Los Angeles as well.

(inaudible) now is to turn those ratings into dollars.

We've made some important moves here.

Just last week, Dan streamlined his executive structure, and also named Michael White to be President of CBS Radio sales.

Michael has been the head of CBS Radio's rep firm for many years, and will now have reporting lines into the directors of sales at all of our stations.

I believe the combination of continued ratings gains and our new sale structure bodes well for the performance of our radio division heading into '08.

At the same time, CBS Radio is making a very aggressive move into the new digital future.

We think there's significant upside here in a business that clearly has to change and look for new ways to grow.

Here, as in so many media sectors, the Internet offers great promise.

We've always been primarily a drive-time business, but streaming radio online moves the medium into places it has never been before, making it possible for people to tune in at any time of the day, particularly between 9 and 5, when people are at work.

This is truly an additive revenue opportunity, and CBS is making sure we capture the largest possible piece of that pie.

That's why we're making a significant push at our online radio stations, where we're seeing remarkable year-over-year growth.

People are listening to our stations over the air during morning drive, as they always have, and then continuing to listen at work as well through their computers.

Radio is also a medium of choice during times of crisis, and online listening is up there as well.

Our two all-news radio stations in LA not only saw a huge increase in listeners during the wildfires last week, they also saw tenfold increases in the number of people streaming their newscasts over the Internet.

In addition, digital HD radio is coming into its own, and we're in the forefront of that business.

This new medium allows us to create additional digital stations within our bandwidth, creating entire new revenue streams that can be sold to advertisers and attract new listeners.

Radio has to change, and it is changing, as a medium and at CBS.

In the short-term, radio is very responsive to changes in format, which are quickly reflected in ratings that we're now selling.

Going forward, new technology offers many opportunities.

We believe in this unique local power, both terrestrially and digital, and we won't be satisfied until radio is growing its audience share, revenue and profits.

Outdoor continues to be a great business for us.

Here in the US, third quarter billboard revenues increased 7%, and overseas revenues were up 13%.

Excellent growth in our domestic business here was offset by revenue declines in transit and display, due to the non-renewal of those marginal contracts I mentioned earlier.

We are far better off without those.

In October, the core business is great, and the future looks even better because it's increasing digitally.

Digital innovation is creating an exploding new set of opportunities that is attracting increased demand across the board, from existing clients to advertisers that never considered the Outdoor medium before.

That's why we deployed capital to invest in high-growth digital billboards and transit displays.

[Through] the third quarter, we had more than 4650 digital displays up and running worldwide, with another 500 expected by the end of the year.

When I was in the UK a few weeks ago, I had the opportunity to see firsthand the progress that's been made on our London Underground investment.

We're rolling out a new cross-track projection technology that allows HD moving messages to be digitally projected onto the wall opposite the platforms.

We're expecting great things as we make this available throughout the London Underground and beyond.

The display business is not only Outdoor, of course, it's moving indoors as well.

That's why we acquired CBS Outernet, as I mentioned.

This business is a leading provider of programming and advertising content to retail outlets across the country, and plays right into what we do best here at CBS, provide programming and sell advertising.

With CBS Outernet, we can help our advertisers reach consumers out of their homes directly at the point of purchase.

Plus, more than 78 million monthly shoppers will now have access to CBS's national and local entertainment, news and sports content at CBS Outernet locations across the country.

Finally, Publishing continues to thrive, as Simon & Schuster delivered yet another quarter of stellar book sales.

Titles such as Become A Better You by Joel Osteen, and the continued success of The Secret by Rhonda Byrne, helped boost revenue by 9%.

The Company has also made steady progress in the digital warehouse project.

This is a new storage, distribution and transactional system that will digitize and house all Simon & Schuster content and [managed license] of our intellectual property.

By year end, we expect to have 13,000 titles incorporated into the system.

During the quarter, we also announced the promotion of Carolyn Reidy to the role of President and CEO of Simon & Schuster, effective January 1st, 2008, after Jack Romanos at year-end.

Carolyn previously ran Simon & Schuster's adult publishing division, which accounts for the lion's share of the division's revenue.

And as you recall, Simon & Schuster had its best year ever last year.

[It's] particularly gratifying when you have a deep management bench that allows you to replace one top-tier executive with an internal candidate of Carolyn's caliber.

She is extremely well regarded not only in the industry, but also inside Simon & Schuster as well.

We think she will do great things here.

So, in conclusion, those are our businesses.

