Paramount Global (PARA) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation first-quarter 2012 earnings release teleconference.

Today's call is being recorded.

At this time I'd 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 2012 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 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 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 securities filings.

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

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

And with that, it is now my pleasure to turn the call over to Sumner.

Thank you, Adam.

Good afternoon, everyone.

I thank you all for being with us today.

CBS's performance this quarter was nothing short of amazing.

The numbers prove we are operating from a (inaudible) of incredible strength and the momentum keeps building and building and building.

We have world-class content that people want to see.

And we are delivering it in a way they want to see it.

And because our content is so good it commands a premium on every platform.

Our content is the best, actually.

As we look ahead, I know we have the right strategy in place to propel CBS even beyond where it is today.

I know this because we have a management team that proves me right quarter after quarter after quarter.

None of this immense success would be possible without this management team.

As you know, the executive in charge of this great management team is Les Moonves, CBS's President and CEO.

So it gives me tremendous pleasure to turn this call over to my good friend, Les, a man I frequently and appropriately call a genius so he can tell you more about our terrific results.

Les, the ball is in your court.

Thank you very much, Sumner.

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

We told you during our last call that this quarter would be a terrific start to the year, and as you can see from the numbers today, it is.

In fact since we became a stand-alone Corporation we posted record first-quarter results in five key financial metrics.

Revenue was up 12%, OIBDA up 34%, operating income up 47%, net income up 80%, and EPS of $0.54 was up 86%.

As you can see, each category had healthy double-digit increases and our best ever for a first quarter.

We are on a tremendous run, one that we will be very confident will also produce a record 2012 and extraordinary 2013.

We have many reasons to be confident.

Our core business is solid, advertising dollars are growing, and that will only get better in the second half of the year when political spending ramps up.

We also have a number of hit shows ready to be sold into domestic syndication over the next two years, and international syndication continues to be a dynamic story.

And as you know, one of the most powerful developments in our business model is the growth of steady and recurring non-advertising revenue, which is increasingly paying off.

Syndication, retrans, and online streaming are having a huge impact on our numbers and are not directly tied to the economy.

All told, 39% of our total revenue in the first quarter came from non-advertising sources.

Many of these revenue sources did not even exist just a few short years ago.

As we continue to transform our business model, you'll see that number rise even higher.

None of this would be possible without premium content.

Across the Company, we have industry-leading programming in every business in which we compete and it is getting more valuable by the day.

Today, I am going to walk you through our first-quarter numbers then I will give you some highlights about our segments before I turn it over to Joe.

After that, we will be happy to take your questions.

As I said this is our best first quarter ever in terms of revenue, OIBDA, operating income, net income, and EPS.

Revenue came in at $3.9 billion.

That is up more than $400 million from last year.

We turned that revenue gain into a 34% increase in OIBDA which reached $773 million.

Our operating income grew 47% to $642 million, and our net income rose to 80%, to $363 million.

Finally EPS came in at $0.54, up 86% from the first quarter in 2011.

During the quarter we also refinanced $700 million of debt at very attractive rates.

You'll hear more about how this will enhance our financial future from Joe shortly.

Meanwhile, our first-quarter free cash flow came in at $607 million and we continue to use the majority of our excess cash to return capital to shareholders.

In the first quarter we repurchased $269 million of our stock, putting us well on our way to reaching our target of $1 billion in share buybacks this year, along with our recurring dividend as well.

Moving forward, using our excess cash to return capital to our shareholders will remain a top priority for CBS.

Thanks to the performance of every one of our businesses we continue to generate healthy levels of free cash flow.

Let's take a look at these business segments now starting with the largest -- Entertainment.

The CBS Television Network is about to finish as the number one network for the ninth time in 10 years.

Not only that, but we are poised to win the season by the widest margin since the modern rating systems began 25 years ago.

80% of the top 20 scripted programs are on CBS.

We are drawing 18-year-olds and 80-year-olds and, significantly, year-to-year we have growth in all key ratings categories including viewers, 25 to 54 and 18 to 49.

Looking ahead, we are extremely confident our success will continue into next season.

In two weeks we will unveil our new fall lineup which will have the unique advantage of being launched from a platform that virtually ensures success.

With 18 shows already renewed, the competition to get onto our schedule is extremely strong.

Meaning that we will be much more selective and our competitors will have to be.

