Paramount Global (PARAA) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation third-quarter 2009 earnings release teleconference.

Today's call is being recorded.

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

Adam Townsend.

Please go ahead, sir.

Great.

Good afternoon, everyone, and welcome to our third-quarter 2009 earnings call.

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

Sumner will have opening remarks and will then turn the call over to Les and Joe who will discuss the strategic and financial results.

We will then open the call up to questions.

Let me 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 securities filings.

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

Reconciliations for non-GAAP financial information related to this call can be found in our earnings release, our third-quarter Form 10-Q, or on our website.

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

Thanks.

Good afternoon, everyone.

I thank you for being with us today.

Three quarters of the way through this extraordinary year, two things have become increasingly clear.

One, the light at the end of the tunnel continues each day to get brighter.

And two, the companies with the best content have not only fared the best throughout these challenges, they are emerging stronger than ever as well.

And CBS is clearly one of those companies.

Indeed, if I may say so, the preeminent company.

Throughout the year Les and his management team have consistently done what is right for the long-term strength of this Company.

We further solidified our financial position, and we also took significant costs out of the business.

Meanwhile, CBS's content continues to outshine the competition.

The television network is number one again this season and with the number one new and returning shows on television.

By the way, that is the first time a network has done that in 11 years -- 11 years -- and we are leaders online, as well with top sites in entertainment, technology, sports and video games.

Our third-quarter results reflect what we have been telling you all year.

As the economy recovers, CBS will be a leading beneficiary in the upturn, and our prospects next year and over the longer-term look even stronger.

I could not be more pleased with the job that Les and his team are doing.

And now I would like to turn the call over to my very good friend, my colleague, and the man I'm so happy, really happy to have leading CBS, my friend, Les Moonves.

Thank you very much, Sumner, for the nice words and the introductions.

Good afternoon to everybody.

Thank you for joining us today.

First, I'm going to briefly review our third-quarter results and operational highlights.

Then I will turn it over to our CFO, Joe Ianniello, to offer some more details on our financials and balance sheet, and then we will take your questions.

We have been telling you that the second half of the year will be much stronger than the first, and today's results bear that out.

We said the second quarter would be better than the first and it was.

We said the third quarter would be better than the second and it is.

We are very pleased that in this marketplace revenues were down less than 1% for the quarter, and excluding the effect of foreign exchange rates, revenues were actually up slightly as the operating environment continued to improve.

Third-quarter reported revenues were $3.35 billion and OIBDA was $566 million.

Net earnings were $208 million or $0.30 per share.

Going forward we expect underlying revenue trends to continue to get better into next year.

There is no question we are seeing strong evidence of a recovery right now, but our general optimism is based on trends both in the economy as a whole and in the advertising environment.

Obviously nothing going forward is certain, and we must be mindful that the economy is still somewhat volatile.

At the same time, we continue to improve our position through actions that are very much in our own control, and across-the-board we are confident in what our future holds.

Our content is stronger than ever.

The CBS television network is off to a phenomenal start, and we're getting terrific contributions from domestic and international syndication and from our premium cable business.

We continue to make progress in growing our nonadvertising revenue streams like retransmission, which will nearly double next year based on contracts we already have in place.

And, as a result of more than a year of steady cost-containment throughout the Company, our operating margins are improving.

Plus, we continue to strengthen our financial position.

As you saw today, we have secured a new credit facility, which along with our debt refinancing earlier this year, continues to provide financial certainty and stability into the future.

Given all of this, we remain very comfortable with our full-year 2009 OIBDA guidance of $1.725 billion to $1.925 billion.

More than anybody else our success and optimism are due to our ongoing strength of our industry-leading content.

At CBS we are a content company first and foremost.

That is what defines us as a company and what our focus is today and always will be.

To better reflect how we have come to view the Company, we have realigned our business segments, which will also give you better visibility into our strategy.

Beginning in the fourth quarter, we will report five realigned business segments.

We will have an entertainment segment that includes our television network, production and distribution business, as well as CBS Films and CBS Interactive.

We will break out Cable Networks as a separate business, comprising our Showtime and CBS College Sports Network.

And we will continue to report Publishing as a separate segment.

Together these three business segments will make up what we are calling our Content Group.

We are also introducing a Local Broadcasting segment that includes our TV Stations and RADIO business and will continue to report Outdoor as a separate segment.

These two businesses together will make up what we are calling our local group, and we will continue to have focus on major markets across the country.

We have spent years evolving our portfolio into a collection of industry-leading content businesses in all the right areas of distribution.

The changes we are announcing today align our segment reporting with how we are now running our businesses and represent a natural next step for us.

We think the new segment structure will bring better visibility into our long-term growth strategy, increased transparency of our operations, and give a clearer view of the efficiencies we are gaining in managing our local assets.

In our release we lay out our new segment presentation side-by-side with the results we just reported.