Across the board, our world-class assets continue to throw off healthy levels of cash that allows us to invest in our operations and return value to our shareholders.

Remember as well, we have and will continue to shed lower and add higher-margin businesses.

Our goals are very clear, to operate our core businesses with distinction and to move aggressively into the digital interactive future as well.

We're doing this both through external acquisitions like CBS Outernet and Last.fm, and with our internal investments in the CBS Audience Network, CBS Mobile, station Web sites, Outdoor digital displays, and digitizing of our book titles.

The goal is to transform our businesses so that every dollar of revenue is producing a greater percentage of profit.

Along the way, one thing is constant.

Content will drive success.

[Good] content breaks through the clutter and enables advertisers to reach consumers most effectively, regardless of the platform.

An interaction with leading content is driving the growth of those platforms and devices that we're seeing today.

That's why we'll continue to invest in new kinds of content, whether it's short-form online [clips] or full-length theatricals.

As we've demonstrated with the CBS Television Network and across all of our businesses, including the resurgent Showtime, CBS is a great content company.

We will continue to capitalize upon CBS's position of creative leadership and operational excellence during this remarkable time of change in the marketplace and grow this corporation in the months and years ahead.

Now I would like to hand over the call to my colleague Fred Reynolds, who will tell you about our financials in more detail.

Thank you, Leslie.

Good afternoon.

Let me briefly take you through some of the financial highlights for the third quarter of 2007 and provide some additional information on our operating performance for the quarter.

As you noted at the outset -- as we noted at the outset, the third-quarter net earnings from continued operations totaled $340 million, up 5.1% over the third quarter of 2006.

Earnings per share from continuing operations was $0.48, as Leslie just mentioned, an increase of 14%.

(inaudible) fewer shares outstanding due to our share repurchases totaling $3.4 billion, and our higher net earnings drove earnings per share for the third quarter.

Free cash flow for the third quarter totaled $266 million, bringing our year-to-date free cash flow to almost $1,590,000,000.

While free cash flow for the third quarter was very strong, comparison to last year's third quarter is hampered somewhat due to the previously discussed federal income tax overpayment last year, which increased the third quarter of 2006 free cash flow by approximately $60 million.

The third quarter of 2007 free cash flow was also (inaudible) last year's year-ago quarter due to lower interest income of $25 million, as we used our excess cash to buy back our shares, and higher CapEx spending of $13 million as we continued to invest in rolling out digital billboards and displays at our Outdoor businesses.

And finally, we used a little more working capital in the third quarter versus last year, in part due to last year benefiting from almost $40 million of third-quarter political ad spending in 2006, which as many of you know, we collect on a cash-on-delivery, or COD, basis, versus a normal 30-day trade terms.

Stripping out these noncomparable items, free cash flow remains strong as we continue to focus on asset turnover, particularly accounts receivable, while we spend capital to build out our digital opportunities at Outdoor.

Turning to revenues, for the third quarter 2007 (inaudible) almost $3.3 billion, down 2.9% from the third quarter of 2006.

Three items -- three items account for all of the drop in revenue versus year ago.

First, the shutdown of UPN last year at the end of the third quarter of 2006.

This quarter in 2007, the third quarter is the final quarter where the loss of revenues from shutting down UPN will affect comparability with last year.

Second, revenues are down due to the divestiture of 39 radio and nine TV stations since last year at this time.

And finally, Outdoor's nonrenewal of lower-margin transit and street furniture contracts in New York City and Chicago reduced our revenue in comparison to last year.

These three items directly affected comparison with the third quarter of last year.

Plus, the drop in same-station ad sales at radio masks the underlying strength of revenue growth throughout the rest of our businesses.

Turning to operating income before depreciation and amortization, or OIBDA, for the third quarter totaled $758 million, up slightly over last year's third quarter.

Operating income for the quarter totaled $646 million, flat with last year, as we recognized in the quarter additional $8 million of stock-based compensation expense versus last year at this time.

Operating income profit margins, however, for all of CBS in the third quarter of 2007 was 20%, up 0.6% from year ago, as we continue our strategy that Leslie just mentioned over the last 22 months of shedding lower-margin businesses.

This continued strategic shift to higher-margin revenue opportunities will continue to drive our future growth in margins.

For the third quarter, you'll note in the earnings release our tax provision was about 32.8% versus 38.7% last year.

The drop in our tax provision for this quarter versus last year is due largely to a drop in our foreign and state effective tax rates.

