Paramount Global (PARA) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation first-quarter 2014 earnings release teleconference.

Today's call is being recorded.

And 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, sir.

Good afternoon, everyone, and welcome to our first-quarter of 2014 earnings call.

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

Sumner will have opening remarks, and 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 your 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 on 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 measures 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 the year 2014 in a position of great strength.

I couldn't be more pleased.

We are building to another terrific year.

Les and his team are doing everything right, bringing long-term success to our shareholders.

Here to tell you about it is CBS's President and CEO, my good friend and colleague, the man I rightfully call a super genius, Les Moonves.

Thank you, Sumner.

Good afternoon, everybody, and thanks for joining us.

I'm extremely pleased to tell you that CBS has turned in record first-quarter profits across the board once again.

OIBDA was up 2% to $930 million.

Operating income was also up 2% to $818 million.

And EPS was up 7% to $0.78, matching our all-time high for any quarter in our history.

In addition, we had a very strong revenue quarter, given that we are competing against the Super Bowl a year ago.

If not for that, our revenue would have been a record as well.

And remember, last year's Super Bowl was also very profitable for us, which makes today's record profits all the more impressive.

So, we have begun 2014 in very good shape, and we are poised to perform even better in the back half of the year.

In a few weeks, we will launch a Summer schedule featuring a great deal more original programming than ever before, almost all of which we own.

Then in the Fall, we will build our position as the top-rated network in all of the television with the addition of Thursday Night Football on CBS.

And also in the back half of 2014, political spending will ramp up significantly, providing even more growth to our local stations.

Along with the strong performance of our base business, we continue to successfully grow our recurring high-margin revenue streams.

This year we have already licensed Blue Bloods and Hawaii Five-0 into syndication across multiple broadcast, cable, and streaming platforms.

And you will see the benefit from those deals later in 2014.

The demand for our content overseas is also a terrific story, with per-quarter international licensing revenues up 22%.

And in retrans and reverse comp, we are increasingly getting paid fair value from all of our distributors.

Each new deal we make resets the bar for the next one.

This revenue source is rapidly growing, and we are on track and building momentum towards our stated $2 billion in 2020.

At the core of all of this success is our content.

We took a significant step towards becoming a pure content company when we successfully completed the IPO of CBS Outdoor last month.

Joe is going to give you more color on this later.

But above all else, the separation of this business will do two things for us: first, it will allow us to focus even more on investing, producing, and distributing the best content.

Second, it will unlock significant value for CBS Corporation shareholders, especially with the recent IRS ruling that enables CBS Outdoor to convert into a Real Estate Investment Trust, a REIT, which means it will return more than 90% of its profits to shareholders in the form of dividends.

Thanks in part to this successful Outdoor transaction, CBS Corporation is on track to return about $6 billion in value to our investors this year.

As you've heard us say many times, returning value, returning dollars to our shareholders, is a top priority for us, and 2014 will be the biggest year ever in that regard.

Now, let's take a brief look at each of our businesses, starting with entertainment, and then I'll turn it over to Joe before we take your questions.

The CBS Television Network will end the season as the most-watched network in the country for the sixth consecutive year, and for the 11th time in the last 12 years.

And if you take out sports, we will win in 25 to 54 and 18 to 49 as well.

We'll finish with the number one drama, NCIS; the number one comedy, Big Bang Theory; the number one new comedy, The Millers; and the number one news program, 60 Minutes.

Over the last nine weeks, post-Olympics, CBS has won in viewers every single week, even when we've had repeats up against originals on other networks, and we've won six of those nine weeks in 18 to 49.

We are approaching next year's schedule from the same position of strength that we've had for years.

20 shows from this year's number-one lineup have already been renewed, meaning that the bar for new shows to get on to our schedules is much higher than any other network.

And the chance of success for our new shows is greater than anywhere else, as well.

I am extremely excited about the new shows we will introduce next week at our upfront, many of which we will own.

Our advantage only increases when you put Thursday Night Football into the mix.

The addition of the NFL in primetime will tighten up our schedule, allow us to have more original programming throughout the year, and provide us with the best possible platform to promote the rest of our lineup.

Suffice it to say, our leadership position is going to continue.

This is why I believe CBS will once again lead the marketplace in upfront pricing and volume next season.

We have the ratings, the broad-based strength of schedule, and the stability that agencies and our clients need going forward.

In addition to our success in C3, we are monetizing commercials beyond three days as well.

Just as we've said would be the case, more and more deals are, and will be done, in C7.

Plus, we're beginning to benefit from dynamic ad insertion, which allows us to resell inventory at a later date.

If there are advertisers who don't want to pay beyond three days or beyond seven days, we have a solution.

We will simply sell that inventory to other advertisers on the fourth day and beyond.

Viewing beyond three days or seven days adds millions of viewers, and represents a nine-digit opportunity for us.

The bottom line is that advances in measurement are catching up with how people are watching our content.

And as a result, we're in the early stages of realizing a whole new source of incremental revenue.

