Paramount Global (PARA) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation fourth quarter 2007 earnings release teleconference.

Today's call is being recorded.

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

Marty Shea.

Please go ahead, sir.

Good morning, everyone, and thank you for taking time to join us for our fourth quarter and full year 2007 earnings call.

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

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

We will then open the call up to questions.

Let me note that statements on this conference call relating to matters which are not historical facts are 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 fourth quarter and full-year 2007 results should have been sent to all of you.

If you did not receive the results, please contact Punam Desai at 975-3667, and she will get it to you.

A webcast of the call, the earnings release and any other information related to this presentation can be found on CBS Corporation's corporate website at cbscorporation.com.

Now I'll turn the call over to Sumner.

Thanks, Marty.

Good morning, everyone.

Thanks for being with us today.

I'm really happy to say that the new CBS Corporation turned in a terrific second full-year results, not to mention a solid fourth quarter.

And I'm more than impressed with the incredible progress this great company has made in such a very short time.

CBS continues to create and distribute some of the most valuable content in the marketplace, and as always we're getting paid for it everywhere it goes.

And by the way, it goes everywhere.

We have continued to grow our traditional media business while at the same time embarking upon a successful expansion into the interactive marketplace.

Les and his team are -- as usual, Les, successfully managing CBS's world-class assets today while we're positioning them for the future.

And importantly, we continue to deliver on our promise to generate strong, healthy, free cash flow, and to return a significant portion of it to our investors.

I'm really proud we have accomplished so much so far.

And I'm excited about what the future holds and now to tell you what is really going on, here is Les.

Thanks, Sumner.

Welcome, everybody.

It's great to be with all of you to discuss our fourth quarter and 2007 performance and take a look ahead as well.

I'm very pleased with our solid results in the fourth quarter and our entire second year as the new CBS Corporation.

This morning I'm going to talk a little about our financial performance and briefly walk through some key issues regarding our business, and then my colleague, Fred Reynolds, will cover our financials in greater depth.

First, I want to highlight our results in OIBDA, operating income, EPS and in free cash flow, which we believe is one of the most significant measures of our success.

OIBDA was up 4% to $824 million in the fourth quarter, as well as being up 1% to $3.08 billion for the year.

Operating income was also up 3% to $705 million for the quarter, and also up 1% for the year to $2.62 billion.

2007 adjusted diluted EPS from continuing operations increased 9% to $1.88 for the year, fourth quarter was up 2% to $0.54 due to the impact of our 2007 share repurchase program, and limited by a higher effective tax rate.

At the same time, 2007 free cash flow was up 6%, to $1.7 -- to $1.71 billion, and in the fourth quarter, free cash flow increased $137 million from a negative $15 million last year to come in at $122 million.

Year after year we continue to produce excellent free cash flow.

It is this cash that will enable us to invest in our asset portfolio for future growth, continue to return dividends to our investors, and maintain an extremely healthy balance sheet.

Through a number of transactions we made in '07, we ended the year with a portfolio that is well positioned to grow in '08 and beyond.

We are truly excited about the prospects of each one of our businesses.

At our hearts, we remain a content company across all of our operations.

It is the content that it is the engine driving us forward into the digital interactive future.

The center of the content engine remains the CBS television network.

The network business remains the greatest mass media option available to audiences and advertisers, and what is not really recognized yet, is that the content on network TV is also defining success online and on all of the emerging platforms now available to consumers.

As a matter of fact, content across the entire company is pushing us forward into the interactive marketplace.

CBS Paramount Network Television, and CBS Television distribution continue to supply industry-leading programming on our network, stations across America, and on our growing list of online outlets.

And Showtime, which is having its best run ever, both creatively financially and obviously with a great increase in subscribers began the year with six of the top 10 selling shows on iTunes.

In short the new media business now taking shape is being built on the foundation of our established ones to the benefit of both.

Of course, there are certainly challenges, and I'll discuss how we are dealing with them.

First, the economy.

Like all of you, we are tracking the general economic news affecting the marketplace.

Fortunately the hardest hit sectors like home building and real estate are not significant advertisers on our air.

At CBS, we are not seeing a recession in our day-to-day operations.

The scatter market remains very strong, and it's too early in the year to make a determination on the spending of any one category.

We'll continue to watch trends, but please remember, in any difficult market, it is the leaders who are the must-buys for agencies and advertisers, and that certainly includes network television and CBS.

Next, I would like to talk about the recently concluded writers strike.

It lasted longer than any of us would have liked.

But the good news is the network business is back.

We have a full slate of new programming starting in the spring, and once again, we'll be presenting to advertisers at Carnegie Hall in May.

As we predicted, CBS sustained itself very well during the strike.