So as we head into an improving upfront marketplace, we feel very good about our future, both creatively and financially.

Meanwhile I am pleased that the wheels are in motion to launch a whole new era of success at CBS News.

Our flagship broadcast, the CBS Evening News with Scott Pelley is averaging 1 million viewers a week more than last year, and it is the only network evening news to be up year over year.

The crown jewel of CBS News, 60 Minutes, continues its dominance.

We lost a true legend in the history of broadcast journalism when Mike Wallace passed away last month.

As a testament to his enduring legacy, our tribute broadcast to him was a top 10 show for the week, and we followed it up with a top 10 performance last week, too.

Plus in the lucrative weekday morning time slot, the newly revamped CBS This Morning, continues to post year-to-year increases as well.

CBS Sports also had a terrific year.

Our coverage of the NFL Playoffs was the highest in decades and the NCAA Men's Basketball Championship was up 5% over last year, the best since 2005.

Plus we had a very exciting Masters Playoffs a few weeks ago when Bubba Watson won his first green jacket.

Looking ahead the NFL schedule that was recently released gives us a large number of high profile AFC and NFC matchups in our key O&O markets.

We now have Peyton Manning in Denver and Tim Tebow in New York, which will be a big plus for us as well.

Of course, we also have the Super Bowl to look forward to in the first quarter of 2013.

Clearly in entertainment, news and sports, our network programming is at the top of its game.

And as I mentioned, our ability to syndicate our content continues to have a profound effect on our results.

In the next two years, four of our biggest shows will be coming up for domestic syndication -- Hawaii Five-0, NCIS Los Angeles, The Good Wife and Blue Bloods.

This is just the first cycle of syndication for these shows.

They will later be sold in the second cycle and then in all the new cycles that are coming our way.

We begin this process that we call the content value chain every single year when we launch our new schedule.

And each time we do, we create new programming assets that can generate revenue for decades.

As I have said before, content is forever and quality content never goes out of style.

Nowhere is this more evident than the way we monetize our content digitally.

In addition to the deals we struck with Netflix and Amazon, other online video distributors are looking to license our library content.

And in some cases where it makes sense like at the CW, we are also licensing newer content.

Today, these deals are having a big impact on our financial results, adding meaningful, very high margin dollars to our bottom line.

At CBS Films we are also creating new content to be monetized throughout our Company.

During the quarter, we had great success with The Woman in Black which grossed more than $54 million and was profitable from its opening weekend.

Going forward, the film will have an exclusive window on Showtime and then will be sold elsewhere for a longer term benefit as well.

This is precisely the kind of model we will pursue as we grow this small business.

Moving to our Cable segment, our original programming continues to produce strong financial results with growth in rates, subscribers, and licensing fees; and like all of our businesses this segment is also benefiting from new technology.

Half of the nearly $60 million revenue increase in cable networks this quarter came from digital streaming.

Showtime is at the center of that success and they had another outstanding quarter with a 6% increase in subscribers.

House of Lies has become our top rated comedy and Shameless delivered its highest rated episode ever in the first quarter.

In July, we will premiere season 2 of the franchise featuring the Miami Marlins and Ozzie Guillen, who have been generating lots of excitement lately.

In publishing, Simon & Schuster continues to produce bestseller after bestseller.

We had seven new number one titles since the start of the year including Kill Shot by Vince Flynn and Lone Wolf by Jodi Picoult.

And last year's biggest hits, the Steve Jobs biography and Stephen King's 11/22/63 have remained solidly on the bestseller list as well and continue to contribute to our results.

Digital e-books continue to grow at a rapid pace, up 64% over last year's first quarter, now representing 26% of publishing's total revenue.

Once again the growth in digital is a positive development for us because e-books have better margins than the traditional print business.

Over at local broadcasting, automotive advertising continues to improve and retail is beginning to take off as well.

We expect the second half of this year to receive a significant boost from political advertising as the general election heats up.

At our TV stations we are having great success in the ratings.

Every one of our CBS-owned stations ranked number one in viewers in prime time during the most recent sweeps.

Plus, we recently closed on our acquisition of WLNY, giving us a duopoly in New York where we already have the country's most watched TV station in prime time with WCBS-TV.

And CBS Radio remains at the top of the charts in both ratings and revenue with new success stories popping up all the time.

