Paramount Global (PARA) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation first-quarter 2013 earnings release teleconference.

Today's call is being recorded, and at this time I'd like to turn the conference over to the Executive Vice President of Investor Relations, Mr. Adam Townsend.

Please go ahead, sir.

Great.

Thank you.

Good afternoon, everyone, and welcome to our first quarter of 2013 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 then discuss the strategic and financial results.

We will then open the call up to questions.

Please note that statements on this conference call related to matters which are not historical facts are forward-looking statements, which involve risks and uncertainties which 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 on our website.

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

Thank you, Adam.

Good afternoon, everyone.

CBS has begun 2013 right where it left off in June 2012.

And you will hear today our world content, past content is driving our success, and it is getting more valuable day by day.

With Les and his talented management team, I'm confident that CBS will continue to grow for many, many years to come.

Now to tell you about it is CBS's President and CEO, my good friend and colleague, actually, a superstar, Les Moonves.

Thank you very much, Sumner.

Good afternoon, everybody, and thanks for joining us once again.

I'm extremely pleased to tell you that CBS has delivered the most successful quarter in the history of our Company.

For the first time ever in any quarter, revenue exceeded $4 billion, up 6% from a year ago.

OIBDA was $916 million, up 15%; operating income was $800 million, up 18%; and EPS was $0.73, up 24%.

Each of these financial metrics is the best we've ever posted in a single quarter, reflecting both the strength of our base businesses and the ongoing success of our strategy to grow the Company's steady and recurring revenue.

It's very evident that CBS's world-class content is becoming more and more valuable all the time.

Advertising grew strongly during the quarter, not only driven by the success of the Super Bowl, but also the entire CBS Television Network, which will end the season number one across all key demographics.

Plus, our fast-growing, nonadvertising revenue sources were up significantly with double-digit increases in retrans, reverse comp, and streaming.

And just as we told you would be the case, 2013 is shaping up to be even better than 2012, which was a record year for us.

The opportunities to monetize our programming continue to multiply, and the initiatives underway at our outdoor business will make our Company singularly focused on capitalizing on our great future as a content company.

To show you how confident we are in that future, we spent nearly $1.3 billion on share buybacks during the first quarter.

That puts us on track to repurchase $2.2 billion in 2013, an acceleration of more than $1 billion from last year.

Going forward, you can be sure that returning capital to our shareholders will remain a key priority for us.

You will hear more from us on this in the coming months.

As usual, I'm going to give you some highlights about each of our businesses before turning it over to Joe to discuss our very healthy financial picture.

And after that, we'll be happy to take your questions.

Let's start with our largest segment, Entertainment.

As you all know, the world of consuming content is changing rapidly.

Technology is enhancing the viewer experience, and it is providing us with more and more opportunities to grow our businesses all the time.

He who has the best content has the best options.

And as you can see from today's results, we are playing our hand very well in this new age.

You can continue to count on us to be very strategic in this regard going forward.

At the center of all this is the programming on the CBS Television Network, which had an exceptional first quarter.

We were led by the phenomenal performance of our primetime schedule and, on top of that, broadcast several of the biggest events in media.

These included the Super Bowl, the AFC Championship Game, the Grammys, and the NCAA Men's Basketball tournament, which by the way, was up 10% in viewers, the biggest audience in eight years.

Plus, the Championship Game, which took place in the second quarter, had the best ratings in nearly two decades.

More recently, our weekend coverage of the Masters Golf Tournament attracted more than 44 million viewers, the second-largest audience in 12 years.

And this year's Academy of Country Music Awards posted its largest ratings in 15 years.

For the first time, it even topped the competing country music awards show that airs on another network.

So, clearly, no matter how many other choices are out there, big event television is pulling in audiences like never before.

And, of course, the CBS Television Network success is much more broad-based than just its tentpole events.

We have strength every night of the week.

As I said, CBS is set to end the season as the most-watched network for the 10th time in 11 years.

We are winning in households; we are winning in viewers; we are winning in adults 25 to 54; and yes, we are also winning in adults 18 to 49 for the first time since the 1991/1992 season.

When this season ends, we will have the number one show, NCIS; the number one comedy, Big Bang Theory; the number one new show, Elementary; and the number one news program, 60 Minutes; and we will have finished the season up year over year.

Besides CBS, there is only one other network can make this claim, and we are happy to say it is The CW, which, of course, we own 50%.

CBS's successful run will continue for a long, long time.

40% of our shows on our primetime entertainment schedule are three-years-old or less, and we will be adding several strong rookies this fall.

With so few holes to fill, the bar to get onto our schedule is once again set very high, and we can be much more selective than our competitors.

Having now personally seen most of our pilots, I can assure you that next season is going to be another terrific year for the CBS Television Network.

In fact, we are in such a strong position that as we evaluate our development, we are actually looking beyond the fall and already beginning to program for 2014.

In the meantime, we are going to enter this year's upfront marketplace in a very enviable position.

