Paramount Global (PARA) 2014 Q4 法說會逐字稿

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

Today's call is being recorded.

At this time, I would like to turn the call over to the Executive Vice President of Investor Relations, Mr. Adam Townsend.

Please go ahead, sir.

Thank you and good afternoon, everyone, and welcome to our fourth quarter and full year 2014 earnings call.

Listening on the phone is Sumner Redstone, our Executive Chairman, and joining us with today's remarks are Leslie Moonves, President and CEO, and Joe Ianniello, Chief Operating Officer.

Les and Joe will discuss the strategic and financial results of the Company and then we will open it up to questions.

Please note that during today's conference call, the full year results are discussed on an adjusted basis, and fourth quarter 2014 results are compared to adjusted fourth-quarter -- excuse me, 2013 results, unless otherwise specified.

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

Also, statements on this call relating to matters which are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ.

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

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

With that, it is my pleasure to turn the call over to Les.

Good afternoon, everyone, and thank you for joining us.

I would like to start by saying how saddened and we are by the sudden passing of Bob Simon, an important member of the CBS news family and the entire CBS organization.

Our thoughts are with his family as we continue to remember and celebrate his amazing legacy of courage and professionalism.

Now, we will turn to the task at hand, reporting our fourth quarter earnings to you.

It has been an excellent quarter and an excellent year.

We are very pleased to tell you that CBS capped off 2014 with another record quarter.

Revenue of $3.7 billion was up 3% and was our best performance of the year, and EPS of $0.77 was up 8%.

We have now grown EPS for 20 consecutive quarters.

That is five straight years of consistent increases.

As we look ahead to 2015 and into 2016, we see terrific opportunities coming our way.

Yes, retransmission consent and reverse compensation continue to grow rapidly.

And, yes, since the end of last year, the pacing of broadcast advertising has been building week in and week out.

But in addition to that, digital distribution services are allowing us to build new and younger audiences, all of which we are beginning to monetize.

This is happening in the US and it is happening overseas.

New marketplaces for companies that create the best content are opening up like never before.

Here are just a few recent developments.

First, we are coming off a year in which we launched five new owned hits across CBS, the CW, and Showtime.

This will result in yet another wave of monetization opportunities down the road.

Next, we began a new significant long-term deal with Bell Media in Canada that introduces Showtime as a standalone service outside of the US for the very first time.

We are confident this agreement will lead to a new wave of international licensing revenue for our cable segment.

In addition, our new streaming services, CBS All Access and CBSN, have both exceeded our expectations, representing additive ways for us to get paid for our existing content.

At the same time, out of home rights have become more valuable and are now being negotiated with our MVPD partners.

Plus, we are just beginning to license the domestic streaming rights for our non-serialized current hit shows like CSI.

These new deals represent an extension of our evolving strategy in terms of how we monetize our content.

We have hundreds and hundreds of episodes ready to go, so you can imagine how lucrative this will be.

Each of these new developments that I just mentioned demonstrates the power of owning and creating the best premium content.

This is our focus and it will remain so.

As we do this, returning value to our shareholders is also a top priority.

During the fourth quarter, we repurchased $800 million of our stock, which is double what we did in the third.

And here in the first quarter, we will repurchase $1 billion worth of stock, taking advantage of what we see as a very attractive share price.

So that is $1.8 billion of share repurchases in six months.

Clearly our commitment to our shareholders is stronger than ever.

Now I am going to give you some highlights about each of our business segments, starting with entertainment, and then I will turn it over to Joe to tell you more about our performance before we take our questions.

Once again, and you are right; I never get tired of saying this.

The CBS Television network is the most watched network in America and now by more than 2 million viewers per week.

In fact, this May, we will end the season as the number one network in viewers in 25 to 54 and, despite not having the Super Bowl this year, we are very much in the running for the 18 to 49 crown as well.

With 15 of the top 20 scripted series, the ones that really matter in syndication, CBS's total is three times all of the other networks combined.

Something else that often gets about overlooked or misreported is that we have a very balanced schedule of new and established hits.

Consider this.

Of the 15 series in the top 20 that I just mentioned, six have been on the air three years or less.

Five have been on between four and six years.

And four have been on seven years or more, representing some of the most valuable content franchises we own.

Because of that stability of our schedule, we are able to use established hits to launch new content franchises.

We put Madam Secretary on between 60 Minutes and The Good Wife and hit a home run.

We used the number one series NCIS as a lead-in for the new NCIS New Orleans, and it has become television's number one new series, and the most watched freshman drama or comedy in 10 years.

And, with Thursday Night Football on our schedule, we were able to move the number one comedy, Big Bang Theory, from Thursdays to Mondays at the start of the season which provided a terrific lead-in to launch the very successful Scorpion.

All three of these new series are top 10 scripted shows and we own 100% of each of them.

There is more to come.

Next month we will be launching our latest CSI spinoff, CSI Cyber, starring Golden Globes winner and Academy Award nominee Patricia Arquette.

CSI Cyber explores the world of Internet crime, which is one of the most relevant topics out there right now.

Then, in May, we will announce a new schedule that will once again build off our number one lineup and reload our content pipeline.

