Paramount Global (PARAA) 2010 Q2 法說會逐字稿

Good day everyone and welcome to the CBS Corporation second quarter 2010 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.

Good afternoon, everyone, and welcome to our second quarter 2010 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 we will 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 ntoe 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 section of our website at CBSCorporation.com.

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

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

Thanks, Adam.

Good afternoon, everyone.

I thank all of you for being with us today.

I'm sure it will come as no surprise to you that I am more than pleased with reporting another quarter of super excellent results for CBS, results that clearly demonstrate our momentous momentum.

As you know, I've been in this industry a long, long time.

I'm thrilled by how CBS has executed right now.

We're not only capitalizing on the economic recovery in every one of our businesses, we're operating more efficiently, we're using our industry-leading content to expand and to grow in new markets.

Some of you may remember that many decades ago, I coined the phrase, content is king and content will always be king.

As for our content, it continues to dominate on the air, it dominates on the Web, it dominates here, it dominates abroad whether it is [first-place] CBS television network, our major market local assets, our leading global syndication business, our growing premium cable operations or our top ranked Internet properties, our investment in premium content is delivering for CBS.

At the same time, we have strategically restructured, we've cut costs throughout every part of the Company and we have done so though without compromising on our industry-leading content, on our investments in areas that represent the best long-term growth.

And as Les and Joe will tell you, we've taken really key steps to reduce our debt, to strengthen our already solid financial position and these steps will play a key part in our success for many years to come.

Today, CBS is positioned for tremendous long-term success.

But not just for today, not just for tomorrow, but for many years to come well into the future and I for one am proud to be working side by side with the many talented executives that are making all of this happen, beginning of course with my very close good friend and colleague, CBS's President.

Les Mooves, I'm going to turn the call over to him now.

Les, the ball is in your court.

Thank you, Sumner, and good afternoon to everyone.

Thank you for joining us today.

We are very pleased to report that CBS's strong momentum is continuing with second-quarter results that were outstanding in every single business unit.

Revenues were up by double digits, profits were up dramatically and we added four points to our OIBDA margin versus last year's second quarter.

In addition, we have more than doubled our free cash flow so far this year.

These outstanding results are due in part to the economy, of course.

We have said that the recovery would benefit CBS as much or more than any media company.

And in fact, it is containing to do so.

But we are not just benefiting from a rising tide.

We've taken steps throughout the Company to run our businesses more efficiently and as a result, we have lowered expenses and created a cost structure that allows more revenue dollars to fall to the bottom line.

We have also strengthened our financial position by reducing our debt and our interest expense.

And most importantly, we are constantly finding new ways to use the strength of our leading content to capitalize on emerging growth areas like retransmission consent and international distribution and positioned CBS as a long-term leader in the evolving media marketplace.

This progress will continue through this year and 2011 and beyond.

We have taken a number of actions to ensure this.

For example, just yesterday we announced our most significant deal on record for the carriage of our content.

It is a milestone agreement with Comcast that includes CBS, Showtime and our other cable networks.

Plus it gives us another significant way to monetize our content across Comcast's new media platforms.

As previously stated, we are now well on our way to delivering on our goal of north of $250 million in annual revenue from retrans in 2012.

Also the recent extension of our NCAA March Madness deal sets us up very well for the future.

It allows us to keep a very high-profile sports property on CBS with economics that make this franchise profitable from year one through the life of the contract, representing a huge improvement from the previous deal we had in place.

We're also realizing more revenue from our network programming all the time.

We just completed a terrific upfront, once again leading the way in total volume and price increases.

And in syndication, we continue to strike new deals to sell our network programming for more money after fewer episodes and to broader markets.

And on the balance sheet, we've reduced our debt significantly which Joe will to you about later.

Now, I'm going to briefly review our results and some operating highlights for the second quarter as well as discuss what we're seeing in the second half of 2010.

Then I'll turn it over to Joe to offer some more details on our financial results and balance sheet.

Then as always, we'll be happy to take your questions.

Beginning with our very strong second quarter results, revenues of $3.3 billion were up 11% from the same quarter last year.

This is our second consecutive quarter of double-digit year-over-year revenue growth.

And as I said, it was driven by top line gains in every one of our businesses.

Our adjusted OIBDA of $580 million was up 46% year over year and our adjusted operating income of $437 million was up 74%.

Thanks to our lower cost structure, margins were up seven percentage points from the first quarter and as I said, four points from last year's second quarter.

We have no intention of letting costs creep back into our operations.

So you should expect to see continued margin expansion over the long term.

At the same time, we generated $492 million in free cash flow during the second quarter, up 40% from the same period last year.

That brings our year-to-date free cash flow to $1.15 billion, again more than double the total for last year's first half and more than many had predicted we produced for the entire year.