Demand for inventory is even stronger than it was at this same time last year with scatter pricing up double digits over last year's upfront pricing.

As happens every single year, there's a lot of noise out there, but one thing is for sure, CBS will be coming to market with a schedule that has consistently earned the trust of our advertisers.

We will continue to earn premium pricing for the simple reason that we pull together mass audiences like no one else can.

Out of the five broadcast networks, we are number one.

Out of the 500 cable channels, we are number one.

And out of 5 billion websites, we are number one in viewers.

So unless there's a network on Mars we are not aware of, we are the number one watched network in the entire universe.

Because of all of this, we will be very aggressive going into the upfront.

I can say with absolute confidence that we will once again lead the marketplace in both pricing and volume.

The pricing increases will look a lot like they did last year from high single to low double digits.

Yes, folks, there you have it -- the numbers you have been waiting for.

Needless to say, given our number one status, our ongoing track record, and the demand we are seeing in scatter right now, I am extremely bullish about the upfront marketplace.

So we are feeling very good about our ability to grow the Company's advertising revenue, and at the same time, our success in growing the Company's recurring non-advertising revenue is a terrific story as well.

As we told you on our last call, we recently renewed and expanded our agreement with Amazon, and we continue to benefit very nicely from our Netflix deal as well.

These two deals led to strong double-digit growth in streaming revenues during the quarter.

As we look to the future, our relationships with Netflix and Amazon will remain very strong, and we are confident they will continue to be extended beyond their current terms.

Plus, in addition to these two companies, there are many other online distribution services entering this space, and there is one common thing they all need, the best content.

With people consuming more and more video all the time, the key to success is pretty simple -- if you keep creating the best content, you will keep getting paid better and better as technology improves.

The power of great content is also fueling our success in the syndication marketplace, which continues to grow and evolve.

Our domestic syndication sale of NCIS Los Angeles will be hitting the books later this year.

And we announced an innovative, multi-platform distribution deal for The Good Wife, selling it simultaneously to broadcast television, cable television, and multiple streaming partners.

Looking ahead, we will continue to maximize the value for each of our programming assets, taking into account all possible platforms.

As we do, we have Hawaii Five-O and Blue Bloods coming up for domestic syndication in 2014.

Plus, we have a steady stream of owned hits from Showtime, including Dexter, Californication, and Nurse Jackie.

And just today our daytime lineup received 49 Emmy nominations, the most of any network.

We also had a phenomenal quarter in terms of retrans and reverse comp, reflecting the better terms we continue to receive for our content.

It certainly helps in negotiations to have the NFL, the NCAA, NCIS, Big Bang Theory and 60 Minutes in our arsenal, and we remain on target to hit our goal of $1 billion in retrans and reverse comp by 2017, if not before.

Meanwhile, the performance of CBS Interactive continues to be very strong.

Its financial results in the first quarter were the best we've seen with 22% overall revenue growth.

This includes CNET, which was up 24%; China, which was up 35%; and overall video revenue, which was up 76%.

In addition, we launched our new CBS streaming app during the quarter.

Within 24 hours, it was the number one free iPad app, and it crossed 1 million downloads in a little more than two weeks.

As you know, we are windowing the content to be available eight days after airing, and we are monetizing all of the incremental viewing.

In our Cable Networks segment, our continued success at original programming is why we are now approaching 23 million Showtime subscribers with plenty of room to grow.

We are also very excited about our two new Showtime series that are on the way, both of which we have ownership in.

First, Ray Donovan will debut this summer after the eighth season premiere of Dexter, and then Masters of Sex will debut in the fall after Homeland.

Obviously, the world is waiting with great anticipation for another season of Homeland and we are as well.

In addition, Showtime recently signed a deal to bring Floyd Mayweather, along with some of the most recognized names in boxing over from HBO.

Our first Mayweather fight is this Saturday night in Las Vegas, and we are bringing the full resources of CBS to help promote it.

We are looking forward to boxing and sports in general helping to drive Showtime's growth going forward.

Also during the quarter, we took another strategic step to increase our profile in cable entertainment programming.

We acquired a 50% stake in the TV Guide Network, which we will operate through a joint venture with a great partner in Lionsgate.

The TV Guide Network is in 80 million homes, and we have already begun to improve its programming.

This partnership represents significant upside for us at an extremely attractive price.

And together with CBS Sports Network, the Smithsonian Channel, as well as our minority interest in AXS, we feel very good about our growth prospects in cable television.

In Publishing, our run-of-content success continues.

Simon & Schuster had 86 New York Times bestsellers during the quarter with eight of them reaching number one.

Digital sales now represent 30% of our Publishing revenue with some of our major bestsellers approaching 50%.

Once again, the shift to digital publishing has resulted in a more profitable business as we turned in double-digit profit growth during the quarter.

In addition, our Publishing business continues to be an important part of our overall content strategy, serving as the impetus for programming across other divisions of our Company.

