Paramount Global (PARA) 2012 Q2 法說會逐字稿

Good day everyone, and welcome to the CBS Corporation second-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 second-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 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 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 Investor 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 on our website.

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

Thank you.

Good afternoon everyone.

I could not be more pleased to be reporting yet another quarter of truly spectacular results.

Our world-class content remains the driving force behind our success, and we continue to sell our content in new ways that generate higher and higher profits.

And there are many more opportunities before us that will enable us to grow year after year and year after year.

CBS's strategy is working better than ever.

I am convinced it will keep us at the forefront of our industry for many, many years to come.

But as you know, strategy is not everything.

You also need the right person at the top to execute that strategy.

And obviously there is nobody better suited for that job than CBS's President, my friend Les Moonves.

So to tell you more about CBS's exceptional performance, I'm going to turn this call over to the man I call a super-genius, Les.

And Les, the reason I call you a super-genius is there are no words to describe the spectacular manner in which you have operated CBS and we are proud of you and I am proud of all your achievements.

Thank you Sumner.

I am blushing.

You can't see me, but thank you very much for those very nice remarks.

(multiple speakers) those comments.

You are the best.

I'm very flattered.

Good afternoon everybody, and thank you for joining us.

I'm very pleased to be reporting another terrific quarter today.

In fact, in EPS, operating income and OIBDA, we didn't just break records for the second quarter, we delivered record results that were better than any quarter since CBS Corporation became a standalone company 6.5 years ago.

EPS of $0.65 was our highest ever, and so was operating income of $769 million.

OIBDA of $901 million was an all-time quarterly high as well, and to top it off, our OIBDA margin of 26% was also the best we have achieved to date.

It's important to point out that this was a very clean quarter.

No special items drove these results.

Clearly, CBS is increasingly benefiting from the steps we have taken to improve our business model.

While our traditional businesses continue to grow and provide a tremendous source of strength for our Company, we also have multiple sources of recurring high margin revenue that are increasingly paying off in our results.

And the good news is there is still a long way to go in our evolution.

Plus, we have several significant contributors to revenues in the quarters and years to come, driving us to what we are confident will be record results for this year and an even better 2013.

First, in terms -- in the near term, pacing in the third quarter is accelerating across our local businesses.

The London Olympics and the presidential election here in the US will significantly help our results in the back half of the year.

Second, we recently sold our network inventory at very attractive pricing in the upfront.

This will not only benefit us later this year but throughout the 2012, 2013 television season.

Third, in 2013 and 2014, we have four hit shows going into syndication, Hawaii Five-0, NCIS Los Angeles, the Good Wife and Blue Bloods.

These titles will generate hundreds of millions of dollars for us in the next couple of years, and then they will follow in the footsteps of CSI and NCIS continuing to generate significant revenue for many years to come.

In addition, the success of our programming is fueling new and growing revenue streams on emerging digital platforms.

Consumer demand is driving this growth and we continue to have discussions with all sorts of developing streaming and download services.

We look forward to updating you on our progress in this area very soon.

Across the board, our content is what distinguishes this company and it's what makes us so confident about a future that is increasingly rewarding those with the best programming.

In fact, it's this confidence that led to last week's announcement to expand our share repurchase program by 57% and increase our dividend by 20%.

Returning value to shareholders has always been a top priority for us and this new commitment demonstrates that it will be in the years to come as well.

Right now, I'm going to tell you some more about our second-quarter results, and then I will give you some highlights of each of our businesses before turning it over to Joe for more details, and after that we'll obviously be happy to take your questions.

As I said, in the second quarter, we set all-time records in EPS, operating income, and OIBDA.

As we produce these record-setting profit numbers, two timing issues affected our revenue during the quarter.

Last year, the semifinals of the NCAA men's basketball tournament were in the second quarter; this year they were in the first.

Likewise, the initial substantial wave of revenue from our new streaming deal was reported in the second quarter last year, and this year we reported it in the first quarter.

As a result, revenue of $3.5 billion this quarter came in a little lower than a year ago.

But the entire difference in revenue between this year and last year is because of these two noncomparable items.

Meanwhile, we are containing our expenses and strengthening our balance sheet.

We recently took advantage of the favorable debt markets to do some significant refinancing which will save us tens of millions of dollars a year in interest costs going forward.

So as you can see, even with an uneven economy, our financial health is superb, our content is at the top of its game, and the opportunities in front of us are enormous.

Now, let's take a look at how each of our businesses is contributing to our success, starting with entertainment.

The CBS Television Network recently scored a broadcast television trifecta.

For the year, we were number one in viewers, we were number one in upfront revenue, and we were number one in Emmy nominations.

Good performance, good business, and outstanding quality on the screen.

In terms of viewers, this was the ninth year -- ninth time in the last 10 years that CBS has been number one.

