Paramount Global (PARA) 2011 Q1 法說會逐字稿

Good day everyone and welcome to the CBS Corporation first-quarter 2011 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.

Adam Townsend.

Please go ahead.

Good afternoon, everyone, and welcome to our first-quarter 2011 earnings call.

Joining me for today's discussion are Sumner Redstone, our Executive Chairman; Leslie Moonves, President and CEO; and Joe Ianniello, Executive Vice President and CFO.

Sumner will have opening remarks and we will turn the call over to Les and Joe who will discuss the strategic and financial results.

We will then open the call up to questions.

Please note that during today's conference call, financial results and comparisons with the exception of revenue will be discussed on an adjusted basis unless otherwise specified.

Reconciliations for non-GAAP financial information related to this call can be found in our earnings release or on our website.

In addition, statements in this conference call relating to matters which are not historical facts are forward-looking statements which involve risks and uncertainties that could cause results to differ.

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

A webcast of this call and the earnings release related to today's presentation can be found on the investor section of our website at CBSCorporation.com.

With that, it's now my pleasure to turn the call over to Sumner.

Thank you Adam.

Good afternoon, everyone, and I thank you for being with us today.

CBS is on a roll in 2011.

Our industry-leading content, our multiplatform distribution have once again led to an exceptional performance for the Company and momentum is continuing throughout our businesses.

What a terrific way to start off the year.

Not only are we operating in a strong marketplace, we have the right strategy to turn our growing revenue into increasing profits.

And remember this, we remain committed to enhancing shareholder value.

This is an unbeatable approach that I'm confident will propel our Company to even greater heights throughout the rest of this year and for many years beyond.

This is no small part of course thanks to Les and his team.

They're doing a phenomenal job creating the best content, optimizing the business and managing our balance sheet.

Needless to say, I'm really pleased, extremely pleased with CBS and all that we're doing to capitalize on our position of strength.

And now, for more on CBS's exceptional performance, let's hear from my good friend, a man I rightfully and frequently call a genius, CBS's President and CEO Les Moonves.

Thank you very much, Sumner, for that wonderful introduction.

Good afternoon, everybody, and thank you for joining us once again.

By now you've read our release and have seen that we had a wonderful quarter.

OIBDA was up 64%, 96% on a reported basis.

EPS was $0.29 up nearly six times from the first quarter last year.

Every single segment of CBS is performing at extremely high levels.

In a minute, I'm going to walk you through our divisions in more detail.

But I can tell you up top that in every one of our businesses, we're very pleased with what we are seeing.

And heading into the rest of the year, we're looking as strong as we ever have.

This quarter is also a great one because you can truly see the kind of strong fundamental performance that we are confident we will achieve going forward.

We did not benefit from any one-time items or adjustments.

We just generated healthy underlying growth that speaks to the strength of our businesses.

As the numbers show, we're clearly benefiting from the strategic actions we've taken to enhance and de-risk our business model including diversifying our revenue streams and managing our cost structure.

Our valuable content and our ability to sell it with increasing profitability is a powerful combination that positions CBS for success not just for the rest of this year, but for many years to come.

We're very encouraged by the ongoing strength of the advertising marketplace.

We posted solid underlying revenue growth during the quarter and as we look to the rest of 2011 and into 2012, our business continues to be very healthy particularly given the highly favorable climate heading into this year's upfront.

Scatter is still extremely hot and pacing in our local businesses is looking very solid as well.

In just the first four months of the year, we are already making meaningful progress towards many of the core initiatives that we emphasized at our upfront for investors in February.

A major theme we discussed that day was the opportunity we have to monetize the value of our content through strategic business deals.

There were some notable examples of our progress during the quarter including our new NCAA deal with Turner Broadcasting.

Our first year in this 14-year agreement was a rating success and it places us in a much stronger and now profitable position.

We also made significant progress in our strategy of getting paid incremental dollars for our content.

This includes the deal we made with Netflix in February and more recently a new lucrative domestic syndication deal for Hawaii Five-0.

More on that later.

We continue to have great success selling our content across the Company on all sorts of platforms.

And because of this success and the healthy free cash flow we continue to generate, and the improved visibility we have in all of our businesses, we are pleased to announce today that we have doubled our quarterly dividend to $0.10 per share.

This is of course in addition to continuing our aggressive and significant share buyback program.

Returning value to shareholders is a commitment we take very seriously and we are pleased to deliver it even more strongly once again today.

So clearly we're in terrific shape on every front.

I'm now going to spend a few minutes to walk you through our financial and operational highlights and then I'll turn it over to Joe to go into this in more depth and then of course we'll be happy to take your questions.

Starting with the results, as I said, the bottom-line performance of the Company was exceptional.

EPS of $0.29 increased nearly sixfold from $0.05 a year ago.