For example, this summer CBS will broadcast a miniseries based on the Stephen King novel, Under the Dome, and then Simon & Schuster will re-release the title once again.

In Local Broadcasting, our TV stations were off to a great start this year.

Our CBS stations in the top three market each own the biggest local revenue share we have on record, going back to even before we broadcast the Nagano Olympics in the first quarter of 1998.

And during the February sweep, every single one of our CBS-owned stations was number one in primetime with WCBS in New York the number one watched television station in the entire country.

The performance of our local news department has been exceptional.

I'm particularly proud of the way WBZ in Boston teamed up with CBS News to keep America informed during the horrific events of last month.

WBZ's wall-to-wall coverage once again proved the enduring vitality of local television.

In radio, we continue to build on the terrific debut of the CBS Sports Radio Network.

We have added 20 affiliates to our roster since our last call.

In addition, CBS Radio played a major role in this year's success of the Academy of Country Music Awards.

This is a show that perfectly complements our radio audiences as evidenced by all the artists who mentioned the power of radio in their acceptance speeches.

And finally, a brief update on Outdoor.

We've taken the first step to convert our Outdoor Americas business into a REIT by making our submission to the IRS.

And I am pleased to tell you that the sale of our operations in Europe and Asia is going very well with a number of significant players making bids.

Joe will provide more details on this shortly, but we feel very good about the progress we are making on both of these fronts.

So clearly this is a remarkable quarter.

I repeat, in all our key metrics, we turned in the highest numbers in our Company's history, and it continues to be a tremendous time to be an investor in CBS.

Our base businesses are solid, and as a Company focused on making the best content, we are entering an era of opportunity unlike anything we have ever seen.

Specifically, there are a number of forces at work that will drive earnings in 2013 and beyond.

First, as I mentioned, we are certain it will be a terrific upfront for CBS with very healthy growth in pricing and volumes.

Next, our non-advertising revenue sources are set to grow significantly.

No one has more content that is in higher demand than CBS.

And with new companies coming into the streaming market all the time, we will continue to generate incremental revenue for our programming.

Retrans and reverse comp are also set to grow at a fast clip, and in syndication we have a robust pipeline.

Plus, we are moving forward with our strategic initiatives at CBS Outdoor and, of course, continuing through share buybacks and dividends to return even more value to our shareholders.

So I'm sure you can see why we are so excited about our future.

And with that, I'll turn it over to our terrific CFO, Joe Ianniello.

Thanks, Les, and good afternoon, everyone.

Today I'll provide some more details about our first-quarter results; then I'll discuss what we see ahead for the rest of 2013.

Let me start with our first-quarter results.

As you've heard, we delivered the strongest quarter ever for CBS.

Advertising posted solid growth, and we had even bigger gains from our key recurring revenue sources.

As a result, we are more confident than ever that we have the right strategy in place to continue our transformation and drive earnings growth in the years ahead.

As Les highlighted, our total revenue for the quarter was up 6% to $4 billion.

Advertising was up a very solid 8%, more on that in a bit.

Content, licensing, and distribution revenue was down 1%, which can be attributed to the timing of two items, during last year's first quarter when we had the theatrical release of The Woman in Black and the syndication sale of CSI Miami.

However, we benefited during the quarter from significantly higher streaming revenue, which continues to grow steadily.

And affiliate and subscription fee revenue increased 14% with strong gains in cable, retrans, and reverse compensation.

These revenue increases lead to OIBDA of $916 million, up 15%, and our OIBDA margin expanded nearly 200 basis points to just under 23%.

Net income from continuing operations rose 18%, and EPS came in at $0.73, up 24%.

Let's turn to our operating segments.

At Entertainment, revenue for the first quarter was up 10% to $2.5 billion, driven by advertising, as well as higher revenue from retrans, reverse comp and streaming.

Network advertising was up 14% fueled by the Super Bowl.

Our underlying base network advertising business remains steady with low single-digit revenue growth for the quarter.

Entertainment OIBDA of $480 million increased 17% for the quarter, and the OIBDA margin expanded 120 basis points to 19%, helped in part by our 2012 restructuring activities.

At our Cable segment, revenue for the first quarter was up 6% to $478 million with increases across all types of distributors, traditional cable, DBS and telco.

Cable OIBDA of $231 million increased 11%, and our cable OIBDA margin expanded 210 basis points to 48%.

Turning to Publishing, the story remains very consistent from prior quarters.

We continue to achieve higher profits from the shift to digital.

e-books now represent nearly one-third of our total sales.

For the first quarter, Publishing OIBDA was up 20%.

In Local Broadcasting, first-quarter revenue of $638 million was up 3%.

TV stations revenue rose 5%, helped by the strong Super Bowl sales, which were partially offset by one less major market sports contract, and radio revenue was comparable to last year with the top 10 markets up 2%.

Local broadcasting OIBDA of $199 million was up 16%, demonstrating our continued focus on cost controls, and the OIBDA margin expanded 370 basis points to 31%.

