Paramount Global (PARAA) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation third-quarter 2011 earnings release teleconference.

Today's call is being recorded.

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

Adam Townsend.

Please go ahead, sir.

Thanks, Jay.

Good afternoon, everyone, and welcome to our third-quarter 2011 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'll turn the call over to Les and Joe who will then discuss the strategic and financial results.

We will then open the call up to questions.

Please note that during today's conference call financial results for the 2011 third-quarter and nine-month periods, with the exception of revenue, are compared against adjusted 2010 results.

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

In addition, 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.

And with that it's now my pleasure to turn the call over to Sumner.

Thank you, Adam, and good afternoon, everyone.

I thank you all for being with us today.

As you know, CBS has turned in yet another quarter of really fantastic results.

We are consistently delivering growth and profitability, of course driven by the success of our premium content all over the world.

In every area where we compete CBS is (inaudible)from continuing to lead as the number one network, to signing more and more online distribution deals to launching one Showtime hit after another, to Simon & Schuster leading the best-seller list, to stable growth at our local businesses.

Our content, our content is getting more and more and more valuable every day.

As we close out 2011 we are operating from a clear position of strength and I tell you 2012 promises to be even better.

But it's not enough, as you know, to have great content.

You have to have a great management team as well, and we do.

Les and his team continue to make every right move and CBS' remarkable success quarter after quarter.

Now here to tell you all about it is the man himself.

But before I introduce Les let me say this.

I have frequently called Les a genius.

The reason he's a genius, he has 20 out of the top 30 shows on television, something actually unheard of.

That's why he's a genius.

So let me introduce my friend, my colleague, the genius himself, Les Moonves.

Thank you, Sumner.

I appreciate those kind words.

Good afternoon, everybody, and thank you for joining us again.

For many quarters now we've posted results that speak to the strength, stability and progress of our Company.

Today's numbers are no exception and the good news is that due to our performance, the strategic actions we've been taking and our ability to take advantage of the fundamental shifts in our industry we are positioned for continued success going forward, including a 2012 which promises to be a very, very good year.

Our competitive position is as strong as ever and as one of the world's leading content companies the way we are monetizing our programming are growing all the time.

From retrans to reverse comp to streaming to our expanding international business, all of these new opportunities mean increased stability to our revenue base and more and more dollars falling to the bottom line.

This past third quarter was indicative of the type of performance we have set ourselves up to achieve.

We turned top-line growth into sharp increases in OIBDA, up 25%, and EPS, which was up 43%.

And our OIBDA margin once again reached peak levels that we haven't seen since '06 and '07.

Plus as we continue to tap recurring non-advertising revenue streams we are diversifying our revenue base.

In the third quarter our mix of advertising-related revenue came in at just 59%.

We are clearly tracking ahead of our strategy to diversify and de-risk the Company.

Across the board we're delivering on our strategies and priming CBS to take advantage of some very exciting developments down the road.

And the fact that we have this kind of confidence in the future is why we're announcing today a plan to buy back another $1.5 billion of our stock in addition to the $1.5 billion that is currently underway.

This is also in addition to the dividend that we recently doubled.

So clearly returning value to our shareholders is of significant importance to us.

Today I'm going to take a closer look at our third-quarter numbers and then discuss a few of the operating highlights in each of our segments and after that I'll turn it over to Joe for more analysis and financial information and then we'll take your questions.

Despite the lack of political dollars this year versus last third-quarter revenues grew 2% to $3.4 billion.

This kind of growth is extremely unusual for a nonpolitical year.

It was achieved by strength in our traditional businesses as well as the kinds of recurring non-advertising revenues I just referenced.

Once again we were able to turn revenue growth into strong profit growth with OIBDA up 25% to $837 million for the quarter and EPS up 43% coming in at $0.50 per diluted share.

Our growth has been consistent all year long.

Year to date our OIBDA is up 43% and EPS 109%.

As mentioned, we're clearly being helped by new sources of high-margin revenue as well as the underlying performance of our established businesses.

But we also continue to hold out costs, including programming expenses that were lower than a year ago and we're benefiting from all the debt reduction we implemented last year, the benefits of which will also continue.

In addition, our free cash flow has been terrific.

We have now generated $1.5 billion in cash year to date and have nearly $1 billion of cash on hand as of the end of the quarter.