The success was primarily driven by our dramatic increases in OIBDA which totaled $576 million for the quarter, up 64% and accelerating from last year.

As you know, our first quarter last year included the Super Bowl and this year it did not.

Also, this year we shared revenues with Turner Broadcasting for the NCAA tournament.

Even with these factors, revenue was essentially flat at $3.5 billion and underlying revenue growth at all of our businesses was very strong.

And we are particularly pleased with our free cash flow of $853 million in the first quarter.

This is up 29% year over year and once again was achieved without the benefit of last year's Super Bowl.

It's this healthy free cash flow and the ongoing confidence we have in our businesses that's led to our dividend increase today.

This increase will be comfortably paid out of the cash flow generated by all of our businesses as will our share repurchase plan that continues into the second quarter.

During the first quarter, we purchased $250 million worth of stock and are on track to repurchase another $250 million this quarter.

In all of these key financial metrics, we are very pleased to have been able to outperform during the quarter.

And given the ongoing strength of our operations and the moves we made to set them up for continued success in the future, we feel very good about our ability to drive our performance throughout '11 and '12 and beyond.

So now, let's take a brief closer look at our businesses.

Beginning with our entertainment segment, the CBS Television Network continues to be number one and the only network to be up in viewers this season.

We have success across the board in every genre.

We have the number one scripted series, the number one drama, the number one sitcom, the number one new sitcom, the number one news magazine and the number one most watched scripted series every single night of the week.

As we look into the future, our schedule is set up to succeed for a long time.

In addition to the many CBS-owned franchises we will have returning, we have completed early renewals at good terms for a number of key shows including the Big Bang Theory which has been renewed until 2014.

We are by far the most stable network in the business and we are preparing to announce our new fall schedule at Carnegie Hall in a couple of weeks.

Given the success we're having right now, the bar has been set very high for new programming.

Even though we will only have a few spots to fill, I'm very pleased with the pilots I have seen so far including some very strong projects from CBS Studios.

At the same time, primetime scatter in the second quarter is up over 40% over last year's upfront, continuing the 40% gains we had through the first quarter.

So between the strength of our programming, our development and the marketplace overall, we expect to see solid double-digit increases when we sell next year's schedule a few weeks from now.

Meanwhile at CBS News I'm really pleased with the progress made by Jeff Fager and David Rhodes in such a short time.

These guys know how to win and have lots to build on.

We just announced we have a terrific new anchor in Scott Pelley, an extraordinary television journalist who has won multiple Peabody and Emmy awards.

Plus CBS Sunday Morning is getting ratings as good as it has in four years and 60 Minutes continues to roll, finishing in the top 20 week after week.

We were extremely pleased and proud to announce just today that this Sunday we will have an exclusive with President Obama for his first and only interview on the killing of Osama Bin Laden.

I'm confident that better content will lead to improved financial results as Jeff and David take on some of the opportunities we have in front of us in news.

I'm really proud of this team.

CBS Sports is also increasing its value to our Corporation all the time.

Working together with Turner Broadcasting, our coverage of the NCAA men's basketball tournament was the most watched since 2005.

Higher ratings and a strong marketplace drove significantly increased sales.

And given our greatly reduce cost, the tournament was profitable for us for the first time in many years.

This new deal has successfully de-risked our financial exposure in this marquee franchise without taking away our upside.

And the good news is that we will benefit from this tremendous swing in the value of our new deal well into the next decade.

Throughout the CBS Television Network and broadcast television in general, big event programming continues to pull in viewers unlike any other medium.

CBS Sports coverage of the Masters last month was the second highest in a decade and this year's Grammy broadcast in February had the biggest audience in 11 years with more than 26.5 million viewers.

Broadcast television is still the best game in town.

For years some pundits have tried to say otherwise, but the dominance of broadcast remains universally acknowledged in the marketplace and is here to stay.

All of this success results in increased leverage as we negotiate multiple new revenue streams for our content.

As you know retrans continues to grow at a rapid pace.

We're very confident we will achieve our goal of $250 million by next year.

And on top of that, we're also increasingly getting paid reverse compensation from our affiliates.

This is another new source of revenue that will grow for many years to come.

At the same time, we're capitalizing on all the new opportunities to get paid for CBS content by traditional and online distributors.

Just last month we sold Hawaii Five-0 to TNT at very attractive rates.

Our international and domestic syndication commitments for this show are now nearly $5 million per episode, meaning that it is already extremely profitable.

This is only Hawaii Five-0's first year and it already on its way to being another $1 billion franchise for us joining NCIS and CSI which both remain strong on our network as well.

Meanwhile the Netflix deal we announced in February is going to generate hundreds of millions of new dollars as well.