That number is especially impressive given that this is a non-political year.

In Outdoor Americas, revenue for the quarter was down $7 million to $281 million, primarily due to the nonrenewal of several low-margin contracts.

US billboards continued to post steady gains, up 2% for the quarter, and Outdoor OIBDA was down $2 million to $74 million.

Turning to cash flow and the balance sheet, free cash flow for the quarter came in at $576 million, representing a 63% flow through from OIBDA.

During the quarter, we retired 24 million shares of our stock.

This includes 6 million shares that we repurchased in the open market for $262 million and 18 million shares that were delivered as part of our $1 billion ASR.

As we indicated in today's earnings release, we expect another 4 million-plus shares to be delivered during the second quarter, which will complete our current ASR transaction.

So we started the second quarter with 627 million diluted shares, which is 12 million lower than the weighted average shares for Q1.

We plan to continue with our ongoing share repurchase program with our target of $2.2 billion for the year.

We exited the quarter with $409 million of cash on hand.

We also extended our $2 billion credit facility through March of 2018 at more favorable rates.

In addition, during early April, we made a $150 million discretionary contribution to our pension plan, and we will receive a full tax deduction on that amount this year.

Now let me give you a few observations of what is ahead for the rest of 2013.

For the second quarter, all of our local businesses -- TV, radio, and outdoor -- are pacing to be up low single digits.

On a national level, as Les said, the scattered demand going into the upfront is very strong, and you'll start to see the benefit of our upfront pricing gains in Q4 of this year.

I'd like to give you a quick update on our outdoor transactions, as well.

The REIT conversions of our Americas business is on track.

As you've heard, we submitted our private letter ruling requests with the IRS during the first quarter.

We are now completing the stand-alone audit of the business and plan to file a registration statement with the SEC this quarter.

Turning to outdoor in Europe, as Les said, we received a number of bids, and we are currently negotiating with several parties.

The sale process is moving along as planned, and we expect to announce a definitive agreement in the coming weeks.

In summary, 2013 is off to a great start, and we are on our way to an even better year than 2012, which everyone knows was a record year for us.

Our first-quarter results prove that the strategic steps we've been taking continue to pay off.

As we pursue our content-driven focus, the opportunities to monetize our programming will grow even further, resulting in an even more predictable earnings base.

So we have a very bright future ahead, and we look forward to discussing our results with you on our next call.

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

(Operator Instructions).

Ben Swinburne, Morgan Stanley.

Joe, can I ask two questions just on timing on the outdoor front?

Do you have an expectation for when you think you can actually move forward with an IPO?

Is that a 2013 or 2014 event?

I know you said you are in the process of pulling the proxy together.

And also, second, what's your expectation on when you will you hear back from the IRS on your filing?

And then I have a follow-up for Les.

Look, on timing, we said we would file with the IRS in the first quarter, and we did that, I believe, March 15.

So traditionally the IRS takes six or so months.

So obviously, they have to go through their process, and we will respond to any questions they have during that process.

On the SEC front, we will file that registration statement this quarter, and we will go through rounds of questioning that they have on our filing.

So, again, the anticipation is by the end of the year, we are through and clear that, and we're ready for the IPO.

Could it happen a little sooner or a little later?

I guess sure.

That's a little bit out of our control.

But we are staying on track for that, and we are very optimistic about that.

Great.

And Les, could you talk a little bit about your plans for the network this summer.

I know you obviously have the big show you have co-financed or co-produced with Amazon.

There's a lot of focus on fragmentation and time shifting and how that is impacting programming decisions.

Are you looking to put more hours of content on the air, particularly over the summer, and do you think that more serialized makes more sense just given what we have seen under the SVOD players, or am I over-extrapolating on Under the Dome there?

You know what?

Number one, it's not a co-production with Amazon.

We have a deal where they are going to air it three or four days after it is on the air at the network.

So it is something that we have never done before.

And during the summer months, we were looking for the ability to put on more original programming because things were getting a little quiet during the summer, and we had to look for new models to do that.

And because of the Amazon deal, and obviously the strong international syndication marketplace, we are able to put on a big budgeted, 12-episode miniseries like Under the Dome on there.

In addition, we have some more reality programming than we normally do, and Big Brother comes back every year, which it has done extremely well for 10 years.

So there will be more activity during the summer and perhaps even during the year.

I think what has happened with the SVOD partners, we've had a lot more freedom to put on more original program.

Under the Dome is serialized in nature, and that lends itself to more of the SVOD.

And I think that becomes a part of it, but certainly not at the exclusion of the closed-ended shows, which still sell better in syndication.

Thanks a lot.

Thank you.

Thanks, Ben.

Let's take the next question, please.

Jessica Reif Cohen, Bank of America Merrill Lynch.

These are for Les.

Two questions, one on your new schedule.

How much of the content would you expect to own given the amazing continuing rise in content values?