This is after contributing to our pension plans and returning significant value to our shareholders.

Along these lines, as I mentioned, we have doubled our share repurchase program by another $1.5 billion.

This expanded program is scheduled for 2012 and 2013 and reflects the positive visibility we have in our operations across the Company into the future.

Also, during the quarter we made the first increased payment of our quarterly dividend that was doubled from a year ago.

Going forward, whether it be share buybacks or dividend payments, returning value to our shareholders will continue to be a top priority.

Now let's take a look at how our success is reflected in each of our operating segments beginning with entertainment led by the CBS television network which, as you know, is off to a terrific start again this year.

Our entertainment segment continues to be driven by the increasing value of what we call the content chain which in all ways we are getting paid for our program.

The CBS television network is the first and most important link on that chain and it continues to perform brilliantly.

Primetime advertising, the network's bread and butter, was up solidly in the third quarter and our ratings this quarter in the new fall season are significantly, significantly outpacing the field.

CBS is averaging 2.5 million viewers ahead of our closest competitor, a difference of 24%.

Through the first six weeks of the season CBS is also the first network since people meters began in 1987 to have nine of the top 10 scripted series on television.

And a few weeks ago we made television history as the first network to ever broadcast 20 of the top 30 programs for the week.

The network's success extends across all key measures.

CBS is up year over year in viewers, households, 25-54 and yes, 18-49.

In fact, we were the first network since 2002 to have the number one drama, the number one comedy and the number one new series in 18-49 through the first month of the season.

With this kind of broad-based success we have an unmatched platform to launch new shows and keep growing our momentum well into the future.

Once again, whoever says network television is a cyclical business hasn't been paying attention to CBS which has been the leader in nine of the last 10 years.

Given the success of our ratings we are the network clearly leading the way in the scatter marketplace.

At CBS we are delivering our audience across every single demographic.

As this continues it will result in us receiving an even greater share of scatter dollars going forward.

Meanwhile in sports the NFL continues to do extremely well for us and coming up soon is college basketball which, in case you haven't noticed, is still scheduled to be played.

And this weekend on our air we essentially have this year's college football championship when number one LSU plays number two Alabama in prime time.

So you don't have to wait for the BCS in January this year to find out who the best team in the country is.

So our long-term deal with the SEC is paying off now and will continue to do so until 2023.

This deal is looking better all the time as the SEC has clearly become the dominant conference in college football.

Beyond the network the other links in our content chain are becoming more and more lucrative every single quarter.

Syndication remains the next largest source of revenue for us with especially sharp growth on the international side.

Led by CSI and NCIS, the two most popular shows in the world, our international syndication business is producing north of $1 billion a year for us, double what it was just four years ago.

And as you know, you've read much about this, one of the most exciting areas of growth is the increased demand of our content from online video distributors like Amazon, Netflix, Hulu Plus and others.

In less than eight months we have secured deals that are worth hundreds of millions of dollars annually to us and are a key factor in the diversification of our revenue streams.

This phenomenon is being driven by consumer demand.

Viewers are clearly looking to watch part of their content online, particularly younger viewers.

Going forward we feel very good about our ability to make significant money from this development year in and year out no matter which streaming service consumers choose.

In each case we're prudently delivering our programming to new viewers in a way that complements our traditional licensing businesses and realizes incremental value from our library by selling our content over and over again.

Within the last month we also signed a pair of long-term streaming deals for CW content with Netflix and Hulu.

These deals, which we did with our partners at Warner Brothers, will dramatically change the economics of the CW as well as add to our studio bottom line.

Plus, like all of our deals, we continue to have the flexibility to sell our content elsewhere.

Two other key growth areas are retransmission consent and reverse compensation from affiliates.

Both revenue sources continue to grow at a steady clip and each of them is right on track to meet the financial targets we've laid out for you previously.

On the reverse comp side, we signed a new deal with one of our largest affiliate groups during the quarter.

In this deal that comes into full effect next summer, we took a previous arrangement in which we had been paying our partners and turned it into a deal which they will now be paying us the kind of compensation we've told you we can expect.

So, from advertising to syndication to streaming to retrans and reverse comp, every link of the content chain continues to strengthen and serves to diversify our revenue in a marketplace that rewards content like never before.

The increasing value of our premium content is also at the heart of our cable network segment where we continue to see very healthy revenue and profit growth.