The drop in our effective tax rates is driven by various tax strategies we have employed since the separation.

Going forward, we expect our normalized tax rates to range between 38% and 39%.

Having initiated the share repurchase since the start of 2007, our total diluted shares outstanding at September 30, 2007 now totals 680 million shares, down from 775 million shares at this time last year, over a 12% reduction in our shares outstanding.

And as Leslie mentioned, in the third quarter we announced the latest increase in our quarterly dividend to $0.25 a share per quarter.

Since the 1st of January of '06, since January 1, 2006, we have paid almost $1.1 billion in dividends.

Add to that the $3.4 billion in share buybacks, and in a very short period of time, we have returned a significant amount of cash to you, our shareholders.

Let me give you a little more information by segment, starting off with the Television segment.

For the third quarter, revenues in the Television segment were $2.1 billion.

Revenues were down 3%, due to, [again], the absence of UPN, the sale of nine TV stations, and lower syndication revenues than last year.

We also started the 2007/2008 broadcast season one week later than last year, which had a small impact on our revenues, lowering them.

These four items reduced revenues by over 6 percentage points in comparison with the third quarter last year.

Syndication revenues in the third quarter were lower than last year as we recognized syndication revenue from CSI Miami, Star Trek Enterprise and Sabrina last year's third quarter, versus a much smaller slate this quarter, which consisted primarily of Charmed.

Time period sales in the third quarter for CBS Network were up 2% over last year.

Turning to OIBDA, the Television segment was up 4% to $476 million, which included stock-based compensation of $15 million for the quarter, up $5 million from last year at this time.

Operating income margins at the television segment for the third quarter of '07 were 20.7%, up almost 1.5 percentage points higher than last year's margin.

Turning to Radio, revenues in the third quarter totaled $446 million, down 12% from last year.

5 points of this drop, of the 12%, had to do with the station divestiture.

The rest of the drop, or 7 percentage points, was due to lower same-station sales at the remaining radio stations.

Radio's OIBDA in the third quarter was down 19% to $170 million.

Half of the 19% drop was due to divesting radio stations since the third quarter last year, and the absence of a $12 million gain from the sale of a station building last year in the third quarter, which we discussed last year at this time.

Radio's operating income margin for the third quarter totaled 36.4%, which is down from 39.7% last year.

Turning to Outdoor.

Revenues for the quarter were $552 million, up 3% over the third quarter last year.

Revenues for North America were down 2%, or $7 million, as a 7% increase in our US billboard business was more than offset by the nonrenewal of the low-margin New York and Chicago transit and street furniture contracts.

Europe and Asia's revenue were up 13%, aided by the weak US dollar, which contributed almost 8 percentage points of the growth in revenue for Europe and Asia.

In the UK, revenues were up 14% in dollar terms and 6% in local currency and pound versus year-ago -- last year, as advertisers are really flocking to our new digital displays.

OIBDA for Outdoor for the third quarter was over $153 million, up 8% versus last year.

North America's OIBDA for the third quarter was $134 million, up 8% versus the third quarter on lower revenues, while Europe and Asia's OIBDA totaled $19 million, up 12% over the third quarter of 2006.

Outdoor's operating income profit margin for the third quarter was 18.1%, up 1.6 percentage points versus last year's third quarter.

Simon & Schuster revenues totaled $214 million for the third quarter, up 9% over last year.

OIBDA and operating income were up 5 and 6%, respectively, over last year.

Higher royalty expense, coupled with costs incurred this year to digitize our bestseller backlist, somewhat limited Simon & Schuster's profit growth on higher third-quarter revenues versus last year.

Corporate expense for the third quarter totaled $41 million, the same as it was last year at this time, despite this year having approximately $3 million higher stock-based compensation expense.

Turning to our balance sheet.

As of September 30th, we had $1.2 billion of cash on the balance sheet and approximately $7 billion of debt.

The strength of our balance sheet produces strong leverage and coverage ratios, with our leverage ratio at 2.2 times OIBDA and coverage ratio at 5.7 times OIBDA.

Our businesses continue to generate significant amounts of cash flow, which gives us a tremendous amount of financial flexibility and, importantly these days, financial stability in the coming years.

Finally, as we noted in today's earnings release, with one quarter left in 2007, we are on track to deliver our full year 2007 earnings guides.

And we are very, very well-positioned to take advantage of the many opportunities for growth that we see in 2008.

So with that, what we would love to do now is take your questions.