Looking beyond the Fall, another exciting development for us will be the arrival of Stephen Colbert in 2015.

This will be a bittersweet moment at CBS, because David Letterman has been a huge part of our success for so many years.

The good news is, we expect Dave's final year to do extremely well, as we say goodbye to the man I think is the greatest-ever of late-night comedy.

Of course, Stephen Colbert is also as talented as they come, and we are extremely confident he can be the best of his generation, as well.

In our more immediate future, as I said earlier, we're ramping up our Summer programming like never before.

Last year, the runaway success of Under the Dome surprised even us.

And this year, we're expanding to 90 hours of original programming in the Summer, including four original dramas that we own 100%.

Leading the way will be season two of Under the Dome in June.

And then in July, we'll have the premier of Extant, starring Oscar-winner Halle Berry, and produced by Steven Spielberg.

Thanks to our streaming and international deals, and the strength we're seeing in ad sales, both of these shows will be profitable from day one.

And, of course, we'll continue to monetize them for years to come.

All of this success, along with our roster of long-term sports franchises and our growing ratings at CBS News, is the reason retrans and reverse comp have become such a force for us.

Any programming distributor -- be it cable, satellite, or telco, a mobile broadcaster or over-the-top service provider -- needs our lineup of premium content to offer a viable service to its customers.

This is why we're so confident in the $2 billion figure we've laid out for you.

And it's why we're positioned for continued growth in the years to come, regardless of the way audiences choose to view our content.

I suppose this is the time to save you the question later, by briefly addressing a topic that has gotten way more attention than it deserves, and that is the lovely Aereo.

Aereo is theft, pure and simple.

Some are trying to shift the issue by erroneously suggesting it has to do with our prevention of the cloud, or either future innovation.

This couldn't be further from the truth.

We have confidence that the court will find Aereo to be illegal.

Regardless of the outcome, though, our growth outlook will be unaffected.

We have long-term deals with our MVPD partners.

And down the road, we'll distribute our programming in the ways that make the most sense to us financially, all of them attractive.

So, I am not losing any sleep over Aereo.

Moving to cable networks, Showtime continues to thrive, both creatively and financially.

We're filling the pipeline with compelling, original programming; and more and more, we are owning this content.

On Sunday we'll be premiering Penny Dreadful, which is a very classy, entertaining thriller.

And in two months, we'll bring back our two highly-rated freshman series from last year, Ray Donovan and Masters of Sex.

We have ownership in all three of these shows, and you can expect they will be driving our cable network results for years to come; as will Emmy-winning Homeland, which also returns for season four this Fall.

Showtime Sports also continues to perform very well, led by our greatly expanded boxing franchise, which had a very exciting fight on Saturday night between Floyd Mayweather and Marcos Maidana.

In addition, we continue to expand the reach of our Showtime Anytime service.

Subscribers can now watch Showtime programming where they want it, when they want it, thanks to deals with virtually every MVPD, and with streaming partners like Roku and Amazon's new Fire TV.

In publishing, content remains at the center of our success at Simon & Schuster as well.

We had 70 bestsellers during the quarter, including five number ones, and we continue to benefit by selling them in the more profitable e-book format.

Looking ahead, we have a number of upcoming releases that are getting a lot of buzz, and will drive our results in the quarters to come.

This includes Hillary Clinton's upcoming memoir called Hard Choices; and Stephen King's latest, Mr. Mercedes.

Turning to local, our TV stations continue to benefit from growing retrans fees.

And as I mentioned earlier, we're looking forward to a surge in political spending on the many competitive mid-term elections where we have major market CBS-owned stations.

This includes gubernatorial contests in Illinois, Florida, and Pennsylvania; and Senate races in Colorado and Michigan; as well as a number of issue campaigns in California.

We also had a good quarter in radio, with steady revenue growth in each month along the way, and another strong performance by our CBS Sports Radio Network.

I also want to update you on the continued progress on our local digital businesses.

These sites, including CBSNY.com, CBSLA.com, and 22 others, saw unique users grow by 23% in the first quarter, with mobile users now accounting for half of our total traffic.

This continues to be a high-growth business for us, with double-digit revenue increases quarter after quarter.

So across our businesses, we are delivering terrific results and building our future from a position of great strength.

And with the IPO of CBS Outdoor now complete, we have become a company even more focused on producing premium content.

Right now, we have over 30 shows in production, and are in talks for several more.

You'll find these shows on CBS, Showtime, CW, and on networks in development owned by other companies, and soon on SVoD partners like Netflix and Amazon as well.

Creating these shows in-house is the launchpad from which we are just beginning to monetize them.

From new models of syndication, including digital streaming, to growing international deals to retrans and reverse comp, to ad sales that take advantage of time-shifted viewing, you've seen firsthand how we have strategically affected change and created new growth opportunities.

As we continue to manage the Company in this way, we're not only posting record results, we're also generating healthy levels of free cash flow.

And this is allowing us to return increasing value to our shareholders, including the $6 billion I told you about earlier.

So we started this year extremely well and 2014 is on track to be another record year.