Our three cable networks Showtime, CBS Sports Network and Smithsonian, all grew rates and subscribers during the quarter with Showtime at nearly 21 million subs, up 11% year-over-year.

Last month we launched a brand-new hit on Showtime with the premiere of Homeland.

This show is acclaimed by many as clearly one of the best new shows on television.

It had an extremely strong opening and has grown from there.

Meanwhile this year's premiere of Dexter was its highest rated yet and continues to have more viewers than it did last year.

And remember, just like at CBS, great Showtime content feeds the pipeline to be sold in all sorts of new ways down the road as well.

At our publishing division, Simon & Schuster continues to grow its profits as well.

We are increasingly benefiting from the sharp growth and improved business model of e-books.

Sale of e-books has more than doubled year over year and digital now represents 17% of publishing's revenue.

Simon & Schuster grew its overall revenue in the quarter as well and we had 58 new entries on the New York Times' bestseller including nine number ones.

And as you no doubt heard, we recently began selling Walter Isaacson's exclusive biography of the extraordinary Steve Jobs.

Moving to our Local Broadcasting segment where we continue to have a story of strength and stability; just like in the second quarter, third-quarter nonpolitical revenues grew low-single-digits and are pacing to do the same in the fourth.

At our television stations we saw growth across most key advertising categories and domestic auto significantly was up 21% year-over-year.

CBS Radio also posted growth in domestic auto as well as retail and financial services.

Our TV stations continue to perform very well in terms of ratings too.

This past month during prime time WCBS TV in New York was the most-watched television station in the country and the majority of our stations were number one in their markets.

And in radio our strategy to program more sports stations has proven to be very successful.

We now have sports formats in nine of the top 11 markets and the audience on those stations has grown nearly 75% in the past three years.

What's also exciting about our local businesses is the way they are positioning themselves for the future.

We now have 25 local websites that reflect the combined resources of our TV and radio stations in each market.

These sites, such as CBSNewYork.com and CBSLA.com, etc., are capitalizing on the way people are consuming local content online as opposed to in newspapers or yellow pages.

We have some of the most recognizable brands in the biggest markets and as this continues the opportunity is significant.

So we continue to love the local business and particularly the properties we own; however, as the other businesses in our Company grow even faster, our dependence on local becomes less pronounced.

In the third quarter while overall revenues have grown we're very pleased that Local Broadcasting accounted for just 19% of our total revenue versus 24% just a few years ago.

This is another example how we have become a more versatile company.

Finally, our outdoor business is performing very solidly as well with pacing up domestically and abroad.

Our business in the Americas is outperforming the competition in both revenue and OIBDA and internationally we are seeing the business strengthen as we pursue new contracts, optimize our cost structure and continue Digital expansion.

Across the Company our business is operating right where we want it to be and just as we told you it would.

We are finishing '11 in a very strong position.

You have seen our numbers for the quarter and for the year to date where OIBDA is up 43%.

What's truly exciting though is that I believe the Company is set up for a record-breaking 2012 and here's why.

The CBS television network has opened extremely well this fall.

Looking ahead the bulk of the network season takes place in '12 and we anticipate being in first place once again when the season concludes next year.

Retrans and reverse comp are in full swing with more new deals coming into play next year.

International demand for our content is growing every single year faster than ever.

Plus this year you saw the streaming marketplace begin to truly take hold and we've made many deals already.

We continue to talk to all these companies, and many others that we haven't done deals with yet, about finding ways to generate incremental dollars going forward.

As you see, '12 is shaping up to be an even bigger year in terms of streaming.

Also as you know, next year is shaping up to be a very contentious year in Washington.

If we're up at this point in 2011 without virtually any political advertising, imagine what we can do with it in '12.

So clearly we're very excited where we are and we're very excited about all the ways that our recurring committed revenue will grow in 2012.

We feel very confident about the marketplaces in which we operate and, as evidenced by the expansion of the share buyback program we've announced today and the doubling of our dividend last quarter, we like where we're headed for the rest of this year into '12 and beyond that as well.

With that I will turn it over to my friend and colleague, Joe Ianniello.

Joe?

Thanks, Les.

Good afternoon, everyone.

Next I'll give you some more detail on our results for the quarter and year to date, then update you on Q4 trends and opportunities in 2012.

Let's start with the total Company results for the quarter.