Once again the content of the Netflix deal is for programming that we've already sold elsewhere, meaning it's not cutting into lucrative first and second run syndication dollars.

Meaningful revenue from the Netflix deal will kick in beginning in the second quarter.

Plus the Netflix deal is US only and non-exclusive.

So not only can we sell this program again domestically, but we will also look to sell the same content online internationally as well.

And with competition for Netflix growing all the time, there's a great possibility that several new prudent deals are on the horizon.

Another one of the key ways we're getting paid for our premium content is at CBS Interactive.

This division turned in a strong first quarter as well.

During the quarter we brought in a terrific new leader for CBS Interactive in Jim Lanzone.

Jim is first and foremost a product guy and is busy working on improving our content across the division.

We expect great things from Interactive going forward under Jim's leadership.

Moving to our cable segment, we continue to see growth in both rates and subscriptions at Showtime and the CBS Sports Network.

Showtime leads the way with subs up considerably year over year, now totaling above 20 million subscribers.

Original programming continues to drive Showtime's growth.

Our new drama the Borgias debuted earlier this month and delivered the best ratings for a new drama series in seven years and has already been picked up for a second season.

We're looking forward to new seasons of Shameless, The Big C, Weeds and Dexter as well as a number of new shows.

Our investment in original content and our reduced cost for theatricals have greatly expanded our margins in cable networks, something you can really see in our results today.

Our publishing business also performed strongly on the back of great content.

Simon & Schuster had 61 New York Times bestsellers during the quarter and won this year's general nonfiction Pulitzer for The Emperor of All Maladies.

eBooks are growing at a much more rapid pace now which is good news for us due to the improved cost structure.

First-quarter digital sales of $28 million were up 148% over last year representing our highest quarterly performance to date.

Just like in our other businesses, as publishing continues to evolve, we feel good about our ability to monetize our content however our audience wants to consume it.

Now, turning to local broadcasting.

During the quarter we drove increases in revenues at our TV stations, CBS Radio and the segment as a whole again despite no Super Bowl and virtually no political advertising.

In fact, revenue from the NFL alone was actually up at our TV stations versus a year ago with the Super Bowl.

And to be up in an odd numbered year without political advertising is extremely unusual.

The momentum continues to be broad-based.

We're selling into this improved advertising marketplace with higher ratings in many of our key major markets.

In February, all 16 of our CBS television stations ranked number one or number two in primetime and late local news.

And the weekday newscast here in New York at CBS 2 at 11 was the most watched late news in the country.

This is the first time since the Winter Olympics in 1994 that WCBS has finished number one in sweeps.

And in radio seven of our top 10 markets gained rating shares during the quarter.

We are very encouraged by our ability to sell these ratings going forward with second-quarter pacings looking solid at our TV and radio stations led once again by major markets.

In addition, we're aggressively looking to grow the overall revenue pie in our local broadcasting segment.

We have rolled out plans for digital subchannels that will leverage local TV and radio programming as well as content from our new local websites.

We'll start by launching these subchannels in New York and LA during the third quarter.

Meanwhile our major market local websites continue to show growth month after month.

CBS Local websites ranked number one in total minutes spent each month in the quarter, beating out other regional sites in the category including Yelp, Yahoo Local and MSN Local.

Our momentum continues at outdoor as well and we're now seeing the benefits of our renegotiated transit contracts in New York and Washington DC.

Second-quarter pacing for outdoor is rising with US occupancy and rates up considerably over a year ago.

In addition as the marketplace has recovered, we have been strategically continuing our digital buildout.

We're pursuing high-profile installations in major markets while still staying well within the CapEx range we have been giving you.

So, you can see we're pretty excited.

Across the board, our businesses are performing exceptionally well, both financially and operationally.

We have begun 2011 with strong momentum and there are many, many reasons why we're confident our momentum will continue throughout the year and into 2012 and 2013 as well.

CBS Studios is building new hits all the time and the first-place CBS Television Network provides an unparalleled platform to launch new ones.

No matter which new platforms come along, advertisers continue to covet the kind of big-ticket programming that we have on CBS.

At the same time, we're successfully expanding and diversifying our non-advertising revenue sources.

The local ad marketplace continues to grow with major markets like ours leading the way.

We're holding down cost and finding every opportunity to enter into better deals all the time.

Plus our balance sheet is stronger than ever and we are delivering on our promise to return more value to shareholders including the significant increase in our dividend which we announced today.

It's clearly a very good time to be an investor in CBS and we have every reason to believe it will be for a long, long time.

Thank you very much and with that, I will turn it over to Joe.

Thanks Les.

Good afternoon everyone.

Today I will provide you more details on the results for the quarter and update you on what we are seeing in Q2.

But before I walk you through our strong results, I want to point out that we are confident that the performance we are seeing this quarter is sustainable.