In fact in the short term, we were able to manage operating costs at the network very effectively.

This was primarily achieved by significantly reducing our programming expenses and the termination of costly writing and producing contracts.

Our financial picture was not affected negatively by the strike in any shape or form.

Perhaps most importantly, many of the economic benefits we were able to achieve during the strike have changed the way we do business and will allow us to operate more efficiently going forward.

Regarding ratings, with the new C3 measurement system, it's virtually impossible to draw apples-to-apples comparisons.

And with the strike adding more repeats, there is little conclusion that can be drawn from the numbers this season.

What is important is that advertisers are generally pleased that we have a more precise measuring system.

They understand that network television will always be a necessary buy to reach the broadest possible audience.

And because we have no make-good issues, we can fully monetize our programming going forward.

Monetizing our content is of course the key issue, both in our core network operations and on the internet.

And as advertisers move into the online arena, guess what?

We're right there to serve them as well, because the internet business is truly an extension of our existing network business and we have got the sales teams in place get to that job done too.

Whether it's over the air or on the internet, it's about content, and online it's our strategy to reach people wherever they are, and bring our content to them.

That's why we created the CBS Audience Network, which has more than 300 affiliated websites, and it is the number one provider of online television programming in the business.

Our CBS Audience Network delivers news, sports and entertainment to more than 190 million internet users, making it one of the largest syndicated networks of content on the web.

Each part of CBS is now feeding that growing distribution system, exposing our programming to younger demographics, and producing industry-leading levels of engagement, and we're also creating the community building content that advertisers are looking for.

So when we sit down with clients, we are offering a lot more than C3 or live plus seven.

We are also offering opportunities for reach across the CBS Audience Network, our wholly owned sites, CBS Mobile and other community pages and chat built around our content.

And let's not forget that mass audience that the networks deliver.

Take the Grammys.

This year the network broadcast generated an audience of more than 40 million viewers.

But in addition during the broadcast and for days afterwards many millions more were engaged with Grammy-related content online.

In fact, that night, the night of the Grammys, 50 of the top 100 searches on Google were related to the Grammys.

This all demonstrates the power of our medium and of the big ticket events on broadcast television.

The good news is that the internet audience is additive to our core business.

Let me give you another example.

In 2005, when we first introduced live on-demand streaming of our March Madness basketball tournament, we offered it, using a pay subscription model, and we generated about $250,000 in revenue.

The next year we changed it to free ad-supported model, and took in $4 million.

Then the next year $10 million, and then to this year's tournament, next month we're projecting more than $21 million in total revenue.

And our cost remained exactly the same as they were the first year.

So the great majority of that $21 million will drop to the bottom line, contributing to the hundreds of millions in interactive revenue across the company.

Meanwhile, our tournament ratings are as strong as ever, and our associated television revenues are growing.

Like I said the network business is back.

With the strike behind us we're prepared to roll out a whole new list of programming programs.

Earlier this month we announced return dates for 13 of our scripted shows, with new original episodes airing as soon as March 17th, plus we have already renewed 11 of our top programs for next season and are aggressively engaged in finding the best new shows.

We're approaching the up-coming pilot season with an eye on building a faster, leaner development model with fewer expensive pilots and greater cost efficiencies across the board.

When we meet with advertisers on May 14th at Carnegie Hall, we'll be offering clients a full range of opportunities for the fall season, both on-air and online.

And we will also use it as a great opportunity to showcase the incredible power of all the terrific advertising platforms across the great CBS company.

This, of course, includes our local stations, where some very positive developments are taking place.

First, on the [retrans] front, we have concluded 20 deals with MSOs and continue to realize cash for the value of our programming.

Some of the bigger contracts are coming up as soon as '09, and we fully expect to get paid for our programming in those deals as well.

And second, we are in the beginning of an unprecedented election year.

We're already seeing record spending with the expectation it will continue all year long.

In California, one of the most hotly contested states, we own six stations in the state's biggest markets.

And for the first time, more of those political dollars are coming to radio as well, particularly in issue-related spending in California.

So between political dollars and strong gains in online traffic, which were up 35% in '07, radio is looking at two promising new revenue streams in '08.

But of course the most crucial improvements in radio are coming in the core business of our over-the-air programming.

Everywhere Dan Mason and his team has attacked the problems, the numbers have improved.

In the 14 stations where we introduced new formats or major programming change, ratings have increased by a combined 29%, and revenues up double digits as well.

More broadly, the latest Arbitron numbers show CBS Radio's cumulative ratings increased by more than 6% year-to-year at our 140 station, and we were number one in 10 markets across the country, including New York, Philadelphia, Boston, and Seattle.