Now I will take you through a few financial and operating highlights across our businesses.

Beginning with our leading content engine, Television.

Television revenues were nearly $2.3 billion in the third quarter, up 9% from last year.

Our OIBDA of $484 million was up 17%.

Strong ratings at the CBS Television Network, national advertising coming back, and a big boost from syndication all contributed to our higher third-quarter results.

And these increases took place during a quarter when production costs at the CBS Television Network were reduced 12% year over year.

Cost reductions, by the way, that did not affect the success of our content.

As you know, CBS finished last season as both the number one network and only network with more viewers than the year before.

We continued that momentum through the summer.

This fall we are once again the number one network season to date, leading in viewers, households, adults 25 to 54, and we were number one in 18 to 49 until those pesky Yankees showed up on the Fox Television Network in the postseason.

NCIS in its seventh season is at an all-time high.

It is now the number one program on television, averaging 22 million viewers weekly, and every single episode this season has attracted more viewers than any other episode in seasons one to six.

We have five of the top 10, 12 of the top 20 shows on the TV season to date.

And our new programs opened very well.

We have the top two new shows of the season in NCIS: Los Angeles and The Good Wife, both of which are owned 100% by CBS.

At 10:00 PM we are winning every single night of the week by a large margin, and we own four out of the five shows in the time period.

Meanwhile, all of our shows are getting a significant lift from DVR viewing with C3 ratings that are higher than same day.

In fact, CBS is getting the biggest ratings increase from DVRs of all the networks with most of our shows gaining millions of viewers.

We have said for years that if you have the best programming, timeshifting will only build your audience, and now it is being proven that leading network content is getting the biggest lift from DVR technology.

At the same time in late night, ratings for David Letterman and Craig Ferguson are at multiyear highs, and both are leading their time periods in viewers adults 25 and adults 18 to 49.

Our prime time and late-night success has also helped to improve our position in the late local news, which I will talk about in a minute.

The breadth and strength of our network programming continues to help us outperform our peers in this scatter market.

As you know, we sold less inventory in the upfront than we did last year.

Our strategy is now paying off, and we are ideally positioned to capitalize on an improving ad environment with scatter pricing up nearly 25% over the upfront in the fourth quarter.

In fact, fourth-quarter scatter dollars are pacing to be up about 100% over a year ago, representing significantly more revenue for the Company.

At the same time, we are also monetizing the success of programming through syndication.

As you saw in our release in the quarter, we benefited from the sale of five major series into syndication -- Medium, Criminal Minds, Ghost Whisperer, Everybody Hates Chris and Numb3rs.

Going forward we will continue to have regular first-run syndication sales of shows like Entertainment Tonight and Judge Judy, our valuable CSI franchise, as well as our growing library, all of which will contribute to syndication revenues for years to come.

A new deal for one of our new shows at a very attractive rate is imminent, ensuring that it will be profitable well before it even wraps up production in the very first year.

And we expect the increasing popularity and reach of our CBS and Showtime programming overseas to help our international syndication businesses grow next year as well.

Our success in syndication proves what we have been saying for a long time -- Producing the best content pays in both short-term and the long-term by creating multiple recurring revenue streams to complement basic advertising on the network.

We continue to make progress on the retransmission front as well.

This year we have announced new content carriage agreements with Verizon, DISH, Time Warner Cable and Cablevision.

We see retrans contributing hundreds of millions of dollars to revenues annually and truly evolving the business into one with a dual revenue stream.

Likewise, we believe that over the long term authentication -- also known as TV Everywhere -- is another way we can extract value from our content in a multiplatform world.

That is why we were the first broadcaster to sign on with both Comcast and Time Warner in their trial programs to give subscribers access to their channel lineups online.

Quality content is key to the success of our premium cable business as well, and our investment in original programming to Showtime continues to pay off.

Our shows received a record number of primetime Emmy nominations this season and won six awards.

Nurse Jackie drew the highest audience ever for the premiere and finale of a new series on Showtime, and Weeds, Dexter and Californication have all grown their audiences to new highs this season as well.

Showtime finished the quarter with nearly 17.5 million subscribers, about 1.3 million more than the same quarter last year.

CBS College Sports grew as well, now has deals covering 34 million subs, up 9 million over last year.

These increases helps affiliate revenues grow by 11% for the quarter.

As you can see from our new segment view, our Cable Networks contributed nearly 10% to our Company's total revenues during the third quarter and will continue to be a very important content agent for us.

So will our Interactive business, which posted profit growth in the third quarter with OIBDA up 11% in a challenging revenue environment.

We continue to see traffic growth across our online brands.

Visitors to CBS Interactive sites were up an average of 12% in September year over year.

We have multiple number one brands in key categories, including the number one tech site in CNET, the number one TV network site in CBS.com, and the number one sports side by engagement in cbssports.com.