Our success has clearly dispelled the myth of network cyclicality.

Not only do we continue to dominate year after year but our lead is widening.

This past season, we had nearly 3 million more viewers per week than our nearest competitor, the largest margin of victory by any network in more than 20 years.

And success breeds more success.

Due to the strength of our existing schedule, this fall, we will be adding just four new shows, while our competitors are forced to add many more.

With fewer shows to produce, and the best platform from which to launch them, we are extremely confident that we will finish number one again next year.

Advertisers clearly agree.

As I mentioned in the upfront selling season that took place during the quarter, CBS once again led the way in both total dollars and rate increases, another positive sign for revenue later this year and in 2013.

Plus, as we continue to diversify our revenue sources, CBS' ownership in all three of our new fall dramas will present many more opportunities to monetize our content.

Let's take a brief look at some of these key developing revenue opportunities.

As you know, one of the fastest growing and most significant ways we are monetizing our content is international syndication.

Overseas, the appetite for CBS produced shows continues to be huge, including programming from the CBS Television Network, the CW, and Showtime.

We held our international screenings in late May and there was a lot of excitement for our new shows, particularly in Europe, for Elementary, which is our modern take on Sherlock Holmes, and also for Vegas, which stars Dennis Quaid and Michael Chiklis.

Just as we've done in the past few years, we are now selling these shows for millions of dollars an episode before they even air in the US.

And as we announced this week, we are also expanding our international footprint with ownership positions in new CBS branded cable channels across Eastern Europe, the Middle East and Africa.

Just as we have successfully done in the UK, Australia, and India, we are using our extensive library to gain equity in new ventures and opening up new forms of distribution for our programming and the CBS brand.

Meanwhile, online streaming also continues to be a growing source of revenue.

You can see the effect Netflix and Amazon have had on us, and what our Hulu Plus deal has done for the CW as well.

I can tell you that interest in our content from all these new entrants to the marketplace is extremely high, not only here in the US; the international marketplace for streaming content is extremely hot as well.

We are still in the early innings of this ballgame with many more deals to be done.

As we move forward, we will continue to be prudent about making sure each new agreement is incremental to the overall revenue picture.

Retransmission fees and reverse compensation from our affiliates are also factoring more and more into our results.

It's important to point out that we continue to do deal after deal at very good terms without incident.

This is not to say we will never have a dispute that goes public.

But across the industry, the marketplace is working.

And the few cases making all the noise are rare exceptions.

We will continue negotiating with distributors to realize the full value of our content and are confident there is significant upside ahead in doing so.

Each new deal means increased fees.

So from the CBS Television Network to syndication, to streaming to re-trans and reverse compensation, we continue to increase the ways we get paid for our CBS content at every step of the way.

In addition to our entertainment programming, big-event sports broadcasts are increasingly valuable as well.

You're seeing this now with the Olympics and next year, we anticipate having the largest television audience of the year, maybe of all time, when CBS broadcasts Super Bowl XLVII in February.

We have already sold more than 80% of our advertising in the game, which is well ahead of where we were at this point three years ago and the spots are selling at terrific prices.

Plus, we are looking forward to the unusual circumstances -- circumstance of broadcasting three huge events in prime time early next year.

The AFC Championship Game, the Super Bowl and the Grammys will all be broadcast on CBS in one four-week period during the first quarter and will provide a powerful kick start to 2013.

Meanwhile, we continue to make steady progress at CBS News.

In fact, every single one of our news programs is growing, proving that eyeballs will follow quality programming.

Just last week, the CBS Evening News with Scott Pelley averaged nearly 0.5 million more viewers compared to the same week last year and it remains the only network evening newscast to be up year-over-year.

CBS News also received 43 Emmy nominations last month, more than double our nearest competitor.

At our cable network segment, Showtime continues to lead the way as we post stellar results quarter after quarter.

The strength of our original programming is driving increases in rates and subscribers, which is now approaching the 22 million mark.

Next month, we will be premiering the highly anticipated second season of Homeland, which recently received the most Emmy nominations of any new show, and also Dexter, which remains our top-rated series.

In addition, we will be debuting two exciting new dramas, Ray Donovan and Masters of Sex, early next year.

We have ownership in both of those shows and going forward we will be increasing the Showtime content that we own whenever we can.

Turning to Publishing, Simon & Schuster continues to release some of the top-selling titles in the industry, both in traditional and more and more in e-book formats.

Already this year, we've had 185 New York Times bestsellers with 22 of our titles making it to number one.

At our TV stations, we continue to do very well in prime time.

We are enjoying great success in our local newscasts as well.

Ratings in our biggest three markets were up considerably during the May Sweeps, and all but one of our stations finished either first or second in late news across all of the O&Os.

