Paramount Global (PARA) 2015 Q1 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation first-quarter 2015 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.

Good afternoon, everyone, and welcome to our first-quarter 2015 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 for questions.

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

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

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

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

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

Thank you, Adam.

And good afternoon, everybody, and thanks for joining us.

I'm very pleased to tell you that CBS turned in strong quarter yet again with EPS hitting $0.78, another record.

This marks the 21st consecutive quarter that we have grown our EPS while continuing to invest in our future.

Our consistent success is driven by the performance of our content and all the new ways we are monetizing it.

Certainly, the world is changing, new dynamics are popping up in our industry every single day.

As a result, there are winners and losers.

The good news is that CBS will continue to be a winner in any scenario.

This is because we are wonderfully positioned.

We are clearly one of the best companies in all of media when it comes to benefiting from changing consumer habits.

No matter the size of the bundle or the method of distribution, audiences simply can't live without our programming.

Verizon has the new bundle that we are part of.

Sony has a bundle that we are part of.

And you have all heard the talk about Apple as well, and there will be more.

The good news for us is that in every bundle, from what exists now to the new ones that will come along, CBS will have to be a major part of every service that wants to succeed.

And in smaller bundles we will always get a bigger slice of the pie, and that means higher fees for CBS.

At the same time, we're proactively launching our own content platforms, too, including the very successful debut of CBS All Access and the upcoming Showtime over-the-top service, which will be announced soon.

As we find new ways to monetize our content, we are also increasing our output of quality programming across the Company.

From the number one television network where we are growing our viewers to the increasing demand for our shows in global syndication, we are producing the content viewers want to see.

In fact, across all platforms we have more viewers today than we did 11 years ago.

Our hit shows are performing particularly well with our SVOD partners who are finding, predictably, that great content is not so easy to produce.

You need a great explorer like Marco Polo to find the actual audiences that's watching some of these programs.

Our success means that we have the capacity to return tremendous value to our shareholders.

During the quarter, as promised, we repurchased $1 billion of our stock.

In fact, since the start of 2014 we have retired more than $7 billion of our stock including the $2.7 billion we returned after we split off Outdoor.

All this is in addition to nearly $400 million we paid out in dividends.

Going forward, you can be certain that we will be steadfast in our commitment to return value to shareholders.

So with a growing audience, increased license fees, and continued rapid growth in retrans and reverse comp, we are poised to continue our remarkable run and deliver for our investors for years to come.

Now, let's take a brief look at each of our businesses, starting with entertainment.

Then I will turn it over to Joe before we take your questions.

The CBS television network is just about to end the season as the most watched network in the country.

It will be the seventh consecutive year and the 12th time in 13 years that we have achieved this feat.

We are number one in viewers and once again we are up.

In fact, we are up 5% from a year ago, on average we are beating the competition by the very wide margin of 2.5 million viewers, which is twice as large as last year's lead.

We are also number one in 25-to-54.

And in 18-to-49, we are within 146,000 viewers of NBC in a year in which they had the Super Bowl.

Subtract the viewers that they gained from that game, and we are number one in 18-to-49, too.

And guess who has that game next year?

CBS!

One of the big reasons CBS is having such a strong finish to the season is the addition of Thursday Night Football.

Adding games this past fall tightened up our schedule and allowed us to save more original programming for later in the season when others had repeats.

Prime-time NFL games also helped us to have one of the best batting averages ever in terms of launching new shows.

Virtually all of our new shows this year have been hits including NCIS: New Orleans, Madam Secretary, Scorpion, and CSI Cyber.

And, even better, these are shows we own, meaning they will now be monetized for years to come.

We will capitalize on this opportunity again next season when we bring back Thursday Night Football with a significantly bigger and better schedule of games.

And as I said, we will also have Super Bowl 50 in addition to our usual Sunday afternoon package.

So next year will be the biggest year any network has ever had with the NFL with Thursdays, Sundays, and the Super Bowl, and it will be the biggest full season viewer number anyone has had in a long, long time.

CBS Sports' other marquee events also performing extremely well for us.

Last month the final round of the Masters drew 14 million viewers, up 26% from 2014.

And the NCAA men's basketball championship attracted more than 28 million viewers, making it its highest-rated game in 18 years.

You heard from our partners at Time Warner about how the tournament drove revenue for them.

And needless to say, it has helped us as well.

CBS News also continues to build its audience during the first quarter.

All of our signature news programs were up including our flagship broadcast, CBS Evening News, with Scott Pelley and CBS This Morning.

In fact, CBS This Morning is the only morning network newscast to add viewers this season, and it is now delivering its largest audience in more than two decades plus we are attracting new and younger viewers to CBSN, our digital streaming news network.

CBSN continues to exceed our expectations and expand into new platforms.

And once again, we are doing this without the costs associated with a cable news network.