We are particularly well situated to monetize the growth of premium videos on the Web, an area that is predicted to be up double digits this year.

As advertisers increase spending on premium video, they want it on the sites with the highest quality content, and we are at the top of the list.

Plus, we are also seeing display advertising improve in the fourth quarter, and given our online portfolio, I have every reason to believe we will be a leading beneficiary in that upturn as well.

From on air to online, it has become increasingly clear to us over the years that our future lies in becoming a content company first, coupled with local strategy that is focused on the largest most promising markets.

But make no mistake, key major market distribution assets will continue to play a crucial role in the long-term success of our Company.

And we intend to maintain a targeted local presence in TV, RADIO and Outdoor, concentrating our assets where we can reach the broadest audiences with our leading content.

Combining our local TV and RADIO stations into a single local broadcast segment will allow us to focus on producing the most valuable content in major markets across the country regardless of platform, and it will allow new cost efficiencies that we believe will benefit our results going forward.

Meanwhile, sales trends across our local businesses continue to improve.

Pacing is trending up week after week, and the numbers at our TV and RADIO stations, as well as Outdoor, look better right now than they have all year.

In fact, ex-political our TV stations were up slightly year over year for the month of October, and the trend is continuing into November.

The improvement of our TV stations come from a number of different major categories.

In automotive, Toyota, Ford and GM have all been very public about their need to spend more money in advertising, and we have certainly seen the benefit of that.

At the same time, we have continued ratings and performance success at our major market stations.

Ratings for our TV stations are up 17% year over year on average in adults 25 to 54, the key demo, the demo that is sold in Local Broadcasting.

As I mentioned earlier, our strength in primetime, particularly the 10:00 PM hour, has really helped our performance in late local news.

In New York through last week for the first time in years the 11:00 PM news on WCBS was number one.

In Chicago our late news viewership is up 40%.

And in Los Angeles late night news ratings at KCBS are up 20% this season in adults 25 to 54.

Meanwhile, RADIO is showing improvement as well.

For the quarter RADIO had revenues of nearly $319 million in the third quarter and an OIBDA of $93 million.

As with TV stations, we have seen higher pacings in auto and financial services among other categories.

The format changes that we have implemented in major markets have delivered higher ratings and revenue, and we are now moving to take advantage of the growth in sports radio.

We have recently changed formats at stations in Boston and Washington DC, giving us sports formatted stations in eight of the top 11 markets.

And during the quarter, we made further progress in our major market strategy, closing on the sale of our four Portland, Oregon midsize market stations for good prices.

As I mentioned, Outdoor has seen improvement in its pacing as well.

Outdoor is the last local business to be hit by the recession, and although it is beginning to recover, it is doing so later than in TV and RADIO.

The good news is that the US, which is our biggest market, is making the strongest recovery so far.

For third quarter revenues were $425 million, and OIBDA was just under $33 million, partially reflecting the impact of foreign exchange rates.

We also made management and structural changes in Outdoor to capitalize on our global presence.

Where it used to be North America and everything else, our business is now divided into the Americas, along with Europe and Asia.

Outdoor remains very important to us and has a promising long-term growth profile.

We will continue to manage the business to capitalize on the recovery.

Finally, the performance of our Publishing segment improved in the third quarter.

Revenues for Simon & Schuster were up about 2% to $230 million, and OIBDA was up 10%.

While recovery of the overall retail marketplace has not fully taken hold, advanced sales of some highly anticipated new fall titles have done very well.

Plus, we've done a lot of work on cost cuts in this business, which has really helped margins.

In addition, we have a number of new digital initiatives in place.

To ensure that, as with all of our businesses, the content we are producing at Simon & Schuster remains relevant and compelling in the new media marketplace.

We are very pleased with our quarter, and as you can see, things are headed in the right direction in all of our businesses.

The operating environment continues to improve steadily.

As we anticipated, each quarter this year has been better than last.

The CBS Television Network continues to be number one with as solid a schedule as we have had in decades.

As our continued efforts to contain costs are helping improve margin, we are mindful that things are better but still have a ways to go.

Above all else we remain focused on producing the absolute best content for our audience.

Our content focus will only grow over time, and our new segment alignment underscores that strategy.

It will help you better track our progress against the Company's growth initiatives in content business and the gains we expect on the distribution side.

I have faith in our strategy and the management we have in place to execute it.

Now I will turn the call over to someone who has been instrumental in helping us to align our businesses with our long-term plans for success, our CFO, Joe Ianniello.

Joe?

Thanks, Leslie.

I'm going to focus my comments on four areas this afternoon.

First, additional color on the third-quarter results.

Second, a quick update on our liquidity profile.

Third, an outlook for the remainder of the year.

And lastly, a look at our new reporting segments.

Starting with the results, we finished the quarter with revenues of $3.35 billion.

As Leslie noted, that was nearly flat with last year and actually up slightly on a constant dollar basis.