The good news is, we're still in the early innings of this terrific growth story, and we look forward to updating you on our progress and all of the exciting developments ahead.

And with that, I'll turn it over to Joe.

Thanks, Les, and good afternoon, everyone.

In a few minutes, I'll be giving you some more color about our first-quarter results, and then I'll talk about what we see ahead.

But since a lot of the quarter was about Outdoor, I want to start by updating you on our transaction, which is progressing just as we planned.

The steps we're taking to split off Outdoor are already unlocking tremendous value.

And at the same time, they are propelling the transformation of CBS in a way that allows us to focus on what we do best, which is create and monetize our industry-leading premium content.

In the last few months, we reached several important milestones with regard to CBS Outdoor.

We kicked off the year with the issuance of $1.6 billion of debt, which was primarily used to repurchase shares of our stock.

We followed that up by completing an IPO of CBS Outdoor, netting $615 million.

And the bulk of those proceeds will also be used to buy back our stock.

In addition, we told you last year we were confident we would get a favorable private letter ruling from the IRS to convert this business into a REIT, and last month we did just that.

As a result, we are returning value to shareholders like never before.

All told, we used $2 billion in the first quarter to retire more than 31 million shares, including $1.5 billion through an accelerated share repurchase program.

And as Les said, at current market prices, we are on track to reduce our equity base by approximately $6 billion in 2014, which is about 17% of our market cap.

Let me say that again -- this year alone, we are on track to reduce our shares outstanding by about 17%.

And as we said before, capital returns will continue to be our focus and our top priority going forward.

Earlier today, CBS Outdoor reported its financial results for the first time as a new public entity, and posted solid numbers, with constant dollar revenue up over 4%.

I'm not going to get into any more specifics here, but we still do own 81% of the company.

And we are focused on executing the last part of the transaction, which is a split-off.

This split-off will likely occur in the not-too-distant future, as we work with our banks and the SEC on this last part of the deal.

We are proud to say that we have hit every objective that we outlined for you when we launched this bold initiative in early 2013.

Now, I'm going to provide some more details about our first-quarter results, and then I'll discuss what we see ahead for the rest of 2014.

Total revenue for the first quarter was $3.9 billion compared with $4 billion last year.

As you know, we were comping against the Super Bowl, which contributed more than $280 million to last year's first quarter.

Not to mention we also had fewer NCAA March Madness games on CBS in this year's first quarter.

Given these non-comparables, we turned in a solid revenue performance this quarter.

Breaking down revenue by its components: content licensing and distribution was up 6%, driven by 22% growth in international licensing and syndication.

The overseas demand for our content continues to be strong, with NCIS and The Good Wife leading the way.

Affiliate and subscription fees were up 9%, demonstrating the continued benefit of our newly renegotiated deals in retrans and reverse comp.

We have a lot of momentum here, and we are on our way to achieving our stated $2 billion target.

And in advertising, underlying revenue was up low-single-digits.

And as I'll discuss in a little bit, we see advertising accelerating in the back half of 2014.

And just to highlight our ongoing revenue diversification efforts, advertising represented just 56% of total revenue during the first quarter, even with CBS Outdoor still in our consolidated results.

This strong growth in our fast-growing, high-margin revenue sources not only led to record first-quarter profits, but it also drove the expansion of our OIBDA margin to 24%, another first-quarter high for us.

In addition, EPS of $0.78 tied an all-time quarterly record, even though it included $12 million of interest expense, which is more than $0.01 a share from the non-recourse debt issued by CBS Outdoor.

So despite this interest expense and the comparison to last year's Super Bowl, we were able to achieve our best-ever first-quarter profits.

Now, let's turn to our operating segments.

Entertainment revenue was $2.3 billion compared with $2.5 billion in Q1 of 2013.

Last year's Super Bowl and fewer March Madness games in this year's first quarter affected our revenue comparison by 11 percentage points.

So, underlying entertainment revenue was actually up low-single-digits.

Entertainment OIBDA was a very robust $457 million.

And as a result of higher international licensing revenue, we expanded our OIBDA margin for this segment to 20%.

In cable networks, first-quarter revenue of $537 million grew 12%, led by three main items: the licensing of our Showtime programming, particularly the sale of the last four seasons of Dexter; higher affiliate fees; and or move into boxing, including a Canelo Alvarez pay-per-view fight during the quarter.

We see continued growth in all three of these areas, as we increase our focus on owning more Showtime content, negotiating new affiliate deals, and expanding our presence in sports.

Cable OIBDA of $259 million also increased 12%, and the cable OIBDA margin held steady at 48%.

Turning to publishing, we continue to keep higher profits from the shift to digital.

OIBDA was up 8% to $13 million in the first quarter, while revenue was down from $171 million to $153 million, principally driven by the availability of titles.

The more profitable e-books represented nearly 30% of total publishing sales for the first quarter.

In local broadcasting, first-quarter revenue was $626 million.

Like entertainment, the comparison for TV stations was affected by last year's Super Bowl and fewer March Madness games we had this year.