Also during the quarter, we launched a whole new franchise in late night -- The Late Late Show with James Corden had a strong debut and audience is building including the highest ratings yet earlier this week.

Creatively, the show is way ahead of where we expected it to be and is having especially good success online and in social media, where it's number one in its time period.

And because we own this show, we are now able to monetize these views as well.

This represents a whole new opportunity for us in late night, and it's one that we will replicate on an even larger scale with the launch of the Late Show with Stephen Colbert in September.

Speaking of the Late Show, this is a bittersweet moment for us.

David Letterman changed the game in late-night television, and we are very proud of all that he is accomplished.

So when he takes his final bow in two weeks, it will truly be an end of an era.

But there is no better person to take up the mantle than Stephen Colbert, and we are very much looking forward to his debut.

Also in broadcast television, the CW is about to finish its most-watched season ever.

This includes the outstanding first season of our new owned series, Jane the Virgin.

We look forward to building on the CW's momentum when we announce our new fall schedule next week.

So from prime time to sports to news to late night, it's a great time to be heading into the upfront.

May 13 is right around the corner and with scatter pricing up double digits, we can't wait to get started.

CBS's rating growth, demographic strength, and a complete and stable schedule are once again the pillars of what we will offer our agencies and clients.

And yes, I am very confident that we will lead the marketplace in pricing and volumes.

And no, I'm not giving a numeric projection other than to say no one will enter the upfronts or the new front in a better position than CBS.

In addition, C7 will be an even bigger part of our negotiations again this year as we move from C3 to C7 and to beyond seven days there's a tremendous value that will continue to be unlocked.

Delayed viewing is allowing for significant innovation in terms of more data, more analytics, and more marketing capabilities and we are determined to get paid for all of it.

In fact, as the marketplace continues to improve here in the second quarter, I like what we're seeing in terms of the future of advertising at CBS.

There will always be a new shiny object, but once buyers look at every type of advertising that there is, old and new, they are realizing that nothing can compete with the effectiveness of CBS.

Our head of research, David Poltrack, is proving this fact through a new program that documents a client's return on investments when advertising with CBS.

And as we just announced, we are number one in virtually every consumer group imaginable.

In addition to our improving outlook on advertising, we are very excited about the growth we are seeing in our non-advertising revenue streams.

Retrans and reverse comp continue to rise at a rapid clip on their way past $2 billion in 2020.

International revenue also grew strongly during the quarter, and we continue to take advantage of the high demand for our content as new markets and platforms open up around the world.

And SVOD is now more competitive than ever in terms of buying premium content, as evidenced by Hulu's recent spending spree, which is another good sign for us going forward.

So we are selling SVOD in a big way, but we are also selling traditional syndication in a big way as well.

We are now selling the same product many times, and the overall pie is growing.

What remains very, very clear is that the value of hit programming continues to drive the syndication marketplace on any platform.

In fact, more than half of the top-50 highest rated nonsports telecasts on the USA Network this season were episodes of NCIS.

And all of the top-50 highest rated nonsports telecasts on TBS were episodes of The Big Bang Theory.

As you know, these are the number-one shows on CBS and in all of television in their respective genres.

The point viewers will continue to watch the best content wherever they can find it.

Repeat viewing on cable and digital is bringing viewers back to new episodes on the network, creating a virtuous cycle for those have the best programming.

And once again, let me remind you we have 15 of the top 20 scripted programming on television.

As we grow our non-advertising revenue we are also very encouraged by the early success of CBS All Access.

The majority of subscribers are signing on to watch past episodes of current CBS shows, which is available nationwide.

Meanwhile, the live linear feed of CBS has now expanded to more than 55% of the country through deals with a number of our affiliate groups including Hearst, Gray, Meredith and Raycom.

We expect the whole country to be able to stream CBS live before long.

With every subscriber we add we are raising the bar in terms of what CBS is worth in the marketplace.

We are also looking forward to rolling out our new Showtime over-the-top service in the coming months.

There are 10 million broadband-only homes that cannot currently subscribe to Showtime.

Going over the top will allow us to reach these consumers.

There are also nearly 100 million television homes that may want to subscribe to Showtime but have yet not done so because of the historical way premium cable has been packaged.

OTT will facilitate sign-ups with them as well.

So, just like HBO Now is proving, we see tremendous opportunity at Showtime.

This new over-the-top service and the international expansion we told you about last quarter are made possible by the incredible creative success story we have going on right now at Showtime.

We have more hit shows on the network than ever before and the majority of them are owned by us and are just being monetize.

We are constantly adding to this pipeline including a terrific new drama coming up called Billions that is currently in production.

It's about the inner workings of Wall Street hotshots, and I predict it will find an audience with a number of people right here on this very call.

And of course, last weekend we had what we are confident will be the highest grossing pay-per-view fight of all time between Floyd Mayweather and Manny Pacquiao.