Overall, I'm extremely pleased with our financial position, year-to-date results and prospects for the remainder of 2010 and beyond.

Each one of our content and local businesses had significant successes in the quarter.

Let's take a look at some of them now.

Beginning with our content group and its largest segment, entertainment.

The CBS television network continues to play an integral role in our success.

The network finished another television season in first place which helped revenues grow during the quarter and also put us in a very strong position in the recent upfront marketplace.

As you recall, last year we held back about 35% of our inventory with the expectation that pricing would improve along with the economy.

This year, demand and pricing were so strong, we ended up selling about 80% and we feel very good about our ability to improve our ratings in the year ahead and continue growing network revenues and profits.

Our entertainment segment advertising revenue were also helped by the Final Four of the NCAA men's basketball tournament which took place in the second quarter this year.

As I mentioned going forward, we will realize vastly improved economics on this franchise as a result of our recently extended deal that will keep the tournament on CBS through 2024.

Having the best sports and entertainment programming is a critical component in our long-term strategy to be the leading beneficiary of the growing dual revenue stream in broadcast television.

We've been saying for years that our broadcast content needs to receive its proper value from distributors.

Over time, we have made tremendous progress reaching more than 60 retransmission consent agreements with cable operators, satellite companies and telcos at increasingly better terms for us.

The deal we announced yesterday with Comcast epitomizes our momentum in this area and it does a lot more than just recognize the value of CBS entertainment, news and sports programming on Comcast's cable television platform.

It also includes online and VOD distribution and it enhances the long-term growth of Showtime Networks and improves the economics of CBS College Sports and the Smithsonian Channel.

This is a great deal for both parties and we're extremely pleased to be in business with Comcast for a long, long time.

Los Angeles and The Good Wife which as you will recall were the top two freshman scripted series of the last television season.

Once again, syndication is another important way we are extracting value for our content and its recurring and dependable non-advertising related revenue stream.

And given the strong international marketplace and increasingly aggressive buyers here at home, our hit series are now making a profit from day one.

In our films division, The Back-up Plan did far better than our first movie and our next film, Faster, comes out at Thanksgiving and is already generating a lot of buzz.

And we will shortly have some exciting announcements about our 2011 slate.

Also in our entertainment segment, CBS Interactive performed very well in the second quarter as the recovery in the online advertising marketplace continued.

We're finding better ways to monetize full-length episodes and clips of our shows online and successfully creating new Internet content on all of our sites as well.

This strategy is producing strong growth in both advertising and audience.

Display advertising revenues were up 22% in the quarter and June COM score numbers show that unique visitors to our sites grew by double digits with category leaders like CNet, CBSnews.com, CBSsports.com, Last.fm and CHOW matching the biggest increase.

Turning to our cable network segment which also had a terrific quarter, revenues were up 12% and OIBDA was up 33% from the same period last year.

Year over year, we've added more than 5 million subscriptions at Showtime Networks, another 5 million plus at CBS College Sports and more than 1 million at the Smithsonian Channel, and rates have increased as well.

Showtime continues to deliver strong results because of its outstanding original programming.

Along those lines, we look forward to the debut of The Big C later this month starring Laura Linney who was featured this past weekend on the cover of the New York Times Sunday Magazine.

Our final content group is publishing and the performance here also was the best we have seen in quite some time.

Simon & Schuster's second-quarter revenues were up 5% from last year and with all of the expense savings we've realized during that time, OIBDA increased by an impressive 64%.

Later this month, we look forward to the release of The Power by Rhonda Byrne.

The Power is Byrne's follow-up to the massive hit, The Secret, which sold 19 million copies so far and has been a New York Times best-seller for 166 weeks running.

And of course, we also continue to be a major player in the growing digital transition that is going on in the publishing industry.

Turning to our local group, these businesses particularly TV and radio have truly been bounced back in 2010.

Revenues in our local broadcasting segments were up 17% for the quarter with TV station advertising revenues up 31% and radio ad revenue up 8%.

At the same time, local broadcasting OIBDA was up more than 100% year over year and we added 14 points of OIBDA margin versus last year's second quarter.

Even better, we see this growth continuing through the rest of the year.

The second quarter's local TV ad growth is continuing well into the third.

We do not foresee a slowdown.

In addition, political advertising is shaping up to be a major driver of our performance in the fourth quarter where we'll have two things working in our favor, a large number of critical hard-fought elections in many of our major markets and the new court decision which allows increased spending.

Outdoor is now joining the momentum as well.

Second-quarter revenues were up 6% in constant dollars as the advertising marketplace continued to improve.

Sales pacing is accelerating into the third quarter as well, if things are looking good going put forward.

And from an OIBDA perspective, a little revenue growth goes a long, long way in this business.

Outdoor adjusted OIBDA for the second quarter was up 76% from the same period last year.