We have been particularly focused on widening our lead in news and sports by introducing these formats to the FM dial.

We have the number one news station in each of the nation's top four markets and across the country the sports format continues to do very well for us, overall.

In fact, revenue at our sports stations was up nearly 10% for quarter year-over-year.

Meanwhile, our Outdoor segment continues to benefit from more profitable contracts, especially in the Americas where the US Billboard and Display business has shown particular strength.

And internationally, we are looking forward to a significant lift as we approach the London Olympics later this year.

Across this business, more profitable digital signage opportunities continue to present themselves both here and abroad.

As you can see, throughout CBS, we are extremely pleased with our first quarter.

We broke records in five key financial metrics for the quarter and I am confident we will break records for the year as well.

We have been transforming this Company into a content-driven higher growth business for several years now, and the good news is that all the strategic actions we have taken to do this are coming together as evidenced by today's numbers.

Newly established growth drivers like retrans, online video distribution and international expansion have created steady recurring revenue streams that fall right to our bottom line.

And we have negotiated long-term profitable deals for our [10-year] programming.

Events like the NFL, the NCAA Basketball Tournament, SEC Football, the PGA Tour, the Grammys and the Academy of Country Music Awards all of which will benefit us for at least a decade under their new contracts.

These developments along with ongoing cost containment and a very strong balance sheet have laid the foundation for us to continue to generate the kind of results you see here today.

In addition we are looking forward to our local stations benefiting from political spending in the third and fourth quarter.

We are readying some of CBS's biggest hits to be sold in syndication the next two years and we are extremely eager to sell our new fall lineup in the upfront marketplace in just a few weeks.

We led the upfront last year and we guarantee we will lead it again this year both in volume and in CPMs.

I think you can see why we are so excited about what we have said will be a record year in 2012 and a very lucrative 2013.

We've told you that the opportunities before us were enormous and, clearly, this first quarter shows that they are.

A great time to be an investor in CBS and we are poised for a long, long run.

And with that I will turn it over to Joe.

Thanks, Les, and good afternoon, everyone.

Today I am going to provide some more details about our first-quarter results and then I will discuss what we see for the rest of 2012 and touch on 2013.

Let's start with the first-quarter results.

As you have seen and heard today, we are committed to growing our non-advertising revenue stream and maximizing the monetization of our content.

The shift towards more stable, high-margin revenue drove our earnings growth this quarter and we expect it will continue to enhance our earnings well into the future.

As Les said, revenue of $3.9 billion was up 12% for the quarter.

The growth was broad-based with increases in all three major revenue streams.

Content licensing and distribution grew 39% because of the incremental revenue from our streaming deals as well as the ongoing strength of our international and domestic syndication sales.

Affiliate and subscription fees were up 7%, driven by growth from our cable networks as well as higher retrans fees.

And total advertising was up 5% which I'll talk more about later.

OIBDA of $773 million rose 34% as nearly 50% of our revenue growth flowed through to OIBDA, increasing our OIBDA margin from 16% last year to 20% this year which is double what it was just two years ago.

Operating income of $642 million was up 47% and our operating income margin also expanded 400 basis points.

These results also benefited from our continued focus on cost controls.

EPS came in at $0.54, up 86%.

This includes a non-cash after-tax impairment charge of $14 million for the sale of our West Palm Beach radio cluster which we announced last month and is consistent with our plan to focus on large markets.

EPS also includes a $16 million after-tax gain on the early extinguishment of debt.

These two items offset one another having no net impact to our reported EPS.

Let's turn to our operating segments.

Entertainment revenue for the quarter was $2.3 billion, up 16%.

The growth in this segment was once again driven by strong content monetization from licensing revenue and higher ad sales for our premium programming.

Network advertising was up 8%.

The underlying ad sales growth was up 4% with the other 4% driven by the timing of the Final 4. OIBDA of $411 million for this segment was up 53% and the OIBDA margin expanded 5 percentage points to 18%.

Cable Networks revenue came in at $452 million, up 15%.

This segment is also benefiting from our new digital streaming opportunities and international syndication deals from our own content.

In addition, we continue to generate strong subscriber growth with Showtime subs now solidly over 21 million.

Cable OIBDA of $209 million increased 37%, driven by the revenue increase and the timing of programming expenses.

In publishing, revenue of $176 million for the quarter was up 14%.