This event clearly captured the world's attention and in doing so provided us with a nice profit and the terrific opportunity for Showtime to continue elevating its now global brand.

Our world-class content is also making its mark at Simon & Schuster.

We are very pleased that All the Light We Cannot See by Anthony Doerr won the 2015 Pulitzer Prize for fiction.

This book has been a huge success.

It has been on the bestseller list for an entire year now with sales approaching 2 million copies.

Needless to say, we are extremely honored by this prestigious award.

At our local businesses, as the weather has improved after a tough winter, so has advertising.

Our TV stations continue to benefit from our retrans and reverse comp deals as well as our big event programming.

Sales revenue for the NCAA men's basketball championship game were up double digits over last year and our stations attracted record sales to the Academy of Country Music awards.

And in radio, we have welcomed and impressive executive, Andre Fernandez, to serve as our new President.

Andre took the reins from our friend and longtime colleague, Dan Mason, who retired last month.

Andre has a successful track record as President of a public company portfolio of newspapers, TV and radio stations, and digital assets.

We look forward to all that he will do to build on our major market strategy and keep radio growing into the future.

So, across our Company we are moving forward from a position of great strength.

And it all starts with our content, where we continue to grow our audience and reach new viewers.

This season we added to the pipeline at least a half a dozen new shows including four from CBS, one from Showtime, and one from the CW, all of which we own.

Each of these shows is just beginning to be sold internationally in syndication and in SVOD.

This represents the most shows that we have ever launched in a single year since we became the new CBS Corporation nine years ago.

And in that regard it's quite possibly the best season anyone has ever have.

We look forward to these shows paying off for years to come, and we will be planting the seeds for more in the coming weeks.

At the same time, advertising is improving and are non-advertising revenue streams are benefiting from new opportunities all the time.

From 500 channels to a la carte, from over the air to over-the-top, CBS is must-have programming.

This fact is not changing, no matter how fast the world may be.

So, I'm very pleased about all we continue to achieve, and I'm even more excited about all that we have left to do.

With that, I'll turn it over to Joe.

Thanks, Les.

Good afternoon, everyone.

I want to start by echoing Leslie's remarks about how excited we are to compete in this ever-changing media landscape.

When you have the content, the strategy, and a balance sheet that we do, the opportunities are enormous.

Before I take you through the numbers, I want to discuss our ever-changing revenue mix, which is a big part of our overall strategic plan.

One of the great benefits of our transformation into a content-centric company is that we continue to find new ways to monetize our shows.

Advertising represented 51% of total revenue during the quarter with the other 49% coming from high-margin, fast-growing revenue streams.

These streams are led by retrans and reverse comp, international licensing, and increasingly innovative distribution platforms such as CBS All Access.

In fact, our $6 a month over-the-top service is far exceeding our expectations, and it underscores our value in retrans and reverse comp negotiations.

And at the same time that we are growing our diverse revenue sources, we are also expanding our content pipeline in a big way by investing in premium programming, resulting in new hits across our networks that we can monetize for years to come.

So we are very well-positioned for the future, and we remain committed as ever to returning value to our shareholders.

In January, we took advantage of very attractive interest rates to raise $1.2 billion of debt, and we used that cash to repurchase stock at an accelerated pace early in the quarter.

As a result, we retired 17.2 million shares at an average price of $58 per share, for a total of $1 billion in Q1.

As of March 31, we had $3.8 billion remaining on our share repurchase program, which, as we've told you previously, we plan to complete sometime in 2016.

In addition, given our changing revenue mix and our free cash flow generation, we are now comfortable broadening our debt to OIBDA target ratio to a range of 2.5 to 2.75 times.

Just as we always do, we will revisit our capital return opportunities with our Board when we near the completion of our existing plan.

Now, let me give you some more details about our first-quarter results.

Revenue came in at $3.5 billion compared with $3.57 billion last year.

Advertising was down 5%, primarily because of an additional NFL playoff game we had in Q1 of last year.

But the good news is underlying network advertising was up 1%.

Affiliate and subscription fees were up double digits for the second consecutive quarter, thanks to our new retrans and reverse comp deals.

And content licensing and distribution was down 4% percent.

As you know by now, these fees can vary from quarter to quarter depending on the timing of content availability.

As we told you on our last call, we are now using operating income as a key financial metric instead of OIBDA.

For the first quarter, operating income came in at $702 million compared with $791 million in 2014, reflecting our continued investment in programming.

Just to give you some perspective, our CBS Television Studios produced more than 30 hours of originals for CBS and the CW in Q1 of 2015 compared with last year.

At an average price of a few million dollars per hour, this investment is our highest ROI and will pay back in the years ahead as we sell these shows across multiple platforms around the world.

As you heard, we also turned in our best-ever first quarter for EPS, which was up 1% to $0.78.

And we did this despite a foreign-exchange impact that cost us $0.04 of EPS during the quarter.