Right now we own about 70% of our schedule.

Right now it's too early to tell.

As I said, we're still in the pilot process, and we are beginning our scheduling meetings in a few days.

So I don't know which of our shows is going to get on the air.

I can tell you over 50% of our pilots are wholly-owned.

So it will be a combination of some of the outside stuff, but also some of the things we own, and I anticipate there will be some of both.

And a follow-up and then my other questions.

Of the 50% of the pilots, do you have a partial interest?

And then my other question is related to the timing of the syndicated shows from Showtime.

Would that be 2015?

In terms of the ones that are outside, some we do own an interest in and a couple of them we don't.

Warner Bros., obviously, we don't.

They don't share in terms of the ownership.

But some of the other studios do, so it's a mixed bag, as it always is.

But rest assured when the schedule is announced in a few weeks, there will be a large, large percentage of CBS-owned shows.

In terms of Showtime, obviously Dexter is going to finish its final year.

It has been announced, and it begins in a few weeks.

And that can go into syndication soon after that.

And the other two are in 2014 and 2015.

Thank you.

Great.

Thanks, Jessica.

Next question, please.

David Bank, RBC Capital Markets.

Two questions.

The first is, could you talk a little bit about the investment in Syncbak and how that fits into CBS and how you think about how you could use the technology?

And the second question is, Les, I think at the Milken Institute, you made some commentary about the potential with which you or any other broadcast network presumably could transform into a cable network.

Do you really think on a practical level, would it be executable on a fairly rapid timeframe?

Thanks.

Joe, why don't you do Syncbak?

Okay, David, on Syncbak, I think what we like about the investment, a) it preserves the current ecosystem, protects the affiliates very well; can be Nielsen measured.

And so, we're very flexible with that.

So if consumers want to consume the content that way, we want to make sure that we have an ability to deliver it that way.

So I think, again, it was a very smart and strategic investment.

And David, on the cable thing, number one, I don't think it will ever come to that because I think we are going to win the case legally, and moving the cable is a secondary resort.

Once again, 85% of our viewers are receiving the CBS signal through cable or satellite or any other MVPD.

So we are only talking about that final 10% or 15%.

And it would only be in markets where, let's say, the court said Aereo could exist.

So it's nothing we think that is going to happen, but if it does, it's fairly easy to do it.

And frankly, it wouldn't change the affiliation agreements because what we would put on would be our local stations just as they are now.

We would just exclude broadcast, and as I said, I'm very doubtful that happens.

Okay.

Thank you very much.

Thanks, David.

So let's go to the next question, please.

Anthony DiClemente, Barclays.

Thank you very much.

I have two questions.

First, if you could please provide a little more detail on your agreement with Netflix, just in terms of where does it stand now?

There's talk -- they're shifting their strategy more to exclusive shows and just wondering what is the nature of your deal?

Has the nature of the content that you have on Netflix changed?

Do you have the opportunity to re-up, renegotiate or exercise a put option for 2013 or for 2014?

I just want to clarify that.

And then my second question is, it does sound, Les, like you have a few more pilots this year than last year.

You're talking about owned episodes on the network.

I'm just wondering how that impacts programming expenses through the model.

Should we expect a bit of a bump in terms of programming into 2Q, and then how should we think about just general trajectory or programming expenses going into next year, as well?

Thanks a lot, guys.

I will do the second one, first, and then, Joe, letting you talk about Netflix.

You know what, Anthony, we did a few more comedy pilots.

The dramas were about the same.

We did a few extra comedy pilots next year.

And as I said, the good news about the situation with our schedule is, right now there's only one apparent opening for a comedy.

But knowing that a year from now How I Met Your Mother -- this is its final year -- it's good to be able to be -- plan for that and put on a few more mid-season shows.

And I can tell you right now we certainly have the goods to do that.

In terms of programming costs going up, obviously, Under the Dome is something we didn't do a year ago.

But we wouldn't have done Under the Dome unless we knew we had it backed up 100% by the Amazon deal, and combining Amazon with the international syndication deal makes Under the Dome profitable immediately.

So you may see more original programming on during the schedule, during the year, but only if it is backed up by the ability to monetize it elsewhere.

So there may be higher programming costs, but on top of that, there will be significantly more revenue and more profits.

That is helpful.

Thanks, Les.

And on Netflix, look, our Netflix relationship is very, very strong.

We are in constant dialogue with them all the time.

So our agreement today currently provides -- we have some flexibility, obviously, going out through this year and next year.

So, again, I think it is, again, it's a relationship; we continue to build it.

They are quite happy with the content we are providing them, and as they evolve, we are going to continue to be by their side.

Are your dollars from Netflix higher this year than last year, and will they be higher next year than this year?

Or is that something you don't feel comfortable talking about?

Well, look, I don't think we give any sort of guidance on that specifically with an individual distributor, but I think what we did say was 2013 streaming revenue will exceed 2012.

That we can say today for sure.