As Les said, e-books continues to be a bigger portion of our business and are contributing to our higher OIBDA as well as expanding our publishing margins.

Local broadcasting revenue was steady at $622 million compared to last year.

TV station revenue was up 2% while radio revenue was down 2%.

During the quarter, local sales outpaced national sales at our stations.

This development underscores the strength of the rebound of small businesses.

This is an encouraging sign because the improvement of local businesses can be a leading indicator of a sustained economic recovery.

Also, as you know political will be a significant contributor in the back half of 2012.

OIBDA before the radio sale impairment charge I just discussed was $171 million, up 1%.

Outdoor revenue of $416 million for the quarter was also up 1% and on a constant dollar basis it grew 2%.

The Americas continued to lead the way, up 4% over last year, including a 6% increase in the US, our largest market.

Outdoor OIBDA of $53 million was up 8%.

Turning to cash flow and our balance sheet, we told you on our last call that we would look to refinance debt to reduce our interest cost to be more in line with current market rates.

During the first quarter, we issued a new $700 million 10-year note with a coupon of 3.375%, the lowest rate ever issued for a similar rated media company.

We took those proceeds and paid off $700 million worth of notes that had a coupon of 6.75%.

The result is a savings of $22 million a year in annual interest expense, a benefit you will begin to see in Q2.

In the months ahead, we will look to opportunistically tap the credit markets again for further savings on interest costs.

For the quarter, free cash flow came in at $607 million and we ended the quarter with $794 million of cash on hand.

Also during the first quarter, we spent $269 million to retire 9 million shares of our stock at an average price of $30 per share.

We have $1.7 billion remaining on our current stock buyback program and we are committed to aggressively returning this capital to our shareholders and completing this program by the end of next year.

Now, let me give you a few observations of what we see ahead.

Local broadcasting is pacing to be up low single digits for Q2, again with political ramping up in the second half of the year.

Our Outdoor Group is also pacing to be up low single digits in the second quarter as we head into the London Olympics which will largely benefit Q3.

Also, we are heading into a healthy upfront marketplace in a couple of weeks.

During our call in February, we talked about three financial drivers to our EPS.

I already brought you up to date on two of them -- our share buyback program and our refinancing efforts.

The third -- depreciation and amortization expense -- is beginning to trend down with our CapEx spending.

And that should continue well beyond 2012.

For the quarter, depreciation and amortization expense was lower by $8 million compared to last year.

Now I'd like to talk briefly about our visibility into 2013.

Here is what we know so far.

On the advertising side, the strength of this year's upfront will set the stage for 2013 and, given our competitive position, we are poised to do very well.

In addition, we have Super Bowl 47 in Q1 of next year which will also benefit our local stations.

Couple this with it being our turn to broadcast the AFC Championship Game in prime time and the Grammys coming this Sunday after the Super Bowl, and you are looking at three major primetime events within a four-week time period in Q1.

Plus, our non-advertising revenue streams are expected to increase in 2013.

We have the first of two options to extend one of our major streaming arrangements as well as the benefit of new retrans deals that will take effect next year.

To top it off we will have 176 episodes of premium content from four seasons of two of our hit shows NCIS Los Angeles and The Good Wife available for first cycle syndication in 2013.

Later seasons of these shows, plus Hawaii Five-0 and Blue Bloods, are also in our future pipeline.

And as Les said we are only talking first cycle syndication which means these shows will be contributing to our bottom line for many years.

All of the actions we have taken, both strategically and financially, will continue to transform CBS.

In summary, we are very pleased with our first-quarter results.

This was a record quarter setting us up for a record year and that momentum will continue into 2013 and beyond.

And with that, Jason, we can now open the line for questions.

(Operator Instructions).

Ben Swinburne, Morgan Stanley.

Good afternoon.

Les, can I ask you first about the ad market?

I think in the fourth quarter you guys were sort of flattish at the network on ad sales and if you strip out the NCAA timing, I think you said 4% growth in March.

And you had taken some -- a little bit of criticism around about the upfront last year and sort of waiting for some of the make-goods to kick in.

I am wondering if you could just talk about what happened this quarter, why we saw the acceleration.

Did you sort of better monetize your ratings because of some issues at your competitors?

Is this a market improvement.

Anything around those scatter premiums?

Any of those details would be very helpful.

I think it's a little bit of everything.