Clearly, the local programming in our O&Os are working and it's yet another key reason why we are able to achieve the growing re-trans fees that we talked about earlier.

Meanwhile, we expect political spending to accelerate throughout the third quarter into the fourth, right up to election day, with record-breaking numbers.

In addition, the automotive category continues to show very strong increases, especially from the Japanese manufacturers, which have once again begun spending at healthy levels.

And we are seeing good growth in travel and leisure as well.

At our radio stations, we remain focused on the formats that are performing best, especially news and sports.

We're particularly excited about the upcoming launch of our new CBS Sports Radio Network, which, right out of the gate, when we debut in January, will be the largest major market sports radio network in the nation with outlets in nine of the top ten markets.

This 24/7 network of sports radio stations will feature both national and local content, and leverage the resources of CBS Sports, our CBS Sports Network, cable channel and content from our existing local sports radio station.

Speaking of sports, at Outdoor, the London Olympics are boosting our ad sales in the third quarter.

We love to hear about all the people who are caught in large traffic jams and riding the Tube as they look at our advertising.

Meanwhile, here in the US, our billboards and display business continues to perform well too.

And around the Globe, in the UK, Italy and domestically as well, we continue to benefit from our more profitable renegotiated outdoor contracts all the time.

Across our businesses, you can see why we are pleased with our results and excited about our future.

We've been telling you for some time now that the steps we have taken to change our business model would have a big impact on our bottom line.

And as you can see, once again, they are.

And the good news is we will continue to reap the benefits of these changes for many years to come.

Remember as well that all of this is being accomplished in a macroeconomic environment that has been slow to recover.

The fact that we have such good positive visibility into our future is why we announced last week that we have expanded the value we are returning to shareholders, and even with the larger buyback program, the increased dividend, we still have headroom due to our very healthy levels of free cash flow.

Our confidence in the future is also why we believe we will achieve record results for the full year 2012.

Looking ahead, given our success in the upfront, the Super Bowl on CBS and our own station, several hits ready to be sold into syndication, re-trans, reverse comp and international all growing rapidly, and new entrants coming our way in online distribution, we expect 2013 to be even better.

And we are very optimistic about our long-term prospects beyond that as well.

Thank you.

Now I'll turn it over to Joe.

Good afternoon everyone.

Today, I'm going to provide some more details about our second-quarter results.

I'll also give you an update on our recent financing activity and on our increased capital return announcement.

Then I'll conclude with what we see ahead for the back half of 2012 and 2013.

Let's start with the second-quarter results.

As Les highlighted, we delivered record profits in the second quarter, the best single quarter since we became a standalone company in 2006.

We clearly benefited from the ownership of premium content and our ability to monetize it in both traditional and emerging platforms.

This is a strategy that we have previously laid out for you.

As you've just heard, revenue for the second quarter totaled $3.5 billion and the comparison versus prior year was impacted by the two noteworthy items Les mentioned.

The semifinal games of the NCAA Final Four occurred in the first quarter of this year, and in the second quarter of last year.

And last year, we made many of our library titles first available for streaming during the second quarter, whereas an even larger availability was made during the first quarter of this year.

Combined, these two items accounted for the entire difference in revenue between this year's quarter and last.

OIBDA came in at a record $901 million, up 3%, and our OIBDA margin expanded 2 percentage points to an all-time high of 26%, again demonstrating the benefit of the growing new revenue streams derived from our premium content as well as our ability to control costs.

Operating income increased 5% in the second quarter to a record $769 million.

And our operating income margin also improved 2 percentage points to 22%.

And EPS hit an all-time high of $0.65, up 12%, further demonstrating the strong operating leverage in the business.

Because of the timing of the two items that affected comparability in the second quarter, looking at our year-to-date results gives you an even better picture of our underlying performance.

Through the first half of 2012, total revenue grew 4% to a record $7.4 billion.

And we had growth in every one of our key types of revenue.

Advertising grew 1%, affiliate and subscription fees grew 8%, and content licensing and distribution grew 13%.

Non-advertising revenue accounted for 39% of our total revenue during the first half of 2012, up from 36% a year ago.

This mix will be affected a bit during the second half of this year as political advertising and the London Olympics bolster ad sales.

But in the long-term, we expect non-advertising revenues, which include re-trans, reverse compensation, cable affiliate fees, digital streaming, and global syndication, to outpace total revenue growth and make up a bigger portion of the revenue pie.

Also on a year-to-date basis, OIBDA grew 16%, operating income grew 20%, and EPS increased 37% to a record $1.19 per share.

Let's turn to our operating segments.

Due to the timing of the two items we just mentioned, Entertainment revenue was $1.7 billion, down 7%.

The same two items accounted for virtually all of this delta.

Underlying advertising revenue at the CBS Television Network was comparable to the prior year.