Now let's turn to our operating segments.

First, first-quarter entertainment revenue was $2.26 billion, down 2% from last year when we had that additional NFL playoff game that I just mentioned.

However, this segment benefited from our new retrans and reverse comp agreements, which resulted in higher network affiliation fees.

In addition, our interactive businesses delivered a strong revenue quarter, driven by CBS All Access, CBSN, and our CBS Sports websites.

Entertainment operating income for the quarter came in at $346 million.

Again, this reflects our investment into more originals including NPS New Orleans, Madam Secretary, and Scorpion at CBS and Jane the Virgin at the CW.

And the best part is we have not yet begun to monetize those episodes on SVOD or domestic syndication.

In cable networks, first-quarter revenue came in at $539 million, up from $537 million last year.

We offset last year significant streaming sale of Dexter with growth in affiliate fees as well as higher international licensing fees, which were helped by our deal with Bell Media in Canada.

Cable operating income for the first quarter was $251 million, down $3 million from 2014.

This reflects the timing of theatrical programming as well as an investment to increase our bandwidth infrastructure as we prepare for the launch of Showtime over-the-top.

Even so, how cable operating income margin held strong at 47%.

In publishing, Q1 revenue was $145 million, down $8 million from last year.

However, operating profit was up 9% to $12 million as digital content, which is more profitable than print, increased to 31% of total publishing revenue for the quarter.

We continue to turn out great content here as well with 64 New York Times bestsellers during the quarter, including three that hit number one.

In local broadcasting, first-quarter revenue came in at $596 million, down 5%.

TV stations were down 3% and radio stations was down 7%.

I would like to remind you as a result of our radio station swap with Beasley last year, we now have nine fewer radio stations in our portfolio.

In addition, the harsh weather that hit Boston, New York, Chicago, Philadelphia, and Detroit, where we have 40 TV and radio stations, contributed to the advertising slowdown that we saw during the quarter, particularly in the retail and entertainment categories.

However, we are seeing a pickup across several key advertising categories in Q2.

And local broadcasting operating income during the quarter was $161 million, down from $179 million.

Turning to cash flow and the balance sheet, free cash flow for the first quarter came in at $400 million compared to $520 million last year, due to our higher sports and original primetime programming investment.

And we finished the quarter with $331 million of cash on hand and gross debt of $7.7 billion.

Now, let me to you what we see ahead.

Advertising at our local businesses is improving.

Our stations are pacing to be about even with Q2 as we begin to comp against increased political spending from the year ago.

We also expect our non-advertising revenue streams to grow.

In particular, we have just about under 20% of our footprint coming up for renewal in retrans and reverse comp during the rest of 2015.

So affiliate and subscription fees will ramp up throughout the year.

In addition, we expect Showtime over-the-top to be a meaningful driver of our cable results in the near future.

There is a large underserved market here and we anticipate strong demand for this service.

And of course, we continue to have a lot of headwind to grow internationally as well as our international sales team had six freshman hits in their arsenal that they have to sell.

So in summary, our first-quarter once again speaks to the strength of our strategy, which is to monetize our content across an increasing number of revenue streams.

We are focused on producing the best content, and here at CBS we remain at the top of our game.

Our investment in programming led to an unprecedented number of hits across CBS, Showtime, and the CW business.

Each new hit adds to our pipeline, which is looking as strong as it has in years.

So from retrans and reverse comp to multiplatform syndication to over-the-top services, there are terrific opportunities before us.

And that is why we're so confident that we have a bright future ahead.

With that, Gwen, let's open the line for questions, please.

(Operator Instructions) David Bank with RBC Capital Markets.

Okay, thanks.

First off, I'd like to lend my service to you as a highly paid creative consultant on Billions, so I will be waiting for the call after this call.

Join the list.

We have quite a list on that.

So I have two questions.

I have one for Les and one for Joe.

The first is for Les.

Our understanding from what we see from the buy side of syndicated programming is that on the linear side it certainly seems to be directly tied to audience deliveries in the prime first-run.

And I think there's some concern amongst investors that as you get changing viewership habits, whether or not people are actually watching less first-run prime.

Certainly maybe some of that viewership is not being measured and you are going to get lower ratings.

And as a result, do you get lower pricing per episode for your content?

And when you think about the other platforms where you are also monetizing, if there is a direct relationship between ratings and what the value of an episode is in linear, how do you determine that kind of -- what determines the pricing on SVOD?

How tied is it to ratings on the international market?

That's for Les.

And I guess for Joe, we notice that Moody's had some positive comments out on your increased financial flexibility, or what they thought would be increased financial flexibility, given the shift in your revenue mix for towards contractual revenue.

So given that you broadened the target leverage range to 2.5 times to 2.75 times, do you expect to complete the existing buyback authorization earlier than you did previously, when you gave that initial target?

Thanks, guys.

Thanks, David.