And I think Les said in his remarks, there's a lot of other providers talking about how to distribute content.

Again, I think as the marketplace evolves, we are right there.

Yes, and just to amplify on that, the relationship with Netflix -- yes, we have a big overall deal with them.

And now as results come in, they see some of our content is working better than others, and there is some shift.

In other words, we are giving them stuff and replacing stuff, and there are certain things that will come off our schedule that we do have the ability to make a put towards.

But once again, as long as there is a consistent dialogue about this deal and ongoing deals, the relationship remains strong, and we anticipate that it will remain strong for many years to come.

Okay.

Sounds good.

Thanks, Anthony.

Next question, please.

Michael Morris, Davenport & Company.

Two questions.

First is on the relationship between ratings and advertising revenue.

You said that your base ad business was up low single digits; ratings across the board are down.

And so my question is -- and not just for you but for broadcast and some cable networks as well.

But my question is, it's clearly a pricing strength issue.

Are you seeing a pricing strength across the board for all of your different products or different dayparts, or are events becoming increasingly important?

Is primetime increasingly important?

Where is the strength there?

And then I have a follow-up.

I think the answer is, all of the above.

Obviously, because we are the leading network in all demographics, our scatter pricing and our demand is significantly higher than anybody else's.

So there is, as I said, more demand than there was exactly a year ago in the scatter marketplace.

At the same time, the pricing for the big events has gone up substantially.

The Grammys pricing went up a lot.

The ACM pricing went up a lot.

The football pricing went up a lot, and it will remain that way.

As much as people continue to want to say network is failing, it isn't.

It isn't.

The Super Bowl prices keep going up, a couple of hundred thousand dollars for a 30-second spot.

The pricing for the Grammys goes up, and the pricing for all of our primetime shows continues to go up and scatter.

And it will be up, as I said, quite a bit in the next upfront.

Does the pricing for the events, the growth there, is that exceeding the pricing in your primetime lineup?

Is it exceeding -- it flows up a lot.

Yes, it is close.

It's close.

It really just depends, Mike.

There's no trend there.

It's the audience and the masses, it is going to deserve that premium.

Okay.

Thanks.

And then just on the television studio, it's a great asset and growing in value.

If you look at the ability to perhaps start populating TV Guide Network and some other things, how much more capacity do you have with your existing television production business before you perhaps need to make a more significant expenditure or acquisition to grow your capacity there?

Our executive team I am sure could do 10 more series if they needed to.

We are doing a series for Turner for the first time -- a 13-episode series for Turner Network.

So they have a great deal of capacity.

It's not about the studio being able to do it.

It's about getting the right producers and their staffs to be able to do it.

So I think there is a great upside in the CBS production group.

People talk about Netflix doing original programming; we are talking with them about producing for them.

So the great news is we can produce for anybody, and we've got a lot more capacity.

Great.

Thank you.

Thank you.

Thanks, Mike.

Next question, please.

Doug Mitchelson, Deutsche Bank.

So some of your broadcast peers have been seeing scatter pricing spiking higher in recent weeks.

Have you seen that?

Is that driven by a lack of inventory due to make goods or due to increased advertising demand in the broadcast ad marketplace, do you think?

There clearly is -- some of the other networks that are a little bit more ratings-challenged than we are are having a bit more trouble.

So when that happens, obviously, people want to be with us, and I think there's definite demand.

And I think there's more visibility than now than there was a few months ago, so it's good to be in first place and having -- as we end the season, people coming on board to join us.

When you look at 2Q scatter pricing and you look at 1Q scatter pricing, have you seen an improvement, or does it just stay at that strong level?

I would say it is fairly stable from Q1 to Q2.

Yes, I would characterize it up double-digits to low teens, Doug.

And again, that is pretty steady, and the good news is the demand is broad based.

It's not one category driving it, so it is coming pretty much across the board.

So that's a real positive sign for us.

So Les, I think I could almost hear the collective groan of the entire agency industry when you indicated an expectation for high single to low double digit upfront price increases.

Well, Doug, if you have been reading, everybody was complaining that I haven't come out with my double-digit projections yet because I've done it two years in a row.

I've read at least three stories which are saying, oh, the networks aren't bullish because Moonves hasn't said double digits.

So I have says double digits the last two years.

Two years ago we were up 12% to 13%.

Last year we were up around 9%.

So I was slightly off, but if you average the two, I certainty was right, and I'm confident again.

Look, as I said, there's a lot of noise this time of year, but we are pretty confident in the hand we are playing.

Are you including the 3% or so benefit of switching to C7 from C3 in that number?

No.

Not yet.

Look, right now we are going to be upfront.

Assuming most of it is going to be C3, but I can tell you within a year, I think it is going to be all converted to C7.

I think it is fair to say.

So 7% isn't in your high-single to low-double-digit range, right?

Correct.

Thank you very much.

Thank you.

Thanks, Doug.

Next question, please.

John Janedis, UBS.

