Paramount Global (PARA) 2016 Q1 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation first-quarter 2016 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 Corporate Finance and Investor Relations, Mr. Adam Townsend.

Please go ahead.

Good afternoon, everyone, and welcome to our first-quarter 2016 earnings call.

Joining us with today's remarks are Leslie Moonves, our Chairman and CEO, and Joe Ianniello, our Chief Operating Officer.

Following Les and Joe's discussion of the Company's performance, we will open the call up to questions.

Please note that during today's conference call, the first-quarter results are discussed on an adjusted basis unless otherwise specified.

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

Also, statements in this conference call related 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 investors section of our website at cbscorporation.com.

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

Thank you, Adam, and good afternoon, everyone.

And thank you very much for joining us.

I'm extremely pleased to tell you that CBS has turned in a phenomenal first quarter.

Revenue was up 10% to $3.85 billion, the highest we've ever had in a first quarter in our history.

Operating income was up 16% to $812 million, our best OI for any quarter ever.

And EPS was up 32% to a new quarterly record of $1.02, marking the first time in the history of the CBS Corporation that quarterly EPS came in above $1.

I think you can see why we are so excited to be with you today.

In addition to being a quarter for the record books, we had a fantastic start to what is shaping up to be an outstanding year.

And beyond that, the path to our long-term success is as clear as it's ever been.

As most of you know, we held an investor day during the quarter.

We showed you how we outperformed our goal over the last five years, and we laid out a roadmap to generate billions of dollars in new incremental revenue over the next five years.

Each quarter going forward will represent another step in achieving this new goal and our earnings today are just the beginning.

As we look at today's results, it's important to note that in addition to the new incremental revenue we outlined for you on investor day, advertising was also way up in Q1.

Advertising grew 31% overall and 49% at the CBS Television Network.

Obviously, the Super Bowl played a big part in this, but even when you take out the Super Bowl and our three extra NFL games, underlying network advertising was up 12%, the strongest we've seen in a long, long time.

Clearly there is a shift in dollars coming back to network television.

Part of this is because there are questions now arising about the effectiveness of certain digital advertising platforms.

And as a recent study by Standard Media Index showed, there is a direct correlation between TV advertising and sales results.

At the same time, basic cable doesn't have the reach of network television and most of its channels are seeing bigger and bigger declines in ratings.

So marketers are realizing once again that they get their best returns with broadcast television advertising.

This is a big part of why you are seeing the kind of results we are talking about today.

In addition to advertising coming back, we are also seeing significant gains in other key growth areas as well.

Retrans and reverse comp are set to surpass $1 billion this year and hit $2.5 billion in 2020.

Many new lucrative skinny bundles will soon be seen.

The international marketplace is exploding with new opportunities for our CBS and Showtime content and our over-the-top subscription services.

CBS All Access and Showtime OTT are beginning to make a meaningful contribution to our revenue and our profit.

So, our base business, our new business, and our future businesses have never looked better.

At the center of all this is our content, and that starts with our primetime lineup on the CBS Television Network.

We are just three weeks away from the end of the 2015/2016 season.

And no surprise: CBS is once again a dominant number one in viewers and household.

Plus this year, we are also number one across the board.

We are number one in 25 to 54 and in 18 to 49.

This is with or without football.

And when you include it, we are even number one in 18 to 34.

If these numbers hold up here in the next couple weeks, we'll become the first network in 14 years to be number one across all of these demographics.

You don't achieve a milestone like this without the broad-based strength and unparalleled reach that we have at CBS.

And with the upfront upon us, we are having this remarkable success at exactly the right time.

Not only do we have the number one schedule on television, but the scatter market is as hot as it's been in many, many years.

Last year, those who bought their ad time early did extremely well.

Since then, scatter pricing has grown dramatically, and it's clear that clients are not going to want to miss out on the opportunity to buy their time early this year.

Needless to say, we feel very good about the hand we'll be playing when negotiation begin in the coming weeks.

With these ratings, this schedule, and the ad market on fire, we are salivating as we head into the upfront season.

We are also extremely confident that we will have the strongest programming lineup in the marketplace.

Once again, we have very few holes to fill and the bar to make it on to our primetime schedule is very high.

I feel great about our existing schedule and I look forward to unveiling our new shows at Carnegie Hall in a couple of weeks.

In addition, we stand to increase the amount of primetime programming that we own.

Out of 16 pilots, we have ownership in 15 of them.

Meaning we are once again looking at owning about 80% of the scripted series on our schedule next year.

Remember, in addition to growing advertising dollars we get from our number one lineup, every owned series we launch creates a new opportunity for us to monetize our programming through multiplatform content licensing around the world.

In sports, the return of Thursday Night Football will give us a tremendous promotional platform to launch our new fall lineup.

We'll have five strong matchups early in the season at a time when all the teams will still be in contention.