A final point in our local group.

In the coming weeks, we will launch a new website in New York that will truly leverage the power of our local assets.

It will utilize WCBS TV and our three news and sports radio stations to create a single local online destination CBSNewYork.com.

We're confident we have a terrific formula to serve the local needs of New Yorkers and we will be rolling out similar sites to other major markets around the country soon.

I look forward to reporting to you on the progress of this significant growth opportunity for us.

I think you can see why we are so pleased with the results of the second quarter which speak to the strength of all of our businesses.

Across the board we saw higher revenues, wider margins and a number of signs pointing to continued sustainable growth.

With each quarter, it's increasingly clear that CBS is doing more than just participating in an economic recovery.

We are producing and distributing excellent content and finding new ways to monetize it all the time.

We're establishing and growing meaningful and incremental revenue streams that build upon the quality of our leading content around the world.

We are keeping a tight lid on expenses to ensure that even if the economy continues to improve, costs remain contained and our revenue dollars translate more efficiently into profits.

We are generating substantial free cash flow and using that cash to help our Company going forward by reducing our debt and interest expense.

We have every reason to believe that the success we are experiencing across our businesses will continue into the third quarter and then we have the addition of political dollars in the fourth.

So not only was the second quarter great, but the future looks bright as well.

Thank you and with that, I will turn it over to Joe.

Thanks, Les, and good afternoon, everyone.

Today I will provide additional color on the results for the quarter, discuss our recent financing activities and lastly add to Les's comments about what we are seeing in the back half of the year.

Starting with our results.

The 11% Companywide revenue growth that Les mentioned can be broken down as follows.

Total advertising revenues were up 9% driven by the local and national marketplaces.

Content licensing and distribution was up 19% with strong sales from international TV license fees and affiliate and subscription revenues were up 12% due to our growing subscriber base as well as substantially higher retrans dollars.

At the adjusted OIBDA and operating income level, we were only adjusting for restructuring charges which amounted to $1.7 million in Q2 2010 and $8.8 million in Q2 2009.

So reported OIBDA was actually up 49% and reported operating income was up 80%, both better than adjusted results.

On our last call, we said to expect margin improvement and you can see it in our results today, driven by revenue growth plus the benefits of our recent restructuring activities.

The Company's adjusted OIBDA margin expanded 700 basis points from the first quarter to 17% in this quarter and expanded 400 basis points from the second quarter last year.

These are not just higher percentages but higher earnings dollars as well.

Cable networks, local broadcasting and outdoor were the biggest drivers.

Second quarter adjusted EPS came in at $0.25 which includes a $0.02 loss from foreign currency due to the stronger US dollar compared to $0.09 last year.

In addition to restructuring charges I just mentioned, we are adjusting for the loss of early extinguishment of debt in both periods and some discreet tax items in 2009.

Looking on a year-to-date basis, our revenues were up 11%, adjusted OIBDA was up 44% and adjusted operating income was up 80%, a very strong rebound from a year ago.

Now I'll touch on some details of our operating segments.

Second quarter entertainment revenues were up 10% to about $1.7 billion.

Network ad sales were up 5% for the quarter.

Scatter pricing in the quarter was up in the mid 20s above the upfront.

Adjusted OIBDA was up 7% to $223 million for the quarter at our entertainment segment.

We have continued to invest in content and we expect to see higher margins starting in 2011 and beyond when you start seeing the effects of our newly extended NCAA March Madness deal as well as incremental retrans dollars.

We had another solid quarter at our cable segment where subsriber and rate increases led to our 35% OIBDA margin which by the way we expect to increase even further.

Our publishing revenues benefited from strong digital book sales which increased 71% for the quarter and continued to become a growing part of our business.

Our local broadcasting revenues increased 17% this quarter to $678 million.

TV stations ad sales grew 31% with political advertising contributing six points of growth.

Radio station spot sales were up 8% with our top 10 markets finishing up 10%.

Category strength in both TV and radio was broad-based led by automotive, telecom, retail, financial services and entertainment.

While growth in our local businesses are strong, we still have lots of room to grow.

And as you've seen in second quarter, 100% of the revenue increase flowed through to OIBDA which more than doubled to $214 million and now represents a 32% margin.

Turning to outdoor.

On a constant dollar basis, outdoor revenues were up 6% in the quarter.

The growth in the Americas was 6%, led by 9% growth in the United States while European revenues were up 5%, with our biggest market, the UK, up 14%.

OIBDA grew at less than 76% or $34 million which significantly exceeded our revenue increase as our lower cost base and restructured contracts are starting to take effect.

Turning to our balance sheet, free cash flow came in at $492 million for the quarter, up 40%.

So during the first six months of 2010 we generated $1.15 billion of cash, an increase of over $300 million more than all of last year.