I'll deal with the first one.

As I mentioned, look, we're in the changing landscape.

But the great news is, in measurable number of viewers that we are getting paid for, we are above where we were 11 years ago.

So yes, there's more that goes to DVR usage, there's more that's online, there's more -- however, the advertising dollars per viewer is higher than it's ever been.

And we are extremely excited about that.

In terms of the international marketplace, it has never been stronger because, guess what, SVOD is growing rapidly in each of these places plus the international marketplace is expanding into Asia more and obviously Eastern Europe and Latin America, markets that didn't exist.

But as I said, SVOD -- there is a great deal of competition now throughout the major territories that we do business with.

And SVOD once again, as I mentioned -- Hulu is now a major player.

They spent $180 million on Seinfeld.

By the way, we own 9% of that show, just parenthetically.

So clearly, there's another player in the marketplace that's saying this show that hasn't been on the air for 10 years is worth that kind of money.

So with Netflix still playing strong, with Amazon playing strong, with Hulu, you see all sorts of other programmers getting into the marketplace.

And as long as we continue doing what is our job, which is to produce hit content, we're going to be fine and we're going to grow a lot.

Joe?

And David, for the leverage ratio, again, I think we told you for some time -- again, we have been focused on changing the business model.

And I think the agencies certainly have acknowledged that.

So there is no change, really, to the timing.

I think, again, we said completed sometime in 2015.

So if you just look at -- 2016, excuse me, 2016 -- if you just look at that --

You can make it 2015, if you want.

-- over that five to seven quarters, you can just roll that out.

What I would just point to is that's a $6 billion program, which is 20% of our market cap within two years.

So, I'd say we are putting our money where our mouth is.

Okay, thank you.

Jessica Reif Cohen with Bank of America Merrill Lynch.

For Les I just -- well, whoever wants to take it.

But you seemed really excited about some of those strategic ventures, for good reason.

Could we just hone in on a couple of them?

On Showtime over-the-top, there's a huge audience that doesn't get Showtime right now.

And that's pretty obvious.

You seem really bullish about the prospects.

How will you price it so you don't cannibalize PayTV right now?

And how will you market and who is going to sell it?

And the same thing for Apple -- there's a lot of speculation on pricing and you did say you will get a bigger slice in a skinny bundle.

Several million subs can make a huge difference to your bottom line.

So can you talk about timing and maybe other Apple -- anything you could on say on pricing and others coming down the road?

We don't want to get too specific, and I think we both can answer the question.

Obviously, Showtime over-the-top -- Showtime is in about 23 million homes right now.

There is a universe of over 100 million homes.

And as we said, you have to get the basic cable package, then you have to check off HBO before you -- so you are always spending like $120 before you get Showtime.

Now -- and once again we are going to deal with our existing partners and new partners.

But there is going to be an easier way to just check the box and get Showtime.

We will make more money on each Showtime sub then we currently do in the existing universe.

We are not going to get specific now because those numbers are continuing to be worked out.

And once again, in the smaller bundles, somebody that offers 20 channels at a lower price point, we are going to be a more important part of that bundle.

So whether it's Apple or Sony or anyone else, the amount of money we are getting per sub, once again, goes up a lot.

And as we said, just a couple of million more subs in each one of these categories is a huge amount of revenue and profit for us.

Joe, anything to add?

No.

And then the second question is obviously the success of the Company over the last 5, 10 years has been your enormous success in your programming.

And you said you could scale up.

Do you think you will have any success this season selling outside the CBS family?

Or are you even trying to?

Look, we have shows in development out there.

Whether they get on -- I think there will be a couple of shows on other cable networks that we don't own.

I doubt there will be other networks.

But between Showtime, CBS, and CW, we are producing more than 40 shows right now including first-run syndications.

So, we have quite a lot going on.

I think we will be selling to other places.

Thank you.

Ben Swinburne with Morgan Stanley.

Les, I don't know if this was meant to be an increase.

I'm reading it has one.

But you talked about $2 billion in retrans and reverse comp or more -- sorry, in 2020 if not before.

The question is: is that an increase from your prior expectation?

And if so, are you factoring in some of these new entrants or other additional distribution platforms that you weren't before?

And then I have a follow-up for Joe.

I think it's a few things.

Look, put it this way.

We are even more confident than before of the $2 billion.

We think we are going to get beyond that.

Yes, there are new entrants, as everybody knows.

In addition, the price of poker has gone up.

With every succeeding deal, we have said we are going to get more money.

And there's now other rights that are available and other product that's available.

So yes, that $2 billion we consider to be a conservative number at this point in time.

Great.

And then, Joe, just on the Bell Media deal, I know you can't size it for us, per se.

But just given the way the revenue is recognized, I don't know if you could spend a minute on that and whether this business has a quarterly run rate, is it lumpy, or do we see Q2, Q3, Q4 the same kind of revenue we saw in Q1?