Second-quarter Entertainment OIBDA of $426 million was down just 3%, again as a result of the two noncomparable items.

But because of our more profitable mix of revenue, our Entertainment OIBDA margin expanded 100 basis points to 25%.

In our Cable Network segment, revenue for the quarter was $446 million, up 8%, driven by increases in rates and subscribers as well as growth in digital streaming revenue, again, a benefit of increased ownership of content.

Cable OIBDA was also up 8% to $190 million, driven by revenue growth and the timing of certain expenses -- and certain programming and advertising expenses that we discussed during last quarter's call.

On a more meaningful year-to-date basis, Cable revenue was up 11% and OIBDA was up 21%, and our Cable OIBDA margin expanded 3 percentage points to 44%.

Turning to Publishing, second-quarter revenue of $189 million was up 3%.

Sales of our more profitable digital books grew 44% and represented more than 20% of publishing revenue.

OIBDA of $9 million was affected by the proposed settlement of the e-book litigation.

As we progressed in putting this issue behind us, we look forward to the continued growth in the profitability of this business as it shifts towards a more efficient distribution platform.

Local Broadcasting revenue of $704 million was up 2%.

TV station revenue was up 6%, and radio revenue was down 2%.

The radio revenue comparison was affected by the sale of the West Palm Beach radio cluster which closed on April 1. Radio revenue for our top 10 markets was flat for the quarter.

Local Broadcasting OIBDA of $248 million was up 8%.

And the OIBDA margin grew 2 percentage points to 35%, driven by growth in high-margin revenue and lower programming costs.

And finally, outdoor revenue for the quarter was $481 million, down 2% on a reported basis as a result of the negative impact of foreign exchange rates.

On a constant dollar basis, revenue was up 1% for the segment with the US up 5% and Europe up 1%.

Outdoor OIBDA of $93 million increased 8% in the second quarter as we continue to benefit from our improved operating efficiencies and the elimination or renegotiation of unfavorable contracts.

Turning to cash flow and our balance sheet, for the quarter, free cash flow came in at $558 million, and year-to-date free cash flow was $1.2 billion.

We continue to convert our profits into cash flow at a very efficient ratio because our businesses are not capital intensive.

We ended the quarter with cash on hand of $1.9 billion, which included approximately $900 million of proceeds from our debt issuance in the second quarter.

We then used that $900 million after the quarter end to reduce debt.

We said during our last call we will continue to reduce our interest expense and bring our interest costs more in line with current rates.

In June, we opportunistically refinanced $900 million of higher rate notes with two new tranches of lower rate debt, reducing annualized interest expense by about $30 million a year.

Along with our first-quarter refinancing, we have reduced our annualized interest expense by more than $50 million a year.

And you will begin to see the full benefit of these actions later this year and into 2013.

As Les said, we also continue to use our excess cash to return value to shareholders.

During the second quarter, we retired 9.4 million shares of our stock for $301 million.

Since this repurchase program began in 2011, we have repurchased nearly $1.7 billion worth of stock to date, retiring over 63 million shares at an average price of just over $26 per share.

Consistent with our commitment of returning value to shareholders, last week, which I'm sure you saw, we announced an increase to our quarterly dividend rate by 20%, and we upped our share repurchase program to $4.7 billion, giving us $3 billion remaining now on the program.

We expect to complete this program over the next ten quarters, which would take us to the end of 2014, and represent an acceleration from our previous pace.

We were able to put this plan in place now because of the benefits of the ongoing transformation of our business model and the confidence and visibility we have in our cash flow going forward.

Now, let me give you a few observations of what we see ahead for the rest of the year.

Starting with Local Broadcasting, we are seeing accelerating trends across the segment.

Local Broadcasting revenue is pacing to be up high single digits for the third quarter led by our TV stations which are pacing to be up in the teens, driven by political, auto, and the entertainment categories.

Our Local Broadcasting segment is set to benefit from strong tail winds over the coming quarters, starting with political in the third and fourth quarters, and then the Super Bowl in Q1 of next year.

Outdoor is pacing to be up high single digits for the third quarter on a constant dollar basis, benefiting from strong Olympic-related ad sales in London as well as continued growth in the US.

For Q3, Europe is leading the way and is pacing to be up in the teens.

At the CBS Television Network, we are poised for a great start to the new season in late September when our new upfront pricing takes effect.

As you know, we are always looking ahead.

So, I'd like to highlight a few things we know about 2013.

To start the year, we're set to benefit from the biggest prime time television event of the year, Super Bowl XLVII, and the pricing we are getting for these spots is record-breaking.

We also know we will have a strong year of revenue in content licensing and distribution.

At least two of our hit CBS shows will be going into first cycle syndication in 2013, NCIS Los Angeles and The Good Wife.

In addition, at Showtime, we are building our library of content.