Les, you mentioned new streaming entrants.

Do you expect those to be a 2013 event?

And then separately, the TV Guide Network deal seems like a bit of a steal for you.

Can you talk about how you're going to position the programming, and over time is the expectation that that's going to be maybe like a top 25 network?

The first question, I would think some of it maybe 2013.

It is 2013 to 2014, do you agree, Joe?

Yes, something [is media] launched, but again, John, if you're looking for just driving of the numbers, think 2014 and 2015, really.

But obviously there are partners out there talking about a fall launch.

Yes.

And the TV Guide Network, you are absolutely right.

We felt we got an unbelievable value with this thing, and we consider Lionsgate a terrific partner.

They are a great content company as are we in different areas, and we have a very close relationship with them.

When they came to us and said, look, this is the ballpark that the other half is going to be going in; we would love you to be our partner.

There are obviously very simple things that CBS automatically can do like place some of our library product there, add our marketing team to what is going on, do extended original programming as part of Entertainment Tonight or Omg!

INSIDER; doing the red carpets on all these award shows.

So there's a lot of low-hanging fruit that we are already taking advantage of, and having a base of 80 million subs makes us a very, very attractive place to be.

So we're having a lot of fun, and we are really excited about the future of it.

Thanks, Les.

Thanks.

Thanks, John.

Next question, please.

Alexia Quadrani, JPMorgan.

Just to circle back on your comments on the network advertising revenue, I think you said up low single digits without.

Was it without all the tentpole events, or was it without just the Super Bowl?

Just trying to get a good sense of (multiple speakers).

That is underlying, basically stripping out all of the one-time changes.

We had the Super Bowl, but the NCAA Final Four went into the second quarter.

So really, Alexia, what we tried to give you is like the underlying base business.

And then any color on how daypart -- you mentioned the Emmy nominations are great.

Any color on how we should think about the growth in daypart?

Obviously, the biggest strength is primetime, but daytime is growing also.

We have five good shows, and once again, it's a much more profitable daypart than it was even two or three years ago because we have replaced the high-priced soap operas with obviously a talk show and a game show.

In addition, our ratings in news have gone up substantially.

The morning, which is the main revenue place, we are up over 20% year to year in the morning, and that is adding revenue quite a bit.

The evening news also is up substantially.

So it's a growth area.

And I would say late night is flat with a year ago, and obviously interesting things going on in that daypart.

But may I say, I think we've got the best guy in late-night, and stability is a good thing here.

All right.

Thanks very much.

Thanks, Alexia.

Next question, please.

David Miller, B. Riley.

Following up on David Bank's question, obviously Aereo is getting a lot of press of late, probably more press than it deserves considering that they are, in fact, pirating your signal, which I'm sure you guys would agree with that.

But Les or Joe, if for any reason you guys were able to come up with an agreement with them for retransmission and they were willing to pay, does that at all change the scope of your deal with Syncbak?

Because correct me if I'm wrong, the Syncbak deal is a defense mechanism, of course, against Aereo, but it's more or less the same thing as Aereo functionally, is it not?

Thank you very much.

David, I will start and then I will let Joe finish.

Aereo really has gotten way too much attention.

We, as I said yesterday, at Milken, we're not losing sleep over it.

It is sort of an insignificant player that has a couple of thousand subs, and we think ultimately that it goes away, and we agree with what you just said.

They are pirating our signal.

Would we look at it differently if they came to us as a system, an on-line system that wanted to take our signal and pay for it?

Perhaps.

And Syncbak, Joe?

Yes, David, here is what I will tell you, Syncbak was not in response to Aereo.

We have been talking with Syncbak for quite a number of years, actually.

So this technology wasn't developed overnight.

So we are working there.

If the consumer demand is -- this is the way consumers want it, obviously we are going to have a business model that satisfies that demand.

So it was really just that simple.

Excellent.

Thank you.

Thank you.

Thanks, David.

Let's go to the next question.

Alan Gould, Evercore Partners.

I've got two questions.

One, I hate to beat on Aereo again, but is there any timing for a lawsuit on Aereo?

And the second one is there seem to be measurement issues with TV.

The industry and CBS, excluding the Super Bowl, are down in the teens in terms of Nielsen 18 to 49 ratings.

So even if you were up high-single-digits, low-double-digits, I mean how are the advertisers going to work through the Nielsen measurement issues?

Number one, regarding Aereo, if they put up another signal, we'll sue them again.

We won in California.

We lost in New York.

They say they are going to go to Boston, and we will be in Boston, and we will follow it.

Once again, it's not a major concern for us.

In terms of the advertising, number one, the season started off in a very odd way.

The reason some of these numbers are off -- and, by the way, your numbers are somewhat different than ours -- is the fact that we don't think that online viewing is being counted properly.

And DVR viewing is not being counted properly.

So we think when all is said and done and the appropriate numbers are put into place, you're going to find that the numbers are not down nearly as much as that.