Plus each of our games features a team from one of our O&O markets, which will lead to significant national and local ad revenue.

Last month, we also announced an extension of our partnership with Turner Sports to broadcast the NCAA Men's Basketball Tournament until 2032.

That is 16 more years.

Given the terms of this deal, we can say absolutely right now that we will be profitable every single year.

You don't often hear that about sports deals these days.

I look forward to personally renegotiating our next extension in 2032.

Turning to late night, both of our shows continue to perform very well for us.

Stephen Colbert is the only late-night host to post year-to-year gains in viewers in key demos.

And we just brought in Executive Producer of CBS This Morning Chris Licht to help build on our success.

Meanwhile, James Corden at 12:30 has become the new Internet sensation, passing 1 billion views on YouTube, including the two most-watched clips in all of late-night.

And as owners of both of our late-night shows, we are monetizing all of this viewing.

In news season to date, CBS This Morning and Face the Nation have their biggest audiences in 28 years.

And the CBS Evening News has its largest audience in 10 years.

Plus 60 Minutes is the number one news programming on television, and Face The nation, 48 Hours, and CBS Sunday Morning are all number one in their categories.

In addition to this momentum on air, CBS News is enjoying great success in digital as well.

Revenue and viewers at CBSN are growing at an extremely fast clip, including a new high of 50 million streams in Q1.

Just last week, CBSN received the prestigious Webby Award for Best News and Info Channel from The International Academy of Digital Arts and Sciences.

We've also expanded our digital presence with CBS All Access, our direct-to-consumer subscription streaming service.

CBS All Access is the only place you can get the entire stack of current CBS shows.

And this January, we will begin streaming our first original series.

All Access will be home of the first original Star Trek series in 11 years.

Star Trek will debut simultaneously on both All Access and the CBS Television Network with subsequent episodes available exclusively on All Access.

We have one of the best creative teams behind this show and we're confident that its large passionate fan base will lead to substantial and profitable subscriber growth.

Going forward, we will be adding three to four original series per year.

So standby for more updates about CBS All Access soon.

Our new over-the-top streaming service at Showtime is also driving subscriber growth and becoming a meaningful contributor to our premium cable business.

This new way for consumers to sign up for Showtime has vastly expanded our potential marketplace.

Cord cutters and people who used to have to buy a lot of other programming before they could get Showtime now can get Showtime directly.

Of course, it also helps that Showtime has the best year-round roster of hit series in premium television.

This includes Homeland, The Affair, Ray Donovan, Masters of Sex, and now Billions.

And there's more on the way, including Roadies from Cameron Crowe, I'm dying Up Here from Jim Carrey, and the return of the classic Twin Peaks.

In addition, these hit series continue to lead to lucrative international deals.

During the quarter, we announced agreements to license the entire Showtime channel to Sky in Europe and Stan in Australia, including shows that we haven't even launched yet.

And right now, we are in discussions about a number of new similar deals that we hope to announce in the quarters to come.

Each will create a growing base of recurring revenue for Showtime at even better economics than we used to get by selling our shows individually.

Turning to publishing, great content continues to be the backbone of our success at Simon & Schuster.

We are already ahead of last year's pace with 99 books on the New York Times Bestseller List, with six of them having made number one.

It's a great start to what is sure to be a terrific year thanks to the big titles we have coming out in the months ahead, including the latest from Stephen King in the summer and the highly anticipated release of Bruce Springsteen's memoir Born to Run in the fall.

In local broadcasting, our TV stations had an outstanding quarter.

We set a record for Super Bowl sales, and we had our best Grammys ever as well.

Plus first-quarter political advertising was the strongest we've seen in several election cycles.

Clearly, there are a lot of fireworks yet to come, and with those fireworks will come more revenue.

Plus, there stands to be a lot more spending in local elections as many candidates look to forge their own path rather than just tuck in with the top of their ticket.

In fact, we believe that when it's said and done, we will have set a new record this year for political revenue in a presidential election year.

Also in local, as we've previously announced, we are working towards separating our radio business from the CBS Corporation.

While we are currently working to split off this asset just like we did with our outdoor business, there's also been a lot of interest from outside parties.

So we have a number of different options to consider and we will continue to keep you posted on this important initiative.

As you can see, across our Company, we turned in a great quarter heading into a great 2016 heading into a great next five years.

We are looking at the future, but at the same time, we are focusing on the here and now as well and we're hitting our numbers out of the park.

As we continue to demonstrate, we have a strategy to succeed, no matter how consumers choose to get their content and no matter how quickly their viewing habits change.

And because we have diversified our revenue streams, we can enjoy success regardless of economic cycles.

What's especially exciting right now is that we are operating in an environment where advertising has picked up remarkably.

As I said earlier, the unique value of big-ticket programming is becoming more and more apparent every single day.