We're in the early stages of benefiting from improved long-term deals with many more to come.

We are favorably changing our revenue mix and our visibility into the marketplace is more clear and very promising.

This quarter proves that our underlying revenue performance continues to grow and our operating leverage is significant.

We see this momentum continuing.

So now let's look at our total Company results for the quarter.

Revenues of $3.5 billion were essentially flat with the prior year despite no Super Bowl and including the impact of our new NCAA arrangement with Turner.

Taken together, these two items lowered the revenue comparison by 10 percentage points.

As we mentioned on last quarter's call, for our new NCAA contract, we only recognize revenues for the games that air on CBS.

The underlying base advertising revenues for the Company were up double digits for the quarter.

Content licensing and distribution revenues were up 4% and affiliate and subscription fees were up 10%.

It's important to note again that these results do not reflect the impact of our new Netflix deal which starts in Q2.

OIBDA of $576 million was up 64% from the prior year.

On a reported basis, OIBDA was up 96% because of $57 million of restructuring charges recognized last year.

We've also expanded our OIBDA margin for yet another quarter.

The overall margin in the first quarter expanded 650 basis points to 16% as we continue to enhance our business model with prudent programming investment, de-risked contractual obligations and larger contributions from high-margin recurring revenue streams.

Our Q1 OIBDA margin is expected to be the lowest of the year.

Operating income more than doubled to $437 million for the quarter, once again demonstrating the Company's strong operating leverage.

Diluted EPS came in at $0.29 compared to $0.05 a year ago.

So, in addition to our operating profit strength, you can see the direct benefit of lower interest expense due to our delevering activities last year.

Let's turn to our segments.

Entertainment revenues for the quarter were $2 billion, down 4%.

This decrease in revenue is due to the absence of the Super Bowl and as I just mentioned, the new way we recognize revenue for the NCAA.

Together these two items lowered the segment comparison by 17 points.

Network advertising was up 12% for the quarter led by football and syndication both domestically and internationally was strong.

OIBDA for the entertainment segment came in at $268 million, up 85% as a result of growth in high-margin advertising revenues and lower costs from the revised NCAA agreement.

Cable revenues for the quarter were $393 million, up 7% primarily as a result of subscription and rate increases.

Cable OIBDA of $153 million was up 51% for a 39% margin which is up 12 percentage points from a year ago.

The margin in Q1 is traditionally the lowest of the year so we expect this quarter's 39% margin to expand further.

As Les said, you're seeing the benefits of investing in original content which has a higher margin than theatrical programming.

Publishing revenues of $155 million for the quarter were up 2% driven by higher digital content sales as well as strong titles.

Digital sales represented 18% of total revenue and more than doubled last year's first quarter.

Publishing OIBDA for the quarter of $7 million was up 133% driven by the change in the revenue mix of higher digital sales which have lower operating cost than the traditional print business.

I would also like to point out that these results were achieved without shipping product to Borders during the first quarter.

Local broadcasting revenues of $621 million were up 2% for the quarter.

Radio revenues were up 4% and TV station revenues were up 1%.

Three items impacted our TV station comp.

The Super Bowl, political and the sale of a station last year which combined lowered our comparison by 11 percentage points.

The fact that we showed growth despite the absence of the revenue for these related items speaks to the underlying strength of the base business.

Local broadcasting OIBDA was $169 million, up 26% for the quarter.

We continue to expand our margin at this segment and you can see effects of the restructuring activity we implemented last year during the quarter.

Outdoor revenues for the quarter were up 5% to $413 million with the Americas up 11% on a constant dollar basis.

Occupancy rates in the US are approaching historical levels, so most of the gains in the quarter came from pricing.

With the continued strength in demand and the tighter inventory supply, we are now starting to really see pricing power come back into this business.

OIBDA for outdoor of $49 million increased 53% from prior year's first quarter as we continue to focus on improving the economics of our long-term contracts.

Turning to our balance sheet and cash flow, free cash flow came in at $853 million for the quarter, up 29%.

This was our second highest quarterly cash flow on record.

Capital expenditures were $41 million, flat to the prior year and in line with our full-year estimate.

Our cash on hand at March 31 was $972 million.

As Les said, during Q1 we spent $250 million on our share repurchase program.

We retired 11.8 million shares at an average price of just over $21 per share.

We expect to spend approximately another $250 million during the second quarter.

We also extended our $2 billion credit facility through March of 2015 on more favorable terms, reducing our commitment fees as well as our borrowing spreads.

We are currently examining efficient ways to fund up our pension plan to capitalize on an attractive rate environment.

More on that in the coming quarters.

As you saw today, we doubled our quarterly dividend starting with the next dividend payable on July 1.