There won't be a lot of turnover on our schedule, but the new shows we do open will be in protected time periods once again, giving them an excellent chance at success just as we did last year.

Plus, this year, we will launch the Late Late Show with James Corden in March and the Late Show with Steven Colbert in September.

We will own these shows for the first time, which will allow us to monetize late-night in all sorts of new ways on a variety of emerging platforms.

We will also have the return of Thursday Night Football, which means next year will have the most powerful NFL schedule anyone has ever had, culminating with CBS broadcast of Super Bowl 50.

By the way, I would like to congratulate NBC on achieving the highest-rated TV event in history with Super Bowl XLIX.

It certainly won't hurt our sales for next year.

$5 million to $6 million for a 30-second spot sounds pretty good to me.

Meanwhile, our advertising picture is being helped by a broadcast marketplace that has been steadily improving week after week since the end of the first quarter.

Given that we are the number one network and that broadcast content has been strong overall, we are not quite seeing the same headwinds as basic cable.

As we approach the upfront, the timing of this could not be better.

I am not making any predictions because we are just in February, but I feel very confident that we will once again lead the marketplace in pricing and volume.

And we will also see more advances towards a currency that better represents how people are watching our shows.

This means that the C7 deals will be the most common currency.

And there will also be deals that are longer than C7, and it means the beginning of significant revenue from dynamic ad insertion.

The fact is, we are making it easier and easier for viewers to watch our shows on their own timetable, and it is paying off.

On Monday we announced that, in the most recent week available, Elementary added more viewers in seven-day playback than any other show on television.

It went from 8 million viewers live to nearly 13 million viewers when all seven days were counted.

That is about 4.5 million incremental viewers, representing a lot of revenue.

By the way, six of the top 10 shows that benefited the most from that seven-day playback were on CBS.

We are constantly finding new ways to offer these delayed viewers to advertisers and, as we do, we see tremendous upside ahead.

Technology is also helping our base business in streaming where, as I mentioned, we struck a significant deal to license CSI into domestic SVOD for the first time.

Those of you who have followed us know that we have taken a strategically conservative approach to streaming past seasons of current shows.

Well, what we are seeing more and more is that streaming the right shows brings new audiences into the mix and then brings those viewers to the screen for the latest episodes.

And those viewers are often younger and more affluent.

Because our library of current hits is so extensive, we have a lot of upside here.

CSI is already a multibillion-dollar franchise and new streaming deals will only add to that.

Going forward, we have the whole NCIS catalog in our arsenal as well to sell, and discussions are already underway to license that show later this year.

We are also reaching a new audience for our existing program through our OTT streaming service, CBS All Access.

The average age of All Access viewers is considerably younger than network television.

And, as I said, subscriptions are selling faster than we projected, including the biggest surge of sign-ups we have had yet surrounding the Grammys, this past Sunday.

With lots of live events on CBS scheduled throughout the year, and access to more in-season CBS shows than anywhere else, we will continue to grow subs in the quarter ahead.

Plus, All Access is facilitating new discussions on our retrans and reverse comp negotiations.

This includes MVPDs who are increasingly seeking out of home rights from us.

It also includes discussions that are well underway with our affiliates who are looking to join our O&Os and take part in this additional revenue stream from All Access.

Our online news service, CBSN, is off to a terrific start as well.

And there have been some very interesting developments.

First, while the service is popular on mobile and desktop platforms, its largest viewership comes from Internet-connected TVs such as Roku, where CBSN has been the number one news outlet.

We are seeing the most viewers during breaking news events, which has led to three times as many people watching the live stream versus on-demand.

Overall, CBSN is in its early stages, but we are very confident we have created a vital new companion to our network news operations at virtually no cost.

Before we move to cable, I want to note the CW is also having a great season.

It is growing from last year in every single one of the demographics.

We are especially proud that Jane the Virgin received Golden Globe nominations for Best Comedy and Best Actress in a comedy -- the CW's first Golden Globe nominations ever.

This was followed by the show's star, Gina Rodriguez, going on to win the award for Best Actress in a comedy.

That same night, the Golden Globe for Best Actress in a drama series and the Best Drama Series, period, went to The Affair on Showtime, another one of the owned hits that we launched last year.

Just as we have done at the CBS television network, we are driving our Showtime results by adding more owned original programming and monetizing it across platforms.

The most significant deal in this regard is our newer agreement with Bell Media, one of the biggest media companies in Canada, to license Showtime.

We sold individual Showtime series internationally many times before.

But this is the first time the entire Showtime brand is being monetized in this way.

And while the deal is financially important in its own right, what is really encouraging is what it represents going forward.

It shows our ability to monetize Showtime as a full network service in many other markets overseas.

By the way, the reason we have been able to develop this new revenue stream is because we now own virtually our entire Showtime schedule.

In publishing, we are also pleased with the hits that Simon & Schuster is creating.

During the quarter, the novel All the Light We Cannot See by Anthony Doerr was on more best of 2014 lists than any other book.

Thanks to these end of year accolades, sales passed 1 million copies in 2014 and have provided a boost here in the first quarter.

In addition, following the success of CBS and Simon & Schuster's collaboration on Under the Dome, we are now looking forward to The Dovekeepers in April.

This CBS miniseries will be based on Alice Hoffman's novel and, once again, we own it 100%.