Operator, if you would open up the telephone lines, we're ready to take any questions you may have.

(OPERATOR INSTRUCTIONS).

Lucas Binder, UBS.

I had a couple of quick questions for you.

Les, you mentioned that scatter was up roughly 35%, well in excess of the upfront.

Can you talk a little bit about why you think that is?

Have you been using up some inventory for make-goods, and as a result it's a tighter inventory situation?

Can you talk a little bit about that?

And also on Radio, when do you think we'll start to see growth in that business?

You talked about how you're starting to see a transition there, but when do you think that we will actually start to see some positive results in that business?

Lucas, as we started this year, we actually did not have a lot of make-goods.

We had a little bit of that.

Scatter pricing -- it's very interesting.

A lot of people -- the C3 has sort of changed the marketplace a bit.

We ended up selling more inventory in May than we had the year before, so there was a scarcity in terms of the number of spots that was available.

And once again, I think, as C3 became more self-evident, I think broadcasting became a better buy.

And people are realizing that.

There is huge demand.

In addition, categories are very strong.

Automotive is strong.

Pharmacology is strong.

Financial services are good.

We're seeing strength across the board.

As I mentioned before, what's great about it, it's non guaranteed, and we're doing very well.

In Radio, we anticipate that '08 is going to be a year of growth.

We do.

We're anticipating.

We see the changes that Dan has already made in New York and that he's beginning to do in LA, and we are very pleased with how he has restructured it.

And we're starting to see the beginning of that, and we're still very confident about the Radio business.

Jessica Reif-Cohen, Merrill Lynch.

I have two questions as well.

First on the TV stations, could you discuss what the third-quarter performance was and what you're seeing in the fourth quarter?

And maybe as part of that, when do you expect political advertising to start to come in?

The second question is about the guidance.

It looks like revenue guidance is down.

Given your new -- the revenue guidance, it implies fourth-quarter revenue should be down at least 4%.

I just wonder where is that coming from.

And since operating performance is not impacted, where are you cutting costs?

I'll talk about political, Fred, and then I'll turn the other one and a half questions over to you.

Political is starting to come in right now in Boston, where we're actually seeing a lot of activity for the New Hampshire primaries.

So we're very excited about that.

And we don't have any TV stations in Iowa, so we couldn't take advantage of that.

But we're starting to see -- and knowing that the primaries are going to be in February, January and February, we see the beginning of next year to be very strong, and a certain amount of money, it's hard to say which, will be in the fourth quarter.

But we're very excited about what was bought in this past week.

Fred?

I think, Jessica, on the guidance, where we did modify the revenue guidance, I think, is just recognizing in the third quarter that revenues are down, largely, again, because of the same-station drop at Radio.

So I think that was where we felt comfortable.

Will we do better than that?

Could be if the political continues to come in.

As Leslie just said, we're seeing it out of Boston, and Florida is starting now.

We've got those two primaries in the end of January, with Florida January 29th, and the week before that is New Hampshire.

But as you know, versus last year, we're rolling over -- this is the biggest amount.

We booked almost 100 million in political in October and the first eight days of November last year at this time.

So we are rolling over a big part of it.

But, as far as the margins, UPN will no longer be a comparable item, which I just said.

But, getting rid of those transit contracts, while they gave us a lot of revenue last year, gave us very little profit; as a matter of fact, virtually no profit in the fourth quarter.

So it's really no broad-brush cost restructuring; just the margins that we have now on our existing revenue is going to be stronger.

Victor Miller, Bear Stearns.

Obviously, this year's currency for advertisers is (inaudible) plus three commercial ratings last year was live program ratings.

The first couple weeks, CBS saw down double-digit the first week, down low single-digits second week in this comparison of these two numbers.

At what percent decline does it actually concern you?

And what percentage of the network dollars is actually done without ratings guarantees as part of the upfront process?

Number one, Victor, it's live versus C plus three; it's not live versus live plus three.

What normally happens in a TV season, the first couple weeks you see people sampling a lot of the new shows that were in competitive time periods for us.

And we've seen a slow growth every single week in our relative position because of people coming back to their returning shows.

So, we are -- this is an entirely new measurement system.

So we are not seeing any demand from advertising.

And as I said earlier, an advertiser would much rather have 9 million people watching their commercial than 10 million people watching a program.

So it's going to be a transition year.

We are not at all concerned.

We have some of our new shows that are working.

Some of them haven't, just like everybody else.