We are now going about the challenge of effectively monetizing these results, and Dan's team has been laser focused on growing revenues through a new streamlined sales structure.

In addition to positioning ourselves to grow the top line, we have taken significant steps to improve our cost structures in radio as well, making sizable reductions without hurting our prospects for growth.

Now, let's turn to outdoor, which continues to be one of the biggest success stories at CBS, and which like TV and radio, is also greatly benefiting from the digital revolution.

The segment finished 2007 with tremendous momentum, including strong double-digit profit gains in the fourth quarter.

OIBDA was up a healthy 19% during the quarter with our North American billboard operations turning in revenue increases of 9% in the U.S., 9% in Canada, and 19% in Mexico.

Across the board, both overseas and here in North America, we continue to be very excited about outdoor's growth prospects.

As I mentioned, the new efficiencies introduced by digital, make this an incredibly profitable business, and we're building it out fast.

By the end of '07, about 4,000 or our display faces were digitized, a number we expect to double by the end of '08.

We have recently signed several new billboard contracts all across the country, particularly in the biggest markets, and we will continue to use a prudent amount our free cash flow to make more investments in the high-growth business around the world.

Those are just some of the highlights from our businesses.

Across the board, you can see that we begin '08 in great shape.

We have pruned our asset mix to shed some of our lower-growth businesses like certain small-market TV and radio stations.

We have used a portion of the proceeds to invest in other higher growth areas like Last.fm, which in January announced deals with all four major record labels to stream music online for free, and has posted a 92% increase in U.S.

listening since that time, and we're beginning to monetize those results now.

As well, we have invested in more than a dozen other interactive properties.

We have maintained a pristine balance sheet with a sizable cash balance, allowing us to pay out a very strong dividend that now stands at $1 per share annually, and enables us to be very nimble, so that we can take advantage of any content or internet opportunity that may present itself.

Few companies in our space have the resources at their fingertips in this marketplace to be able to act as we can on opportunities in these areas.

We are using our established businesses as content engines that fuel the internet and all of the new platforms afforded by technology, as well as continuing to run our core businesses at the very top levels.

As a result, we are well positioned to grow revenues and profits in '08 and beyond.

Thank you.

I'm now going to turn it over to Fred Reynolds.

Thank you, Leslie.

And good morning to all of you.

Let me quickly provide you with a few highlights on our fourth quarter and 2007 operating performance.

As Leslie mentioned at the start of his comments, adjusted diluted earnings per share for the fourth quarter was $0.54 versus 53% in the fourth quarter of '06.

For the full year we came in at $1.88 earnings per share, up 9.3% from 2006's $1.72.

The items we adjusted from both years include noncash writedowns we recognized on publicly traded investment, gains and losses on the divestiture of stations, and the benefits from tax settlements.

During the fourth quarter 2007, we wrote down our investments in Spanish Broadcasting and Westwood One to the stock price at December 31st.

These writedowns resulted in a fourth quarter noncash charge of $72.3 million after tax, or about $0.11 reduction in earnings per share.

A year ago, as you may recall, we took a similar marked-to-market writedown related to these investments which totaled almost $98 million after tax or $0.13 share reduction in 2006 fourth quarter earnings per share.

Now revenues for the fourth quarter 2007 totaled almost $3.8 billion.

The divestiture of nine TV stations, 39 radio stations and the nonrenewal of significant but low-margin transit and street furniture contracts in New York City and Chicago, coupled with record-setting political spending in the fourth quarter of 2006 reduced revenues by four percentage points versus the year-ago results.

2007's fourth quarter revenues were led by strong growth at our outdoor segment, as our U.S.

billboard revenues were up over 9% versus the fourth quarter of 2006.

Our UK business was also up strongly, posting revenue growth of over 9% in local currency and up 17% overall versus a year ago.

The CBS Network ad revenues in the fourth quarter of 2007 were flat to year ago, as strong scatter market pricing offset the effects of the now settled WGA strike, which required us to air far more hours of reruns in the fourth quarter 2007 versus 2006.

Total fourth quarter operating income before depreciation and amortization and operating income were $824 million and $705 million respectively, up 4% and 3% respectively over the fourth quarter of 2006.

In the fourth quarter 2006 we recognized an impairment charge related to the sale of TV stations of $65 million.

Operating income was led by 29% growth at our outdoor segment, along with lower corporate and residual costs versus the fourth quarter of 2006.

As Leslie mentioned, free cash flow in the fourth quarter was very, very strong as it has been all year.

Free cash flow totaled $122 million, which included $150 million discretionary prefunding of our qualified pension plans.

Taking into account the pension prefundings in both the fourth quarter of 2007 and 2006, free cash flow was up a very strong 47% over year ago.