Les mentioned how we're steadily turning top-line growth into higher and higher profits.

The numbers this quarter demonstrate the kind of exceptional flow-through we've been delivering quarter after quarter.

Despite significant political advertising from a year ago, overall revenue of $3.4 billion was up 2% and advertising revenue was even with last year's quarter.

Content licensing and distribution revenue was up 5% led by our recent digital streaming deals and continued growth in international syndication.

Affiliate and subscription fees were up 7%, benefiting from further growth in cable and retransmission consent fees.

OIBDA of $837 million was up 25% from the prior year driven by high [growth] margin revenue and our continued focus on controlling costs.

Our overall OIBDA margin in the third quarter expanded 500 basis points to 25% which ties a record for us.

We're now benefiting from a larger and growing base of long-term committed revenue deals that are very high margin.

Operating income of $703 million was up 33% and, as Les said, diluted EPS came in at $0.50 per share, up 43%.

We've not adjusted any reported items in this quarter or any quarter this year for that matter.

For comparison purposes 2010 amounts reflect the adjustments we made last year.

I also want to point out that our results to date do not yet reflect the benefit of the recent announced CW deals.

On a year-to-date basis the story is very consistent.

Revenue is up 3% despite the difficult comps of last year's Super Bowl and political advertising as well as our new NCAA agreement.

As you may recall, we now share in NCAA revenues with Time Warner, but our profits are significantly greater and we have 13 years remaining on that deal.

At the same time year-to-date OIBDA was up 43%, operating income was up 59%, and diluted EPS was up 109% to $1.36.

Let's turn to our operating segments.

Entertainment revenue for the quarter was $1.6 billion, up 1% despite some timing of domestic syndication sales and one less NFL game in this quarter.

This speaks to our underlying strength with prime time network advertising up 4% in the quarter.

OIBDA for the entertainment segment came in at $405 million, up 46%.

The strength of the entertainment segment's OIBDA was a combination of lower programming expenses and higher margin contributions coming from streaming deals and retrans fees.

In our cable segment revenue for the quarter was $420 million, up 14% primarily as a result of affiliate fee increases on continued subscriber growth and higher pricing, as well as growth in content licensing fees from international syndication and streaming deals, once again demonstrating the value of owning content.

Cable OIBDA of $203 million was up 19% to a very healthy 48% margin.

Publishing revenue of $220 million for the quarter was up 1% driven by strong performances from titles such as A Stolen Life by Jaycee Dugard and In My Time by Dick Cheney.

Publishing OIBDA grew 19% to $38 million in the quarter.

This represents a 17% margin, one of the highest in Simon & Schuster's history continuing the trend of increased sales of more profitable digital content.

Local Broadcasting revenue of $656 million was down 3% for the quarter without the benefit of political advertising we had last year.

Radio revenue was even and TV station revenue was down 6%.

But nonpolitical revenue for this segment was up 2% for the quarter, illustrating the continued underlying strength.

Both TV stations and radio stations individually were also up 2% on this basis as well.

And the growth in nonpolitical advertising in the quarter was broad-based across many categories.

In fact, four out of the top five categories each showed growth with an average increase of 4% for these categories in the quarter.

The only top-five category that did not grow was movies because of the timing of film release schedules compared to last year.

Automotive grew this quarter as domestic spending was up strong double digits and Japanese auto showed improvement from the second quarter.

On a year-to-date basis Local Broadcasting has grow its revenues despite the difficult political comp, the absence of the Super Bowl and the disruptions with Japanese auto, and that's truly amazing.

Local Broadcasting OIBDA of $184 million was down $11 million for the quarter due to the absence of the political advertising.

However, year to date we've grown OIBDA 7%.

Again, this includes politicals in last year and demonstrates the underlying strength and stability of the station's business model which also continues to benefit from our recent cost containment efforts.

And finally, outdoor revenue for the quarter was up 4% to $477 million.

We did benefit a few points from exchange rates, but the base business continues to grow just like our other local assets led by increases in US billboards and our South American business.

Pricing for our US billboard business was up 3% with a steady year-over-year occupancy rate.

We've been disciplined about not renewing low-margin contracts and we will continue that approach in the future.

Outdoor OIBDA of $80 million increased 4% over last year.

The FX benefit to revenue also increased expenses, therefore negatively impacting our flow-through.