So the advertising side of our Company is extremely strong, which is terrific news as we enter the upfront marketplace.

And on our ever-growing non-advertising newer revenue side of our Company, we are poised for continued growth as well because we have must-have content at both CBS and Showtime, no matter how consumers choose to watch us.

There are three main ways we are looking at this going forward.

First is traditional MVPDs and CBS affiliates.

And these deals with these partners are leading the steady continued growth in affiliate fees, including retrans and reverse comp.

Next, there is the skinny bundle.

You are hearing a lot of noise about these services coming to market.

As they continue to take shape -- and they are taking shape -- it's a huge positive for us.

Again, the rate we get per sub here will be even higher than we're getting from our current partners.

And finally, we're also in the very early stages of distributing our content through our in-house over-the-top services.

Both CBS All Access and Showtime OTT are proving to be extremely valuable strategic assets in this rapidly changing distribution landscape.

So yes, we had a phenomenal quarter with record-setting revenue and record-setting EPS.

One of the best quarters we've ever had.

But it's not only the short term that makes CBS so attractive right now.

It's the fact that this Company is setup to succeed for many years to come.

As always, I look forward to updating you on our progress.

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

Thanks, Les, and good afternoon, everyone.

As you heard, we kicked off 2016 with a record-breaking first quarter, once again proving that when you have the big-ticket programming and premium content that audiences have to have, the results will follow.

Even better, we delivered our highest-ever quarterly profits while we continue to invest in new programming and in our distribution services.

So as we grow in the near term, we continue to position ourselves for even more growth in the long term.

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

Revenue grew 10% to $3.85 billion.

Advertising was up 31% for the quarter.

As Les said, the Super Bowl led the way.

However, underlying network advertising continued to accelerate from the 8% growth we saw both in Q3 and Q4 of last year and was up 12% here in Q1.

That's the highest increase we've seen in five years.

Affiliate and subscription fees grew 15%, driven by strong increases in retrans and reverse comp, which was up 42% for the quarter.

CBS All Access and Showtime OTT also contributed to the growth.

And as we continue to build our subscriber bases, our over-the-top subscription services will become a bigger part of this revenue stream in the quarters to come.

Content licensing and distribution came in at $729 million compared with $1 billion in 2015 when we had the domestic streaming sales of both NCIS and CSI as well as the international sale of our Showtime programming to Bell Media in Canada.

As you know, content sales can vary from quarter to quarter based on the timing of availabilities.

But with our vast pipeline of hits and huge demand around the world for our content, we are as bullish as ever about our content licensing opportunities.

Also during the quarter, operating income was up 16% to $812 million, an all-time high.

And we achieved this growth even as we produced 10% more episodes across our networks, including the launch of our latest Showtime hit series Billions, which is certainly an investment that will pay off in the future.

In addition, our operating income margin expanded 100 basis points to 21% and our digital initiatives added to this margin expansion.

Net earnings were up 21% to a record $474 million in the first quarter and our first-quarter EPS came in at another all-time high of $1.02, up 32% from $0.77 last year.

Now let's turn to our operating segments.

Entertainment revenue in the first quarter was up 14% to $2.6 billion.

Once again, this segment posted big gains in network advertising, which increased 49% thanks to the Super Bowl, an extra playoff game, and two additional regular season Sunday games.

But as we said, underlying network advertising was up 12%, driven by strong demand in the scatter marketplace.

In addition, we saw healthy increases in affiliate and subscription fees, which were largely driven by retrans with an assist from CBS All Access as well.

Entertainment operating income for the first quarter was up 30% to $449 million, and the operating income margin grew 2 points to 17%.

Cable networks revenue came in at $525 million compared with $539 million in the first quarter of 2015 when we closed our Bell Media deal.

Cable affiliate and subscription fees grew 2% during the quarter.

Cable network's operating income for the first quarter was $228 million compared with $251 million last year, primarily because of the lower international licensing revenue and our investment in original programming.

The operating income margin was a solid 43%, and we expect our full-year margin to expand from here.

In publishing, revenue of $145 million was even with last year's first quarter, and digital sales represented 28% of the total revenue.

Publishing operating income for the first quarter was up 8% to $13 million, driven by operating efficiencies.

Local broadcasting revenue of $649 million grew 9% from Q1 of 2015.

TV stations were up 18%, led by the Super Bowl and higher political spending.

Radio stations were down 2%.

During the quarter, we saw broad strength across our top advertising categories, led by auto, retail, and financial services.

Local broadcasting operating income was up 28% to $206 million in the first quarter as the segment continues to benefit from the efficiencies created by last year's restructuring activities and favorable contract negotiations.

In addition, the local broadcasting operating income margin grew 5 points to 32%.

Turning to cash flow and our balance sheet, free cash flow for the first quarter came in at a record $990 million, driven by the Super Bowl and continued growth in affiliate and subscription fees.