At an OIBDA level, we finished the quarter at $597 million before an impairment charge, a significant improvement over the prior two quarters.

This year our OIBDA margin in Q1 was 8%, in Q2 13%, and in Q3 it was 17%, which is approaching last year's level.

We continue to focus on driving operating efficiencies.

Our SG&A costs are down 9% in the quarter, and our overall compensation expense is down 7%.

Our reported EPS came in at $0.30 per share.

So we've gone from a loss of $0.08 in Q1, to positive $0.02 in Q2, and now $0.30 in this quarter.

There are three discrete items impacting EPS that I want to highlight.

First, we recorded a $32 million impairment charge associated with the sale of four radio stations in Portland, which closed on September 30.

Second, we settled a dispute related to a previously divested business, which resulted in a net benefit of $28 million to us.

This amount is reflected in residual costs.

And lastly, we settled some federal and state income tax audits from previous years.

That resulted in a $42 million benefit to our tax provision with no impact to cash taxes.

These three items taken as a whole resulted in a net benefit of $0.05 per share during the quarter.

Before I turn to the balance sheet, I am going to give you a few more thoughts on our segment performance to add to Leslie's remarks.

In Television advertising revenue at the CBS Network was up slightly for the quarter, led by pharmaceutical and automotive categories.

Again, this is a notable sequential improvement as we were down 9% in the first quarter and 6% in second quarter.

Affiliate revenues were up 11% for the quarter on higher retrans revenues and rate increases at our Cable Networks, which also, by the way, benefited from the continued growth of telco distribution.

At our TV Stations Group, revenues were down 13.6% for the quarter.

As a reminder, we are comping against significant political dollars in Q3 2008, which contributed nearly four points to this quarter's decline.

So our base business has shown a sizable improvement from the previous two quarters.

TV license fees grew 36% this quarter, driven by the five shows we sold into domestic syndication compared to the syndication of CSI: New York in the third quarter of 2008.

While we are not providing revenues or profits for these shows separately, it is important to note that first cycle availabilities were not the only driver of growth here.

We also saw growth from both domestic and international markets for other titles.

Turning to RADIO, our top 10 markets outperformed the overall group for the quarter and were up slightly versus the second quarter.

This is another indication of a recovery because, as many of you guys know, the third-quarter revenues in RADIO are usually a few points less than the second quarter.

Meanwhile, in Outdoor we continue to focus on cost efficiencies.

We have renegotiated nearly 1000 leases in the United States alone on favorable terms that will benefit future quarters, and we have reduced compensation expense by over 20% in the quarter.

As Leslie noted, our local businesses continued to show solid momentum.

TV Stations, RADIO and Outdoor posted their best month of the year in terms of total dollars booked in the month of September.

And based on current pacings, we expect the fourth quarter for these local assets to be up double digits over the third quarter, another sequential quarterly improvement.

Turning to Interactive, we were able to drive an 11% OIBDA increase through efficiencies from continued integration of the merger and from exiting lower margin businesses.

In the fourth quarter, as you know, it is the largest contributor for this business.

Major advertising categories are coming back and spending more, including the tech sector, which is very important to us.

And finally, Publishing.

The reported revenue increase was 2%, but in constant dollars it was 4%, driven by strong front list titles which led to an OIBDA increase of 10%.

Now to our liquidity profile.

Our free cash flow came in at a use of $24 million, a $15 million improvement from the prior year.

Free cash flow for the nine months ended September was $532 million, which includes $56 million of payments for previous restructuring charges.

We ended the quarter with $474 million of cash on the balance sheet, an increase of $132 million from June 30.

Capital expenditures totaled $46 million for the quarter, down from $129 million last year.

During the quarter we increased our Accounts Receivable securitization program by $150 million, taking advantage of the easing credit markets.

It is worth noting that our free cash flow definition excludes the benefits of increasing this program as it is purely a financing decision.

In addition, today we also announced a new three-year $2 billion credit facility.

This is another key step in our refinancing strategy and is a reflection of the confidence that banks have in our Company.

It is the largest new three-year BBB revolver done this year, and it was significantly oversubscribed.

Going forward we will continue to focus on deleveraging our balance sheet.

Let's turn to the outlook for the rest of 2009.

Once again, we have reaffirmed our full-year OIBDA guidance of $1.725 million to $1.925 billion.

In addition to that, we provide some other forward-looking statements in our 10-Q that I wanted to highlight.

Our full-year capital expenditure should come in anywhere between $250 million to $280 million, which is lower than our previous guidance range of $275 million to $325 million.

And cash taxes for 2009 should be approximately $75 million, down from the $100 million to $125 million we said previously due to refunds received from prior tax returns.

Finally, let's take a look at the way we are going to report our results in the future.

As Leslie said, the goal was to realign our segments to reflect the way we now operate our businesses and to give investors greater transparency into those results.