We are very comfortable doing this at this time due to our enhanced visibility into our cash flow with new contracts like Comcast, like the NCAA and Netflix just to name a few and in our local businesses where our clients are making commitments earlier so we have a greater leadtime in our planning.

Now let me take you through what we're seeing in Q2.

The key takeaway for Q2 is that the momentum is continuing.

Scatter market at the network remains strong, up 40% above last year's upfront, a very positive sign heading into this year's upfront.

Q2 option cancellations remain historically low given the strength of our schedule and the robust scatter market.

TV stations advertising revenue are pacing to be up low single digits even with a more difficult political comp.

National advertisers are leading the way.

Radio stations are pacing to be up mid-single digits led by auto and retail both up double digits.

Our outdoor group is currently pacing to be up mid to high single digits.

So to wrap up, we're off to a very strong start in 2011.

Our leading position as a premium content provider continues to be the key to our success.

The strong advertising momentum we saw exiting Q4 of last year accelerated into Q1 and is sustaining its momentum into Q2.

On top of that, visibility particularly in our local businesses has returned to pre-recession levels and has enhanced our confidence for those businesses.

In addition, we're very excited that our non-advertising revenue streams such as retrans, affiliate fees, online distribution fees are significantly adding to the recurring nature of our business and will increasingly drive the growth of our top and bottom line for many years to come.

In short, every single segment of CBS is performing at very high levels.

We're very pleased with what we're seeing but even more optimistic for what lies ahead.

With that, Jay, we can open the lines for questions.

(Operator Instructions) Jessica Reif Cohen, Bank of America-Merrill Lynch.

I guess a couple of follow-ups to some comments.

First, Les, on your schedule for next year, I know you haven't announced it, but your comment about your own production, I just was wondering if you could clarify, are you taking any shows from third-party producers or will most of it come from internally?

Our philosophy is always the best show makes it on the air and as you know, we have -- over two-thirds of the shows are shows that are CBS.

But in terms of our pilots, I think once again it's about two-thirds CBS and one-third from other suppliers.

So right now we're just screening our pilots and may the best man win.

Obviously it's a jump ball.

The CBS-owned project gets on the air.

Fortunately NCIS and CSI and Hawaii Five-0 and The Good Wife and Blue Bloods are all CBS-owned properties so we not only get the front end in advertising but the back end as well.

Just the last question, on Hawaii Five-0, I just wonder, it's incredible you've had such a big sale and so early.

What are the cable networks thinking?

Why are they committing so early?

Well by the way, we have the same situation frankly with NCIS LA if you recall which we did after only six episodes.

This one I think we waited until there were 12 on the air.

Look, it's a competitive marketplace.

Quality premium hours are very tough to come by and there's a bidding war for these types of things going on.

So the marketplace is very strong both internationally which continues to grow as well as domestically if you have the right kind of hours that aren't serialized that have an action component and that can get this kind of number.

So it's a great business.

So does that feed the international sales then if they know you're going to keep a show on for three years?

Look, the international sales are sold fairly early, right after we announce them on the schedule here.

It will continue to feed the pipeline but Hawaii Five-0 before it even went on in the air in the United States got to over $2.5 million internationally and the numbers internationally keep growing.

Ben Swinburne, Morgan Stanley.

Les, I think you have a good chunk of the Netflix revenues flowing through the P&L in Q2 and you've talked about I think you sold about 7% of your library in that deal.

I'm just wondering if you're talking to Netflix about going with them internationally and also if you expect sometime in the not-too-distant future to announce deals with other players like an Amazon or a Google.

Google talked about spending on premium content on YouTube on their earnings call and I think a lot of people out there are thinking there's a lot of interest from new players.

I'm just curious if you'd comment there and then I have one follow-up.

The answer to both questions is an absolute yes.

We are in very serious discussions with Netflix about doing a deal in Latin America, doing a deal in Canada and those deals might happen fairly quickly.

And in answer to your question about competitors to Netflix, obviously Amazon is very interested in content and there are other players who are also having similar discussions to that.

So when you look at a Netflix and you say gee, it's great to be in business with them and they are terrific and we feel that way about them, there are going to be competitors who could pay the same kind of dollars and we see that across the way.

Look, I don't believe that Blockbuster was bought by Dish to be a bunch of stores selling cassettes.

I think they're a content place that wants our content.

So the more the merrier and we're going to continue to produce them and we're going to be able to sell them.

So the world for the premium content providers gets bigger and bigger across the board.

And just switching gears, Joe, on the TV Station business, you talked about second-quarter pacings which sound solid.

Is that an acceleration in the organic growth from Q1?

Because you mentioned the comp in Q1 in the Super Bowl, political and the station sale and I know there's some retrans in that 1% -- I think there was retrans in that 1% number for Q1.

So I'm just looking -- if you parse it all apart and look at the organic advertising trend, is that getting better?