Our ability to drive strong free cash flow across all of our businesses in spite of investing in higher capital spending has been just terrific.

CapEx spending for the fourth quarter totaled $167 million, and for all of 2007, CapEx spending totaled $469 million, a $75 million increase from 2006, led by a $71 million jump at our outdoor business as we continued to expand our digital boards.

Our nonoutdoor segment CapEx spending for 2007 totaled $283 million, up only $4 million from the previous year as we do what Leslie said, we spend our money where we have the fastest-growing assets which is digital boards outside the U.S.

and inside the U.S.

Free cash flow for 2007 was $1.7 billion, which again includes $150 million pre-pension prefunding.

Taking into account the pension prefunding for both 2007 and 2006, free cash flow was up slightly over very strong free cash flow in 2006.

Turning to our share buybacks, since the start of 2007, approximately 113 million shares have been repurchased, including six million shares acquired this January as part of finalizing our second accelerated share repurchase transaction.

In total, over 14% of our shares outstanding have been repurchased.

Let me quickly highlight the fourth quarter results from our three largest segments.

First the television segment.

Television revenues totaled $2.5 billion, down $100 million from the fourth quarter of '06.

The absence of record political advertising in the fourth quarter of '06, divesting the nine TV stations accounts for all of this drop in revenue.

The TV segments operating income before depreciation and amortization in the fourth quarter was $502 million, down $30 million from the previous year.

Lower profits on the absence of political and syndication of higher margin programs such as Star Trek: Voyager and Seventh Heaven last year offset the benefits of significantly, significantly lower program and production costs and the profits from the off-network syndication of NCIS this quarter.

Radio fourth quarter revenues were down on a same-station basis by 7% versus year ago, and operating income before depreciation and amortization in the fourth quarter total $167 million, a $44 million drop from the fourth quarter of '06.

And turning to outdoor, the fourth quarter 2007 revenues totaled $619 million, up 7% over the prior year.

North America's revenues were flat to 2006 fourth quarter, as a 9% growth in our billboard business was offset by the absence of revenues from the transit and street furniture contracts we did not renew in 2007.

Europe and Asia's fourth quarter revenues jumped 18% with half of this growth coming from organic growth.

Fourth quarter operating income before depreciation, amortization for outdoor increased 19% from the year ago to $199 million, with North America up 16% and Europe and Asia up 28% over last year.

So to wrap up the fourth quarter and all of 2007, we successfully strengthened our portfolio by divesting the -- for very attractive values, lower margins, slower growth businesses.

We returned over $4 billion of cash to our shareholders, delivered on our profit growth expectations, and we leave 2007, as Leslie just said, with a very strong balance sheet, which has the capacity to both fund investments and initiatives to increase our profit growth going forward, and to return cash to shareholders.

So let's turn briefly to our expectations for 2008.

And let me just, as a reminder let you know, in the first quarter of 2007 we aired the Super Bowl.

Unfortunately we did not get to air the Super Bowl again this month.

Also in the first quarter of 2007, the NCAA Basketball March Madness Final Four games aired in the first quarter, and the championship games aired in the second quarter last year.

In 2008, both the Final Four, and the championship games will air in the second quarter of 2008.

For 2008 we expect as we said in the earning release today that our operating incomes for depreciation and amortization and operating income to grow between 3% and 5% over 2007's results, excluding stock-based compensation expense.

We are forecasting 2008 stock-based compensation expense to amount to $155 million to $165 million this year.

We expect our effective income tax rate should be between 38% and 38.5% excluding any potential gains or losses on the sale of assets, and we expect capital spending to be between $500 million and $550 million in 2008.

Thank you, and with that we'd now like to open the telephone lines and take all of your questions.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS) And we will go to John Blackledge, JPMorgan.

Thanks for taking the questions.

Just a couple of questions on outdoor.

It looks like CBS outdoor in the U.S.

billboard side outperformed the industry in the fourth quarter with 9% top line growth.

Just wondering how the U.S.

billboards are pacing in the first quarter.

Is CBS outdoor seeing deceleration in top line growth that the other companies are experiencing given the macro environment?

And then what was -- I know you mentioned it earlier in the call, what was outdoor CapEx in '07, and what type of growth can we see in outdoor CapEx in '08?

And then how many large static boards are expected to be converted to digital boards in '08?

Thank you.

This is Fred.

Let me answer, while we don't give specific guidance on pacing, I guess I would tell you outdoors first quarter looks sort of like it's fourth quarter.

Again, I think as Leslie said at the outset, because we're not involved in a lot of the more troubled sectors of the economy relating to home building and real estate and mortgages, that we're having a very -- the momentum continues in the U.S.

billboard business, and just as you should note going forward, we won't have to have the lap of the transit contracts, because we pretty much will be comparable going forward.