We think we have done that, and the changes we are previewing today will be effective for the fourth quarter.

For illustrative purposes we have included a supplemental schedule on page 13 of our earnings release, which highlights the revenue and OIBDA for our new presentation.

We will continue to have a total of five segments.

As Les noted, they will consist of Entertainment, Cable Networks, Publishing, Local Broadcasting and Outdoor.

We are referring to the Entertainment, Cable Networks and Publishing segments as our Content Group.

In the third quarter, this group accounted for about 70% of total revenue and grew 11%.

More than half the revenue in this group is non-advertising related, and a significant portion is generated from recurring revenue streams that include license fees from our growing library, as well as multiyear contractual commitments from subscription revenue and first-run syndication.

We are referring to our local broadcast -- we are referring to our Local Broadcasting and Outdoor groups as our Local Group.

These businesses contributed about 30% of total revenue for the quarter and should be the biggest beneficiary of margin improvement in 2010 as the economy continues to recover.

In conclusion, 2009 has been a busy and productive year for us.

We continue to produce the best content in the marketplace.

We have taken lots of costs permanently out of the infrastructure.

We have done some significant refinancings to the balance sheet.

We are realigning our operations to focus on our core strategy.

And meanwhile, the macro trends continue to improve, which is all positive momentum for CBS.

With that, we will now take your questions.

Jessica, please open the lines.

(Operator Instructions).

Ben Swinburne, Morgan Stanley.

A question for Les and then one follow-up.

Can you talk about how you think retransmission is going to flow through your affiliates and that relationship that you have on the affiliate side?

And one of the things that we have all been focused on during the year, as a lot of the stations, companies that had some stress on their financials, is how your first-run syndication business will grow over time, given that that is a pretty big customer base on the first-run front.

So can you talk about how retrans may benefit that business in making your customers healthier?

Well, in terms of the affiliate and retrans issue, as each new affiliation agreement comes up, there will be a sharing of the retrans feed.

Once again, it is in the very early stages of that, and the realization that if they are getting paid retrans, which they will, they are getting paid retrans because of the services that the network is providing.

You know, the NFL, CSI, David Letterman, 60 Minutes, etc.

So we are working with our affiliates right now.

Most of them understand the situation and are talking to us about how we do this in the best possible way together.

In terms of first-run, number one, the ideas continue to be very progressive in producing more of those shows.

We have a new show called The Doctors, which is now in its second year, and last year was the only successful first-run show.

So that clearly is growing.

We are also seeing some improvement in the ratings on some of our shows like Dr.

Phil, and once again, the place of some of the off-network stuff in the marketplace, as I referred to, is still very healthy and very strong.

And you made a comment on improvements on your local platforms heading into the fourth quarter.

Specific to RADIO, it sounds like -- and maybe this is for Joe -- you talked about double-digit sequential improvement.

And I know that there are some stations -- the Portland sale in there.

But it looked like you're implying down kind of low single digit year on year in the fourth quarter in RADIO.

I just wanted to see if that was close to right on the map and certainly suggests maybe we could see some actual growth early part of next year.

Well, we're not going to give quarterly guidance.

But what I will tell you, the pacing trends are significantly improving each week, and that trend is continuing.

So we are pretty optimistic about those trends across several categories.

Jessica Reif, Bank of America/Merrill Lynch.

Two questions.

The first one is about the news segment reporting.

Where does retransmission fall?

And second of all, does it go with the Local Broadcasting, or is it part of the Cable Networks?

And would you consider selling or splitting any part of the local group?

I did not hear the last part of the question.

She said would we sell any of the local --

Okay.

I will take the first part.

The news segment, the TV stations received the retrans money, and the TV stations have basically affiliation agreements with the network.

So again, retrans may not be spelled out specifically, but just like any other third-party agreement, there will be reverse compensation paid to the network.

At the moment, in terms of selling, we have talked about trimming down our RADIO portfolio somewhat.

We continue on that quest.

We got a good price in Portland.

The good news is we do not have to sell anything.

But, as activity comes back, there are certain markets where we would consider trimming in terms of RADIO and potentially I guess a few of the smaller television stations.

But those are the only plans that we have right now.

Okay.

And a completely different subject.

On Oprah, her contract is expiring in the next year or two years.

When will you know if she is going to continue or end her show?

And if she decides not to renew, how big of an impact will that be for you?

First of all, we are obviously in constant conversations with Oprah.

She is a legend and one of the great assets that we have, and we believe in her.

Our contract with her runs through most of 2011, and we fully hope that she is coming back to extend further.

We will now probably in a few months.

If there is a negative impact, it would not hit us until 2012.

So that is sort of where we are, and we are in dialogue.

Michael Morris, UBS.

A couple of questions on advertising.

Specifically you talked about total scatter being up 100% year over year in the quarter, total scatter dollars.