We have been active on the financing front as well.

In Q1, we paid down the entire $400 million asset securitization program.

This quarter, we called $415 million of debt which was due in July so we have no other maturities this year.

We also tendered for some near-term debt and issued a $500 million 10-year bond.

Overall, we have delevered the Company by $840 million since the start of the year and have extended our weighted average debt maturities to 16 years.

In fact, our aggregate debt maturities over the next three years is only slightly higher than the free cash flow we just generated in six months.

This deleveraging will save us approximately $40 million a year in annualized interest costs.

We remain committed to our investment grade credit rating and our $2 billion credit facility remains undrawn and we have significant headroom within our leverage and coverage ratios.

We ended the quarter with $838 million of cash on hand, an increase of $121 million from the beginning of the year while still achieving all the deleveraging I just mentioned.

In terms of the current marketplace, here is what we are seeing, starting with our content assets.

As Les said, we just concluded a strong upfront for the new broadcast season which is a good starting point for 2011.

Scatter pricing in Q3 is accelerating and projected to be up 30% plus above the upfront and this demand is growing as we head into the new season which will lead to significant pricing premiums.

So those advertisers who bought in the upfront I think will be very pleased.

At our interactive unit, Q3 domestic display sales are pacing up plus 20%.

Our content businesses will also benefit in Q3 from another strong quarter from our affiliate and subscription revenues.

Turning to our local assets, TV stations are expected to be up in the mid 20s excluding politicals third quarter, continuing its first half momentum.

Radio stations are pacing up high single digits with the top 10 markets continuing to lead the way and our outdoor group is currently pacing up high single digits on a constant dollar basis.

The total Company should achieve its highest OIBDA margin of the year in the fourth quarter, driven by political advertising contributions which could approach $200 million for the year.

We also want to reiterate our CapEx full-year estimate guidance of $250 million to $300 million as well as our book income tax rate of approximately 40% for the full year.

I'll wrap up with a few final thoughts.

The advertising marketplace is rebounding and we expect to be one of the biggest beneficiaries which means we expect growth for the two-thirds of our revenue base that is advertising.

The non-advertising piece also continues to grow given the structural changes in the business.

This includes a growing international demand for our content and incremental retrans and other subscription-based fees.

Finally, we remain committed to driving our operating margins and we are confident we can expand these margins which should generate even higher profit dollars in 2011 and 2012.

So there's significant upside in the business model from where we sit today.

With that, Melissa, we can open the lines for questions.

(Operator Instructions) Ben Swinburne, Morgan Stanley.

If I could ask one for Les and then a follow-up for Joe.

Les, I have to ask you about the Comcast announcement since it's such a big [data] agreement for both companies.

I know you are limited in terms of numbers that you can speak about.

What was strategically the big win here for CBS?

And I want to ask about both CBS and Showtime, because you mentioned Showtime in your prepared remarks.

What were you able to obtain here that gives people -- gives you more confidence in the sort of long-term growth?

And I'm also thinking on CBS about how you are now able or restricted at all to monetize that content outside of traditional TV platforms.

So I would love to just get your thoughts on those two businesses as it relates to this contract.

Sure, obviously we are thrilled.

I think the Comcast deal was a big win for both companies and it was global in nature.

And what was very unusual about it also was that it was a year and a half early before we started.

The reason is that there are a lot of big wins and as I said, for both companies.

Number one, we have established that CBS will be paid for retrans, something that I've been talking about for years and is a significant part of the future of our Company and that revenue stream that will continue, we now have a dual revenue stream base for CBS going forward.

It establishes a growing revenue stream for Showtime.

And for those who had any question about the ability of Showtime to continue to increase and thrive in the marketplace, Showtime is now secure and financially in great shape.

But once again, from Comcast's point of view, they recognize the value of the content on CBS and Showtime.

Plus, you know, for those of you who have been following, Comcast is one of the most advanced companies in talking about online media and how to best use content online in a variety of different ways, whether it be video on demand or all sorts of other new methods of doing it.

The key for us with this partnership is the flexibility.

We're going to be trying lots of things with Comcast to put our media online and our content online.

By the same token, it doesn't limit us to do other deals outside of it.

So across the board, CBS, Showtime, New Media, it's a big win for us going forward and as I said, it assures a continuing and growing revenue stream year after year over the length of this contract.

Just to be clear, it doesn't sound like there's any restrictions in your ability to go to new online distributors with CBS content over the life of the contract?

That's correct.

Okay, great.

And then, Joe, just on the balance sheet, you've been working on that over the last six to nine months quite a bit or going back even further.

We are in an interest rate environment which is obviously very attractive.

What are the rating agencies telling you in terms of what they want to see and at what point do you and the agencies feel good enough about being more aggressive there, whether it's tendering for more debt, looking to roll some debt over if you have the opportunity or maybe even looking at some kind of return on capital down the road?