In our local broadcasting segment, we are able to achieve strong growth with the help of political spending.

This was particularly true at our TV stations, which also benefited from healthy gains in NFL sales and retrans.

Looking ahead, the 2016 presidential election is right around the corner and, thank God, the rancor has already begun.

Radio continues also to be profitable.

Along with our TV stations, our local segment turned in a 40% margin for the Company.

And we continue to build new audiences in radio by extending our big market content into the digital world.

For example, last month, we launched a podcasting platform called Play.it.

This new platform features content from CBS Radio personalities, CBS News, CBS Sports, Simon & Schuster, and even outside partners.

Plus, we built an ad network that allows sponsors to buy across multiple podcasts.

So from network to cable television to first run syndication, from publishing to our local business, and certainly at CBS Interactive, we are constantly monetizing our content in new ways that are benefiting our shareholders.

Quarter after quarter, year after year, we have seen how these high-margin revenue streams can boost the solid performance of our base businesses.

And the good news is that technological innovation continues to work in our favor.

This includes the advent of the over-the-top services, the explosion of digital distribution internationally, and the new ways we are just beginning to profit from advertising on delayed viewing platforms.

In addition, CBS has never been in a stronger position than we are right now as we progressed towards $2 billion in retrans and reverse comp revenue.

From Verizon to Time Warner Cable, to Cox to DISH, to all of our affiliate deals, we have proven time and time again that distributors cannot live without CBS.

This is true for large bundles and small.

And we don't need any other assets to get these deals done on the best possible terms.

The power of our own content drives our success, both in negotiations and from an operating perspective as well.

So there is no company in a better position to gain from the dynamic shifting marketplace than CBS.

And as we do, we remain focused on investing in the best content, controlling costs, enhancing our extremely strong financial position, and returning value to our shareholders.

And, with that, I will turn it over to Joe.

Thanks, Les, and good afternoon, everyone.

Today I am going to give some more detail about our fourth quarter results and discuss what we see ahead in Q1.

But, first, I would like to talk a little more generally about our financial performance and strategy.

We grew revenue and EPS in the fourth quarter even as we continued to invest in the future of our Company as a content machine.

In fact, Q4 was our best ever fourth quarter for EPS, despite foreign exchange losses that amounted to three pennies per share.

And full year EPS also hit a new high and was our fifth straight year of steady increases.

It is a true testament to the way we are executing on our strategy of owning premium content and monetizing around the world on a growing array of platforms.

As Les said, we have recently created five new hit series across our television and cable networks.

Meanwhile, technology is evolving in such a way that we are selling our own hits more effectively than ever.

New players are constantly coming into the mix, both domestically and around the world, and they are bringing more opportunities our way.

In fact, during 2014, we generated more international SVOD revenue by selling to local streaming providers in overseas markets than we did from the two biggest US-based SVOD players combined.

So the cycle for our must-have content will continue, which in turn will drive our results in the years ahead.

At the same time, we are returning value to shareholders like never before.

As you have heard, we repurchased $800 million of our stock in the fourth quarter, and we are on track to spend another $1 billion on share buybacks here in Q1.

Just to give you some perspective, over the last two years, we have retired 151 million shares of our stock, which includes 106 million shares that we repurchased for $5.8 billion in cash, and another 45 million shares that we retired in connection with the outdoor split off.

That represents 24% of our share base and we still have a way to go.

Once we hit the $1 billion in share buybacks in Q1, we will have $3.8 billion still remaining on our current authorized program.

And you can be sure that we will continue to be very aggressive and opportunistic in our buybacks going forward.

Now let me get into some more detail about our fourth quarter results.

Revenue was up 3% to $3.7 billion during the quarter.

Advertising grew 4% driven by Thursday Night Football and political spending at our local stations.

And network advertising was up 2%.

Affiliate and subscription fees grew 11%, demonstrating the continued impact of our new retrans and reverse comp deals as well as further growth in our cable networks.

Content licensing and distribution was down 3%.

As you know, this revenue stream can fluctuate from quarter to quarter, depending on when shows are made available.

On a full year basis, content licensing and distribution came in at $4 billion, matching a very strong year in 2013.

OIBDA was down $30 million, to $778 million during the quarter because of our higher investment in programming, primarily for sports right.

And EPS was up 8% to $0.77.

As I mentioned, we were able to achieve this despite the FX headwinds during the quarter, and for the full year, EPS was up 6% to an all-time high of $2.96.

Now let's turn to our operating segments.

Entertainment revenue in the fourth quarter grew 2% to $2.3 billion, driven by increases in ad spending, particularly from Thursday Night Football, as well as higher affiliate and subscription fee revenue.

Entertainment OIBDA declined to $287 million during the quarter, again, due to our higher investment in sports rights.

In cable, fourth-quarter revenue of $499 million was up 5%.

The increase demonstrates the continued success of our strategy of owning more Showtime Original series, which is leading to higher licensing fees and increases in rates from affiliates.

At the same time, the international appetite for Showtime-branded content is a growing opportunity, as evidenced by our new deal in Canada.

Cable OIBDA of $247 million was up 24%.

And our cable OIBDA margin expanded 8 points to 49%, a direct result of the growth of our high-margin syndication revenue.