I'm hoping you can give a little more color on that in terms of the magnitude of the impact to the actual fourth-quarter results.

It sounds like a very big number, but a little bit of clarity relative to what you have already committed in the upfront and how that compares on a year-over-year basis would be helpful.

And then as a follow-up, there is some concern about the amount of inventory that will be available across television in general in the first quarter of next year.

And while it is early obviously to talk about scatter, can you give any insight in terms of what you're seeing in cancellations of upfront commitments?

I think it is about that time right now.

First of all, cancellations are almost nonexistent right now.

People are -- the demand for scatter is so high right now that we have been requested by our sales apartment to cut some promos in exchange for sale.

So and, frankly, scatter is based -- and I know there is always the how much inventory is available.

When you look at the ratings, the inventory is available at the higher-priced networks, the networks that are doing well.

We don't have paybacks.

We don't have make goods.

Some of our competitors do, and as a result, they don't have much in the marketplace.

Our shows are performing extremely well.

As I said, we are getting 25% higher than the upfront, and there have been a number of advertisers and there have been a number of advertising agencies that have said to us they are sorry their clients did not listen and buy more in the upfront.

Because they would have got better pricing.

So this has worked out very much to our advantage.

Joe, in terms of the first part of the question.

I think you answered it.

I mean, as far as the first quarter, obviously we have the Super Bowl, and we are seeing great demand for advertising there.

That is great.

But, also, in the fourth quarter, with the 100% increase in total scatter dollars year-over-year, what can that mean for fourth-quarter network results given the mix between upfront and scatter sales?

Again, we have got to finish out the quarter.

So obviously the trend is improving and it continues.

So I don't want to predict how it is going to end in the quarter.

But I will tell you that it is strong momentum going into the end of the year.

And let me just add, Mike, we had 35% of our inventory left.

We're getting very good pricing.

It will affect the fourth-quarter network revenue in a very positive way, and it is not insignificant.

Doug Mitchelson, Deutsche Bank.

Thank you for realigning the segments, Joe.

We were running out of things to do.

So I wanted to ask just a different way and then I had a follow-up, you have been asked this in the past, Les.

I know you're focused on building the Company and not breaking it up.

But the debt markets are really attractive right now, and who knows how long that might last.

So given where Lamar is trading, why not throw a ton of debt on Outdoor and spin that off to shareholders?

I know you're a free cash flow junkie, but I also know you think your stocks should be higher and that would be one way to get there.

So why not do it?

And then my follow-up also for Les, your comments on DVR is the data is really stunning, maybe partly driven by how many strong programs are being aired across all the networks on Thursday.

But how do you get paid for live plus 7?

Because the problem is we're still just getting paid for C3, and the data is really starting to separate.

Any thoughts there would be helpful.

Yes, it is a good question.

In terms of Outdoor, this has not been the greatest year in Outdoor.

We expect it to significantly improve in 2010 and 2011 and get back to levels that we were at a few years back.

So we like the asset.

You are right.

I do like free cash flow.

There is no reason for us to be selling any of these assets, except for some of the smaller market things, and I think that it's our position on Outdoor.

In terms of your second question, DVR, you know, we have always stated DVR usage is for prime time network or premium cable content, and it is proving to be the case.

The DVRs are used by the most watched episodic series that are out there.

You are right, live plus 7 becomes a much more significant number.

It took us a while to get to C3; however, things are changing rather rapidly.

We are actually in conversations with Nielsen as we speak about doing that.

That will be -- that is an important question going forward.

Not only to get all DVR live plus 7, but to get online as well represented.

So we want all the people that are watching our shows because, as you can see, it is a significant number that we are not getting paid for.

I mean but with C3 everything is improving, and the DVR is our friend, not our enemy, which we have been saying for a few years and nobody believed us.

And now there is proof that it is true.

I guess we will have to wait until there is a lot of leverage in the marketplace, and then we will move on to that one, right?

That is right.

That is exactly right.

Rich Greenfield, Pali Capital.

Two questions.

One, Les, you highlighted a syndication deal that sounds like it is not signed yet.

Without a lot of specifics, could you give us a sense of the timing of revenue or profit that something like this could actually impact CBS, as well as what year we should be thinking about this?

And then two, on the broadcast spectrum side, there has been a lot of talk out of the government about possibly reclaiming some spectrum.

I'm curious whether you had any interest with any of your stations in participating in this spectrum reclamation program that the government is considering, and whether if you did not participate, whether you think it actually could help you if others do participate, if others do?

Good question.

In terms of -- there should be a deal announced fairly shortly.

It will be in a matter of days.

It will have an impact on next year, on 2010, as well as a much greater impact as we go down.

The dollars I cannot mention, but it is very significant, and we are very pleased.

I will be able to talk about it.

Obviously there are some other parties involved, so I cannot give a whole lot more detail than that.