I think we have ongoing conversations with the rating agencies.

I think where we sit today, Ben, obviously anything we do with is opportunistic.

We feel really good about the position we're in.

The rates that I'm hearing in the marketplace are very attractive.

So we'll continue to evaluate our opportunities.

But clearly we paid down the debt, we're in a much stronger financial position today than we probably have ever been in.

So, I think we will have a lot of opportunities.

Thanks, Ben, let's go ahead and take the next question.

Jessica Reif Cohen, Bank of America Merrill Lynch.

I guess two also, one for Les and one for Joe.

Les, on Comcast, I mean, it is such a big deal.

When does it kick in?

Were you getting cash before and can you comment at all on reverse comp, how those talks are going?

And it sort of begs the question of what you guys are going to do with all this cash.

And then for Joe on the cost side, could you walk us through some of the big swings that you should be seeing in 2011?

On the film side, and [CBS AA] is there anything from London underground?

And obviously you've highlighted the interest expense reduction.

Thanks.

Regarding Comcast, where were we getting cash before?

We were part -- the last deal we did, we were part of Viacom where there are numerous cable networks as well as CBS was part of that deal.

So it was a year and a half for us remaining on that deal.

Was the corporation getting paid something?

Yes, they were and were we getting some advantage for it?

Yes we were.

But this was -- this was a new deal because it is the first time we've negotiated with Comcast as a freestanding network, not part of any other large cable group.

So, regarding discussions, yes, we are having discussions with our affiliates and certain deals have been struck where we are sharing and we are getting paid money from our affiliates as the deals come up.

And that is part of the new way of doing business and everybody acknowledges once again, we are providing premium content and that should be paid for both via the MSOs as well as our affiliates.

And that's what's happening here.

When we talk about what are we going to do with our cash, obviously we are in very solid shape as Joe said with having paid down the debt.

We are examining that as we speak.

Before the end of the year, we're going to determine what to do with our cash whether it involves paying down further debt, whether it involves returning money to our shareholders in the form of increased dividends or share repurchase.

We have historically returned money to our shareholders and that has always been an important piece to us.

So stay tuned and we'll have a decision on that before the end of the year.

Jessica, on the cost side for 2011, here's what we know without getting to specific numbers.

Program costs at the network are going to be down.

The NCAA contract is going to make sports certainly more profitable.

We're going to benefit from large restructured outdoor contracts.

We didn't have New York.

We have restructured Washington, as two examples.

We're going to continue to benefit from the recent restructuring activities that we just went through $59 million in the first two quarters of this year.

And obviously, the lower debt is going to have lower interest costs.

So those kind of six things off the top of my head are going to benefit 2011.

Thanks, Jessica.

Melissa, let's take the next question.

Anthony DiClemente, Barclays Capital.

Great, thanks.

So my Comcast question is pretty simple which is the duration of the deal which is why 10 years and why not three or five?

I guess this is for Les or Joe, the idea being that retrans here is in an acceleration phase and the question would be, it seems like you are locking in a ceiling price on the deal over a ten-year period.

And if the value of the CBS signal is truly appreciating over that time period, then why do that?

And I have a follow-up, thanks.

Anthony, obviously the discussions began with Comcast a number of months ago and we talked about traditional deals of three years and five years.

And then as we talked about our future together, we said, okay, this is where retrans is today, this is where we think it's going to be growing to and why is there automatically an assumption that we haven't realized a full value?

When you make a long-term assumption, obviously escalators are built in to our best knowledge.

There's a great deal of flexibility with our new media prospects and there's a certain amount of knowledge about where these deals are going.

So, yes, could it fluctuate?

Could Comcast in the end of 10 years be paying us more than some of their other deals or less than some of their other deals?

I guess that's possible.

But overall, we see an increase, a growth over the course of time for Showtime and CBS and incremental pricing is built in to what we both thought was fair.

So it was an opportunity to have sustained growth, sustained revenue which I know is important to you guys, as you look at us as an advertising company, and just assume for a second that we may have been able to sort of get a fair deal on what this would be worth in 10 years.

Got it, thank you for that.

And then my second question is on the international syndication sales that you talk about in the release in the quarter.

It seems like over the past few quarters, you have been able to book these international syndication sales a little bit sooner than maybe historically.

I could be wrong about that.

But I mean, The Good Wife is in its second season.

So I just wonder, is there something that has changed structurally in the way that you do business and the way that you do that abroad?

And does it actually -- if you are booking those syndication sales sooner, I'm wondering, does that put more pressure on the current season TV releases to actually be more successful?

Because not only do you have the network ad sales banking on the current releases, but you also have the following year's syndication sales.

Anthony, it's Joe.