Obviously our ratings have been fairly significant and fairly dominant.

In addition, the marketplace clearly has gotten a lot stronger in the first quarter than it was in the fourth quarter and as we head towards the upfront and scatter becomes a little bit less important -- although scatter is still double digits -- I think everybody is preparing right now for the upfront and we are in a terrific position because the advertisers have come back in a very strong way.

We are getting a lot of early indications.

As I said, our schedule is fairly secure in that we have announced 18 pickups; and there is another one that is almost done which would be a 19th and you know -- so the advertisers, it is a lot better to plan for a schedule on CBS than anybody else and we are feeling a lot of strength in the end market.

Great, and just a follow-up on the international front.

Maybe, Joe, you mentioned international syndication a couple of times.

This was a big topic at your investor day, I think it was a year ago plus.

Can you just give us a sense for what kind of price increases you typically see and you expect to see this year?

There is obviously a lot of investor concern about Europe and if you could help us think about how important Europe is versus other regions in that international syndication business just to help us think about the drivers in the summer and as you move into the fall.

That would be helpful.

Sure.

I think it's the demand, right, is what is really driving it.

It is in obviously more countries as well as the more established countries, it is more competitive.

So clearly that is allowing us to have pricing leverage in those negotiations.

So, but I think the strong demand is really what is driving that.

Okay.

Thanks a lot.

Jessica Reif Cohen, Bank of America Merrill Lynch.

Thank you.

Two questions if I can.

Given the success that you have had or are enjoying right now in content, do you have any thoughts about or plans of for producing for other entities outside of CBS?

Basically I'm asking do you have capacity to scale off and would you?

Yes, we right now are producing one show for USA.

We have another pilot right now in the works for Turner.

And CBS also has a pilot for Showtime, which is internal.

So with the pipeline into CBS and into CW we are now expanding and we are looking to do that and we are in pretty good shape, and we do have the capacity to do that.

And then just a question on Showtime.

Maybe the strength, the growth in subs has been really surprising given everybody else's performance.

Where do you think penetration can wind up or how much more growth do you think is ahead?

Well, HBO is 27 or 28 and they were 27 about five years ago when we were 13.

So we have added 8 million and there's no reason we can't add some more going forward.

I mean, clearly, people are responding to our original programming in a big, big way.

And it is not surprising to us that our subscribers are increasing.

Thank you.

Michael Morris, Davenport.

Good afternoon.

A couple of questions on cable and then a follow-up.

The payments for the Showtime content digital was pretty strong this quarter.

Can you talk a little bit about what the pipeline looks like there?

It feels a little less transparent or maybe a little less talked about than the CBS pipeline.

So that is first.

Any insight on the Showtime content pipeline.

And then also it is almost 100% margin revenue growth at the Cable segment this quarter.

Can you talk about the cost side?

I think you mentioned timing of programming costs and maybe you can give us some insight on that for the rest of the year.

Then I have a follow-up.

Thanks.

Sure.

I think part of the strategy with Showtime was owning more of the original series and you are seeing the benefit of that.

Clearly, we are selling those domestically as part of our new streaming deals as well as internationally.

House of Lies, again, is another good example of one that is coming that again we own so, again, it's just another example of these ancillary revenue streams that as you're seeing are pretty significant, very high margin contributing to that strategic action.

So, yes, we definitely the margin Showtime from the first quarter grew significantly.

There will be timing of the way we expense things in terms of rich premieres, et cetera.

So we will have a little bit of that but again it is a very strong flow-through of the revenue that is really driving it and I think as Les said in his remarks about half of the 15% growth came from these digital opportunities but the other half is coming from our base business.

Was the first quarter growth in the streaming -- is that your biggest quarter for the year?

Or do you have any sense of what the pipeline looks like for the balance of the year?

Yes, look, we are having these conversations all the time with people who want to get into the business and extend their deals.

So from -- yes from the deals that we have currently under contract, yes, but again like I said, that is changing all the time and there is a lot of interest and demand for more and more of these deals so we are constantly talking to people.

So I don't know -- .

Yes, I don't know if we would say that this was the highest quarter for that.

We really don't know.

You know the other quarters are looking potentially even bigger than that.

Okay, great.

And then over on the affiliate and subscription fee side the growth was $29 million this quarter year over year.