Just to give you a sense of the magnitude of what we will have available in the future for syndication, we will have 168 episodes of Dexter and Californication alone by the end of the 2013 season.

Also, we continue to see upside to our streaming revenue as we have the ability to extend and expand certain existing deals.

We also know that we will see continued growth in re-trans and reverse compensation revenue as we cycle through renewals on existing agreements.

In fact, between now and the end of 2013, about 50% of our deals that cover our owned and operated stations will expire, and we expect to adjust those deals to higher current market rates.

Also in 2013, we expect reverse compensation to cross the $100 million mark.

In addition, we will continue to see benefits to our bottom line through lower interest expense, lower D&A expense, and lower shares outstanding.

In summary, our second-quarter results illustrate the solid progress we have made towards derisking our business model and driving growth in new high-margin revenue.

And we have done this while containing our cost structure, resulting in record profits in OIBDA, operating income, and EPS that you are seeing today.

There is a lot more upside still to come as we continue to execute on this strategy.

For all the reasons you've heard today, we believe we are set up for an even better year in 2013.

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

(Operator Instructions).

Ben Swinburne, Morgan Stanley.

Thank you.

I'll ask my question and follow-up all in one shot just for efficiency purposes.

Les, a couple of years ago when you did the Netflix deal, I think you said you sold about 7% of your library.

And everyone I think has a better sense for what online video looks like now.

I'm sure you guys feel like you've got a handle on sort of what's the right content to put in that -- on that platform, how to price it.

What do you think the renewal looks like, just from a big-picture perspective?

Do you think you'll increase the amount of content on there?

Would you change the kind of shows you'd put into the deal?

And do you expect -- or do you expect simply just to renew sort of the current offering for that higher prices?

And then my follow-up is just on international.

I remember a couple years ago you did Hawaii Five-0, you screened that internationally to a lot of successful demand overseas, and then it proved to be a domestic hit that led to syndication, which is now coming up.

Do you look at any of the shows that you have coming in this fall -- you mentioned Elementary and Vegas as being things that you think would be potential domestic syndication hits?

I know it sounds like we're talking about 2015 here, but Five-0 got bought real quick.

I think it was five episodes in or something.

So I thought I'd ask.

Yes, regarding -- let me deal with your two questions.

Regarding obviously the Netflix deal, the renewal is already preordained per se.

And you are right.

We have a better idea, although the information is somewhat limited, it's somewhat preliminary, on which shows are working and which aren't.

And as you can imagine, some are working better than others.

It's good to have the Star Trek franchise.

I think that's something that works exceedingly well.

And some of the others don't work as well.

I think, frankly, with Netflix, our relationship is so good, we will be adding titles, such as CSI Miami, which just came off our schedule, and we are working with them about increasing some and decreasing others.

And the overall bottom line will be we will get more money for this.

And we will have better visibility onto which shows will go into those packages.

Regarding the second question, obviously we -- as stated, we have great international sales already on the shows.

We own a number of them.

It's hard to tell what's going to come out big.

Elementary is very strong; Vegas is very strong.

Obviously, a couple of shows on CW, in addition some of the shows on Showtime as well potentially can do that.

Elementary and Vegas are positioned, they're both -- one is 10 o'clock Tuesday and one is 10 o'clock Thursday.

They are in very good position to launch very strongly.

Whether there is a marketplace -- it's quite unusual to sell a show after five episodes, but we are fairly certain, with a modicum of success, which we are expecting with both those shows, that we will get a very good domestic sale fairly quickly as well.

Great, thanks a lot.

Jessica Reif Cohen, Bank of America Merrill Lynch.

My first question is also on international.

Les, you mentioned you're increasing your footprint.

I was just hoping that either you or Joe could tell us a little more about the Chellomedia deal.

How we should think about that opportunity and what percentage is international now of total revenue?

It's Joe.

International is about 15% of total revenue right now, and obviously, again, that's all international.

So that does include our Outdoor business.

I think we've said on just exporting content, we've crossed over the $1 billion mark just in sheer US dollars.

Yes, and the Chellomedia deal, it's actually fairly simple.

We already have the model worked out that we've done with them in the UK where we had four channels with them, where our content acted as our equity.

And once again, it's content that wouldn't necessarily have been sold anywhere else.

And it's worked out extremely well.

So because of that deal, we've expanded into 83 new channels.

Once again, we haven't put up a dime.

We are putting up library content, and some existing content that wouldn't be sold into territories such as Eastern Europe, Middle East, and Africa.

And we own 30% of these 83 channels that they previously owned.

So there's only upside for us in this, and as I said, if they work out as well as the other four did, it will turn out to be a very good venture.

And the second question is on retrans.

I know you said in the past you'll do at least $250 million this year.

DIRECTV said on their call that you guys are wrapping up your negotiations, so you should have a good sense of how much you're going to get paid.