But what's great is the stability of our schedule, which people are now returning to, and, may I add, the repeatability of our schedule, which is far better than anybody else.

And we haven't entered into that yet, which we will in early December that, in terms of that.

In terms of how much we're selling scatter, it's probably about 30% right now of our network inventory, I'd say, is going to scatter.

(multiple speakers)

How much of your inventory is sold in that marketplace without ratings guarantees?

Or is there very little of that?

By the way, I don't believe there's any scatter that's sold with rating guarantee.

If there is it's very little.

I don't think there's any.

I don't think there's any whatsoever.

So all this is without any ratings guarantees.

So we're not concerned.

I'm sorry; the upfront processes, not the scatter processes.

The upfront is sold with ratings guarantee.

The question is what are we guaranteeing ratings.

As I think we mentioned at the end of the second quarter, we had a terrific increase in CPMs, which has -- obviously, that's just pricing.

So we -- of our upfront performance, the lion's share of it was CPM increases.

We weren't promising big -- particularly in light of the change in the measurement system, we weren't promising big jumps in ratings because it was uncharted territory.

So most of it -- and you don't give back CPMs -- as long as the (inaudible) are there, we're fine.

John Blackledge, JPMorgan.

Two questions.

First one is on Showtime.

With the Paramount output deal coming up at the end of '07, and the MGM Lionsgate deal is coming up at the end of '08, there's roughly 3 to $400 million to be either reinvested or retained by Showtime.

Assuming Showtime re-ups with the studios in some form, and invests some of the funds in feature films, do you expect any cost savings for the network that could fall right to the EBITDA line starting in the back half of '08?

And then, in Outdoor, given that underlying billboard growth was about 7% in the third quarter, which seems to be a deceleration from the first half of '07, can you just talk about the billboard environment in the US?

And can we expect decelerating growth in fourth quarter in 2008?

Thank you.

I'll take the Showtime question; then I'll let Fred do the Outdoor question.

The answer to the question in a simple word is yes; we are going to be spending less on feature films.

We do expect to make some of these deals.

But, the amount of money that we spent this year will not be as much next year, or -- and will go down even further in '09.

So Showtime is definitely -- we don't, obviously, break it out as part of our television segment.

But it's proving to be more and more profitable every single year, and it's a very exciting story.

Fred?

On the billboard business, the third quarter was a little bit slower at plus 7%, but I think that's a little misleading.

Because as you know, billboards come in, they may flip over quarter ends.

If you look at October -- and I tend not to give out pace information, but if you look at our October US billboard business, it's up into the high teens.

Billboards are still bought and sold in.

I wouldn't want you to take that and say, well, November, December are going to be the same way, but October, which is concluded, some of it's flipped over.

So if you average the two months, or average about four months of the quarter, you would be up more where we were early part of the year.

I know there's a concern out there about the mortgage market and all that; it's not a significant part.

While some of our competitors had a significant part of their revenue coming from mortgage or homebuilding, ours was not material for the Outdoor group.

So I think it was more timing.

We'll see how November and December shake out.

John Klim, Credit Suisse.

Could you update us on your digital rollout at the Outdoor segment here in the US?

And then if you could talk a bit about what you're seeing in terms of economics on the digital boards.

As I mentioned, we will have almost 6000 boards by the end of this year.

The economics on the digital boards -- obviously, the margins are far superior to what they are in our static boards.

And as I mentioned, we're getting all sorts of new advertisers in.

Fred, you can give (multiple speakers)

In the US market, we'll break it down a couple ways.

We have about 800-something displays, of which about 50 or so are large Bay Bridge kind of displays.

Then you add into that like the cube here in New York at 42nd.

Then we have Mall of America.

But the smaller format display -- so we'll kind of be around 800, 900, and the end of the year will be a little bit north of that.

What's amazing is the amount of revenue we're getting, much more then we had planned on when we did the CapEx.

We always thought if we got 3X, that gave us a high-teens kind of internal rate of return.

They're doing better than that.

And again, the x that we're multiplying by is big because we're in the biggest markets.

So it's not like a small market Outdoor where you may get $50 a spot and they go up to 400; these are pretty expensive spots, and they're going up three, four, five times that.

We love what we're seeing as far as the revenue side.

I think the advertisers are loving it, and we're actually reaching more advertisers that never used the medium before because of the digital.

And they do work better.

The digital boards do work better in the big markets where we are very, very strong.

And the list of advertisers are people you never would have thought would consider doing Outdoor.