How does it work just qualitatively?

Just think about this as they are paying agreed-upon fees per show.

They are paying for the trademark, the brand.

So as we continue to produce shows they are going to pay.

So it's not like a one-hit wonder in terms of it's only in one quarter.

So this is a multiyear agreement that obviously we are pretty excited about.

By the way, the brand at Bell Media is Crave TV, it's called Crave TV in Canada.

So we are pretty excited about it.

But, Ben, really the bigger opportunity is we are saying it works in Canada, it can work in many other countries.

It's just really what's working as the content and the brand.

So that has really given us great hope that this can just be one of many.

So this isn't tied specifically to Q1 deliveries?

This is more ongoing?

Right, this is going.

You can almost think about it as an output.

As we are putting on shows there's much more in the pipeline.

So let's mention Billions.

So Billions will be on this on-demand service and we have pre-negotiated what those rates are.

So it gives us great visibility into the future revenue prospects of Showtime.

Thank you both.

Michael Morris with Guggenheim Securities.

A couple questions about All Access.

First, just real briefly, would you be willing to share any information on the uptake of the product at this point or penetration of usage where it is available?

No.

(Laughter) we are very pleased.

It's exceeding expectations.

As we mentioned, we have over half the country involved now, and that's just with the live feed.

And we expect by the beginning of the fall season, by September, to virtually have the entire country covered with that.

And once again, it's the first opportunity for the affiliate body to share in our $6 rate, and they are very pleased about it, by and large.

And we are happy to have them promoting it and marketing it alongside us.

Obviously, what really affects it is the $6 price point.

The take rate on the $6 price point really gives us a lot of confidence when we go talk to our distribution partners at selling it at a discount to that.

We have proof in the marketplace that this is fair market value.

Joe, that's great.

That was the second question I wanted to ask because Les mentioned, I think, that the majority of the usage is catch-up viewing.

And it seems to me that maybe two incredible opportunities for you with traditional distributors right now are out-of-home rights and stack viewing, which it seems like this product people are willing to pay for.

So I guess my question there is on those two facets, how much of your current sub base is penetrated on and you are getting paid for those two services?

And how does that unfold over the next year to several four years?

Yes.

Well, we have not sold, obviously, in-season content to any partner, nor out-of-home rights for CBS.

So I think as Les mentioned, as we look at consumption on All Access, what is driving it is national VOD.

So the appetite seems to be -- traditionally on CBS.com we have a seven-day delay.

So it seems like the consumer wants it quicker.

And again, at a $6 price point it makes it very attractive to us.

So again, as we continue to roll this out it's giving us more and more confidence in our content.

Do you expect your distribution deals, then, to contemplate having broader stacked rights in the near future?

We suspect the demand for out-of-home rights delivered in multiple ways is growing.

And it's really being driven by the consumer, because of crazy schedules and the way they consume it.

So clearly, that will be part of future negotiations.

And we are happy to talk about what the value of those rights are.

But clearly, we are demonstrating it with the $6 price point.

That's great.

Thanks a lot, guys.

Anthony DiClemente with Nomura.

A couple of questions for Les -- last night on the Fox call, Chase said that viewers are not going to be captive viewers that sit through 16 minutes of advertising, that ads need to be more engaging and more interactive.

You said in your prepared remarks that no ads are more effective than CBS's ads.

The question is what gives you the confidence that network TV ads are still as effective for marketers as, let's say, YouTube to TrueView ad or Facebook autoplay ad online?

And then a related question -- on the Disney call Bob Iger said that money has definitely migrated out of traditional media and into new media.

And when we think about some of the contributing factors to that, one of them could be that the agencies are incentivized to advise their clients to shift to digital because the margins for them are higher.

I'm wondering if you think that's a structural frustration for you guys and how you feel about the agencies' role in that shift to digital.

In terms of the first question, we have done extensive studies through Poltrack that shows that the consumers are much more engaged and the return on investment for the advertisers is much more effective at CBS.

May also add our ratings are -- when you look at viewers overall, they are considerably higher than Fox and they are in different businesses then we are.

And our numbers are considerably better and our advertising, we think, is more effective from the engagement that we have and the kind of shows that we do.

Yes, there is a lot written, just to Bob Iger's point about the shifting marketplace into digital.

Obviously, we have a number of digital assets and we are seeing a rise in those.

As I said, we do not see it affecting the broader-based television advertising platform.

We think, once again, it's affecting in the niche cable networks much more, that it's much more effective, or it can be, to go digital when you are trying to do that than reach a broad audience.

So those who have more basic cable assets, maybe that -- like Bob does, maybe they are seeing a shift there in digital.

We are not seeing a shift out of network.

We are seeing scatter pricing being up and we're looking forward to the upfront, where we expect volume and pricing both to be up fairly significantly.

Thanks a lot.

Alexia Quadrani with JPMorgan.