Can you help us break that down a little bit because it seems like it is a little lower than I would have expected, given the retransmission outlook that you have given and sort of that split of 50-50 in terms of the revenue growth at cable.

Can you give us more details and maybe help us understand how that will trend this year?

Thanks.

Yes.

If you are just looking about again if you are looking at the segments, just remember when we record retrans half in local broadcasting and half in Entertainment.

So you just have to be careful of when you are looking at the actual dollar amounts.

I think again as we have said, retrans it's $250 million this year, we're clearly on track for that.

We obviously see some upside to that and we are renegotiating all these deals all the time.

So we continue to think it is going to be a strong part of our earnings growth.

And a lot of the affiliate deals as we've said aren't up until next year.

So you'll see a rapid rise there in the 50-50 types of deals with our affiliates.

Okay.

Great.

Thanks.

Laura Martin, Needham.

Just following up on Jessica's question about producing for other platforms.

A lot of us were at the digital upfronts last week and there's a lot of really interesting digital original programming coming onto the Internet.

I'm just wondering, Les, is this something you guys are doing now or is it something you guys might expand into?

I know Warner has got 20 new shows on the air and AOL is paying them for their pilots for a 60 day exclusive.

Is that something that you guys are pursuing now or might, going forward?

Yes, we have a lot of premium content that is not scripted fictional content.

We do have some laboratories and we are experimenting with that to make it a good financial model.

Obviously along with Warner Bros., I think we are at the top of the line in terms of producing great fictional content, and it is something we want to do more down the line.

We haven't yet seen the model that makes it financially worthwhile to do it in a big way.

But we do have a lot of smaller experiments going on.

And then silos on local.

I thought that interest -- it was a great point you made about local being more robust than national.

What are the major silos that are driving the strong local ad growth in the first quarter?

We saw that from auto as well as retail.

Those are probably the two strongest categories which, as you know, are our top four categories for us.

Yes, the fact that auto is back is hugely significant for our local businesses.

So we applaud what is happening in Detroit and throughout the world in the Auto segment.

And they are obviously very -- they are much healthier companies now.

Even the smaller businesses I think are all recapitalized and, again, it is just a good underlying point just to make for the strength of the local economies.

Thanks so much.

That's very helpful.

Doug Mitchelson, Deutsche Bank.

I am also going to ask a question and a completely unrelated follow-up.

Les, when you think about the operating strategy, your operating strategy, and think about how the December quarter ended up with disappointing scatter volumes for everyone in the marketplace, does that influence you at all to bump up your upfront fallout this go round?

No, not really.

Not really.

You know, overall scatter is still good and once again I know people think I sound cocky about our schedule but we do feel very good about it going there.

And if we don't get our right pricing, we are not going to sell.

You know our intent going in is to sell close to 80% but only at the right pricing.

Otherwise, I am more than happy to hold out and the fact that the market wasn't as strong as we would have liked it to have been in the fourth quarter there doesn't make us change that whatsoever.

Thanks for that and a question for Joe on the balance sheet.

Since you have been letting debt leverage drift lower last year and this year a bit, looking down the road, can you outline how your philosophy on the balance sheet might evolve given the profits for the Company are increasingly being sourced from nonadvertising, less cyclical revenue streams?

So in other words that would suggest the Company over time could bear -- safely bear a higher leverage rather than lower leverage.

So any thoughts on how your balance sheet philosophy might evolve?

It could be helpful.

Sure.

Look, we are very happy with our balance sheet.

Obviously we've changed the complexion of it tremendously over the last couple of years.

Our priority right now is focusing returning capital to shareholders and, clearly, as we gain more visibility into our cash flows and as you said they're -- more and more of them are committed every day gives us a lot of confidence in looking at our return of capital policy.

I think just last year we doubled our dividend as well as doubled our share buyback program.

So again, we are looking at that all the time.

We are committed and it is our major priority to look to increase that over time.

How should investors think about that?

Should they think about that as something you review annually, and so, 2013 would be the next time we'd see a major change?

Or is this (multiple speakers)?

It's daily.

Daily, we talk about it.

Fair enough.

Thank you.

David Bank, RBC Capital Markets.

I will try and keep it to one here.

Les, you've done a great job explaining how the monetization of the content, particularly on the existing platforms -- digital and traditional -- are driving earnings.

The existing digital platforms are -- and I don't want to say they're maturing but what I would say is everybody is starting to realize they are for real, they are recurring.