Also during the quarter, we repurchased 10.3 million shares of our stock for $500 million.

At March 31, we had $1.5 billion remaining on our current share buyback program.

As we have said, we expect to complete this program by the end of the year.

We continue to invest in our business first and foremost and return excess capital to shareholders.

That is a key priority for us and it will remain a key priority for us going forward as well.

We also ended the first quarter with a leverage ratio of under 2.6 times and $411 million of cash on hand.

Now let me give you a brief update on the radio separation.

We were in the process of completing the audit of the stand-alone financial statements of radio and we are now preparing a registration statement that we plan to file with the SEC in the June/July time frame.

We think a stand-alone public company exit is the best option available.

However, if there is a transaction that can maximize the after-tax value of this business in a shorter period of time with a higher degree of certainty, we will pursue that as well.

We will keep you posted on the developments in the quarters to come.

Now let me tell you a little bit about what we see ahead.

2016 will be a strong year for broadcast network advertising.

As you heard, there is robust scatter demand as we head into the upfront.

So we feel very good about our ability to increase both pricing and volume, which will benefit us in Q4 of this year and the first three quarters of 2017 as well.

In local, our businesses are pacing to be up low-single digits in the second quarter.

And as you know, political advertising will accelerate in the back half of the year, with Q4 being the strongest.

In affiliate and subscription fees, we see a lot of growth opportunities across the board, from traditional bundles to skinny bundles to over-the-top.

First, as Les said, retrans and reverse comp are on track to surpass $1 billion this year.

However, this is very much a long-term growth story, with 36% of our retrans and 38% of our affiliate deals expiring over the next three years.

This gives us the opportunity to reset these contracts to fair market value and make our ways towards achieving our $2.5 billion revenue goal in 2020.

There's also a lot of activity surrounding new skinny bundles.

As we've all read recently, existing companies and new players are looking to enter this space and CBS will be an essential part of any successful offering.

So stay tuned for more on that in the coming quarters.

In addition, our over-the-top services are also gaining momentum.

As we told you, our target is to generate $800 million in annual revenue from CBS All Access and Showtime OTT over the next five years.

While it's still early, we are on track to meet or exceed that goal.

In content licensing and distribution, we have a large pipeline of programming from across our networks, including more than 600 episodes that we have not yet sold into domestic syndication or streaming.

As you heard, we also have ownership in 15 out of the 16 of our CBS pilots.

So we continue to build out our pipeline every day.

With strong demand for our content both domestically and internationally, we will remain prudent in how we go about licensing our hit series so that we can continue to maximize the value of every one of our franchises.

So in summary, we came out of the gate with a record first quarter and we expect 2016 to continue this momentum, with political ramping in the back half of the year, continued growth in retrans and reverse comp, near-term skinny bundle opportunities, a bigger contribution from our OTT services, robust global demand for our content, and a strong advertising environment.

So already, year one of our five-year plan that we outlined for you at our investor day is shaping up to be a terrific start toward the path of long-term success.

So it's a good time to be a CBS investor today.

And we're confident there's plenty of upside from here because of the revenue opportunities we have before us.

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

(Operator Instructions) Ben Swinburne, Morgan Stanley.

I have two questions.

First, Les, on advertising, can you talk about what you're seeing in the market today versus Q1?

I don't know if you'll give us a number relative to that 12%.

And then generally, how are your ratings trends here in scatter?

Are you able to take advantage of the marketplace currently?

And on the upfront, it sounded like you were thinking about selling more inventory to take advantage of this really strong market you talked about salivating.

I'm just wondering if strategically that makes sense for you to maybe add a little more certainty into your upfront sales for next season.

Yes, Ben, overall, advertising in the scatter marketplace continues to be extraordinarily hot.

We are getting into the upfront time and it couldn't be happening at a better time.

As you heard, our ratings are doing really well; our shows are maintaining where they were.

It's going to be a very tough process because we've seen a lot of pilots and there's going to be a lot of battles in New York and LA over which shows get on.

Yes, we probably -- our intent will be probably to sell more inventory this year.

We expect to.

Last year, we sold less because the pricing wasn't as high as we wanted it to be.

And once again, we gambled on scatter been better than the upfront and it proved to be a great gamble.

It proved to be a great play.

This year, I think advertisers are coming in knowing that we have a stronger hand to play, that advertising for broadcast is going to be very, very strong.

So I would expect the volume to be up as well as the CPMs to be up a very nice amount.

That makes sense.

Then unrelated, just going back.

I don't know if you will comment, Les, but there has been some news coverage on how CBS is thinking and preparing for an opportunity to look at the different share classes and maybe moving to a single class of stock.

I know you can't give us a lot of specifics, but just at a high level, how are you and the Board thinking about this opportunity for shareholders?