Could you give us any sense of how fast this number will grow, and when do you think the reverse comp really kicks in?

It's Joe.

Reverse comp, we just gave you a number I think for 2013, and I will tell you we are in the very early innings, just because the deals don't expire.

Most of the deals for us expire kind of in the 2014/2015 cycle.

So what I will also add is some TV affiliates want to come early.

So we are seeing that happen, so that's a good pattern.

And yes, obviously when we enter into the deal with DIRECTV, it will be a benefit to us, albeit a small portion of 2012, but a big full year for 2013.

So, we also laid out that, again, we expect this to grow pretty rapidly, so you can see the size of these revenue streams that are starting to really get some size.

And the $250 million is a little bit conservative.

Michael Morris, Davenport.

Thanks, good afternoon guys.

Two other questions on retransmission, of course, a popular topic.

The first one is just kind of mechanical.

If you look at your content -- or not content, but subscription and affiliate revenue that you report for the entire Company, it still isn't seeing a ramp of the magnitude I would've expected to kind of hit that $250 million number this year.

Can you talk about what the back half of the year looks like?

Is this -- how steep is the ramp kind of on a quarterly basis as we work through 2012?

Then I have a follow-up.

Thanks.

I don't want to get too much specific, but it does ramp, Michael, because deals kick in and start in the middle of the year, in the third quarter, so we are going to be getting those pricing benefits as those deals start.

So we do have to cycle through it, so on an annualized basis, clearly Q1 will be the lowest and Q4 will be the highest.

So I think you're going to continue to see that momentum build.

So when we think about -- when we try to figure out 2013 of course, 4Q, which will be significantly higher than 1Q just based on what you've reported, that represents the run rate that you're looking at going into 2013.

Is that correct?

Yes.

Like I said, the run rate should, and as Les just alluded to, be higher than the $250 million.

Okay.

And then my second question is a bit more open-ended, but in light of the Aereo situation and kind of the failure of the broadcasters to get an injunction there, certainly the question comes up a lot more frequently with respect to the risk, to the retransmission revenue stream over time.

So it's a bit open-ended, but I'm hoping you can speak just a bit about how you're looking at that.

Obviously, Comcast struck a long-term deal with you.

They value it.

Other distributors talk about maybe trying to avoid their programming cost increases.

I'm just interested in your thoughts because we hear so much about it.

Number one, it does not affect any negotiation we have.

It is hardly even brought up.

And we are very confident that our legal position is going to prevail.

It hasn't affected us in terms of one sub, one deal, one anything.

The minor loss we had served in the court was really -- it's not even the first out of the first inning basically.

We are sure we are going to prevail.

Throughout history, our content has always gotten paid for.

So the people who have cried "Oh my God, this can hurt retransmission," are really exaggerating greatly.

It's not something I lose sleep over for even five minutes.

We think it will go away.

We think we will prevail in the courts.

We will always get paid for our content.

Great, thank you.

David Bank, RBC Capital Markets.

Thanks very much guys.

Two questions.

The first is can you give us a sense of the order of magnitude that you could see revenue contribution from the new Sports Radio Network?

And on the costs, I just want to make sure I understand that -- I would think there's really no incremental cost to the content, right?

This is your own, basically your own stuff that you're essentially syndicating.

And the second question is your off-net syndication team has really sort of spoiled us for a while here, giving us the leadtime on the sales of some of your high-profile deals as referenced before.

But I think Good Wife, while we are all sort of expecting a syndication, I don't think the deal has been inked yet.

So could you give us a sense of what you think the timing around that could be?

Thank you.

I'll start with the first one.

The CBS radio network, the sports -- the radio sports business is probably $150 million market.

So, we are going to be large coming right out of the gate, so it's all incremental.

It's not -- in dollars we play in today at the local segment, so we expect to gain our fair share of that.

And you're right, there's very little incremental cost for us.

A lot of the talent and the content we are already producing, so this made a whole lot of sense for us and with the outlet with Cumulus, we do think it is a fantastic partnership with great content and great distribution.

So we do expect some upside again starting in 2013.

Yes.

We have so many great sports properties and announcers and on-air personalities, so it's a great way to cross-market CBS Sports, the Cable network, what we already have on radio.

So you'll be seeing a lot of our already existing talent going on on the radio network.

And as Joe said, incrementally, it's going to cost us very, very little, and there's a real upside to growing the business.

And syndication, Good Wife?

You're right in that Good Wife has not sold, which is not unusual.

I think the unusual was the NCIS Los Angeles which was sold very early, so we will be in the marketplace with that product.

Obviously, it's a quality show, and there's great demand for that show.

Stay tuned.

Thank you very much.

Michael Nathanson, Nomura.

Thanks.

I have a couple for Joe.