But it is a deal we are extremely pleased with and I think our investors will as well.

In terms of broadcast spectrum, it is an interesting issue.

We are obviously not in favor of giving up our spectrum.

One of the things that is important to us is continuing to be able to deliver HD over the air, and that requires spectrum.

And some of the things that have been discussed would make it almost impossible for us to do that.

So we are against giving up spectrum right now because we think, by and large, it would hurt our product.

It is Joe.

I just want to clarify the accounting treatment of the shows that go into syndication.

What that would mean is, if a deal is signed, it would affect the ultimate profitability.

So we would amortize that profit into the show, and then when the shows are made available to the cable net, we would then recognize that revenue.

So we are clear.

But from the HD comment, Les, that you just made, does that mean that -- do you think others share that same view that nobody wants to pursue that, and why is that HD feed over the air so important?

Does that relate to your football deals, or is there some major reason for that?

No, it is just once again to take a step backwards and not being able to deliver everything -- by the way, we have spent significant money over the last two years giving the customer the best possible product.

If we cannot fulfill given HD for 100% of our schedule, that includes sports, but it also includes the CSIs of the world.

And the spectrum would affect that on over the air broadcast, which we still think is very important for 15% of the country.

Thanks for clarifying.

Michael Nathanson, Sanford Bernstein.

I have two.

One for Les and one for Joe.

Les, let me come back to the scatter and network question.

Last call scatter was very strong in the third quarter -- in the second, you told us in the second-quarter call third quarter is going to be really great in scatter, and it was up slightly.

So the question is, given how strong scatter is this quarter, in the fourth quarter, will the networks grow, will it be positive versus the third-quarter number?

You know what?

We are only halfway through the quarter.

We are not even there yet.

An educated guess or better than that is yes.

The scatter numbers are significant.

When, as I said, we reduce our nightly promo spots, truly we have -- we are trying to handle -- they are knocking down the doors.

Our schedule opened very strong.

There is a great deal of demand for our spots, and that is what creates the marketplace.

Some of the other networks are not in the same position.

So we are very good buy.

I'm not saying the other networks don't have good buys, but there clearly is a demand much larger than we expected.

And once again, it proved to advertisers it is good to invest in the upfront.

You usually get a better deal than you do in scatter, and I think in May it was a very different climate than it is in September and October, whereby more and more people are getting into the marketplace, and now it is supply and demand.

The good news about some of the scatter buys also, they are nonguaranteed.

So we are in a very good position, and the results are bearing that out, and you will see that in the fourth quarter.

And, Michael, just to reiterate, in the Q3, as I said in my comments, network advertising is up.

Right.

Can I ask you about affiliate revenues for a second, Joe?

You drew $35 million in the quarter.

Can you help us figure out in terms of growth rates what percentage of the 11% growth rate was price versus volume for the affiliate revenue deals?

The affiliate revenue?

It is mostly just rate.

There is some sub growth, but it's mostly rate increases.

And that is where retrans is coming through, right?

That is correct.

Anthony DiClemente, Barclays Capital.

I have two.

The first one is for Joe or Les.

If I just take a step back and look at the television segment, two years ago it did about $2 billion in EBITDA.

I think most people are looking for $1.4 billion or $1.5 billion.

The cable network managers like to talk about how that type of decline in broadcast is not really cyclical because broadcast TV has lost market share in terms of viewership.

So I mean in the context of that thesis, I just wonder if you could talk about, is it possible for you to get back to that $2 billion level, and, say, the next year or two, how should we be thinking about that in terms of structural versus cyclical?

What do I say, the new reporting segment is going to help you.

It is going to help you see that.

And I think when you're looking at the Television segment, you have got to remember that TV Station business is in there, and so our local assets have really been the hardest hit with this economy.

So I think when you say, can the network business get back, the network business is not down nearly what some of our local (inaudible).

So the answer is yes.

We fully expect it to get back to full profitability, and we have taken lots of costs out.

So again, we are making more with less.

So again, that has been our continued focus.

And Anthony, just a correction.

Last year our ratings were up in every single demographic, and this year we are up as well in viewers.

So there is not a steep decline at CBS.

There are steep declines at some of the other places.

Got you.

I understand.

And Les, one thing that you mentioned in your opening comments, you talked about the fact that a couple of your new shows you own 100% of.

I'm wondering if you could share with us or remind us, if you look up and down your fall schedule this year, what percentage of your hours are owned or what percentage of your shows are owned?

I know it's not a straightforward answer because you do own minority stakes in some of your shows, but I'm just wondering if you could give us a ballpark or help us get some or most of the way there?

Over 75% of our shows we own.

There are a few that we don't own.

We don't own a few of the comedies, and we don't own The Mentalist.

But, as I said, all of our 10:00 PM shows we own all of them.

So, as I said --

But I mean the 75%, is that 75% considering the fact that you only own half of CSI?