The answer of course is no.

We are not changing the way we are booking international syndication.

Los Angeles very early.

So that's something that we're seeing domestic indication, people buying we get to four years.

But internationally, they buy the same time that we put it on the network.

So what's growing there is really the demand and the pricing that's growing.

So it's really -- there is no accounting change going on, just so we're clear.

Anthony, the system always is, you do the upfront, then you come back and show it to the international buyers and then it becomes a bidding war for the best product.

As Joe said, our numbers internationally were pretty phenomenal this year with Hawaii Five-O frankly breaking international records on what it was getting.

What was significant last year is NCIS sold after six episodes which in previous years -- that's domestically -- you would have needed to wait until there were already at least three years shot.

Now because the demand was so high for that show and The Mentalist over at Warner Brothers that people are bidding for shows right out of the box which is a great thing for us.

Why is that?

And then I'll stop.

But what's driving that demand?

It seems like the demand is changing (multiple speakers) okay.

LA, you get a bidding war and you get it earlier.

So we are -- by the way, we're happy to get the bidding war and we're happy if they want to give us their money now.

Just to add to that, it's obvious why they are doing that is they need that content to go to their MSOs to drive their affiliate fees.

So like we have been saying all along, best content gets the highest fees.

LA will be their next highest show.

Michael Morris, Davenport.

Thanks guys, two topics here.

First, you talked about a lot of the positive things you have going on as you look forward into 2011.

We also know that you do have some headwinds.

There's some tough comps between the political you discussed, the Super Bowl, things like that.

Can you help us understand the magnitude of these initiatives that you think are going to drive in 2011?

Knowing what you know right now, will they be able to offset the challenges that you have from those tough comparisons?

That's my first question, what is the potential for growth.

And then second, Joe, just to go back to the balance sheet, you talked about maintaining your investment grade rating and deleveraging has been part of your strategy.

But at this point how much more do you really need to deleverage?

Are you talking billions, hundreds of millions?

What are you thinking there and what is the gating factor between now and say the end of the year to start addressing returning capital to shareholders?

Thanks.

Sure, I'll start with the second one.

On the balance sheet one, yes, look, again, like we said, it was $840 million.

So I don't think it's billions, what we're talking about.

I think we're being very prudent and conservative, so we want to continue that.

So it's going to be clearly a smaller number on the debt side and I think again, what we're doing is we're making sure we're being responsible as we come up with holistic things to do with our cash.

And I think we've been pretty prudent to date and we're going to continue to do so.

But we have been proponents of returning capital to shareholders, we have done some share repurchase programs, ASRs when we had that, and we have been maintaining the dividend throughout our separation from Viacom.

So you are going to continue to see us discuss all of those things.

As far as 2011 goes, look, I just sized political for you.

The Super Bowl, you know the way the accounting works for that.

So it may interesting (inaudible) revenue but not in terms of profits.

So I'm not sure what other headwinds you are referring to.

I would point to a strong upfront that starts the season, we know that's good.

We know we have accelerated growth in retrans.

I just jotted a list of other cost items that are going to be a benefit.

So we are confident we can have expanded margins in 2011 that's going to lead to additional profit dollars like we said.

Brian Shipman, Jefferies.

Thanks, another question on the retrans deal.

What if any are the potential costs associated with that deal?

And is it safe to assume you have built in a big step-up in margins in association with that contract?

Thank you.

Number one, there are no costs associated with it.

It is money that is paid from Comcast to us per se.

In terms of the margins, Joe (multiple speakers)

I think again, obviously those are very incremental margin dollars.

As we both said, I think you should assume the deal factors an attractive growth rate.

So, that's a 10 year deal and we expect -- we look forward to the financial benefits to the Company in each of the next 10 years.

Laura Martin, Needham & Co.

Great numbers you've got, congratulations.

Two questions, one for Joe and one for Les.

Les, on yours, could you talk about the film business next year, what you are expecting, number of films, total budget and how that compared to this year?

And we will all do our own estimates here on Wall Street and you won't be happy with them, I'm sure.

And then, Joe, for you I'd like to talk about return on invested capital.

One of the things we are seeing increasingly in these large entertainment conglomerates, specifically at Time Warner and even at Viacom, is we're getting increasing compensation systems being tied to return on capital.

And given that you guys just did a full year of cash flow in six months, your returns on invested capital are actually exploding.

Is there any thought that you guys might time or be talking more about return on invested capital and capital efficiency as we go forward here in 2011?

Joe, go first and I'll (multiple speakers) right.

Let me just start with the second one.

Return on invested capital we measure all the time.

We look at it.

It's certainly a financial metric I think that we look to.

Clearly again, our compensation and we look at our stock price, we look at building enterprise value.

So every decision we make is really for the enterprise value.