We also did incur a few nonrecurring items which also reduced the flow-through of top-line growth.

As you all know we continue to incur costs associated with the various legal claims.

We expect further margin expansion in the fourth quarter and beyond as higher-margin contracts take effect.

Turning to cash flow and our balance sheet.

Free cash flow came in at $29 million for the quarter which includes a $200 million contribution to our qualified pension plans, as we discussed on our last call.

We will continue to opportunistically fund our pension plan, so stay tuned for more on that in the future.

Year-to-date free cash flow is up 8% to $1.5 billion despite the absence of the Super Bowl from last year and the pension contributions this year.

During the quarter we spent $350 million on our share buyback program retiring 13.5 million shares.

For the first nine months of 2011 we've utilized $850 million of our $1.5 billion share repurchase program and have retired over 35 million shares at an average price of about $24 per share.

Our cash on hand at the end of the third quarter was $947 million.

Now let me give you some observations about Q4.

We continue to see a stable marketplace and, based on current pacing data, we expect to see nonpolitical TV stations revenue to be up low-single-digits with the CBS TV stations doing even better than that.

Radio stations to be up low-single-digits as well and our outdoor group to be up mid-single-digits.

As Les mentioned, we are very excited about 2012, which is now less than 60 days away, and we've positioned the Company to have an extraordinary year.

Let me reiterate some of the opportunities.

Retrans is stepping up, reverse compensation is beginning to contribute, SVOD deals are accelerating, international demand for our content has never been stronger and political advertising is back again.

All this while we continue to manage our cost as well.

We're always looking at additional opportunities for incremental cost savings and next year will be no different.

We're confident we can continue to identify permanent efficiencies to further expand our profit margins.

We'll also continue to be diligent with capital allocation, always focused on our balance sheet and returning capital to our shareholders highlighted by our increased share buyback program we announced today.

So in summary, we're very pleased with the results we've been able to share with you this year on our earnings calls, but we're especially looking forward to speaking with all of you on our 2012 earnings calls.

Thank you and with that, Jay, we can open the line up for questions.

(Operator Instructions).

Ben Swinburne, Morgan Stanley.

Thanks a lot.

Joe or Les, you guys talked about all the deals you've done in the streaming online world.

It sounds like you think that revenue base grows next year, is that a fair characterization of your comments?

Ben, this is Joe.

Just by the deals we've done signed today the revenue will grow next year, year over year in terms of dollars.

Terrific.

And then if I could just ask one follow-up.

You look at the entertainment segment, expenses declined year over year $160-million-odd and I think $180 million sequentially.

I know, Joe, you mentioned your costs were down in the programming line.

Anything else you'd call out in the quarter that might be unusual?

And I think you had talked in the past about programming growing low singles for the season versus last year, is that still the right way to think about it?

Yes, I think longer term that's probably the right way to think about it.

I think again we're demonstrating we can control costs -- sports programming and primetime programming clearly down, but clearly again they're not down by that magnitude.

So there is a little bit of timing, but I think we've proven year to date we've been able to manage that line very well.

And the significant thing is because -- with our results, by overspending doesn't necessarily mean you'll get ratings.

And it's really good to be able to manage our costs and still do quality programming as well and I think that improves our margins.

When you look at our ratings and you see that our programming costs are down, I think that's a pretty amazing statistic.

And Les, are you able to pick up any make-goods so far this year from let's just say NBC or anybody else who's weak so far this season?

Well, I don't know the particulars about what's happening, but clearly, as I said in my opening remarks, we have the strongest place in terms of scatter.

And when you look across the landscape we are first in line when you look at the ratings across the board and some of the other places are struggling a bit and I would think they're in a far worse position than we are.

Thank you.

Jessica Reif Cohen, Bank of America Merrill Lynch.

Thank you.

I was wondering if -- you guys seem pretty confident about 2012.

If you could give us an early peek into what you're seeing on the advertising side?

Have advertisers done anything regarding their options yet?

Looking at the first quarter there, it is business as usual.

Very few people are canceling us because they know they'll have to pay more.

So we are -- obviously with the share buyback we are very confident of how the year is going to go in advertising for the rest of the season.

So the upfront is going to be three quarters that we know what that pricing is and political for the local segment.

So we've got very nice tailwinds helping 2012.

And Les, you just mentioned the buyback -- that you felt confident enough to announce a buyback.