Underlying growth of for our TV stations were up mid-single digits.

Meanwhile, radio was up 2%, with double-digit increases in several categories, including travel, healthcare, telecom, and entertainment.

Local broadcasting OIBDA in the first quarter was up 1% to $200 million, and the OIBDA margin expanded to 32%.

Turning to cash flow and our balance sheet, we're off to another strong start in terms of free cash flow, which came in at $485 million for the first quarter.

We also ended the quarter with $311 million of cash on hand; which, by the way, excludes the proceeds from the Outdoor IPO which closed on April 2.

As I highlighted for you a minute ago, we will continue to use our excess cash to return value to shareholders.

Beyond the Outdoor transaction, the visibility we have in our base business and in our fast-growing, high-margin revenue streams, gives us great confidence in our ability to generate strong free cash flow going forward.

Now let me give you a few observations of what we see ahead for the rest of 2014 in each of our revenue categories.

At local, our TV and radio stations -- as well as CBS Outdoor, which is obviously still important to us -- are pacing to be up low-single-digits for the second quarter.

With political campaigns kicking into high gear later this year, local advertising revenue should accelerate in the third and fourth quarters.

And at the network, we see momentum building throughout the back half of 2014 with more Summer original programming, Thursday Night Football starting this Fall, and higher ad rates from this year's upfront, which we expect will be strong for us.

In addition, the backdrop of a solid macro environment should bode well for the advertising industry in general.

Content licensing and distribution revenue is also set for a strong 2014, with our syndication and streaming deals for Hawaii Five-0 and Blue Bloods kicking in later this year.

We continue to successfully launch new owned franchises for CBS, CW, and Showtime, and you'll see more of this next week at our upfront.

The strategy provides a pipeline for content-driven growth, both domestically and internationally, for many years to come.

And in affiliate sales, we are positioned to see continued growth from the new deals we signed last year, as well as increases in (inaudible) all existing deals.

In addition, we have a retrans renewal with a major satellite company, and a number of TV affiliate deals coming up later this year.

We have great confidence in our ability to execute these contracts at rates that reflect the fair value of CBS.

So, in summary, as you can see, with the many growth prospects before us, 2014 is shaping up to be another record year for profits.

And with the completion of our Outdoor initiative in sight, 2014 will also be a transformative year in the evolution of CBS.

Once the separation of our Outdoor business is complete, CBS will derive nearly half of its revenue from fast-growing, non-advertising sources, including content licensing and affiliate compensation.

As a result, CBS will become an even stronger company, with a more diversified revenue mix, and many opportunities to grow our business.

We see a clear path for success, and we are feeling very confident about our future.

And with that, Tom, let's open the line for questions.

(Operator Instructions).

Ben Swinburne, Morgan Stanley.

Thank you.

Les, can you talk a little bit more about the upfront, particularly the move to C7, as well as the NFL?

How does that change, if at all, how you guys are going into the negotiations, and how you think you're going to be pricing your inventory?

And maybe you can expand the answer to thinking about how the increase in measurement on time-shifting actually turns into real revenue growth.

I think we all have a realistic view that it takes a long time for the end market shift how people behave.

But can you give us a sense for your optimism level on really driving revenue growth from those changes?

Yes, I'm not going to come out with a prediction on the upfront.

Suffice it to say, we're very encouraged by what we see out there.

There's going to be winners and losers, as there are every year.

We're looking forward to the upfront.

Obviously, having the NFL on Thursday night tightens the inventory a great deal for us.

And, obviously, sports is sold somewhat differently; but primetime football will be a very high number.

In addition, we'll spread out more originals throughout the season, and that should go on.

More and more of the viewing, obviously, is increasing to a C3 number.

So, post-live viewing, we're seeing on a show like Elementary, it's more than 4.5 million people are watching it after the live broadcast.

And we have more than six or seven shows that get more than 3 million viewers.

That's just on C3.

When you start adding in C7, that number will go up significantly more as well.

What's happening -- and, frankly, advertisers adapted fairly quickly to the shift to C3.

Advertisers, what people don't understand, is they want the large audiences.

They want every viewer counted, because it means their advertising are being watched by more people.

As the world expands -- and once again, as I said, you'll get to see more and more C7 deals.

They are going to want those extra four days; and when that doesn't occur, once again we can sell it in different ways.

So, we can't wait to get the selling season started.

We're only going to have six nights to sell, plus football, so our numbers are going to go up significantly because of that.

And when you look at what we're going to do with advertising in the Summer, and more originals throughout the year, I expect our numbers to be up quite a bit.

Thank you very much.

Thank you, Ben.

Let's take the next question.

Jessica Reif Cohen, Bank of America Merrill Lynch.

This is for Les.

So much of your success has been, and should continue to be, coming from your success in programming.

And, in part, it's because the programming has worked, and in part because you've done such innovative deals.

Thinking like Netflix, before you did the deal, everybody was so worried that it would kill the business, and then -- you made such a great deal.

The same thing with syndication.

The Good Wife, you sold for multiple buyers.