Joe, just help me with the math on this for a second.

On Entertainment, you had about an 8% step-down on expenses.

What drove most of that decline in expenses?

Was that tied to the syndication sales from last year?

The expenses I would say it's sports -- the timing of the NCAA, the shift that we talked about on the revenue, obviously that is a lower margin profit for us, so that shifts into the first quarter.

That's probably one of the bigger drivers.

Do you have any -- are you still assuming the same kind of expense growth for that Entertainment segment for the whole year, low single digits or is that (multiple speakers)

I would say once you normalize all the noise and you just looked at the way we managed cost at the Entertainment segment, I think we've said and we are committed to low single digits, we are able to manage our cost structure there.

Okay.

The last one would be on the broadcast update.

Your network you said it was close or it was flat.

Are you taking out NCAA in both quarters?

Is that how you're looking at it?

Yes.

That's normalized.

Okay, normalized.

Thanks.

David Miller, Caris & Co.

Hey guys.

Congratulations on the stellar results.

I think you guys have said in the past that 2013 will be a very strong year for syndication.

Joe, you obviously mentioned the four shows that are going to be hitting that cycle, the syndication cycle, in 2013.

As it applies to both domestic and international syndication in 2013, Joe, would you say it's going to be more of a first-half weighted story and a little weaker in the second half, or would you say that that piece of business is going to be fairly smooth for you guys as we go throughout all four quarters in 2013?

Thanks very much.

Yes, I would say it's probably actually second half.

Just to be clear is we do have four shows, but two of them we said very likely for 2013.

Blue Bloods and Hawaii Five-0 are set for the following year.

We do have flexibility in the timing of some of those deals, but we are committed to two shows certainly going.

I would say, David, though, the back half of the year.

Generally those happen in Q3 for domestics as the new season starts.

That's not to say it can't happen earlier but generally speaking I would point you to the back half.

Great, thank you.

Doug Mitchelson, Deutsche Bank.

Thanks so much.

Les, I didn't know you lost sleep over anything, so five minutes sounds like a lot.

(multiple speakers)

I lose sleep over plenty of stuff.

So I'm going to do the same, I'm going to ask a question and I'll also give you my unrelated follow-up right away.

Les, if I heard you correctly, you teased us with a comment that you would update us soon with new digital offerings.

So any more clarity on that would be helpful.

Is this just offering the same off-air window to new entrants?

Is this changing the windows or expanding rights?

And then -- and separately also for Les, just given your experience, I was hoping you could talk about what you're seeing in the scatter marketplace.

Is the 500 basis points or so slowdown that peers are seeing in 3Q ad growth normal relative to the Olympics impact?

Is there any underlying softness in the scatter market that we should be concerned about?

Thanks Doug.

In terms of the new deals, it's a combination thereof.

Obviously, there are certain international markets that are opening up for streaming, in addition expansion of existing deals, and some potential new players as well.

So, it's coming from all sorts of places, and there is a lot of activity, put it that way.

In terms of the scatter market, once again, in August, we don't worry about the scatter market, especially in an Olympic year, and especially Olympics that's doing this well.

We've just sold such a great percentage of our inventory six weeks ago, pre-upfront.

We are ready for the gun to go off in the middle of September.

In terms of any softness, I think it's all attributable to the Olympics.

It's something that is totally fine, totally business as usual.

We're really pleased with the increase in the pacing of local, and in terms of the scatter for national, it is a nonissue.

When do you feel like you'll have visibility on the fourth quarter or the new season?

Does that come in September when there's enough scatter deals done that you have confidence in what it's going to look like?

Yes, around then.

Around then.

That sounds about right.

When we speak to you next, we will know.

And then just lastly, sorry, but so the off-air window that you currently use for online digital, that's what we should expect to continue, right?

Yes.

Okay, thank you.

John Janedis, UBS.

Thank you.

Les, you touched on the streaming.

You've taken CSI off the air.

Can you remind us of the timing of the put provision there?

And then separately, obviously one of your peers announced a spin to create shareholder value a few weeks back.

There is some speculation over time about your Outdoor business and the potential sale there.

Do you see any value creation from a spin of the Outdoor and Publishing assets if the buyer doesn't emerge?

In terms of Outdoor, we have always said we are not actively in the market to sell it.

A couple of people asked to look at it, and we said, okay, with the right offer, and they talked about it openly.

So in addressing the question on the street, we said, look, we are very pleased with how it's performing.

It's growing rapidly.

It's growing from where it was three years ago every successive year.

If somebody came along with the right price, we would have to take a serious look at it.

But there is -- so there is going to be no need for us to say anything in that we are happy operating it.

We really are.

And the CSI deal?

On CSI it will be the third quarter.

Thank you.

Alexia Quadrani, JPMorgan.

Thank you.