All I'm going to say is I have a really strong, independent, smart Board.

We look at everything that is available out there.

We are not going to comment on some rumors that have been floating around.

Fair enough.

Thank you.

Jessica Reif Cohen, Bank of America Merrill Lynch.

Both Les and Joe talked -- more than alluded.

You talked a little bit about the OTT platforms proliferating.

And it's -- obviously the most recent being Hulu.

I think Joe is the one, and maybe both of you, said that you will be part of -- you sound very confident you will be part of any essential bundle.

Given the broadcast component, will you be part of Hulu?

And kind of second part of that question is the interesting part about this offer versus some of the others is the targeted advertising opportunity.

Since you know who your subscribers are, can you talk a little bit about that, whether it's within your OTT platform or part of somebody else's?

Jessica, it's Joe.

Look, obviously, we are the number one network.

So you just step back, you say for any bundle to be successful, not to have the number one network doesn't seem like that's a good start.

So when we say that, obviously we are feeling good about where we are.

And we know the CBS All Access subscriber trends and that data.

So that positions us very well.

So we laid out that opportunity at our investor day and I think the opportunity is very real, but we are going to talk to everyone.

Yes, regarding Hulu.

We talk to everybody.

We listen to everybody.

As you know, we are not a partner in Hulu, nor do we want to be.

So if they offer us the right pricing for our subs, we will absolutely consider it.

And as Joe said, it's going to be hard to offer a pure offering without having CBS as part of it.

Absolutely.

And could you just address the targeted advertising opportunities within the OTT platforms?

Whether it's on Hulu or on your own platform?

Yes.

Look, that's a pricing question, Jessica.

And obviously the more targeted and the better ROI for our advertisers, I think again, they are going to obviously willing to pay a higher price because it just makes sense.

So we are going to go in with that data, and if that data is driving incremental sales, you should be rest assured we are going to monetize that.

I guess just the very last thing from me.

When you approach the upfront market, and you are obviously dealing from a position of strength in a very strong market, how different will it be than traditional sales?

Will there be -- when you have many digital properties, how much -- and we've seen video on demand, dynamic ad insertion on VOD.

Can you just talk about how different or how much of other pieces will come into this year?

Look, Jessica, you know Joanne Ross as well as I do.

She is a world-class, our head of sales.

She always maximizes the market.

Obviously, this year, the digital properties that we have, there will be conversations with them and there will be some cross-selling.

It won't be as essential as it is at certain other companies, but our digital properties are very valuable.

And I'm sure across the board, there will be a lot more multiplatform selling.

Great, thank you.

Alexia Quadrani, JPMorgan.

Just following up on that last question, I guess I'd love to hear how you balance the priority of the growth and all the investing you're making in CBS All Access with the financial benefits of participating in other streaming or over-the-top products.

I guess if you could elaborate on how you look at this pros and cons of that.

And then just a follow-up question if I can.

If you could just maybe, Joe, maybe elaborate on entertainment margins.

They were up a lot more than we expected.

Despite the Super Bowl, which obviously had some hefty costs, is it just the underlying advertising was so strong?

I guess where the upside in the margins in entertainment came from.

I'll do the first question and I'll have Joe do the second.

I can give you two words: Star Trek.

Once again, every other streaming service was after Star Trek.

We could have cashed in for a lot of money selling it to the Netflix, the Amazon, the Hulu.

They were all very interested in it.

We know that Star Trek is a high-priced quality product.

And we feel like it is better, by the way, knowing that we will have very strong international sales, which we are already getting in, that it's important that we show the world and we show our -- everybody that All Access is a priority for us.

It's very important to us.

And there are a lot of very rapid Star Trek fans who are going to sign up for it.

We will follow that up with additional original content and we continue to play it that way.

And Alexia, on the entertainment margin question, I think you kind of hit it on the head when you said underlying network advertising.

When you have underlying network advertising growing at 12%, those are very high margin dollars because all we are paying, right, on that is a commission.

So that's what drove the margin expansion.

Thank you very much.

Michael Morris, Guggenheim Securities.

Couple questions on the return on the investments that you are making.

Maybe just to follow-up on the last one with respect to the Super Bowl.

And the pricing on inventory at the Super Bowl seemed to grow a lot and I believe you're getting paid from your affiliates as well.

And so I'm curious whether the Super Bowl, which I think historically has been viewed as sort of a breakeven product at the network, whether it is becoming more profitable and whether sports inventories can or will become more profitable over time.

And then second, on Showtime, number one: you showed us a lot of good content that you have coming out this year.

Can you talk a little bit about how the programming budget is growing there this year?

And then also as we think about the top-line growth in the near term kind of over the next year, how much is coming from trying to drive subscribers through the sort of legacy model?

And how much do you feel we are really going to start to see between the over-the-top and the international deals you signed?