So, I guess the question is, as you think about the next 3 to 5 years, how do you think about -- I guess a couple of things.

Additional buyers like OTT, whether it's Dish or DIRECTV, how you were thinking about that.

More originals -- are CBS and Showtime at peak?

Or can you scale up further?

And even digital rights; you did that hard-fought battle with Time Warner Cable a year ago.

How do you resolve the differences between the Time Warner Cable and the Comcast contract?

Yes, look, what's been great about our Company, I'm really proud, is we've been very nimble.

There are more buyers getting into the ballgame every single day.

So now when you look at the SVoD players that are becoming a big part of it, you're right.

At the time when there literally were people out there that said, if you do business with Netflix, we're going to sell your stock, to the people's realization that -- what great new revenue stream.

And as we take out any product to market, there's a whole new world out there of buyers.

And now we are looking down the road at other people getting into the marketplace.

SVoD is becoming bigger.

Cable is still buying.

TV stations are still buying.

So I think innovation is the right word.

We take a property, and we acknowledge how quickly do we want to sell it to SVoD?

What are cable prosperity for the shows?

And each show is a different animal.

Once again, our capacity is continuing to grow, because as we've shown in the Summer, the back end is now becoming as important as the front end.

That's something that was unheard of five years ago.

So, with Under the Dome and Extant, these are deals we couldn't have made five years ago.

We couldn't have afforded to do it.

And as I said it with both of the shows, they are profitable from day one as you enter the marketplace.

Let me go back to saying, we are nimble.

We do an analysis.

There are new buyers.

There are new people that want the content, both online and over the air.

We are looking at OTT in every way, shape, or form.

But, as you know, and we've stated this, unless we get paid appropriately for it, we won't do those deals.

But it is definitely our intent to increase the amount of content that we own.

You will see that next week in our schedule.

You see it with Showtime.

We just announced some new shows with The CW.

And, as I said, we're developing for other places.

So content is our product.

We are programmers at our core.

We're product people.

And as the world evolves, we're going to be well positioned for the future.

And can you discuss the Time Warner Cable, like how you resolved the differences in the contracts?

Yes, once again, we are in discussion with Comcast about that.

And, obviously, there are certain things in one contract and certain things in the other.

There are advantages and disadvantages.

But we expect, as we've done in the past with Comcast, to come to resolutions that are satisfactory for both parties.

And that's our expectation as we go further.

Could I just have one quick one for Joe?

How are you thinking about leverage, post- CBS Outdoor world?

Yes, I think -- Jessica, look, we're obviously creating a lot of financial capacity.

We're focused on getting the Outdoor deal done, and we're going to do that.

I think, again, even if you looked at rating agency calculations, you see sufficient capacity there.

So -- within our ratings.

So we're going to continue to look at that in the coming months, but that's going to be my focus over the next couple of months.

Thank you.

Thank you, Jessica.

Let's take the next question.

David Bank, RBC Capital Markets.

I guess I have two questions.

The first is can -- Les, Joe -- can you remind us what the gating factors are on timing for the exchange offering?

Like is there a legal, regulatory, or tax requirement that you wait a certain period of time?

Or is it just as soon as practical?

And the second question is -- now, I know you always have a ?- you have a pretty good track record of sort of under-promising and over-delivering on this kind of stuff.

It seems to me that there might be a bit of conservatism built on the capital returns trajectory, to me.

You have $2 billion of cash that you raised from the IPO, and levering the Company before the IPO; $3 billion for the exchange.

And so your trajectory would imply like $1 billion of cash buybacks from cash generated from ops.

So you'd actually end up with lower leverage than where you ended last year, I would think, which was a pretty conservative starting point.

So, do you think there's additional capacity in there maybe to -- does it seem conservative?

Or can you give us some perspective around the trajectory?

Sure, David.

I'll take that.

First off, we're very pleased with the performance of CBS Outdoor.

And as it relates to the timing, we've always said we're going to separate it in 2014.

But we always have an option to accelerate it.

But that decision is really going to be based on market conditions, the SEC registration process, and the discussion with our bank.

So hopefully that gives you some context around the timing.

But as far as capital returns, the $6 billion, again, it's really -- a lot of that -- a big piece of that is driven on the exchange offer; so, obviously, it's relative.

So we have to decide what the stock prices are going to do for the actual value of $6 billion.

So, I think again -- yes, math implies again -- I think we're not saying we're done.

We're not saying we have no more capacity.

I think what we're just saying, just kind of approximately $6 billion; so, could it be north of $6 billion?

Sure.

So we're going to continue to focus on that and look at that.

But I don't think you're hearing us today tell you what our leverage target is going to be.

I think what we're focused on is doing this deal and re-looking at the business.

But one thing is for sure: we're creating financial capacity.

That we absolutely know.

Okay, thank you very much.

Thanks, David.

Let's take the next question.

Alexia Quadrani, JPMorgan.

Sort of a follow-up to that last question.

When you look at your -- a couple of things.

One, your focus on being more of a pure play content company.