Just following up on your comments on the strength of the Outdoor business in Europe in the third quarter around the Olympics, any sense of how long those contracts are?

Just trying to get a sense of how long that market may be a bit tightened.

And then another local question is just on the good growth you're seeing in local TV.

Any sense there about how much is sort of core growth versus the political benefit?

It's Joe.

On the Outdoor, yes.

What we usually try to do is extend the Olympic season, if you will, meaning push it beyond it and pull it some forward, so I think there will be --

(multiple speakers) would like to explain the Olympic season as well.

So I think you'll see some of that carry into the fourth quarter.

Then it will obviously trend down.

But on the TV side, just a couple of categories.

Our largest category is auto, and auto is extremely strong.

So, although political comes and goes and stuff, but with the auto category strong, that's a real good fact pattern for our Local Broadcasting segment.

Okay, thank you.

Anthony DiClemente, Barclays.

Good afternoon.

Thanks for the question.

One for Joe and one for Les.

Joe, on the free cash flow trends, you pointed out in the release that there is higher spend on content and higher income tax payments impacting free cash flow.

I'm trying to figure out, is that just timing quarter-to-quarter?

Is that sequential?

Will that smooth out over the course of the year?

Or is that -- are those more sustainable?

Will those have an impact over the course of the full year?

I think, again, the timing for cash taxes is if you've got to remember we made a pension contribution last year on July 1, so we were able to lower cash taxes last year.

So clearly we didn't do that this year, so that's the change in the taxes.

And on the programming side, some piece of it is timing, but some piece of it is obviously also incremental investment in ownership of our premium content in the shows that Les talked about at the studio, and that will obviously pay off in the future.

Okay.

And then one for Les.

I'm sure you may have seen that Apple TV ad added Hulu onto its platform this week.

I'm just wondering, when you think about Apple, are you in any way philosophically opposed to offering CBS on the Apple TV platform?

And I know just from prior experience, I'm sure your answer will have something to do with getting paid for your content.

But more specifically, is there anything you need to see or specifically anything you need to get in order to be convinced that that's a smart strategy for CBS?

Look.

Anthony, we've had this discussion many times before.

You're right.

It depends what the terms are.

It depends what we get paid for.

It depends on what effect Apple TV would have on either our advertising, our syndication, or our retrans, which are our three main buckets of revenue for our content.

So if it fits in well, like Netflix did and Amazon did, we are happy to discuss it.

If it doesn't, and they're using our content to build a business, we are not quite as favorable to that.

So, the devil is in the details.

I know it sounds like a pat answer but it's really true.

Okay, fair enough.

William Bird, Lazard.

Thank you.

I was wondering if you could just talk about radio, and your thoughts on the business clearly a lot of secular activity going on.

Is it something that you might consider as non-core at some point?

We really, we love the radio business.

We really do.

Look, it provides plenty of free cash, which helps us increase our dividends and buy back shares, and you know, we like the changes in the format.

It's a creative business, and once again, we are very pleased with the results.

We are changing our formats, as I mentioned, to more news and sports, and it's performing very nicely.

And we think, with some of the new digital offerings, it will continue to grow.

So I would not absolutely say that it's not a non-core asset.

Just a follow-on, Joe, what was the diluted share base at quarter end, and pro forma for the debt deals, what's your cash balance now?

We had $1.9 billion, and I said we took about $900 million, so I would say I would estimate that bill at about $1 billion.

And the weighted average shares outstanding on a diluted basis for Q2 was 661 million.

How about at quarter end?

Obviously, less than that, because that's a weighted average over the time, so they are going to continue to trend down.

I think you can just assume, as we buy it, you can put a stick in the stock price, the shares will continue to come down as we spend that $3 billion remaining on our program.

Thank you.

Marci Ryvicker, Wells Fargo.

Thanks.

Two questions.

First, on the Americas Outdoor, Joe, can you just reconcile the plus 2% constant dollar revenue growth in the press release with the plus 5% you mentioned?

Is the difference the Toronto contracts?

Primarily.

Obviously, it's South America and Canada, Marci, and obviously the loss of the contract contributed negatively.

Okay.

And then for the third quarter, we know Europe is pacing high teens.

How is the rest of international and how is the Americas pacing, specifically the US?

We gave you total.

We said high teens for the whole business, and we told you Europe in the teens.

So therefore, I think, by math, the Americas have to be kind of mid single digits.

Okay.

Then last question, there's been a lot of M&A in the TV business, some pretty robust multiples.

Any thoughts about pruning additional stations?

We've always said we are a big market television company, and we have a few stations outside the top 15, so if the right offer came along, once again, we would absolutely look at it.

Thank you.

Thanks Marci.

And this concludes today's call.

Thank you everyone for joining us.

Have a great evening.

This does conclude today's conference.

Thank you for your participation.