Given your success in the TV studio business and the impressive commentary you had about the ROI there, what is your appetite to expand that business or acquire other businesses in that area or just build up on it?

And I have a follow-up.

We can expand that if the content -- all the elements are there.

It's still -- to produce great content you need great scripts, you need writers, producers and stuff.

So we can grow that organically.

We don't necessarily need acquisitions to grow our studio, expand our studio, if the right opportunity is there.

We are always looking at those things.

However, I think just why the last year we've demonstrated, as we just said, this last quarter our same studio without an acquisition is producing 30 more hours of original content.

So we don't need to stop there.

Plus new six new hits, plus late night shows.

Our studio is very proactive.

And by that you don't necessarily have to acquire companies.

You acquire talent like Colbert and Corden.

And you bring them into your home.

You acquire talent like Kurtzman and Orci, who created Scorpion.

That's what we do, and that's what we've done for many years and that's how we expand our content business.

And then just following up on your comments on over-the-top, when you are considering CBS's participation in some of these over-the-top offerings which you have, how much is the advertising model or advertising potential even a consideration?

Or is it really just all about the incremental sub fees at this point?

Well, look, advertising is still 50% of our business.

So it's definitely still important.

It's part of the conversation.

I think when you see us do deals with partners, we disable fast-forward in our deals.

So it's clearly an important part of our mix.

But again, obviously, we are looking at the overall business model and how it is transforming.

And again, we want to price our content right.

Thank you.

Doug Mitchelson with UBS.

So, Chase Carey yesterday indicated they were thinking that broadcast networks needed to control more of the rights or all the rights to their shows.

And that contrasted, to me, with your comments (multiple speakers) --

Doug, could you speak louder, please?

We're having trouble hearing you.

Can you hear me now?

A little bit.

A little better.

All right.

So look, Chase Carey yesterday indicated they think broadcast networks need to control most or all the rights of their shows going forward.

That contrasted, to me, with your comments, Les, around the fact you sell shows multiple times, which has obviously been the nature of business on the TV programming side so far.

So when you think about CBS All Access and the value proposition it offers, and you mentioned catch-up viewing driving that business, it would seem to make sense that you start to have stacking rights and SVOD rights built into CBS All Access.

Do you see a world where rather than selling shows, slicing and dicing them in multiple ways, you just run the power of those TV shows through your own distribution and try to capture at full value?

The marketplace is evolving so rapidly -- look, we are slicing and dicing it and putting it on different platforms.

And some of those platforms may be looked on as potential competitors.

And as CBS All Access grows, that may be the sole place where we stack those shows and where we put their shows.

But at the moment every show that we have we treat as an entirely different property and sell it in a very different way and have a real strategy to most effectively sell that.

As soon as All Access hits 20 million subs, then we may look at the world little bit differently.

That's fair.

And then on the upfront, your comments about significant increases in volume and price -- I know you're not going to give us a number.

But should that suggest to all of us that you expect the upfront to perhaps be better than some of the prognosticators have expected, or you are just talking about your specific market position?

Put it this way.

There are clear -- there are certain networks that have done very well this year and certain networks that haven't done so well.

I'm not going to go into great detail, but you can figure that out yourself.

So we are up and we expect it to be a good marketplace.

All right, thanks so much.

David Miller with Topeka Capital Markets.

Congratulations on the stellar results.

Les, as you gear up for the upfront coming up here, we are hearing from some of our media buyer sources that the currency this year in broadcast will be one of two different sub currencies -- live ratings and C7.

And it just feels like -- correct me if you think I'm wrong -- it just feels like C3 is getting pushed under the rug, going by the wayside in terms of overall importance.

Do you believe that or do you agree with that?

And in your negotiations, wouldn't you want to favor C7, anyway, just because of the strength of your Monday and Tuesday night schedule, which clearly everyone watches on DVR over the weekends?

Thanks a lot.

Look, the DVR numbers are going up leaps and bounds.

You take a show like Elementary, which, when you add in C7 number, it basically goes up by 50%.

So I made the statement, which I think is more true than ever, overnight ratings are virtually useless unless you just want to feel good in the morning or feel bad, depending on what network you are at.

So C7, definitely we expect it to overwhelm C3 in the coming upfront.

We hope so.

We think it's more appropriate.

And judging from the feedback we're getting from a lot more advertising agencies, we think that will be the currency.

Obviously, some of the live programming like sports and live events -- that currency becomes much more important.

So we are capable of selling it both ways.

But our scripted programming, most specifically our scripted dramas more than anything else, and the comedies as well, that extra seven days means a great deal.

Okay, thank you very much.

John Janedis with Jefferies.

Les, you started the call talking about changing consumer habits.

With the emergence of your apps and technology broadly, I was hoping you could talk more about your views on mobile platforms.

Some of the concern in the market is the challenge of monetizing mobile users at all or at a big discount to the traditional platforms.