So we're going to continue to do that, Laura.

So I don't think you are going to see anything different.

I think we have shown we've been disciplined throughout.

So stay tuned, but I don't think anything really changes in the way we approach our business.

And, Laura, on the films, we will have released three movies this year, our third one's coming up Thanksgiving.

Next year we have Beastly scheduled which cost all of $17 million.

We are looking at the next release after that probably to be a movie that we have acquired.

So the risk will be rather minimal.

Then there will be a couple of movies that we will be producing and as I said, we will be announcing soon.

Once again, we're keeping our discipline and we're staying below the $40 million range in terms of our investment.

Even Faster which is coming out in November cost $34 million but it's a co-production with Sony.

We have a domestic and we're only into that movie for $17 million.

So although people do like to talk about it because it's sexy, it's still a very tiny part of our business.

Doug Mitchelson, Deutsche Bank.

I guess just a couple.

Obviously the quarter speaks for itself, so I'll go back to the sort of 30,000 foot view questions here.

Les, I know you prefer operating from strength not weakness.

Your business is recovering, your balance sheet is in good shape.

Any further thoughts on streamlining your asset base at all?

Things like UK, outdoor or publishing or even domestic outdoor all seem non-core.

I am guessing you think your stock is cheap.

So reallocating capital from non-core businesses to your stock might make some sense.

And then separately on the new Comcast deal, how does VOD work now?

Now that's something that has always been difficult to monetize.

As they put more of your shows on VOD, is that something you will be able to monetize at a reasonable level?

Regarding the asset mix, we have always spoken about possibly divesting some of our smaller market radio and television stations and in fact we still intend to do that but once again, there's no great hurry to do that.

Unless we get the right pricing for that, we're not going to do that.

However, there appears to be some nice activity now in some of the pricing.

So I wouldn't be surprised if over the next six months to a year we do divest some of our radio stations in a few markets and maybe one or two television stations.

In terms of VOD, Doug, once again, it is not a big cash business yet.

There will be some more content on VOD.

It does work but there is a profit-sharing on there.

But it's not a major business.

We have been doing this with Comcast frankly for five or six years.

It really is not a great effect to the bottom line for either them or us.

Maybe if I could refine the question for you, Les.

I mean, to the extent that viewership is moving online and/or to VOD, do you feel pressure over time to try and get ad revenue from those distribution sources equivalent to your traditional TV viewing or do you feel the economics of the retrans moe than makes up for viewership shifts?

Obviously retrans makes up for a lot of sins.

It really does cover us quite a bit.

Having that dual revenue stream is terrific for us.

Obviously content is going more and more online which is why we are exploring that.

It obviously right now doesn't come close to the amount of revenue we're generating over the air in our normal broadcast methods.

As it grows, we are going to need to monetize it so that there are dollars replacing dollars and that is the game plan and the potential for things like TV everywhere is something that is attractive for us.

In other, words if you are -- if Comcast is paying us for a sub, then that sub should be paying the MSO their fee to be able to get our product online.

So the great news about the new deal, a lot of it is experimentation.

A lot of it is very flexible and you're going to be seeing all sorts of new things going on between us.

All right, more to come.

Okay, thanks.

David Miller, Caris & Co.

Les, another question on reverse compensation, if I may.

So you have NFL football starting in about a month and you have done a wonderful job in getting the cable MSOs to pay you for your signal within the owned affiliate group.

So, with football about to start here, do you see using the AFC Network package as leverage to get the non-owned affiliate group to pay you a portion, otherwise known as reverse compensation obviously?

And if they don't want to cooperate, would you go as far as pulling certain NFL football games off the air in those local markets?

Thanks.

We would never go so far as to say, okay, you're in Cincinnati, we're pulling the Bengals from your marketplace.

Obviously, we are spending a lot of money as you pointed out, David, on our content, NFL included, our programming etc., etc., etc.

And we feel it's appropriate as our contracts with our affiliated stations come up that they pay us some money for that in reverse comp.

We also expect our affiliated stations to be getting money, getting paid from the MSOs and satellite companies etc.

and they should be getting paid for having that content.

But once again, we hopefully will and so far we have done that, successfully negotiated with all of them and as their contracts come up to be able to make a deal that's satisfactory to both sides.

We've been successful without any threats of pulling the plug and that's the way we prefer to negotiate.

James Mitchell, Goldman Sachs.

If I could as ktwo questions quickly.

First of all, more operational, it looked like the local broadcast division costs were down a little bit in the second quarter year on year after being up a little bit year on year in the first quarter.

How did you bring costs down in that division against the momentous momentum you saw in revenue?

And then second question which would probably be the 14th question regarding Comcast, why not update your guidance for over $250 million in retrans revenue in 2012 given the Comcast deal presumably energizes payments from 11 million-odd subscribers?