In 2007, our CapEx spending for outdoor for the full year was $186 million, and that was up from $115 million at the -- in 2006, and on the digital boards what -- the numbers that Leslie gave you are all our displays, and so that contains a lot of displays in the London underground.

But the big billboards we expect to add north of 100 billboards of the big display, such as outside of the Bay Bridge in Oakland, and maybe north of that, we have at least that many on order that should start coming on stream in the first half of the year, and Leslie has been pushing for us to step that up.

Yes.

And John, the only thing I want to add to Fred's comments is I think one of the reasons we are outpacing the industry is we are primarily in the larger markets, which we think is a much better place to be right now with this economy, that is still staying strong and will continue to be strong.

Thank you.

We'll go next to Michael Nathanson with Sanford Bernstein.

Thanks, I have two for Fred.

Firstly, Fred, I wondered if you can talk a bit about the quarter's improvement in free cash flow, how much of it was driving by the strike due to the shutdown of preproduction?

Michael, I would say that the way we looked at it, it's probably -- of the working capital, I would probably say it's between $60 million and maybe $75 million of savings in no production costs.

And one of the beauties of our schedule, as you probably know is our dramas repeat really well, so we didn't have any cash going out, and yet we retained 70% of the ratings or more, and so we were able to retain that cash, as you noted that the revenue stayed pretty flat despite the fact we had a preponderance of reruns.

So I would put it kind of in that $70 million range.

It's not exactly a precise number because we still had some costs going out, but I think that's probably about a really good estimate, Michael.

Okay.

And another -- back another to you maybe Les wants to jump in to, which is in '07 you purchased over $3 billion in stock, you spent $400 million in acquisitions.

And I wonder when we look at '08 there is some concern that maybe the buy back will come to an end and you'll spend more on your -- doing deals.

And can you talk a bit about what your expectations are for spending on deals this year?

And what types of things you are looking for?

Let me jump in first.

Obviously, and we mentioned it, we are a content company and we are looking at new media.

We are in the position to make deals if the right deals come into play.

Obviously our first priority is to pay dividends.

We will continue to do that, and we might increase the dividends over the course of this year.

That is our first priority.

Secondly, as I said before, we are in a position that few companies are in, having the balance sheet that we have, that we can move quickly, and there are certain deals that might be available today that might be more attractive to us than some of the prices that have been paid over the past couple of years, which we felt were a bit out of line.

So we're pretty nimble and we're ready to go.

And we'll go next to Victor Miller with Bear, Stearns.

Good morning, thanks for taking the questions.

First of all on just the radio division, could you give us any additional insights on to the changes that you announced recently, and what impact that might have on the expense base for the radio division?

And secondly, in fourth quarter --

Could you talk a little louder, please?

Sure.

Fourth quarter, you saw $51 million drop in revenue, but only a $7 million drop on the expense side, could you talk about what you decided to do in the radio division in the fourth quarter --

All right.

I'm do the first part, and then I'll turn it over to Fred.

Obviously our radio -- we have an entirely new team and we moved over our CFO from the television group, Anton Guitano, who's a world-class CFO, plus we added a new head of sales are from Interep.

And literally market by market we've gone through, restructured where appreciate.

We have made changes.

We have certainly downsized in certain markets that they were clearly overstaffed.

We've changed programming, and I think our radio division from top to bottom has an entirely new look and the efficiencies that we're seeing, not only by the layoffs but just by the operations are extreme.

And as I said where we've had programming changes have taken place, or format changes, we have seen immediate numbers go up and ratings go up and we think that's going to be monetized very, very soon.

Yes, Victor, this is Fred.

On the cost side, as you may remember, we took some significant reductions at the end of '06, early '07, so you were seeing the full impact of that in the fourth quarter.

Also, you are seeing some of the stations that we divested that were lower margins or no margins.

So you're seeing less cost there.

All of the initiatives that Leslie referred to are really going to fall -- the new initiatives are falling into '08, so you're going to see further reduction.

It is clear that we're not reducing on programming, and we're not reducing our promotion costs.

And we're redeploying a lot of these savings, but still having a net savings from these cost reductions.

We have totally revamped that structure.

They have taken out lots of layers, they've streamlined a lot of the organization, they moved quickly.

So we'll see almost the full-year benefit after any severance costs in 2008 with this new restructuring, which is not insignificant.

Fred, just a follow through.

The EPS -- you didn't say anything about EPS in your previous -- You've also given a longer-term view of the revenue and EBITDA expectations to the company.

You have changed your view of those longer-term growth and any comments on EPS?

Thanks.

No.