And if it is, does that tell us that the Japan issues that we are all worried about on the auto side aren't having any material impact yet?

I would say the shrink is continuing.

I think on an absolute dollars basis, the numbers might be better because of no Super Bowl, but clearly the political comp is getting tougher.

As far as the automotive, I mean obviously we saw today GM and Chrysler for April sales GM up 27%, Chrysler up 22%.

So the US is clearly showing there's demand out there for autos.

So I think -- and Japanese, they've got to get their supply right which we view as really a short-term blip.

But we're pretty bullish on the category in general across our local and national mediums.

Michael Nathanson, Nomura.

I have just one clarification for Joe and then two on the cost side for both you guys.

Joe, did you say the network was up 12% led by football?

Is that ex-Super Bowl, ex-NCAA just to clarify that?

Yes, this is ex-Super Bowl.

This is just ex-NCAA, so kind of apples to apples, network advertising up 12%, obviously sports were leading the way led by the NFL.

And then on the cost side, so let's drill down a bit to local.

It looks like your local cost stepped down year over year.

I wonder, where were those savings?

What did you guys do differently this year versus last year?

And then do you expect cost to trend down the rest of the way for local?

Yes, Michael, you've got to remember, remember we took a restructuring charge in Q1 of last year, $57 million for the total Company, but a big chunk of that was coming from our TV stations and radio stations.

So you're seeing the benefits, the quarterly benefit of those savings.

Obviously they come out of the numbers in the coming quarters because we took the charge last year in the first quarter.

Okay, so a more moderate cost level.

And then lastly, if you just look at entertainment, really mostly TV, if you backed out the NCAA and the Super Bowl on the cost side of TV, what do you think the underlying cost growth is for you guys in the entertainment segment?

Very low single digits.

I think we managed that cost very effectively, so the revenue dollars are really flowing through to profits.

We look at that very closely apples to apples.

Anthony DiClemente, Barclays Capital.

Just to follow up on Michael's question about the 12%.

How do you see that trending in the Q2, Joe?

If the core revenue was up 12%, would we be just south of that just given that core football goes away?

Yes, well, look, the sports clearly go away and in Q2 there's clearly more repeats than in Q1, but again, the base underlying strength is there.

But just in absolute dollars percentages, it might not be the same.

But again I think the key takeaway is we're seeing lots of categories continue to drive the growth.

And again since we have the product, it's well, well, well above last year's upfront which is really setting us up as Les and I talk about mostly is this year's upfront which is setting us up for next year.

How does the NFL potential work stoppage start to play into the dynamics in the upfront market?

The upfront marketplace really sort of excludes the NFL.

It's sold sort of year-round and once again, we're guardedly optimistic that there will be some resolution.

If there isn't before the upfront, I think it might help the victor.

In other words, we expect to be a leader or the leader in the upfront marketplace in terms of growth, in terms of dollars taken in.

And if they haven't placed the NFL dollars at that point, we expect to get a better piece of the pie.

Okay and then one more.

Just would love to hear drivers of Showtime.

That was an impressive sub growth number.

Thank you for the questions.

Say that again, the sub growth?

Showtime -- you picked up 6 million subscribers at Showtime.

I thought that was particularly strong.

Just wondering from your perspective what drove that in the quarter.

You know what?

Well it wasn't over the quarter, it was over the year and frankly we think we're getting a terrific response to our program.

It's just the 6 million Showtime network, it has other things, it has the Movie Channel etc.

in there.

So Showtime has less than -- it's just in over 20 million homes, it didn't grow 6 million.

So Showtime revenue grew 7% and it's both rate and subscriptions, Anthony.

So there's clearly -- there's more distribution in Showtime but again our other ancillary networks as well.

John Janedis, UBS.

Les, can you talk a little bit more about online distribution?

Meaning how do you view the strategy of the distributors longer-term?

And so as the current deals get renegotiated in four or five years from now, would you expect the appetite for content broadly to increase?

Or maybe due to consumption patterns or learnings from the OVDs as they potentially look to maybe renew the content on a much smaller scale?

Thanks.

You know, as there are more and more competitors getting into the marketplace and our attitude is -- and it's proven to be the case in time in memoriam, if you have the good content, people are going to want to buy it.

It is true they want to see it when they want it and you have heard that cliche; I want my content when I want it and however I can get it.

And when you look at the Amazon TVs and the Google TVs and the Yahoo TVs, they are all going to be looking for premium content.

So as we go down the road, there's going to be more and more competition for it.

Will the dollars be there?

We expect it to be.

It has never gone down in terms of that.

So we are confident that it will continue to grow.

Michael Morris, Davenport.

Two questions, first, I'm hoping you can share a little more about your thoughts into the upfront and specifically the comments of solid double digits obviously, you also have great momentum, I mean 40% plus in the scatter market.