And, in fact, they might surprise you how much they are up.

One of the things that we would love to do in an ideal world is cancel overnight ratings.

Because everybody reports on overnight ratings and they don't attribute the fact that we have over 10 shows that get a lift of over 2 million viewers every single week.

So the numbers that are reported are semi inaccurate, and also Nielsen is trying new methods to account for all the online viewing.

It's not there yet.

So broadcast television, cable television, it's all in pretty good shape.

What numbers are the advertisers going to use this year, though, Les?

It's still got to be the Nielsen numbers, no?

They are going to use C3.

There is a lot more multi-platforming going on.

And when you are dealing with upfront buys, Alan, it's not as clean cut as all that.

Rest assured, our volume is going to be up, and our CPMs are going to be up considerably.

Okay.

Thank you.

Thank you.

Thanks, Alan.

Let's take the next question.

William Bird, Lazard.

I was wondering if you could talk a little bit about just how soon you are likely to begin monetizing C4 plus through ad insertion.

Thank you.

As I said, we anticipate being able to go from C3 to C7.

Some of the deals will be made this year because there are some of the advertisers who get that C4 through C7 is a valuable commodity.

And they get that C8, past C8 like we are doing with our iPad app, we are putting advertising in there.

And so it's beginning to happen right away.

Will it be robust within a year?

Absolutely.

The thing that is going to be significant is there are going to be a lot of advertisers who advertise live through C7 who are going to still want to be on past that.

And then you will have ad insertion on different advertisers, and there will be further monetization.

I think the good news is, the further we go down the road, the more every single viewer will count in some way or another.

Could you also talk about your current thoughts on targeted financial leverage?

Yes, I think that evolves.

Because as this outdoor transaction is pretty significant, we are looking at our mix of revenue and how much is advertising-related, how much is nonadvertising.

So, again, we don't have a set target that it has to be this target ratio.

Obviously, our investment-grade rating is important to us.

But, again, I think we've shown our priority is to buy back our stock, and we are going to continue to do that.

Thank you.

Thanks, Bill.

Let's take the next question, please.

Tim Nollen, Macquarie.

A couple of things, please.

More on ratings, actually.

Isn't moving to tablet measurement in C7 and C8 and whatever, doesn't it raise more than just having a single ratings point?

Doesn't it make the whole ratings system that much more complicated and the whole advertising pricing model that much more complicated?

And the second question, back on the advertising growth figure, you mentioned low single digits, excluding the one-time items.

Is that a number that you are happy with?

Because it seems like it has been at that level for quite a while, and yet I feel like it could be better than that given the success that you are having with the viewership, et cetera.

Tim, your first question, does it make it more complicated?

Undoubtedly.

Undoubtedly.

However, once again, we understand much more now than we did before about ad insertion, about conversion from live to C3 to C7.

And you know what?

The further we get down the road, the further we are going to be able to identify every single viewer, every single demographic and what product they are buying.

It is complicated, but it's going to be much more valuable in the future.

And Tim, as far as the underlying growth, I would call it steady.

So we are not disappointed with steady.

Obviously, with a stronger economic backdrop, we expect that to grow, but again, that is stripping out all of those events.

But network advertising for the first quarter was up 14%.

Okay.

Can I ask another question as well?

It is about retrans.

Have you given or can you give some updates on what the most recent pricing is looking like?

We don't give that out.

As we said, it's growing.

The value of our channels and our content is going up considerably.

We have sort of been consistent.

It has been a steady rise until [17] where we are going to have $1 billion, if not before.

Okay.

Thanks.

Thanks, Tim.

And Tom, let's go to one last final question.

Marci Ryvicker, Wells Fargo.

I have two questions.

Joe, first, just a clarification.

Your comment that SVOD in 2013 will exceed 2012, does this assume that Netflix is renewed, or will you be able to exceed 2012 without a new Netflix deal?

And then the second question --

There is no -- let me just answer that question.

There is no assumption of a new Netflix deal in that statement.

Okay, perfect.

And then I believe in your newsletter, you disclosed the number of digital billboards I think for the first time.

So that [275] number --

Yes?

Can you give us any targets for digital either this year or in total and maybe the revenue contribution or anything around digital?

Here is what I would say, Marci.

The digital billboard component is still low-single digits revenue to us.

It is such an upside really for us as the capital costs have continued to come down for those digital signs.

So we have been a lot slower than some of our peers to rolling that stuff out.

So, again, we are quite optimistic -- we have a top 50 list, and we are going to continue to deploy our capital that way.

So there's a lot of room to grow.

But again, at this point today, it's, again, single digits.

Do you think you can get to where like a Lamar is at 15% or 16% of revenue?

I see no reason why we can't.

Okay.

Thank you.

Great.

Thank you, Marci, and this concludes today's call.

Thank you, everyone, for joining us.

Have a great evening.

Ladies and gentlemen, this does conclude today's conference.

We appreciate your participation.