Thanks.

Okay, Michael.

The second part, this Showtime programming.

Look, we are managing the budget.

I think you saw all those new shows that are going.

Obviously, it's in context with Showtime OTT growing as well as the base business.

So again, I think if you looked at Showtime's margin, consistently you are seeing it in the mid-40%s.

And we expect to maintain that.

So again, the investment is kind of -- we are feeding the growth with content, and I think that's the key.

And we are doing it smartly.

And on the sports question, obviously, we do a long-term deal with the NFL.

Included in that deal is three or four Super Bowls.

So that is all figured in on how we amortize the cost.

Yes, our pricing was phenomenal.

The market was extraordinarily strong at the time.

Look, our affiliates contribute to our football rights fee.

They don't specifically pay extra for the Super Bowl.

However, knowing how much money our O&Os made during the Super Bowl with pricing being as high as it is, we assume our affiliates did quite well as well.

So the Super Bowl ended up being very profitable more because of the O&Os and the rest is figured in the overall deal.

Thanks.

And just if I could on the first question, the power of the international agreements that you signed, I think part of it had to do with when you deliver the programming.

Do you expect that as the year progresses, we will see the full benefit as these shows roll out?

Or it is something that should continue -- maybe we'll see more benefit in 2017 from the product that's being rolled out in 2016?

I think, again, the way should think about it is these services again are signing up for the Showtime brand.

So it's the brand Showtime.

It's past, current, and future series, Mike.

So each day, we're adding to that pipeline at fixed price, at a fixed price, so we know what that is.

So yes, I think that's going to build over time.

And again, we will roll that out to additional countries as that -- as those opportunities present themselves.

So we do see that as a growing opportunity.

Mike, the reason this happened is because Showtime's batting average is as good as any service in the world.

In other words, they realize they can bet on the next 10 series on Showtime and pay for it now.

Because David Niven's has done such a fabulous job of programming.

Great.

Thanks a lot, guys.

John Janedis, Jefferies.

Les, you spoke to questions about the effectiveness of certain digital platforms.

And I think looking back, you were early to the conversation on dollars shifting back to TV.

So as your sales team goes to market into and beyond the upfront, is there any sense that digital platforms are changing price or improving measurement to re-accelerate the share gains back to digital?

Or maybe asked differently, to what extent are you confident the shift has a long tail?

Look, we feel like -- digital is obviously going to be very, very important.

It is for us.

It is for many companies in the future.

Obviously, there was some kinks in the system where people were paying for a lot of fraudulent numbers of people who weren't really watching.

So I think data becomes very, very important and more accurate data.

In addition, what makes us confident is by the same token, digital becomes important and stays important.

There is a better affect of watching a television show.

There's more engagement in that.

And the effectiveness of advertising of broadcast television is far superior to that, and it's been proven that digital sales that go along with broadcast sales are by far the most effective.

So by no means are we denigrating digital sales.

And we are a major part of it.

But I think the bang for the buck is much higher on broadcast.

All right.

Thanks, Les.

And maybe a follow-up on Showtime.

You talked about the roster and I'm wondering if you are seeing any changes in churn as a result.

And then separately, given how crowded the market's gotten with Netflix and Amazon, do you see any need to go beyond the 12 or so originals a year?

Well, we would like to go beyond the original 12 a year.

But it's like, you know what?

Our subs are going up at Showtime.

So these guys are not affecting it.

If we do what we continue to do, which is produce quality programming, both scripted as well as much more documentaries and great sports shows, we expect that to continue on.

We view Netflix and Amazon regarding Showtime programming as a competitor.

But as I said, our batting average when you have a murderer's row like we do in that programming, with more to come, we feel very confident we are going to continue to win.

Has churn improved?

Yes.

Look I think, again, because we're changing the release schedule, I think that helps I think, John, with the churn.

Because I think you are seeing that because there's always something else.

I think if you had one hit series and it's on one time during the year, and then you kind of go stale the rest of the year, I think you see churn.

But when you have something coming every single quarter, every single month, you see a reduction in churn.

And we are absolutely seeing that.

By the way, three of the last quarters last year, Showtime was the highest performing -- had highest ratings on any premium network in three of the four quarters.

So that tells you about our programming versus others' programming.

Thanks a lot.

Bryan Kraft, Deutsche Bank.

I had two questions.

First, Joe, on the radio separation you mentioned, do you expect that to be structured as an IPO of the business with proceeds going to CBS and CBS retaining a stake?

Or will it be a complete separation of the business?

And then also wanted to ask you about the working capital used we should expect in 2016 as you are expanding your content production.

Thank you.

Brian, it's Joe.

So the radio separation -- yes, we do anticipate a traditional two-step: an IPO, where it would be sub-20%.

Again, similar to outdoor if you just looked at that as a template, where CBS would own, again, 80%-plus initially.