I guess we're just focusing on operating income and operating income before depreciation and amortization.

The only reason, Victor, I haven't looked at EPS going forward is I still expect us to have further reductions in our tax rate, and I -- at this point, I think, giving you the range I gave you at 38% to 38.5% is good for now.

I hope that we will beat that, so -- as we get more clarity in that.

But, no, we still think that earnings per share will outpace OI, operating income, and operating income before depreciation.

There's nothing else that will effect it, because interest expense is pretty stabilized.

Thank you, Fred.

Thank you Les.

Sure.

We'll go next to Lucas Binder with UBS.

Hi, guys.

A couple of quick questions.

I know, Les, you discussed a little bit about how the business model has changed following the strike.

Can you give us a sense of how long do you think this will be in place?

Do you think this is a permanent change or over the next couple of years we go back to some of the traditional pilots and sort of a little bit of a longer tail associated with the whole development process?

And then the other question is when you think about investments, I know you mentioned before how diligent you are being.

Are there specific areas that you are focused on for potential investment, or is it -- should we just assume content and online and leave it at that?

The changes that have happened, number one, we have cut our overall deals by more than 50%.

We have cut the number of scripts that we're going to do by quite a bit.

We're going to do a lot less pilots, a lot more presentations, because I think that is a very efficient way of doing it and knowing what product you have.

I think many of these changes, certainly the overall deals, we will never get up to the number we had before, so these changes will be fundamental, and you'll find it throughout the system and certainly at our place, and I think there will be a great deal of cost reduction.

In addition, the up-front process, we will going back to Carnegie Hall, but will be a lot less bells and whistles.

We're not doing an affiliate meeting this year.

So there's a number of cost-saving things we're doing in the network business that will last forever.

Regarding the potential investments, I would really rather not go any further than that.

As I said, we are a content company.

We're looking for other avenues for content, which will involve either content or interactive places that can use that content.

And we'll leave it right there.

And once again, there -- another place where we're looking to expand and invest is our outdoor business, which is thriving both domestically and internationally.

Great.

Thank you very much.

We'll go next to Jessica Reif Cohen with Merrill Lynch.

-- guys quantify the Q4 impact of the writer's strike.

I was wondering if you could do the same for the first quarter.

And to the extent that you're now ramping up production will we see a bounce back in cost?

And also you didn't give -- you normally give long-term guidance.

Can you comment on that?

The first part of it, Jessica, we will end up at the end of this year, probably with 17 or 18 episodes of our top shows versus 23 or 24.

So that will be a significant cost reduction.

In addition, some of the marginal shows that we ordered initial 13, we have not ordered back orders on, which we won't determine until May, so there will be a significant cost reduction on that as well.

Plus as I mentioned before the overall deals, the ability during the strike to literally cut our script production in half has saved many millions of dollars doing that.

Jessica, this is Fred, on the long-term guidance, again, I think with the core business we have today, again, we think that we should be able to grow mid-single digits our operating income and EPS high single digits.

I don't think that has changed at all, and -- so, we're still on that same path, that should be the long-term prospect.

But, again, I would add that as digital becomes more powerful and as retransmissions become more powerful, the revenues from that in '09, '10, and '11, there may be an uptick to that.

We'll have to assess that along with the general economy and all the other things.

But right now we would say the long-term prospect is unchanged.

Can I ask you one follow up, on Showtime, it's clear when the film contracts come back they will come back at a lower rate.

What is the timing of that?

When will we see that, will that be '08 or '09?

We're talking to all three companies we currently have existing deals with.

Some of them may -- there was one that was up recently and a couple that are up at the end of the year, so we will see the effect of this in '08.

But, Jessica, this is Fred, you -- I missed your opening comment.

You said what will happen when they renew?

They will be renewed at lower rates.

That the telcos will have --

No.

No.

The movie companies.

Oh, I thought you said telco.

No.

Yes, the output deals, they will be that way, but I think some of them will happen over the next few months.

Okay.

Thank you.

We'll go next to Anthony DiClemente with Lehman Brothers.

Hi, thanks.

First, for Fred.

Fred, if you exclude the year-over-year impact of political in 4Q '07, what was the core advertising trend year-over-year, first at the TV stations and then secondly at the TV network?

And then secondly, this one's for Les.

Les, you talked a lot about getting cash for retransmission consent and if you look at the deal Cox signed with the ABC TV station affiliates this week, it seems like Cox is giving the ABC affiliates value in the form of participating in the VOD economics.

They are disabling the fast-forwarding function of the VOD so you can get an advertising spot in there.

And I know you have contracts coming up in '09, 2010, and '11, each of the next three years, so is that a proxy for how value could be reflected in terms of retrans?