As I said before, we look at our margins on a 12-month basis.

So for the year, our cable OIBDA margin expanded more than 2 points to a very strong 46%.

Turning to publishing, fourth-quarter revenue came in at $215 million, down $10 million from 2013, when we had several strong Duck Dynasty titles.

In addition to All the Light We Cannot See, best-selling titles for this year's fourth quarter include Revival by Steven King, and Money: Master the Game by Tony Robbins.

Publishing OIBDA was $27 million, also down $10 million from 2013.

And, for the year, our publishing OIBDA margin was a steady 14%.

In local broadcasting, fourth-quarter revenue was up 9% to $785 million.

The increase was driven by higher advertising from political and Thursday Night Football, as well as growth in retrans.

TV stations were up 15% and radio was up 2%.

Other strong advertising categories during the quarter included travel and leisure for TV, and auto and healthcare for radio.

Local broadcasting OIBDA grew 19% to $313 million.

And the OIBDA margin expanded 3 points to 40%.

Turning to free cash flow and our balance sheet, free cash flow came in at $880 million compared to $280 million in Q4 of 2013, a result of the timing of payments for our new NFL contracts which we made earlier in the year.

We ended 2014 with $428 million of cash on hand.

And, as of December 31, our gross debt to OIBDA ratio was just under 2.2 times.

As we have said before, we are comfortable raising our target ratio to 2.5 times.

Also, in January, we issued $1.2 billion in senior notes and we used a majority of these proceeds for stock repurchases here in Q1.

Now let me tell you what we see ahead in the first quarter.

Network advertising continues to build off of Q4 levels, and scatter pricing is up high single digits over the upfront.

TV stations are pacing to be up low single digits.

In particular we are seeing strength from the healthcare category as well as our big event programming, including the Grammys, the Academy of Country Music Awards, and the NCAA men's basketball championships.

Meanwhile, radio is also pacing to be up low single-digits.

Retrans and reverse comp will continue to ramp up.

We have about 17% of our TV station footprint set to expire later this year and 20% on the reverse comp side.

This 20% is in addition to the 25% of our affiliate footprint that we just reset the end of 2014.

Every new deal we do raises the watermark to a higher level, and we look forward to continuing to obtain fair market value for our content as we work towards our goal of achieving or exceeding $2 billion in annual revenue by 2020.

At the same time, we will remain vigilant on all costs as we always do.

On a side note, now that we no longer have the outdoor advertising business in our portfolio, the gap between the run rate of capital spending and depreciation expense has narrowed significantly.

So, starting in the first quarter of 2015, we will be using operating income as a key metric instead of OIBDA for both our business segments and our Company as a whole.

So in summary, the media landscape continues to change in new and exciting ways.

But one constant holds true.

Our strategy of creating and owning premium must-have content will always come out on top.

From the CBS television network to the CW to first run syndication to Showtime, we are producing critically acclaimed and highly rated programming that is in great demand around the world.

This is leading to an increasing number of new growth opportunities, many of which we are just beginning to realize.

So we feel very good about the direction we are headed and we look forward to talking to you all on our next call.

So with that, Gwen, let's open the line for questions.

(Operator Instructions) Ben Swinburne, Morgan Stanley.

I have two questions.

Less, can you talk about the DISH renewal, whether you are able to set another high watermark and if you got paid for the out of home rights?

And what is your perspective on the PSS outlook, since I know you feel very confident in CBS position in the new digital environment we are working towards?

And then I have a follow-up.

Yes.

Look, the DISH deal, we don't go into detail about it, but as we have said, every deal that we have made is higher than the next deal.

We are very happy with how the deal ended up.

We were sorry we had to go dark for a half hour during the negotiation.

But we were very pleased.

And the out-of-home rights, there is a path to negotiate for them.

There is an opening to do it.

It is not completed yet.

And, as you all know, in every one of these MVPD deals that we do, the out-of-home rights is sort of a separate negotiation.

And, as Charlie goes ahead with some of his OTT offerings, there is a path for us to discuss them.

They have not been done so far.

Regarding the spectrum, obviously it is something that we are looking at.

And we are interested.

Yes.

That was going to be my follow-up, which is, on the broadcast incentive auction, now that we have had these big numbers out of AWS 3, how are you thinking about potentially looking at that as an opportunity for you guys?

It seems like it could be a couple-billion-dollar opportunity, potentially.

Yes, Ben, it is Joe.

I will take that.

Look, obviously, we kept a close eye on the AWS 3 auction that they had.

And last week I am sure you and others saw the updated Greenhill report.

So we have a lot of stations in our group.

If we just looked at the four independents -- these are the non-CBS or the CWs, we have one in New York, L.A., Dallas, and Boston.

If I just looked at those median values -- not the maximum values -- in that Greenhill report, I mean, that totals $2 billion for those four markets.

So obviously, this is a hidden asset within our portfolio.

We are looking at it closely.

I mean, the financial term I would get -- think about it as a free call option.

So we are studying it, and as we learn more about auction and the process, we will evolve our strategy.

Jessica Reif Cohen, Bank of America Merrill Lynch.

I have a question for Les.

With all the amazing changes that have gone in this industry, there could be some interesting combinations for CBS.