So it's pretty exciting.

Movie companies, the Microsofts of the world.

We're getting a whole new advertiser base, and it's great.

Michael Nathanson, Sanford Bernstein.

I have two; one for Fred, one for Les.

The question I have, Fred -- I don't know if you answered Jessica's questions about the same-station ad growth this quarter for TV.

Was it skewed by region at all?

Michael, could you repeat -- your first part got (inaudible)

I didn't know if you answered Jessica's question about what was the same-station ad growth this quarter (multiple speakers) stations.

We don't typically break out TV station same-station growth.

But I'll tell you overall that third quarter '07 versus third quarter '06, we had a significant amount of political, and we were not able to (inaudible).

So the stations were down versus last year's third quarter because of the significant amount of political.

That's not on same-station; that's --?

Same-station.

So same-station down, let's say, mid single-digits or something.

Then for Les, you talked helpful about the differences in this upfront versus last upfront.

I wonder if you can talk a bit about how much inventory or what percentage was sold in this year's upfront and higher prices versus the year before?

Was there a change in what inventory (multiple speakers)

Without getting specific, there was probably about 10% more sold at this year's upfront because the CPM growth was so high, and high single-digit CPM growth.

So we said okay; we'll sell more of it.

And we did.

That could tighten scatter also for the rest of the year?

That's correct.

Anthony DiClemente, Lehman Brothers.

I just have one question for Les, and that is -- with your stock down about $6 here since the summer, I think, I can kind of sympathize with the dilemma in that we know that content is king, and you've invested.

You've invested in content.

You've done that.

You know that the Street wants return of capital in the form of either big accelerated share repurchase or in terms of dividend.

And you've done that.

So as we head into '08, I'm just curious, Les, as to what your thought process is around allocation of capital, whether it be investing in content, acquisitions, or return of capital to shareholders.

If you can share your thoughts, thanks.

It's a very good question.

And you know what?

You meet with three analysts, one says pay a higher dividend, one says buy back more stock, and the other says acquire something.

I think there's a part of me that wants to do all three.

Obviously, returning money to shareholders is a very important thing to us.

But by the same token, we would love to invest into higher-margin businesses.

And that's what we're looking for.

I don't know what will be available out there, but we're trying to do that.

And as we said before, we are shedding some of the assets and getting into higher-margin businesses.

That is what I would love to do.

That would be my first priority.

But it's got to be the right investment.

And I think our investors should feel secure that we don't make dumb investments, that we're very careful about what we do.

And failing that, we return money to shareholders, and we've done that in two different ways this year.

So I think we've been successful in all three planks of our strategy.

Operator, we'll have time for one more question.

Marci Ryvicker, Wachovia.

Just focusing back on Outdoor, since digital outdoor is such a huge focus at CBS, when I was (inaudible) out-of-home conference, there was talk of you investing up to $1 billion in digital out-of-home.

First of all, is this accurate?

And secondly, if so, over what time period would you look to spend this kind of money?

$1 billion.

That's a big number (inaudible).

I don't know who you overheard saying that.

Our strategy, obviously, is to build Outdoor digitally whenever it is advantageous to us.

And you know what?

We went in, we put our toe in the water.

And guess what?

Our whole foot is now in the water, and we're expanding it as we go along.

I don't think we have put that number on anything.

We're obviously going to invest in it, and we're going to continue to invest in it.

Let me just add, one, it's a great investment.

It's sort of a high-teens after-tax internal rate of return.

Two, I think you can expect to see a continuation of '07 into '08 and '09 and out is that we're going to put more of our capital spending into these high-return displays.

The other thing that's going to happen is the displays, the digital displays that are coming are dropping like a rock from the manufacturers.

The price of them are dropping.

So we'll be able to get it more normalized, probably closer to a static board, not today, not tomorrow, but certainly in the five to seven-year timeframe.

And we don't know.

Listen, with the SignStorey, which is now CBS Outernet, we don't know.

We think that could explode.

That could be the next biggest thing in Outdoor.

But all I would say to you, trust me, between Sumner and Leslie and the team here, we're going to get a great internal rate of return on any capital we put into displays, digital displays.

And we're excited about the Outernet.

We think it's pretty cool.

I don't know where the billion came from.

It may be over the next 50 years.

It may be over the next five or 10 years.

It depends on the opportunity and the return.

Thank you, everyone.

We'll talk to you soon.

Thank you for your participation.

That does conclude today's conference.

You may disconnect at this time.