Or will it definitely still in your mind be cash as you negotiate with those MSOs?

Thanks.

Anthony, on the political question, obviously '06 had tremendous amount of political, we still sold those spots, but at a lesser value, so it probably had three points or more kind of impact on a growth rate at the TV stations.

The network gets no political.

We don't take advocacy ads.

So the political spending in any year is of no matter or moment with the network.

It's only at the local assets, radio, TV stations.

So we would have seen obviously '07 would have grown -- the underlying growth would have been strong over '06.

Can you tell us what -- I'm sorry, so just at the TV stations, if you strip at the impact of those three points, what is the advertising year-over-year at the TV stations in the fourth quarter?

Oh, in the fourth quarter.

That was for the full year.

In the fourth quarter, Anthony, I don't have that broken out that way in -- and so I'll have to get back with you on that.

I don't have specifically the fourth quarter.

Okay.

And on the retrans issue, obviously as I mentioned we did 20 contracts so far, they are smaller and mid-sized MSOs.

We have gotten paid cash for them.

We're looking at all sorts of deals.

We intend to be paid cash, but once again, whatever the value may be, if it goes to the bottom line, we are open to any form in any way that people want to call it.

We know that we will get paid for our content, and whatever form that may take, we're open to any sort of deal.

How about in terms of getting value for a second CBS signal, a second HD signal?

Does that make sense or no?

It could make sense in the future, as of yet nobody has been able to do that successfully.

But we are obviously making plans, and there are possibilities that that will happen.

Thanks for taking the question.

We'll go next to Marci Ryvicker with Wachovia Securities.

Thanks.

I have a couple of questions.

And the first, I apologize if you've already addressed this, but do you still believe that CBS Radio will generate revenue growth in 2008?

And then secondly, Les, you mentioned that the scatter market is strong.

Can you quantify the strength of scatter pricing?

And then lastly, I know you mentioned you are not seeing signs of a recession, but clearly the economy is weak, and since you're involved in a variety of media, is there one segment in particular that is being impacted by the economy more than any other?

There will be revenue growth in the CBS Radio group.

We believe that.

In terms of scatter market pricing, right now it maintains itself as north of 30%, higher than the upfront.

In terms of recession, once again, I don't want to say the company is recession proof.

We have not seen it yet.

My guess is it will -- it would affect the smaller market radio stations and television stations first.

So we are -- but we have not seen the effect of that yet.

Thank you.

We'll go next to Doug Mitchelson with Deutsche Bank.

Hi, thanks, good morning, guys.

Good morning.

Couple of questions.

Les, over the last decade you've probably been the best programmer of network television out there, especially prime time.

It seems like we're hearing from all of the network guys about the cost savings from the strike and redoing the business, but we haven't had a lot of new hit shows from any of the networks for the last year or two.

How do you feel about creating new hit shows in this environment with less spending going into the development process?

You know what, I think there has been a lot of wasted spending.

You know what, I think when I look back over the various shows I have been involved in that have been hits, it hasn't necessarily been the most expensive shows that have hit it out of the ballpark, and there's some feeling that you don't need to spend $5 million on a pilot to know whether you have a potential hit series.

I think pilots are vastly overrated.

It's all about episode 20 not episode one.

You want to get a flavor of what it is.

And I think what the strike has given us the ability to do is reexamine how you get from point A to point B.

Yes, I have been involved in a lot of hit television shows.

This hasn't been a great era in the last two years for just about anybody.

I think we all could use a few more hits, but I don't think you have to spend a huge amount of money to find those hits if you know what you're doing.

We go back to the old days where the networks with were a lot more patient with shows they liked.

I don't think I could point to any shows in the last three or four years that have been pulled too quickly that may have turned into hits.

I think nowadays you by and large know where you're at fairly quickly.

We've gotten it down fairly well, so you could see the first three or four week's ratings, and seeing whether you have the potential to grow.

When a show drops from the first week to the second by 20%, that's not a great sign that people are hanging in there with that show.

You can sort of tell trends, and when you have been doing it as long as I do, there is rarely a surprise or a show that dips 20% or 30%, which eventually comes out of it.

So I think there's enough patience there and experiences teaches you what to do.

In addition there's one thing, Doug, when you've -- when we have canceled a show after two or three episodes, you guys don't realize, we have seen the next four episodes.

So we're pretty patient.

All right.

So the second question, also for you Les, when you look at the upfront this year, whatever the upfront process is going to turn out to be, I'm not sure I have ever seen such a strange dynamic between incredibly strong scatter pricing and a softening economy.

In the conversations you are having with advertisers, can you give us insight in to what they are thinking as they're starting to plan for next season?

You know what?