Is that half that you don't own in CSI included in the 75%?

Yes, some of them are 100%.

NCIS is 100%.

The Good Wife is 100%.

CSI is 50%, but we distributed it as well.

So it is more like over 60% of that show we own.

The shows -- there are only a handful of shows that we own nothing on.

Brian Shipman, Jefferies.

The question is with respect to the local TV stations.

Ex-political how much of the improvement was national ad driven?

How is local advertising faring, and what is your view longer-term of the competitive landscape for local?

I'm not quite sure what the percentage breakdown is between national and local.

I do know -- (multiple speakers)

Not necessarily the breakdown, but how much improvement, if any at all, came from national versus local?

Most of it is coming from local.

I think it is the small advertisers coming back into the marketplace.

Like we said, we did not see the steep decline at the national level.

So it is the local guys coming back, and again, it is across many categories, which gives us some optimism.

You highlighted auto.

Can you give us some other examples, please?

Sure.

Retail, financial services, entertainment.

Pharmaceuticals also.

Pharmaceuticals.

Those were our biggest categories.

They are showing great growth.

Michael Meltz, JPMorgan.

You know what?

I'm good.

Have a great night.

Marci Ryvicker, Wells Fargo Securities.

Just a quick one.

With Quincy Smith's departure, how does this change your digital strategy or your M&A strategy if at all?

When Quincy was brought in, he was brought in when we were rather immature in terms of our online presence.

Quincy was brought in to help us strategize with all our various businesses and look at M&A.

And once again, we bought CNET.

It was integrated beautifully into the rest of CBS Interactive.

We had two wonderful leaders in Quincy and Neil.

Quincy was at 30,000 feet and great in setting up our strategy.

And once again, remember, he is going to be our advisor for a long time to come.

That is not a nominal advisor.

It is a real advisor with a real deal, and he is going to be extremely active as we go forward.

And once again, we feel in very good hands with Neil Ashe leading our Interactive group.

So we are in very good shape.

James Dix, Wedbush Securities.

A couple of questions.

First, if you could give a little color on the improvement you're seeing in Outdoor.

Lamar put up some decent improvements in the third and guidance for the fourth quarter.

I wanted to know what you are seeing in terms of regions, in particular in the US?

And then secondly, if you could just talk a little bit more about the rest of your local businesses, any sense as to when you might first start seeing some local core positive growth at the TV stations or the radio stations and Outdoor?

How do you think that might be flowing in just based on what you are seeing in the ad market?

It is Joe.

The Outdoor, clearly the US is ahead of the rest of the world from what we are seeing, and it really goes kind of market by market.

I think maybe some of the smaller markets might be ahead of the larger markets there.

But clearly what I will tell you in the fourth quarter we are seeing a significant pickup from the third quarter.

So I did see Lamar's comments, and we are seeing consistent themes in that.

As far as local, you asked for the positive side.

I think, as Les said in his opening, ex-political for the month of October local TV stations is up.

There is growth, and it is pacing the same way for November.

So that is real positive growth.

And if you would ask us, do we expect them to grow in 2010, the answer is right now yes, we do.

We expect RADIO to grow; we expect TV to grow.

And just following up, Joe, RADIO and Outdoor, when do you think those could break into the positive growth side on the local business?

As Les said, going into 2010 we have got strong momentum, and it depends obviously the macro factors leading that.

But there is no reason why we cannot expect positive growth.

Jessica, why don't we go ahead and take our last question, please.

Jason Bazinet, Citi.

I have two questions.

First, I fully respect the decision to keep a wide guidance range in the beginning of the year.

Given that we are three-quarters under the belt and one-third of the way through the fourth quarter, can you just elaborate on why you did not tighten up the range at this late date?

And then second, on the new presentation, it seemed like there was a threefold increase in the eliminations line in dollar terms.

Can you just explain what the drivers are of that?

Sure.

This is Joe.

As far as the guidance, look, we are comfortable with the range.

That is why we gave a range because things go up and down.

We are obviously tied to the economy a bit.

So we are comfortable with the range, and we reaffirmed it.

As far as the new presentation goes, look, you have to eliminate intercompany profits.

So when you go out and you break things apart, obviously from a GAAP perspective, the profit gets recognized at each of those divisions.

But in consolidation you have to eliminate those.

So obviously, as you change things around, we have to go back and make sure they are properly eliminated.

But is it retrans?

Is that the item that is being bumped up as you sort of -- (multiple speakers) between content and -- (multiple speakers)?

There could be anything that is eliminated there.

Again, any revenues and profits that are generated between sister divisions are eliminated.

So certainly each division is not recording profits on it.

The profit from retrans is coming from the retrans deals we have from television stations.

Thanks, everyone, for joining us tonight.

We appreciate you taking the time, and have a good evening.

That concludes today's conference.

Thank you for your participation.