And then the fact that your balance sheet is going to be so strong, even after this very generous capital return.

I guess has your thinking has changed a bit in terms of your priorities for use of cash?

Can we assume, going forward, maybe in 2015, there might be a bit more of a balanced approach between acquisitions versus share buybacks?

Any color on that would be great.

Yes.

Alexia, it's Joe again.

Look, I think we look at all acquisitions.

Again, we sit here, we feel strategically complete.

If there is something out there, we always look at it.

We obviously can figure out the financing of an acquisition at the appropriate time.

But as we sit here today, our best and highest use of excess cash is to buy back our stock.

Because given the growth opportunities we laid out for you, and the $2 billion in retrans, and Les laid out all these emerging platforms, we see no better use than buying back our stock at these levels.

Okay.

And just a follow-up, if I may.

You and a couple of your peers have made a big effort to move programming to more of a year-round kind of model, versus more the traditional Fall to Spring.

I was wondering if you can give us some color if the advertisers, who historically have not been as focused on the year-round model, are beginning to follow the strong programming you're putting on in the Summer, and you're seeing ad dollars actually follow that programming?

Look, the ad dollars were not used to broadcast networks putting on Summer programming.

So the assumption was, it was going to be repeat theater or some crummy reality shows.

I think we have changed that entire profile.

Going in last year, Under the Dome was pretty much of a shocker for everybody when they were anticipating a low number.

And once again, as we said, because of our deal with Amazon and our huge international sale, we were in profit if that did a 0.1 rating.

When it sort of went through the roof and did extraordinarily well, the advertisers were very happy to be on board.

And, obviously, we sort of set the pattern for this year.

So, when we came in with Under the Dome 2 and Extant, obviously our advertising rates are significantly higher than they were a year ago, and advertisers now view us as a 12-month-a-year programming machine.

And as I said, we have 90 hours of original programming.

Four years ago, there would've been maybe 2.5 hours, and that would've been a country music special, and that would've been the extent of our Summer programming.

Now, there are series throughout the Summer.

And it's pretty exciting, not only for what it's bringing in revenue, but as it leads up into the Fall.

Thank you very much.

Thanks, Alexia.

Tom, let's take the next question.

Michael Morris, Guggenheim Securities.

Two questions.

Les, you mentioned the ability to sell advertising from day 4 through day 7 or beyond; sort of separately, if it came to that.

I'm just curious, the mechanics of how something like that would take place.

Seems that a lot of the viewing may be on DVRs and you wouldn't have access to that.

But maybe I don't understand how it would work, or how much actually is being viewed on VoD.

And then, secondly, just on affiliate fees and the trajectory for the year, last year was a bit lumpy with some boxing on Showtime, maybe some other factors.

As we look at the trajectory for this year, is there anything we should be thinking about in terms of lumpiness?

And the distribution agreement you discussed as you get to year-end, would that impact this year's results?

Thanks.

Yes, Mike, I'll do the first question.

I'll have Joe do the second one.

In terms of C3, there are a lot more advertisers who are looking at C7, and now that the counting that comes from DVRs will be counted in terms of that.

And then more and more of it is online.

And when you look at that at CBS.com, and, I'm sure, for some of our competitors on Hulu, you will see that the dynamic ad insertion, that's when that comes into play.

And once again, we have an entire salesforce that's in charge of doing that.

So that's an additional revenue stream that comes out of our interactive group.

Once again, as measurement gets better and better for DVR viewing, we will be able to get paid from our advertisers for that as well.

And, Mike, on your second part of the question, the major satellite deal that comes up, it really will impact 2015 forward, because it comes up at the end of the year.

And as far as the affiliate fees, well, I guess I'd say whenever Floyd Mayweather fights, not only will somebody's head be lumpy, but some of the revenue at Showtime might be a little lumpy, too, because of the way we record the revenues.

You know, it's a gross method as opposed to a net method, but we love when Floyd fights.

Sure, sure.

So the boxing is the one thing to keep our eye on.

And, otherwise, the first-quarter results should be pretty indicative of what the pace looks like for the year.

Yes, I think that's fair.

I think, again, obviously the Dexter sale also fueled revenue growth, and continued that pretty steady margin at 48%.

Great, thank you.

Thanks, Mike.

Let's take the next question.

Anthony DiClemente, Nomura.

A question for Les on the lovely Aereo (laughter).

That's going to be in the newspaper tomorrow (laughter).

I can smell it.

Yes, (inaudible)?

Let's just put on the table the undesirable scenario that the Supreme Court deems Aereo legal, right?

Right.

So it seems to me that there are two logical arguments as to why CBS shareholders should not worry or panic.

So, reason number one would be Aereo is not a compelling product to begin with.

So if customers want the signal outside of the cable bundle, that would have gone to RadioShack; they would have bought a digital antenna; and they would have done it already.

So that would be one.

Reason number two would be, we shouldn't worry because CBS owns its own content.

You guys have the ability, the weapons, to counterattack commercially.

You can launch your own app.

You can move your programming to cable.