But then we would follow that up later with a full separation of the assets, probably again an exchange offer vis-a-vis a split off.

Again, very similar to what we just did with outdoor.

That being said, there's a lot of other opportunities in front of us.

So we will explore all those opportunities and pursue the one that we believe will maximize value for shareholders.

As far as working capital, Brian, obviously that has big swings.

But obviously this one is a good swing because of the Super Bowl.

So we are -- the timing of those payments differ from when we pay the NFL and when we collect it.

So I think 2016 is certainly off to a good working capital year.

But as you know, we don't forecast that because obviously a lot of things can swing that from year to year.

Okay, thank you.

Doug Mitchelson, UBS.

A couple questions.

Joe, you noted that CBS and Showtime OTT are on track to meet or exceed the long-term goal from the analyst day.

Was your forecast based on a straight-line subscriber growth pattern?

Doug, I don't know if it's exactly straight-line.

But again, because of the way the content is getting rolled out, it will be tied to that.

But pretty close to that, Doug.

I don't see any huge differences.

Obviously 2017 with Star Trek, Twin Peaks, and the others, I think that's going to be a big year for us going into that.

But then from there, it will just be more steady.

But there will be accelerated growth over the next -- in the coming months.

And Les, two questions, if I could.

When I talked to ad execs, it's pretty clear the broadcast network salespeople want double-digit upfront price increases, and ad buyers are saying no way they will pay double digits.

Do you think CBS can tip into double-digit price increases in the upfront?

Yes, I do.

And I was just hoping you would give some comments on programming strategy.

I mean, you've obviously gone through the TV development process.

I mean, 15 to 16 pilots being in-house, 2015 on 2016, any concerns you are not beating the bushes as much as you should to find the next hit show?

Should we take that as a sign --?

No.

By the way, as to the 16, about eight of them we own ourselves and about seven of them we co-own.

So we have deals; we have shows with ABC, NBC, Sony, and Warner Bros.

So we are doing business with virtually everybody in town.

They are just coproductions.

That's helpful.

Any thought about programming strategy?

I mean, everyone is desperate for comedies.

Are you trying to push younger?

Do you stay in your lane because you continue --

I've been doing this for a long time.

As you say, everybody wants us to push younger.

As I said earlier, we're going to win 18 to 34.

You don't get younger than that, it looks like.

And we are definitely winning 18 to 49.

And frankly, look, it's not much different year over year.

We have, as I said, 16 pilots.

There are like eight dramas and eight comedies.

The best shows get on the air.

The best shows get on the air for us, and we could add extra comedies or not.

We are going through our process now.

It's a very exciting time of the year.

I'm happy with what I'm seeing so far.

We've certainly got enough players to put on.

So I don't think I don't think my strategy has changed any year, except to win.

And the last part of the programming strategy part is everybody is trying to make TV in Hollywood these days.

Any cost pressures or issues that we should be aware of as you look at these pilots?

Cost pressures -- I can guarantee you that the amount of money that would be spent on programming next year at CBS will probably be less than was spent this year.

Perfect.

Thanks so much.

Tim Nollen, Macquarie.

We've had a few questions on digital versus linear advertising.

I've actually got a couple more, if we could try to close the loop, please.

First off, you mentioned 12% underlying growth in TV for the CBS Network.

I assume that's TV and digital both.

And if I'm right, could you possibly break out the split or the growth rates of the two?

And then secondly, with All Access, assuming that the new originals you are putting on All Access will be episodic -- i.e., you're not going to drop all the Star Trek episodes on at once.

They will be on once a week as they would be on broadcast.

But correct me if I'm wrong there.

I assume you are going to be taking ad monetization there.

What sort of rating system might you use for that?

Will you be getting guarantees, etc., like you will on traditional TV?

And are you basically going to turn All Access into another form of CBS Network?

Tim, it's Joe.

Let me start with the first one.

We don't break it out.

Again, the lion's share of the 12% -- the television network was up 49%.

And again, that's the television network, the traditional as we know it.

Obviously, again, the digital part is a small part of the entertainment segment.

But obviously growing faster.

But again, it's a much smaller number so it doesn't move the needle like it may in the future.

So I don't follow -- again the second part of your question, Tim.

Can you just clarify that with the --

By the way, it will be episodic, Tim.

Just -- yes.

It will.

There won't be the Netflix --.

Week by week, yes.

Okay.

That's what I assumed, which would make sense, obviously.

So it seems like if you are going to be doing Star Trek and then 10, 12 other new originals over the next few years on All Access, it feels like you are turning that into a new delivery vehicle for the CBS Network.

I mean, you will have a lot of originals on that, just as you do on your TV network.

So the question is: how will you seek to monetize that with advertising?

Would you use a similar rating system as for linear?

Would you give guarantees?