And so the next leg of growth will probably come, the next real big leg probably comes from the next bunch of entrants into the platform.

And can you talk about the level of activity that you are seeing and you are discussing with the Xfinity streams and the FiOS Coinstars and the Intel MVP -- virtual MP.

What is -- how real is that and how much discussion is going on and can you quantify the opportunity in some way?

Yes, no.

It is a very good question, and once again as Joe mentioned we have the right to extend our opportunity with Netflix and that will continue for many years at our option.

And we are in active conversations with many of the other participants from the Intels of the world to some of the existing companies like Comcast and their service.

What is great about all this is we are literally talking to everyone who is out there.

And when you have the library and the existing content that we do across all these platforms, mostly entertainment but also some news and sports content, there's opportunities galore out there.

So when we first did Netflix everybody said -- oh do you see anybody else out there?

And sure enough, Amazon came along and made a big deal.

There are a lot of players out there circling the building.

And we will be making some of those deals over the next number of months.

David Miller, Caris & Company.

One question for you, Joe.

You had mentioned depreciation expenses trending down in line with your CapEx levels.

I believe you mentioned that 90 days ago and you said so again in your prepared remarks earlier in the session here.

It obviously gives you a lot more operating leverage on the P&L that I think it is built into consensus estimates.

I mean, do you see this kind of leveling off as we get into Q4 and into Q1 of next year or do you see the trend down kind of continuing the way it has been quarter over quarter as we get into the meat of 2013?

Thanks very much.

Sure.

Look we definitely see the trend coming down.

I mean obviously you can just look at the size of the numbers.

You know our D&A is on a run rate basis is $540 million and our CapEx is somewhere between $250 million and $300 million.

So you can see that.

That is going to converge over time.

It is just depreciation is a multiyear type of expense non-cash.

But so this benefit continues -- so it doesn't end in Q1 of 2013.

This is going to continue for several years till those two lines kind of converge.

But again it is causing operating leverage to EPS.

Got it.

Perfect.

Thanks so much.

John Janedis, UBS.

Les, you obviously mentioned the opportunities galore on the SVOD front but to Dave's point earlier there really hasn't been that much new in terms of new entrants.

Are the buyers or maybe the potential buyers taking a wait-and-see approach based on what kind of subscriber growth they see in Netflix or Amazon?

And is the bias towards exclusive deals going forward?

Number one, there is obviously more information available from the Netflix and the Amazons about what shows are being watched.

And once again in that bundle there are some very good news.

There are certain of our shows that are watched by a ton of people.

The Star Trek franchise, for instance, is that.

And that becomes very concerted.

We have a non-exclusive deal with Netflix and a non-exclusive with Amazon.

The newer deals will continue on that basis and I don't know if they are taking a wait-and-see.

I think they are figuring out different models and as we have said over and over again, once again, they need our content.

They need our content no matter what it is.

So they are looking at it in different ways and sometimes in the same way.

So it is going to be an exciting period of time.

As a follow-up then should we assume that your bias is still towards the guaranteed deals rather than [user space]?

Yes.

That is for sure.

That's for sure.

Michael Nathanson, Nomura.

I have one for Les and then one for Joe.

Les, you mentioned that there are 19 shows any day now have been renewed.

When we look at your schedule for the next year, how do you balance your desire to own more of your own content with your continual focus on driving ratings?

How do you blend that?

And then comedies is an area where you've outsourced it to Warner Bros.

to a great degree.

At what point do you start taking more of that inside at CBS Productions?

Priority number one is to get ratings.

That is the biggest bucket that we have.

Keeping our network number one, keeping it healthy.

Ownership becomes a second priority.

That is the second bucket -- owning the syndication.

Yes, we have more dramas that we own.

Number one, we have twice as many dramas on our schedule right now as comedies and, frankly, the dramas now with the international marketplace and more importantly the domestic marketplace now exploding with drama and international continuing almost becomes a better, and not almost, is a better value proposition for us than the comedies.

In addition, very few of the comedies you know if they score they score big.

All dramas pretty much score big internationally.

So that is a better marketplace.

That is not to say we wouldn't like to expand our presence in comedy.

It is something that we would look to do over the next couple of years but we are primarily a drama place and that has worked out just fine for us.

Okay and then, one for Joe.