So what line of sight do you have on improved monetization on the platforms, meaning mobile?

I'm going to let Joe deal with that.

Yes, sure.

John, look, it's death to the consumer, you know.

So if the consumer wants to consume the content on a mobile device, that's what is really driving it.

What we are going to do is we are going to make sure we cut deals that make sense for us to have the content where the consumer wants it.

So, as Les said at the outset, our job is to produce the best content and market it and get it in front of the consumers in a business model that's better than where we sit today.

And I think every indication from a technological standpoint or a consumer habits standpoint basically prove that out.

Thank you.

Jason Bazinet with Citi.

Just one for Mr. Moonves.

I understand why everyone is very excited about Showtime over-the-top and CBS All Access.

But at the same time I'm struck by Netflix's market cap and how excited people are about just their broader international push.

Is there a holistic strategy that you all have to take all of your content and do something broader globally as opposed to the narrow initiatives that we are all talking about that people are justifiably excited about?

Is there something bigger?

It's a very good question, Jason.

I guess eventually that will be part of what we do.

Remember, when Netflix started I don't think they had this great international game plan.

When they achieved such great subscriber success here in the US with the product, and obviously the model was working, everybody was supportive of it.

But right now All Access is about six months old.

Showtime OTT is going to be launched in a few months.

We hope they achieve such a high level of success that we do push them internationally.

Look, we are in control of this content.

That's the big change in the world.

So we control over 80% of the shows that are on CBS and a similar percentage on Showtime.

So now we can move from market to market like we did in Canada with Showtime, territory to territory.

And we can have a bigger global footprint with exactly what you are talking about.

Thank you very much.

Bryan Kraft with Deutsche Bank.

I had a question for Les and one for Joe.

Les, I know you shared your thoughts on the upfront already.

But can you comment on the current scatter market pricing and volume trends you're seeing?

And Joe, on the leverage target raise, is the idea here that you will use that additional flexibility to buy back more shares?

Or is this dry powder for an opportunistic investment or transaction?

And further on that front, how married are you to the new leverage target range in the short term?

Would you lever up higher temporarily if an opportunistic transaction were to present itself?

The scatter market is very strong.

It's up double digits right now.

As I said earlier, we are really pleased.

Normally this time of year we have a lot more repeats than we do, but we've got a much larger percentage of original programming and our schedule remains very strong.

So, we are very pleased with what we are seeing.

And the demand has increased since the beginning of the year to now.

And as I said, we are heading into the upfront at a very good time.

We are feeling very strong about the marketplace.

And Brian, on the leverage ratio, obviously we are increasing our financial flexibility there.

That's why we felt comfortable increasing it.

Basically, we are going to use that financial flexibility first and foremost to reinvest in our business.

I think that's key.

We do not see any acquisition out there of any significance for that.

And then the excess capital is always -- we're going to focus on returning value to shareholders.

And our primary method right now is obviously returning value via stock buybacks, given where the stock is an all these initiatives that you just heard on the call.

So we are pretty optimistic about our future earnings potential, so we think it's a good buy.

So, like I said earlier, we are putting our money where our mouth is.

And we're going to continue to do that.

Great, thank you.

Marci Ryvicker with Wells Fargo.

I have two.

Hypothetically, when you are discussing the over-the-top products with an Apple or a Sony and they want to do a linear feed, how do the station groups fall into this?

Is this something where you would negotiate on behalf of the entire affiliate body and then figure out what their cut is?

That's my first question.

And then my second question is I know radio is small but the trades are going to pick up the 7% decline.

Is there a core number you can give if you were to exclude the radio stations that were swapped last year?

Yes.

As far as the OTT, obviously as we roll those out we can do that different ways.

I think that affiliates could go and try to negotiate those one-off and pay us for the content for those rights.

Or we do it globally and they get a piece of that.

I think, again, it's six in one, half a dozen of the other, whichever way CBS is going to get its fair share of the value of that.

So like I said, on the over-the-top service that we have today, most of the viewership is the video on demand product the next day, which, again, we own 100% of.

So I think that's going to continue to roll out across the country.

And we are pretty excited about that.

As Les said, we are clearing the live linear piece by the end of the year in most of the country.

So that speaks for itself.

And again, the affiliates are meeting in this.

This is a partnership that they will participate.

But we do on the intellectual property of that content.

As far as radio, look, obviously it's much smaller than the 7%.

I think, again, you know -- I don't know how you quantify the impact on the weather except when you strip that out to get to a pure underlying.

But I think, again, we tried to give you some color about the second quarter.

We think that's more indicative of the current marketplace, of what it is.

And we have high expectations for our new President.

Thank you.

Thank you, Marcie.

And thank you, everyone, for joining us.

This concludes today's call.

Have a good evening.

Thank you, everyone.

That does conclude today's conference.

We thank you for your participation.