And certainly, there has been tons of speculation about what may or may not happen with the Company.

Could you give us some thoughts about how CBS may or may not participate in consolidation?

Yes.

Thanks, Jessica.

Look, obviously, there has been a ton of noise out there on CNBC and various magazines and newspapers.

Our Company, right now, is so strong.

Some of those who suggest the combination sale, it will give you more clout as the distributors potentially come together.

We think we have quite a bit of clout.

In every negotiation that we have done, be it Time Warner Cable or DISH or whatever, when you walk in the door with the NFL, with the number one comedy in Big Bang, the number one drama in NCIS, the NCAA basketball tournament, we feel pretty good about ourselves as a Company.

There is a lot of noise and people say, oh, this and that, some of it with mistaken facts, frankly.

Look, at the end of the day, our Board of Directors is only going to do what is good for the shareholder.

In other words, we feel good about ourselves.

We think our stock price is going to go up considerably over the next few years, obviously, and the next few months.

And we are going to take all that into consideration and -- as we go forward.

But, as I said, we are feeling pretty strong about ourselves and don't need any partners.

And just a completely separate question, but have you -- HBO has said their OTT service is coming later in the year.

Have you -- can you give us any thoughts on how you are thinking about Showtime?

Yes.

We are obviously looking at Showtime and the potential for that.

And there are various permutations that we are working on, and we will probably share as many details with you as HBO did, which is not many at all.

David Bank, RBC Capital Markets.

A couple of sort of pedestrian questions here.

Your cable networks -- kind of extraordinary margins way beyond what we were thinking.

Can you give us some color with respect to the key drivers?

Was it the deal in Canada?

Was it a particular content syndication deal?

If so, what shows?

And as a follow-up to your comments on the CSI stuff, Les, what platform did you sell it into?

And what sort of recognition of revenue timing with -- there are like 300 episodes of this thing, even with third cycle type pricing; these are some -- should be some pretty big numbers.

So can you give us a little more color around it?

Thanks.

David, it is Joe.

I will take the first one for the cable.

What is driving that, obviously, is timing of theatrical releases quarter over quarter.

So obviously, we benefited from that and you are also seeing the benefit of owning more shows.

And so, yes, I mean, every deal we do internationally and domestically certainly, again, underscores the value of owning content.

So we definitely benefited from that.

But I think, again, that is why we always say look at the margin on a full-year basis.

And I steered you to the 46% margin as opposed to the 49% margin.

Yes.

David, regarding CSI, we haven't yet announced it.

There is a deal in place.

It will be announced in the not-too-distant future.

You are right.

It is north of 300 episodes.

So the good news is, as we look towards the future, that will be accounted.

In addition, we have not yet sold NCIS into streaming.

That is also hundreds and hundreds of lucrative episodes.

So the future for these two franchises, which have not yet been introduced into the streaming world, is going to be pretty tremendous throughout the rest of 2015 and beyond.

So we are very excited about it and stay tuned for information in the not-too-distant future.

Michael Morris, Guggenheim Securities.

A couple of questions.

First, on network ads, Joe, you mentioned scatter up high single digit versus the upfront in the first quarter.

Can you talk a little bit about whether, based on what you can see now, whether you think that will lead to growth at the network in the first quarter or what the kind of swing factors could be there that you are looking at?

And then, second of all, on the All Access product, I think that your NFL content is the biggest, most notable item that is not on that.

Where are you in the process of making that available on the product?

And, based on the rights that you have with the NFL, does it matter whether the product is your own standalone over the top, or whether it is a partnership through an MVPD, similar to the Sling product, whether or not you could make it available?

Thanks.

Yes.

I will answer the NFL question and let Joe answer the other question.

Obviously, NFL is not part of the All Access package.

We are talking about it, what potential content we can use.

And, obviously, with the NFL, we have a relationship with Thursday and Sunday.

So it will be an ongoing situation.

Right now, our situation with All Access is obviously -- it all goes to us as we negotiate with our affiliates.

A piece of that will go to them, which will, obviously, expand the use of it.

And I imagine discussions would be if there was any other platform that became part of it, there would be a potential share on that.

But at the moment, that is not part of the game.

Yes.

And, Mike, it is Joe.

On the network scatter, so yes, scatter, again, I said pricing is up high single digits.

I mean, we will see where we end the quarter.

But I will just tell you is, do we expect it to grow?

The answer is yes.

We do have one less playoff game in Q1 of 2015 for the NFL under the new contract and it kind of rotates.

We will get it back in 2016, so it goes in and out.

So that is the only kind of really big true comp on the national basis that will affect the underlying advertising growth rate.

But we do expect it to grow.

Thanks, Joe.

And, Les, to be clear, your ability to show the NFL content on a nontraditional product, is there a difference whether it is a CBS-driven product like your All Access versus, let's say, a product like the Sling over the top service?

If your major content available through something like Sling, because this is an MVPD, would your rights allow you to show that NFL content?

Yes, Mike, it is Joe.

Let me just give you the details of that one.

The answer is yes.

Like in the Sony OTT deal or in the DISH OTT operate offering, the NFL is part of the CBS offering that we negotiate with those carriers.

And we do have those rights.