You mentioned your digital deals for Showtime, what shows were they?

I assume those were shows that were canceled, right?

So what shows came up to market this year?

Yes.

Those are like the sleeper cells of the world.

Those type of shows there.

What is the other one?

Dexter is (multiple speakers).

The earlier seasons of Dexter were there as well.

Tudors.

Tudors, exactly, is off the air.

That's in the first quarter, Michael.

William Bird, Lazard Capital Markets.

Where is the market currently clearing for retrans?

And separately, if exercised, how much could your Netflix option increment revenues in 2013?

Thank you.

The Netflix deal should be a slight increase, I believe, in past deals.

And also the significant thing about that to be remembered is if we take off a hit show that we own which there is a good chance of happening that automatically goes into the new Netflix deal.

So there will be an automatic big bump in terms of that.

And the retrans question, Joe, do you want to take it?

The retrans question I think it -- we have said the $250 million.

We broke down the math on investor day at $250 million.

That equated to $0.50 per sub by just math.

I think obviously we are seeing significantly higher than that.

So that is just going to continue.

So every negotiation is a little bit different but the good news is, I think we were conservative.

Thank you.

Anthony DiClemente, Barclays.

Good afternoon.

One quick one for Joe and then one for Les.

Joe, what exactly was the local -- where did local TV advertising do in the quarter?

I know that the overall segment was up 2%.

What was advertising?

On the local side you're saying?

Local sales versus national?

Yes CBS television stations advertising revenue in the quarter?

Mid- --.

All TV stations.

All TV was +2 and local outpaced that probably mid-single digits.

No but doesn't that +2 include retrans?

Yes but the retrans remember is very small because, again, it is only 50%.

It is only the delta.

So that +2 still rounds to a +2 with or without.

Okay.

All right.

So you can't give us what advertising did?

It is up 2.

Okay.

(multiple speakers) numbers are different.

Okay.

All right.

One for Les.

I think you guys have a big uptick in NFL right season 2014 if I am not mistaken, I think it is $300 million or $400 million.

And Les, if I know you guys I think you wouldn't have done that deal unless you knew you could cover the cost of it.

So maybe you could just talk about your path to profitability on an incremental basis on that deal.

Number one, the increase is not quite as high as you said.

And the number starts, remember it is a deal that lasts for a long time that starts a little bit above what we're paying now and expands as our advertising expands.

As you said, it will be profitable from season one in the new deal.

So it is a very good deal.

It is a very fair deal and you know as well there are some extra rights that are involved in it.

Plus we will be getting better games because we have the NFC.

We have seven NFC games from the bigger market teams that will -- should increase our ratings.

So it's a slow gradual increase in the fees.

And once again advertising and retrans and all those things will more than make it a very profitable deal.

And, Jason, why don't we take one more question?

Marci Ryvicker, Wells Fargo.

I have two somewhat unrelated questions.

First, Joe, can you just give us a little more color on pacings?

For Outdoor can you break out domestic versus international and then for broadcast radio versus television?

And then my second question is on Hulu.

Les, any thoughts about joining them if it becomes an authentication model?

I'll start.

The pacing, again for local broadcasting, I think TV is slightly ahead of radio right now as we sit here.

Like I said, it is a pace so it changes from week to week but as the segment, clearly, as I said is low single-digit.

On Outdoor, again, I don't think it is a surprise that the Americas are clearly outpacing Europe.

So that is how it is getting to again also that low single-digits and again we always give our pacing on a constant dollar basis.

So that is really the color.

And regarding Hulu, we will take a look at it under the authentication model.

Right now, we are very pleased with our digital strategy without Hulu.

We are doing extremely well being non-exclusive with the Netflix and the Amazon and, more importantly, our CBS.com sites which we keep 100% -- you know, 100 cents on the dollar.

You know when it comes out and we will, of course, have a conversation with them.

On the CW side we are doing business with Hulu Plus right now.

So right now, we do talk to them but right now we are very happy with our strategy.

Great.

Joe, can I just clarify the Americas Outdoor?

Would you say it has accelerated or decelerated or the same?

For Q1 I'd say steady.

I would say steady.

Remember the Americas was up 4% so I would say steady.

Thank you.

And this concludes today's call.

Thank you, everyone, for joining us and have a great evening.

This does conclude today's conference.

Thank you for your participation.