I guess my thought is how much inventory -- do you hold any more back as you go into the upfront given -- I just don't where solid double digits are relative to the 40.

And at what point do you look to kind of continue to maybe capitalize on those premiums next year that you can get in the scatter market versus maybe what you're going to be able to achieve in the upfront this year?

It's a very good question.

We will sit down with our sales team as the market begins to evolve and we feel very strong about our schedule.

We will feel strong about our schedule.

We haven't set it yet but knowing that we only are going to replace a few shows and we're going to look at a very solid increase.

And as the marketplace evolves, we feel confident that the scatter will be strong.

However if the upfront dollars are where they should be, obviously you will sell more of it.

It's always the risk-reward factor but any way you play the game, we're in very, very good shape.

You're right, as you're sitting here May 2 with a 40% increase going on in scatter, you know when people are buying in June they're going to be looking at that.

So I think advertisers that didn't buy at the upfront last year are kicking themselves because they're paying substantially more today than they were yesterday.

How much we sell, it will depend on how much they want to pay.

So it's going to be a question that we will ask.

We've sold over the last five years anywhere from 65% to 80%, so it will be somewhere in that range.

Okay, great.

And then over on outdoor, it sounds like -- the comment was that you're starting to see pricing power come back and I hope maybe you can talk a bit more about that just given that maybe some other outdoor advertisers, it seems that they've started to struggle a little bit.

Maybe you can -- I know you're in bigger markets but is it just too early to judge the pricing power here or what are you kind of seeing there going forward?

Michael, it's Joe.

What I would say is maybe they're in just smaller markets than we're in.

Again, we're not seeing that at all and we're seeing clearly the benefits from the other local mediums, their pricing.

As they're raising their pricing, people are coming into outdoor.

Again we're seeing them with longer leadtimes.

So now that the inventory is at historical levels in terms of a sellout, we're really trying to push the price and we're just -- again we're in this kind of second inning of that to see that benefit.

So it's a little too early to tell how far we can push it, but there's clearly a lot of upside from where we sit today.

David Miller, Caris & Co.

Congratulations on the stellar print.

Just kind of a loaded question for either of you with regard to mergers and acquisitions.

And I know you're somewhat hamstrung by how you can comment on this, but clearly the notion of JCDecaux sort of expanding its US footprint is obviously nothing new.

We've been hearing about this for three years now, previous rumors of pending deals have just turned out to be massive head fakes.

That being said, you guys have stated for the record many times that outdoor is sort of non-core to operations.

So could you comment -- against that backdrop could you maybe comment on a couple of things?

First of all is the London Tube platform also non-core?

And then could you just comment on the tax basis of the outdoor business in general?

Thanks very much.

I'll talk about the first part.

Mr.

Decaux who we know very well and we like makes statements about how he'd like to buy our outdoor company.

As you know our outdoor results as you can see are growing substantially quarter after quarter.

We have no great intent to sell it.

We like it.

Yes, we do consider ourselves primarily a content company but outdoor is a wonderful business.

We are here, we're here, he has our phone number.

If he wants to make an offer, we will always listen to it.

It's not our intent to aggressively sell.

He has said some very bold statements and I think the Clear Channel guys sort of took a shot at some of his statements.

But we like Mr.

Decaux talking up how good our business is and we agree with him.

David, it's Joe.

I would just add in, when he does call, I'll remind him that the earnings are up 53%, so whatever (multiple speakers) multiply it by plus 53.

We're not going to comment on our tax basis, David, but other than we have a lot of bases, so we've got a lot of financial flexibility.

And we do have a tough contract in the London Underground.

Two things I'd say is -- one, that contract comes to an end in early 2015; and two, there's an Olympics there next year, so we're looking for some real upside in 2012.

Wonderful, congratulations.

Doug Mitchelson, Deutsche Bank.

So, Les, typically by now advertisers are lining up to try to cut early deals and it gives you a peek at what my pricing might look like.

Any early pre-upfront deals being cut?

There have been a couple which my head of sales has told me I can't talk about, so I won't.

But needless to say, any deal that we would've taken in April would be at a very, very good number which gives me great confidence heading into the upfront.

And then give me your comments on the difficulty of getting a show onto CBS.

There's few holes in the schedule right?

I'm wondering if you could take advantage of having more shelf space to put more TV shows on the air.

Is there any strategic synergy to owning a cable network or starting up a cable network for that matter?

You know what?

Startups are virtually impossible and the price of what the cable networks would want -- I mean by the way, we do have the programming.

As a matter of fact, we thought of buying another broadcast network but I don't think the government would allow us.

Because we do have a great deal of programming, but it's great because of our pilots, number one, we were able to do less pilots this year by about six or seven than we'd normally do, and the bar is really high because of that shelf space.