I think the advertisers are pleased there is going to be an upfront even though it will be scaled down upfront.

I think once again as we said in the earlier remarks, I think network television is still the best game in town.

There's a reason there was a plus 9% CPM last May, and granted that was a while ago.

I still think people believe in network television.

I still think Fox was getting -- with this big recession in the second week of February, Fox got $2.7 million for a couple of 30-second spots in the Super Bowl.

That doesn't tell me that there is something drastically wrong with the economy when guys will pay that much for those kinds of spots.

I think television is still very, very strong, and if you want to amass a large audience, even as you look towards a potential recession, the last thing you want to do is pull back from network.

So we shouldn't expect any worse advertiser grumbling than we have every other year?

It will be the same.

It will be the same.

We're ready for the onslaught.

Thank you very much.

Thank you.

We'll go next to David Miller, SMH Capital Markets.

Yes.

Hi, good morning.

This is a question related to Doug's question.

Les, in the past I believe the successful -- the most successful genre you have had from a programming perspective in prime time has been crime dramas.

Those tend to be very expensive pieces of programming, and yet you say in your prepared remarks that you are prepared to streamline production costs.

I'm just wondering if there will be an emphasis in a different genre going forward in '08/'09 rather than crime dramas, which have been very successful for you in the past.

And then, Fred, you also said, I believe in answering another question here, that you expect a lower marginal tax rate in '08.

Why is that?

Thanks very much.

David, in terms of the crime genre, number one, CSI cost no more than Lost, Desperate Housewives, Heroes, and by the way our CSI franchise, our big crime franchise has brought in over $2 billion worth of revenue.

I'll take that any day of the week.

I think when we're talking about streamlining, I think there are certain things you can do in the pilot process per se, but at CBS crime has always paid.

Yes, thank you.

This is Fred.

I'll just take the second one on tax rate.

One, the reason we'll have lower tax rate -- effective tax rate is we've put into place over the last couple of years, including '07, tax strategies that have lowered our rate both at the state and local, but also federal and overseas, so these are permanent reductions because of different tax strategies that we put in place.

So we feel pretty good that we'll be in that range of 38% to 38.5%, but I have to tell you I still think we can drive it lower.

And that's -- I don't have a set of plans right in front of me that gets us there, but just count on we'll be looking at every opportunity to lower that rate.

Operator, we have time for one more question.

We will take that question from Ben Swinburne, Morgan Stanley.

Thanks, good morning, guys.

One for Fred, one for Les.

Fred, can you -- you may have said this before, I may have missed it, but can you give the network organic revenue growth in the fourth quarter?

And any commentary on how 1Q is trending on a year-over-year basis at the network level?

And then Les, this shift in network planning heading into next year is obviously very significant.

How do you think about CPM levels on an absolute basis for network television, given the scatter market pricing heading in to another upfront with less shows and potentially at least headline ratings down?

I realize that whether these ratings are that relevant is an open question, but at least headline ratings down, so the effective CPMs continue to grow well above inflation.

At what point do you worry about network prime time CPMs, the absolute dollars, relative to say cable networks, but even looking at things like online video and just other national platforms that may begin to look cheaper and cheaper for advertisers?

On the first question, this is Fred again, as I mentioned at the opening, that the network advertising revenues for the fourth quarter were flat with the fourth quarter of '06.

Now I would say that that's just something that goes on the network.

If you follow, as Leslie has said, that the content that goes on to other platforms outside of the network, that ad revenue actually made us positive, because we're getting a lot of ad revenue online or via mobile.

But the network -- traditional network was flat, even though we had a significantly more reruns in the fourth quarter of '07, versus fourth quarter of '06 because of the strike.

Ben, I don't think the changes are going to be quite as drastic as people think.

I have been doing this about 20 years now, the amount of years that the CPMs have been down are about two or three over that period of time.

Obviously, we're in a new ballgame with C3 and everybody is still trying to figure out what it is.

We have ascertained and we really believe C3 will help broadcast television, and it's proving to be the case versus cable network and the other platforms.

Network is still the strongest game in town.

It is proven by scatter pricing, and those people who don't participate in the upfront at those CPM games generally are paying more and more money.

There are a couple of advertisers that made a big deal about not being a part of the upfront, and they have ended up regretting that.

We think that will still be the case right now.

We think pricing remains very strong, we're very pleased about it.

Once again it is hard to figure out the players without a scorecard.

C3 is unusual.

It's a new system.

There has been a strike, so there's been more repeats.

So once again, I expect CPMs to be up in May, and I think network remains strong.

Thanks.

Thanks, everyone, and we'll be talking to you during the day.

This does conclude today's conference.

Thank you for your participation.

You may now disconnect.