This is slightly different and that is why Les said those negotiations are ongoing.

David Miller, Topeka Capital Markets.

Great results.

Les, I am just curious about what your vision is, say, two, three, five years down the road for the production studio -- the actual CBS TV production studio.

I believe you said 90 days ago or so that you finally sold a show to a third-party network.

So are you guys taking a sort of a game theory approach to this where, say, two, three, four years down the road you have kind of like one-third series, you buy from other parties; one-third series you manufacture, if you will and sell to other parties, and then the other third you kind of keep to yourselves?

Or is it not that neat and clean?

Just, what is in your head with regard to that CBS production studio?

It is not that neat and clean.

Obviously, in terms of the CBS television network, we do have very successful shows from outside studios and we will continue to do that.

Big Bang Theory is a Warner Bros.

show and it is making us a lot of money and Warner Bros.

a lot of money.

And that will always be the case where there is room for top talent at other studios.

By the same token, our production load, as we mentioned, with CBS, the CW, Showtime, first run syndication, we are producing north of 30 shows that we own.

At this point in time, we have development all over the place with other broadcast networks, with other cable networks, and with MVPDs.

So our attitude, basically, is you know what?

We are going to be in business with everybody.

Ownership becomes more and more important.

Backend is becoming as important as the front end.

So when we look down the road, as we mentioned, owning these five shows is going to pay off for many, many years to come.

Alexia Quadrani, JPMorgan.

Sort of on the same lines, the question of the content and the timing of the content sales.

You see a rule of thumb four to five years out, you go into syndication.

You have got some great shows.

Obviously, they are very young, as you mentioned.

I guess, how should we think about the content sale pipeline for maybe 2016 or 2017, now that these shows are getting sold into syndication in a much shorter time frame?

And then I have a follow-up.

Thanks.

Alexia, it is Joe.

Here is what we can say about that.

That is why we always say the timing of that can fluctuate.

But, I think the true test, if you look at the pipeline and just say we are constantly reloading it.

But I am going to go through a quick list of shows that haven't gone through syndication yet.

So whether it goes 2016, 2017, 2015 -- Elementary, Madam Secretary, Scorpion, NCIS New Orleans, Beauty and the Beast, Jane the Virgin, Rain, The Affair, Penny Dreadful, Ray Donovan, Masters of Sex, House of Lies, Nurse Jackie.

So you see kind of my point is that we have a bunch of stuff that we are producing that hasn't begun to go through the revenue cycle yet.

Okay.

That's very helpful.

And then, also, a follow-up on your commentary about the very strong demand for international SVOD, I think in 2014.

I guess the question is, will that grow year-over-year in 2015?

And I guess SVOD in general, both domestic and international, just total SVOD, do you see those revenues up in 2015?

Yes.

Internationally, again, I think why we gave that data point, we really found it really telling in that we focus, obviously, most of our time on the US opportunity.

But when we look abroad, the number -- the competition that is there from existing players and new entrants, with, again, since we own this content, it really opens up a whole new marketplace for us that we are really just beginning to tap.

So I think we certainly expect, and our international guys know their budgets, are certainly for significantly more revenue than they generated in 2014.

Anthony DiClemente, Nomura.

I have one for Joe and one for Les.

Joe, on the increases you are seeing on retrans and the retrans renewals, as we look out to the first quarter of 2015 and 2015, I would think that the OIBDA dollars from that retrans growth would be more incremental to the model as opposed to 2014, where a lot of the increment growth was subsumed by -- or more than subsumed by the programming cost uplift from sports and the NFL.

So are we thinking about that correctly?

Am I thinking about that correctly?

Or are there other offsets within the entertainment segment in 2015, perhaps on the licensing side, that you would call out that could absorb the upside from those retrans growth dollars?

I think, Anthony -- let me just stop you there.

I think, yes.

I think that is true.

I think, obviously, we had a step up in our new NFL contract as well as Thursday Night Football, so that is kind of the new base when -- if you are comparing 2014 versus 2015.

And, obviously, all the incremental retrans dollars fall to the bottom line.

So that is how we manage the cash flow.

And I would say, again, later this year we have two more deals with pretty big MVPDs and we expect to be successful with that, and that will build into 2016.

And on the station -- on the reverse comp side is really, again, the bigger growth rate because, again, just from the timing of when those deals expire.

So as we look to 2015, 2016, and even into 2017, that continues to ramp.

So we are clearly not at a full run rate.

I mean, we gave you $2 billion in [20].

We gave you $1 billion by 2017.

So you can understand the track we are on of growth.

Thanks.

And just one for Les, if I may.

Les, when you look out there and at ad demand and the ad demand landscape, the competition for ad budgets, and you look at what Facebook is doing, they are dramatically growing the amount of video on the platform.

They are merging it with targeting the ability to buy impressions using reach and frequency.

Those are things that Jo Ann Ross and your ad sales team already do today.

So they are making a pitch to advertisers that the ROI of digital is superior to the ROI of broadcast TV.

And so I just wonder, what are you and your ad sales team doing to talk to add buyers, to talk to agencies, to play defense here?

You know what?

Number one, let me state that we are in the digital business in a very, very big way as well.

So the increases in digital advertising also affect us.

And, once again, the network group and the digital group are working very closely together.