So it's a very good position to be in.

Lastly, Joe, given the schedule is starting to take shape, and you made some comments about the pricing of returning shows, what are you looking at for the cost base for the network next year?

Is it going to grow a few percentage points (multiple speakers)?

We don't see that.

We look at that flat, Doug.

Year over year we're paying top dollar for the shows, we don't see why that goes up.

We look at that strategically on every schedule we put up, I sit there with the numbers on a per episodic basis, so we expect that to be flat.

When you say flat, you are talking about the entertainment programming piece?

Because the sports always has whatever (multiple speakers)?

Exactly, I'm talking about the entertainment -- sports and news; news, hopefully we have some savings and sports will be what it will be.

Well, sports advertising is growing fast, you know that already.

So you basically just need revenue growth in the entertainment side to drive profits then, right?

Correct.

Laura Martin, Needham & Co.

Could you talk about Two and a Half Men on the schedule?

There's been a lot of chatter you guys are talking about renewing it or maybe not renewing it.

What are the economic implications of bringing Two and a Half Men back or not without Charlie Sheen presumably?

And then on the margins, one of the things I recall from last quarter, Joe, is that you said you were going to exceed peak margins.

And given that the first quarter you grew 650 basis points, I assume you are on track to do better than that.

Can we model in even higher margins than we did last quarter?

Thanks.

On Two and Half Men, Laura, we don't know what the resolution is right now.

There are obviously a lot of moving pieces.

Warner Brothers is exploring different ideas on how to do the show.

So we're sort of waiting on them.

It's an important show to us, but the good news about the CBS schedule is we are not dependent on a single show on any single night of the week.

So we will see what happens and I can't really say a whole lot more than that.

Joe?

Laura, on the margin point, clearly again, we said at our last quarter's earnings call, we said it at our investor upfront to expect margin expansions.

You are seeing that today.

We laid out a plan to -- no reason why we can't meet or exceed peak margins.

Again you're just going to continue to see that quarter after quarter.

So we're well on our way to achieving or exceeding those targets.

Great numbers today, guys, congratulations.

David Joyce, Miller Tabak.

Just was hoping you could provide some more color on how we should think about modeling free cash flow.

It was up 29%.

Is there any draw forward from what we would've normally been expecting in the second quarter?

And then secondarily on Netflix, how should we expect that to be phasing in or is it a fixed rate contract or a per subscriber contract?

David, it's Joe.

Free cash flow, look, we obviously don't give guidance on free cash flow.

Traditionally Q1 is the highest of the quarter.

Q2 is also a very strong quarter.

So you can expect to see that.

We've also said we expect to fund our share purchase program as well as our dividend out of free cash flow, so that gives you some nice kind of indication.

So we're feeling pretty good about our free cash flow prospects.

As far as Netflix goes, the way we recognize the revenue is when we make those shows available to Netflix, it is not all in one quarter, but it does -- a significant portion does start in Q2.

But again like I said, it's when we choose to make those shows available to them is when we recognize the revenue.

So it will be over a period of time.

But again, the biggest pop starting in Q2.

Also on the timing of expenses with the NCAA, is that also based on a per game sort of pro rata perspective like your revenue?

No, on the pro rata, the deal we have with Turner is -- again it's no surprise that our downside is capped and the upside is split.

So again that's what you're seeing in the results in the margins.

So that will continue obviously in the second quarter.

The Final Four games were all on CBS and not on Turner, so there's no revenue comp issue.

But we're very pleased with the performance of the tournament as a whole and the financial results as well.

Marci Ryvicker, Wells Fargo.

Just a quick question.

Can you update us on reverse retrans?

You threw out a $225 million number at your investor upfront.

So curious as to first your progress and then second the timeframe you expect to capture this entire revenue stream.

And then I have one follow-up.

Okay, Marci, it's Joe.

Look, that $225 million is obviously we did the math on $0.25 a sub there which was again just by ease of math 50% of the retrans number.

We have about 180 of those contracts to negotiate, so we're in the early stages.

As we said in the coming years, you should look for that number to grow significantly similarly to retrans.

So it's incremental, it's all 100% dollar profits.

So I think it's good news for 2013, 2014 and 2015.

And the $0.25 number is a little low.

It was illustrative, the $0.25 number just to get a negotiation.

Okay, and then my follow-up is in your local segment, how much of the growth is from digital versus core advertising?

Most of that is coming from core advertising.

The digital still represents as a percentage basis a very small kind of piece.

It is growing clearly at a faster clip but still to move the needle it's -- topline is $621 million for a quarter, so we've got a lot of upside on our digital side.

Thanks, Marci.

This concludes today's call.

Thank you everyone for joining us.

Have a great evening.

That does conclude today's conference.

Thank you for your participation.