How would the ad market work for All Access?

Similar to the network business?

Yes.

Look, again, it's similar to the network.

It's going to be priced at a CPM that we deliver based on demographics.

And again, if we have more targeted advertising we can deliver, we are going to want a premium to that.

And so again, the $6 offering would be additive to the advertising.

So clearly, we are not going to price it lower than broadcast advertising.

So the question just is how high can the market support?

Got it.

Thank you.

Marci Ryvicker, Wells Fargo.

I have a couple questions.

First, Joe, you talked about the 36% of your footprint is up for retrans; 38% for reverse over the next three years.

Can you talk about what that looks like per year?

Is it more front-end loaded, backend loaded?

I would say most of that -- and again, when I said three years, it's 2016, 2017, and 2018.

Most of that is in 2017.

A big chunk of that -- 36% for retrans, 38% for affiliate.

Again, the line -- a big -- a majority, I would say, is in 2017.

So that's going to be a good reset year for us next year.

Okay.

And then in terms of the radio IPO, I thought you had some synergies in the markets where you had both radio and TV.

So will there be any impact in the TV-only markets afterwards?

Whatever synergies we are going to preserve.

So again, if they are co-locating a facility, we'll make sure the lease covers both entities.

So we are not going to lose any efficiencies by separating it out.

Again, we are not going to do that.

That doesn't make any sort of sense.

There's obviously a lot of stations that have call letters with our call letters on them, and so we will preserve that.

So again, we're trying to add to both the profitability of the TV and radio stations, not make one go up and the other down.

Got it.

And then one last one.

The plus-12% at the network core, I guess, that includes the Grammys, correct?

Do you have the number excluding the Grammys?

Yes.

That includes the Grammys because we have the Grammys every year.

Okay great.

Thank you.

Vijay Jayant, Evercore.

Thanks.

Given the distributors are all contemplating -- your incumbent distributors are all contemplating an IP-only product possibly over the next few years, can you talk about the step-ups you can see on that right that you give them?

And also will the heritage scale matter in that step-up possibly?

Look, I think that the traditional guys as they come to us, as they are changing their distribution, we are going to be open.

They are our partners.

We want them to be successful.

They have an installed base.

But again, we've always said from day one we are open to this.

But we got to be paid value for that, for what we are delivering.

If it's rights outside the home or whatever, what have you, we are willing to work with our partners.

But there's got to be value benefit coming back to the folks who create and own the intellectual property.

Are your retrans numbers including some expectation there or that could be upside?

Look, we think it's upside.

We gave you the retrans number at the investor day.

We were pretty clear about what that is per sub on the retrans and reverse comp side.

And again, we said that would include out-of-home rights.

But certainly, again, if we are talking stuff beyond that, that will be additive.

I mean, we are pretty good at math.

Great.

Just a housekeeping.

Local TV, ex-Super Bowl.

Is there any underlying ad number there?

Thanks.

Local TV ex-Super Bowl.

Underlying TV is up low-single digits if you exclude all comparables.

Let's just put it that way.

Great.

Thanks so much.

David Miller, Topeka Capital Markets.

Les, seven weeks ago at the analyst day, you prognosticated that for the upfront, volume across all six of the major broadcast networks would be up I think you said 9.5% and up at least 5%, correct me if I'm wrong, when excluding the Summer Olympics.

Just given the tone of this call, which is obviously outstanding, and just given that things seem to have accelerated over the last seven weeks, do you want to improve any of those bogeys at this time?

Or do you want to stick with the 9.5%?

Then I have a follow-up, thanks.

Well, David, if you recall, that was Dr. Poltrack's acknowledgment of how he looked at the market.

Frankly, being up 12% right now, I would say that number was conservative.

I think that number was conservative.

I think it should be -- it will end up being a bit higher than that.

I'm not going to predict what it is.

But we're clearly -- we've outperformed where we thought we'd be in the first quarter.

So we think we'll outperform for the year as well.

Okay, very good.

And then what's you guys' inclination in participating in this spectrum auction?

I mean, obviously, it's a reverse auction.

You are competing for the buyer by cutting prices in each round of bidding.

What's your sort of threshold for level of annoyance?

And I mean, everything just kind of gets whittled down.

I mean, what's your threshold?

Is it $100 million?

$50 million?

When do you walk away from the auction?

David, unfortunately, we are not allowed to answer your question in that we are obviously -- we've thrown our hat in the ring in a number of markets.

And that's basically all we can say.

We are in a period of quiet right now before the auction begins, and I will be happy to answer your question six months from now.

(laughter)

Okay.

Fair enough.

Congratulations on the stellar results.

Thank you very much.

Thank you, David.

This concludes today's call.

Thank you, everyone, for joining us.

Have a great evening.

And again, this does conclude today's conference.

We thank you for your participation.

You may now disconnect.