So these increases that Facebook is talking about, in terms of video digital, we are getting the benefit of that.

You know what?

And I think what they have said is they are taking away from television, not necessarily from broadcast.

And there is a big distinction that needs to be made.

Broadcasting is the big tent.

We are not competing directly with digital.

I think some of what you are hearing is the noise is about basic cable -- the smaller basic cable or the more niche basic cable networks are competing for those digital ad dollars.

But to get the impressions that we are able to get, you talk to the big advertisers, they can't live without us.

If General Motors wants to launch a new product, they want 20 million people watching NCIS rather than going on YouTube.

It is not to say they won't buy YouTube later on.

But the reason we are seeing increases in our pricing right now -- and every year the upfront is up from where it was before, and generally scatter is up before -- is network television can't be replaced.

You can't do without those huge numbers.

Look, NBC got $4.5 million for a 30-second spot in the Super Bowl.

We are going to get north of $5 million.

Those are not dollars going to digital.

They realize they want to get to 120 million people at once.

And that is why broadcast will always be solid.

Doug Mitchelson, UBS.

I wanted to ask about the upfront since, Les, I think you just kicked it off on this call by offering Super Bowl inventory for $6 million a spot.

So --

Exactly.

Are you interested, Doug?

We have got a few available right now, but they are going fast.

I will check with the ad guys at NBC (laughter).

I think it is always an interesting time of year and you have your finger on the pulse of what is actually happening in the marketplace.

How many pilots do you think you'll shoot this year?

And can you remind us what you did last year?

How is the fight for talent?

A lot of folks ramping their original efforts.

And do you see that in cost and availability of talent?

And how many holes do you have in your schedule and what type of shows are you targeting?

Any of that would be helpful.

Yes.

The good news, as I said, during the call, is our schedule is really very, very solid.

There are very few holes.

We are probably doing three or four less pilots this year.

My guess is we will be down to eight comedies and eight or nine dramas right now.

And how many shows we launch -- this year, we only launched four new shows in the fall and, as I said earlier, they are able to be launched in different places.

Are there more -- is there more competition out there?

Probably, because everybody is doing original dramas and comedies.

But that has never stopped us, or we are not having trouble finding the kind of talent that we want.

And you know what?

Our batting average in terms of backend syndication is so much higher than anybody else's -- cable, other broadcasters, certainly the MPVD players that -- coming to CBS is -- the story is, yes, it is tougher to get on the air, but if you are on the air, your chances of success will be a lot greater.

So it is a very interesting year, but I think we are going to have more than enough to put in our schedule.

If I could just follow up with Joe, I mean, Joe, when you think about the shows that you and Les are putting up on the board, do you start to get visibility around now as to what production costs for next season might start to look like when you think about older shows that might be expensive that you are taking off versus newer shows?

Is there any kind of visibility you are starting to get around that?

Yes.

Sure.

That is all part of the process, Doug.

When we go through that and we are obviously looking at a show cost X now right in its eighth year versus Y in its first year that we own it.

So we go through all of that calculation as we do it.

But, obviously, as Les said, the best show will always get on the air.

But it is definitely part of the process.

But Doug, you should know that Two and a Half Men after 12 years is going off the air.

It is announced.

So that is a pretty high ticket item.

You may have heard about Charlie Sheen's salary and then Ashton Kutcher's salary.

So, by definition, maybe the most expensive half hour on our schedule is coming off.

And so as a result, I fully expect our costs for next season -- for 2015, 2016 to be less than they are for this season.

Mentalist is going off the air as well, which is an older show.

But -- so production cost wise, we are in very good shape.

John Janedis, Jefferies.

Les, I think the Bell Media deal initially flew under the radar.

And so I wanted to ask, are you going to recognize revenue on an upfront licensing and then on a success-based basis?

And to clarify, how replicable is it across geographies?

I don't know if there are any potential issues with existing rights.

Thanks.

Joe, why don't you talk about how we are recognizing it (multiple speakers) and I will talk about the second.

Yes.

For the brand, John, it is recognized over the term of the agreement.

We are not going to disclose the actual term, but I will say it is a long-term agreement.

So for the brand value, for the trademark, it is recognized.

And then the other part, think about it more as an output deal.

As we produce more and more shows for them, they will buy those shows that an agreed-upon price.

So again, it really speaks to the value that we are able to achieve this type of deal to the quality of the content on Showtime.

So yes, I think we can replicate this.

Obviously, timing of rights have to line up, but Canada is no different than other countries.

Yes.

I mean, we have talked about ownership of the shows and how much more of the products we own than even a few years ago, when the thought of an international channel -- an international Showtime channel would have been impossible because the shows were all owned by different companies other.

Now, it is a very different story.

As Joe mentioned, the timing of these rights are important.

But this is potentially a very revolutionary deal for Showtime as it looks to expand throughout the world.

And that hits later in 2015 or in 2016?

It starts 2015.

We will start right in 2015 and, again, it will ramp as the shows go.

They are launching their SVOD service, I believe, later in the year.

So John, if I was thinking about this, I was thinking about this kind of building into end of 2015, 2016, 2017 and beyond, but because, again, of the output nature and the SVOD service that Bell is launching.