Okay, so let me start with the local broadcasting.

We obviously at the end of last year, James, we put TV stations and radio stations under common management.

So we took a restructuring charge in the first quarter of 2010.

So clearly in the second quarter you're starting to see the benefits.

Also in the second quarter 2009, we did have a $14 million write-off which we have in the press release.

So those two factors I think contributed to again lower costs.

But the key for us is you're seeing significant flow through from the revenue into profits and you see what happens to the margin expansion.

Just to point out just to be clear with you, we don't give guidance on the 250.

What we said was we were well on track for that.

This deal kind of validates that and obviously it's a 10-year deal.

So obviously we expect growth from there.

So really that's what we (multiple speakers)

And with our partners, we have agreed also not to get too specific about detail.

This is a very global deal that includes a lot of assets for us and Comcast.

So it's better not to be too specific, James.

Michael Meltz, JPMorgan.

On the free cash flow, Joe, can you talk a little bit about -- you did a little over $900 million of EBITDA in the first half.

You did $1.1 billion plus of free cash flow.

Obviously you had some working capital benefits.

But in the second half, what type of conversion should we be expecting on free cash flow?

And I think on the comp whoever asked it earlier, I think you have the syndication comp in the third quarter.

Can you just clarify what that is please?

Sure, on free cash flow, obviously over the long term, you can't convert more than 100% of EBITDA into cash flow.

So clearly that's the benefit, what you saw there in the first six months of A, the Super Bowl because again the way the cash comes in; and two, the five shows you were just alluding to that went into syndication last year third quarter.

So the cash is clearly coming in.

What we said on the fourth-quarter earnings call is you know, if you just look back traditionally in good times or bad, we convert 50% plus kind of cash flow, EBITDA into cash flow.

So, we hope to be in at least at that kind of range and obviously starting in excess of 100 for the first six months puts us well on the way for doing that.

As far as the syndication question, clearly in the third quarter last year, we recognized five shows that went into syndication last year.

So the good news is, we have a fresh group of young shows that are going to hit.

Whether it hits 12 or 13 will be up to us and how we make those shows available.

But the pipeline, it continues to grow.

The international demand continues to grow.

We've got to remember, there's also seconds cycle.

And I would just finish by telling you that the fourth quarter this year will have strong politicals as we alluded to as well.

Okay, and then just one clarification.

I think you said scatter in the second quarter was up 25% but the network was only up 5%.

Can you just give a little bit more clarity on the disconnect there?

Sure, because upfront is down, last year's upfront was down and when you do the weighting, you only get up 5.

Okay and going forward that should probably reverse a little bit?

Well, we just sold a new upfront, right?

We said very high single digits and what we said is scatter is accelerating.

So what we are seeing -- and the new season's early.

So it's only in the third quarter, it's only a week or so.

But we are seeing 30% plus scatter pricing increases on top of this year's upfront.

That's what gives us a lot of confidence about 2011.

Understood, thank you.

Great, thanks, Michael.

Melissa, we have time for one more question please.

Marci Ryvicker, Wells Fargo.

Can you talk about underlying trends specifically for local revenue at your TV station, radio station and outdoor segments?

I guess what I'm getting at is the difference between national and local growth in the second quarter and what this looks like in Q3.

It's mostly local that's driving it.

I think the national -- certainly even at the network level, weather; the recession, much better than local.

But the local advertising clearly is coming back at a faster pace.

Still a ways to go but what is key to us, it's very broad.

It's all categories across the board that's really driving this.

So the depth of that gives us a lot of encouragement.

And what I would also like to add is they're bookings dollars sooner.

So that also means that they have some confidence in their business or they think pricing is going up.

Marci, what is significant and we have noticed this and this is really special to point out, it's not slowing down.

I know people want to say it's slowing down, the recovery.

The third quarter pacing is as good as in certain cases better than the second quarter pacings have been.

So we're very encouraged that the momentum really is continuing in the local businesses.

Did you see any weakness in June and July like some of your peers did?

Again, by month or whatever, I think you could just look at the second quarter by month and I mean, again, you could have a month that is a little better than the other month.

But I think when you look at the second quarter, the second quarter was actually better than the first quarter.

And as Les said, we see that we continuing into the third.

So everything that we seem we're encouraged.

So the future is bright.

Just one more clarification.

You said local was growing faster.

But is there still a big gap between national and local, so local just has further to catch up?

Yes, I think that's fair.

I think local has further to catch up and we still have a ways to go to get back to those levels, the historical levels.

Like I said, there's a lot of dollars to still grow here and so the whole pie is growing and we hope -- we expect I should say to take market share.

Great, thanks, Marci.

And thank you, everyone, for joining us this evening.

Have a good night.

That does conclude our conference.

We thank you for your participation.