But it strikes me that in some ways those two arguments are mutually exclusive.

So if Aereo is not a compelling product, there's really no reason for you to take any radical commercial action.

So I just wonder, Les, how do you think about those two logically, in terms of how much traction would Aereo have to gain for you to move forward in terms of making more aggressive commercial countermoves?

You make a valid point.

They've been legal; they've been used in New York City for many, many years.

I haven't heard any results.

All I heard was they ran out of antenna.

So that didn't seem that it was a viable product, and obviously it was something we would keep an eye on.

But as I said, we have deals with most of our MVPDs for a long, long time to deliver our content.

If we would see the commercial viability, there are things we can do.

We are talking to people about OTT.

We are talking to people about delivering it directly to our consumers.

We're talking about doing Aereo amongst ourselves, if that became viable.

So, as I said, I don't lose sleep out of it.

We don't think it's a viable product.

We don't think we're going to lose in the court.

We don't think it's a viable product.

And if it was, it won't be viable because it won't have our content.

Got it, thanks.

And then a follow-up question for Joe.

I guess another Supreme Court-related ruling this year, you talked about political in the back half.

I think there aren't any limits this year to campaign contributions, whether it be individuals or corporations.

And so did you expect the political revenue into CBS to grow off of the 2012 cycle?

Or do you have a view on the limits being struck down, in terms of contribution?

Yes, Anthony, thanks for your question.

I do think it's going to grow from 2012.

I think the mid-term elections, because where our stations are, and where these campaigns are, we're better positioned.

So, traditionally, we have done better in the mid-term cycles.

I think removing that cap can only be a good thing.

We'll see how big big can be.

But as you know, we generate about 75% of our political revenue in the back half of the year.

Great.

Thanks, guys.

Thanks, Anthony.

Tom, let's take the next question.

David Miller, Topeka Capital Markets.

Question for Les, and a question for Joe.

Joe, I'll start with you.

Let's just say, for sake of argument, that when you guys do your share exchange between CBS parent and Outdoor Americas that the demand is weaker than you expected, or just not there, just given market dynamics or whatever the reason.

What would be your inclination, then, to dispose of the remaining 83%?

Would it be a series of bought deals or just a secondary offering?

Any color around that would be great.

And then, Les, I'm sure you are aware that on August 14, ESPN is launching the SEC network.

It's not really direct competition to your package, just because they get to pick the game, and oddballs are just going to flow to your game.

But are you thinking about that package any differently, competitively, strategically, just given the launch of that network?

Any color you can provide would be great.

Thanks a lot.

I'll go first because this will be a quick answer.

ESPN has had the other SEC games for many, many years.

We get the premier game just about every week, except for maybe one or two.

So our package is, by far, the best over-the-air schedule.

You see the numbers.

It's a pretty extraordinary deal that goes on for more than a decade.

So we actually view as SEC viewing on ESPN as a positive, and just additional promotion for our premier, Alabama, LSU, Auburn, Texas A&M, you name them, Tennessee, Kentucky.

I don't want to offend anybody who may be listening.

We have the premier game, and that's only going to be a good thing for us.

And, David, it's Joe.

On the split, the first thing I'd say, we're going to price it for success.

So I don't think we plan on having a failed exchange.

But in the unlikely event that we don't get all the shares in, we certainly can do a follow-on.

We can also do a follow-up, program a spin-off.

So, again, I think we have a couple of backup alternatives to make sure we get our ownership down to zero, which was part of the ruling (multiple speakers) from the IRS.

Okay, wonderful.

Thank you very much.

Thanks, David.

Let's take the next question, please.

Laura Martin, Needham.

A couple things.

So, on the local digital, I was really interested to hear you say that mobile is 50% of users.

I was wondering, is that also tracked by monetization?

Or what's the monetization on that mobile, 50% users for local?

And then, Les, I'm really interested on the content side.

Given that -- I know you're doing 30 original series now -- given that some of those are for these SVoD players, I'm interested in your pre-selling international rights.

Is the nature of the content changing in some way; either becoming longer, or more serialized, or more bingey?

How is content changing with these new platforms demanding from your original content guys?

Yes, Laura, actually, regarding the SVoD players, we're in discussion with them.

We have a few projects in development.

There is nothing directly there yet.

But you are absolutely right: the SVoD players like the more serialized content; less more so.

They've done extremely well with that.

And obviously House of Cards has been a significant hit for them.

I think the international marketplace has changed in every way we look at things, because now the SVoD players are part of the conversation.

So, when our international guys go out with whatever series there is, SVoD becomes part of the original conversation, how does that fit with cable or over-the-air.

And where does that deliver the most money for us?

As I said, we have a few projects in development.

We're looking forward to doing originals for Netflix and Amazon.

And the idea that Microsoft and Yahoo are now getting into that, we'd be happy to sell to them as well.

Okay, and on the local digital, Laura, people are absolutely consuming it on mobile devices, tablets, iPhones.

So we really think we have a competitive advantage here on traveling with your local brands.

And so we are clearly seeing usage up; consumption.