Laura Martin, Needham and Company.

I am really curious about this.

Have you guys ever thought about aggregating that awesomely deep library and offering it to consumers direct in sort of a competitive product to Netflix?

Or is the money coming out of these SVOD players just so much greater in cash flow streams than doing it yourself and building a global footprint out of that library of yours?

Laura, actually, you know what?

All Access is basically split into three parts.

One is the live feed, in the markets that it is in, which we will expand.

Two is catch up on existing shows that are on the air.

And the third part is a big part of our vast library.

So right now, for $5.99 a month, you can get all the Star Treks, and all the Mission Impossible and all the I Love Lucys and all the Cheers that you may want.

So we are -- that is -- once again, it is -- some of it is syndicated out, but it is not exclusive.

But you will find that on All Access.

So we agree, we view it is a very good idea.

And those rights are also sold nonexclusively to Amazon and Netflix, right?

That's right.

That is correct.

That's correct.

And my other question was on dynamic ad insertion.

I am so happy this is finally coming.

And what I am really interested in is, do you think dynamic ad insertion will be a material revenue driver in 2015?

Or do you think that that has to take two or three years to become a meaningful upside?

Laura, it is Joe.

I would say, look, it is certainly not going to be fully realized.

It has a lot -- it is not going to realize its full potential there, but if you just think about the consumption and you will applied some sort of average CPM, you could see -- you could get hundreds of millions of dollars, and you could see why we are excited about it.

Obviously, when any marketplace develops, you don't reach the full capacity, kind of in year one, year two.

So I do think there is a natural ramp here.

But, again, the good news is that the consumption is there.

We can prove it.

We have the data.

So the monetization will follow.

Very helpful, thanks.

Jim Goss, Barrington Research.

I have got a couple also.

First, regarding -- I was wondering if there was any trend you could talk about in terms of the international sale, concurrent with initial program release, and whether that dollar value is increasing as it is with the film industry.

Yes.

The answer is yes.

The good news is the international marketplace -- and we referred to the growth in competition with MVPDs and SVOD providers and all the normal people -- the numbers are going up.

The numbers -- when we first launch a show, as soon as we announce that is on our schedule, our international sales team launches it and sells it, and it basically goes on concurrently with our fall schedule.

And those numbers are going up.

There is a certain range for CBS shows.

There are certain shows we have as part of output deals in certain territories.

But the CW shows are going up.

The Showtime shows are going up.

So the marketplace is stronger and stronger every year.

Okay.

Also, I have been amazed in terms of the role of a schedule as C7 looms and new distribution platforms.

I am wondering if you could talk about how important it is, and whether that is changing at all, and what is the share of doing an original day and time.

Yes.

The number is over 70% who watch the show live day and time.

So, as I talked about before, when you take a show like Madam Secretary, which clearly is an upscale show.

It is an intelligent show.

Putting that show after 60 Minutes and before The Good Wife, makes great sense.

And, frankly, even though this is the age of everybody saying, people want their shows when they want it, scheduling still matters.

Having the strength of schedule that we have really matters.

The reason Thursday night was helpful in other ways, when we did our research on Scorpion, we said it is the perfect companion for the Big Bang Theory.

The Big Bang is about five nerds who do comedy.

Scorpion is about five nerds who do action adventure.

And they are very, very compatible shows.

So we put them both on Monday night and Scorpion succeeded a great deal because we got the Big Bang people to watch Scorpion.

Obviously, NCIS New Orleans -- the people who watch NCIS, the idea is to keep them there.

So scheduling remains an important skill, and the strength of schedule in launching new product remains very strong.

That 70% number will go down, but it is still a major factor today.

Okay.

And, lastly, I was wondering about the importance of news right now in your schedule.

And in terms of the destabilization of that might be occurring with NBC, is there any change in the landscape you might look at in that regard?

No.

I would rather not comment on the issues that NBC is having.

Obviously, both of our -- our morning news show and the evening news with Scott Belli have gone up over the last two years.

And it is rising in a terrific way.

I love the product we are putting on.

It is very strong.

It is very forceful.

And we are looking for the news division to continue to increase.

Marcy Ryvicker, Wells Fargo.

I have two.

First of all, where are you in discussions with the affiliates for CBS All Access?

Have you started those?

Yes.

We have started them.

We are fairly far down the road and I am optimistic that most of the affiliates will be on board.

I think they are very encouraged.

For the first time, actually, in this kind of service and over-the-top service they are going to share.

So we have received a very good reaction from our affiliates and we expect to be able to announce it in the not-too-distant future.

Okay.

And then, secondly, with the renewed NFL Thursday night contract, is there anything you are planning to do or anything incremental you can do to help the margins with that contract next year?

Just get better games.

We actually have terrible games.

Of our eight games, like five of them were like ridiculous blowouts.

So we really believe if the schedule gets better and the games get a bit closer, we will do a lot better and the margins will get better.

We fully expect that to happen next year.

And, once again, having the Super Bowl, having the extra playoff game that Joe mentioned that we will have next year, it should be a lot of good NFL stuff for us.

And this concludes today's call.

Thank you, everyone, for joining us.

Have a great evening.

Thank you, everyone.

That does conclude today's conference.

We thank you for your participation.