And we are monetizing it.

And, again, we do think that's still another growth driver that we -- it's still untapped.

Thanks very much.

Thanks, Laura.

Tom, next question.

Alan Gould, Evercore.

Two quick questions.

Joe, is the timing of the exchange offer, is it just getting a waiver of the lockup of the 180-day -- waiver of the 180-lockup period?

No, Alan.

Obviously, we still have to file a Form 4 and a tender offer document, so there is an FTC registration process also involved.

Okay.

And then, Les, with respect to the cost of the premium content, sort of a good news/bad news issue, as you're both a buyer and seller of programming.

Are the costs going up dramatically for high-quality, one-hour programming?

Not really, not really.

It's very funny, we just did an analysis of next week's potential schedule that we're going to announce on Wednesday.

And the actual cost of that schedule is less than this year's schedule, because a lot of it has to do with the aging of shows that cost more later on; put it on with new shows.

So, if you know the production business as well as we do, I think you can contain your costs and still put out the top premium content.

And that's what we're doing.

Okay, thank you.

Thanks, Alan.

Next question.

Tim Nollen, Macquarie.

I wanted to pick up on the issue of international growth.

I wanted to ask about where the real opportunities are.

Is there a way you can size for us the penetration opportunity in countries, i.e., how much content you have out there versus what you have here?

I know it's a very general question.

Also about pricing; and also about your strategy, which appears to be mainly about content licensing rather than about, obviously, setting up your own networks.

But how do you approach that?

And in that vein, as well, what could you do with Showtime internationally?

Well, content licensing is growing significantly, and it's growing in a variety of markets.

Obviously in our strongholds, which are Europe, they are growing because of the increase of cable networks, and there is a great deal of competition.

We're also greatly aided by the increase in Netflix and Amazon, as well, internationally.

As soon as Netflix opens up a new territory, like Germany they did recently, there is a great acquisition that they will do from us, by definition.

The licensing is the majority of our revenue internationally.

However, we have expanded our channels as well.

Other territories are opening up more significantly: Eastern Europe, the Far East, as well as Latin America.

South America is growing substantially.

So the good news is, we are virtually selling everything we own, everywhere.

And that means soap operas, talk shows, game shows, in addition to the premium stuff you see in prime time.

And you can see David Letterman all over the world in about 200 markets.

And, hopefully, Stephen Colbert will be in 220.

So there is a great future, internationally.

Thanks.

With Showtime, can you let us know what is available, if anything, and opportunities to expand the network there, or sell Showtime content?

Yes, well, Showtime content, as you hear us reference many times in these calls, we mention what we own.

And over the last four or five years, it's been a priority for us to own a majority of the content.

So we own Ray Donovan; we own, partially, Masters of Sex.

We own all of Penny Dreadful.

We own Dexter; and Californication, House of Lies.

So the majority of these shows owned by Showtime are now owned by us.

That wasn't the case four or five years ago.

And the ability to sell these shows is now growing.

As premium cable has grown throughout the world, there is great demand for these programs.

And it's led by HBO and Showtime.

Thanks for the color.

Thanks, Tim.

Tom, why don't we go ahead and take one last question, please?

Marci Ryvicker, Wells Fargo.

I have two questions.

The first is just a clarification for the Q2 pace of the buyback.

I think you received $550 million of cash on April 2 for Outdoor.

Is this all in the Q2 buyback?

That's the first question.

And then second, just bigger-picture, how important is the health of the affiliate bodies to you?

Because there is a fear that if the FCC continues down a certain path, and hurts some of these broadcast TV groups, and they break up, the whole broadcast business can be under pressure.

How would that impact you in terms of your 2017 and 2020 goals of $1 billion and $2 billion in retrans and reverse comp, if at all?

Well, Marci, I'll answer your second question first, and then I'll turn it over to Joe to do the other one.

Look, the health of our affiliates is very important to us.

Remember, going in, however, we own almost 40% of the country of our owned and operated stations.

I was with the FCC this past Friday.

There is no attempt to hurt the affiliates.

Obviously, there is some controversy over the JSAs, and certain affiliates are objecting to that.

But, by and large, the FCC wants a healthy affiliate body.

When you look down the road and say, what would happen if affiliates weren't able to perform?

Remember, almost 90% of our people that watch CBS watch it through satellite, through telcos, or through cable.

If an affiliate wasn't there, there is obviously a way to get our programming to those people.

Having said that, we believe in localism.

We believe in our affiliates.

The CBS affiliate body is very strong.

And we don't view this system as in jeopardy, in any way, shape, or form.

And as far as the buyback, Marci, look, we did $2 billion in the first quarter; and we said, again, approximately $6 billion for the full year.

So at the turn, if we're at $2.5 billion, plus or minus, we don't want to get too caught up into quarterly buybacks.

But again, the target is there, so we're going to be opportunistic and buy our stock attractively throughout the year.

Thank you.

Great.

Thanks, Marci, and this concludes today's call.

Thank you, everyone, for joining us.

Have a great evening.