I was just curious about the timing.

You still have $650 million left on the existing buyback.

What prompted a renewed or what prompted a new buyback?

Jess, it's Joe.

Look, the visibility into the non-advertising cash flows is so strong, as you said, there's only $650 million left and that clearly just will run out by Q2 of next year.

So we just looked at this and just saying we're so confident in our cash flow we're going to continue to return capital to shareholders and we like our stock at these levels a whole lot.

Thank you.

Just one thing on that confidence, you've said publicly in the past that retrans and reverse comp will be at least $250 million.

And given that you signed more deals, can you give us any kind of update on expectations for that line?

You know what, we're not going to go much beyond that.

We are confident we're going to hit the $250 million and it will probably be more than that.

Right.

Okay, thanks a lot.

Michael Nathanson, Nomura.

Thank you.

I have just three quick housekeeping ones.

In the first paragraph you talk about the challenge -- the timing of syndication sales.

Are you referring to timing of last year's syndication or do you have more syndication to come in the fourth quarter that's pushed into the fourth quarter?

When we make the shows available, so as the next season, Michael, airs so there's more to come later.

So if we made more episodes available in Q3 of 2010 than Q3 of 2011.

Okay, there wasn't anything about a sale pushed into the fourth quarter that's going to come in the (multiple speakers)?

No.

Okay.

And then the comment about the programming mix driving savings, could you give us a sense taking out the timing benefits?

In this quarter what do you think your programming savings were like for like in Q3?

It's Joe, Michael.

Let me answer the question this way.

I think if you look at the entertainment segment margin on a year-to-date basis you see it's 20% which is an 800 basis point improvement year over year.

We clearly think that's sustainable.

Okay.

And then third would be, you mentioned that primetime was up 4% in the third quarter.

I wonder if you think -- do you sequentially improve with the new upfront base in Q4 from the 4% level in third quarter?

Yes, judging from the fact -- obviously we all know how strong the upfront was and, frankly, the scatter is above that.

So we anticipate that it will grow significantly from there.

Okay, thanks.

Michael Morris, Davenport.

Thanks a lot, guys.

Good afternoon.

Two questions.

First, on Showtime, the growth there continues to be very strong and ahead of HBO, which I would consider your closest peer.

You seem to still be growing your subscriber base.

I'm just trying to think of when you look at a competitor like HBO, do they sort of represent what you see as the cap in the traditional model for that type of network?

Or do you think that there's demand where you could have a structure that would allow you to grow beyond that?

And then I have a follow-up.

You know what, that's a very good question.

We're currently over 21 million subs and they're over 28 million.

We are Avis, but I think clearly we are growing our programming mix.

We think our original programming is stronger than it was even a couple years ago and there's a reason for that growth.

I think subscribers want Showtime, more people want Showtime.

Most households that have Showtime also have HBO.

So the fact that we're growing, can we go beyond 28 million?

One day I hope so.

Great.

I appreciate it.

And one other thing, Les, you mentioned -- that I thought was interesting or incremental, was that when you -- the new reverse compensation deal that you struck not only will start to provide revenue starting in mid-2012, but also takes some cost out -- I assume takes cost out of the entertainment segment.

I'm trying to gauge how big that is.

Does that extend to your other affiliated stations that you may also have (multiple speakers)?

You know what, Michael?

There were only a few station groups left that we were paying compensation to.

These last couple of deals will wipe that out entirely.

By the middle of '12 we will not be paying out anybody and it all comes in.

So this will be a cost savings as well as a total reversal.

As we said, instead of paying we're getting paid, so that's a good way to be.

Great, thanks a lot.

Laura Martin, Needham & Co.

Great numbers, guys.

Let's talk about Hulu.

So, Les, you guys just signed a really wide ranging deal for the CW.

Could you talk about the similarities and differences as you think about the CBS network and CW.

And specifically on Hulu prime, should we expect a deal announced near-term on Hulu prime and CBS?

And then boy, margins, wow, Joe.

Cost control hitting record margins.

You told us a year ago you were going to do this and I think you delivered it faster.

Can you tell us about margins next year, because a lot of what you just went over looks like it's got 70% or 80% margin.

So as a company where do you think margins can go in 2012 and 2013?

Thanks.

Thank, Laura.

I'll do the Hulu question and then Joe can talk about margin.

Obviously CBS has been the lone holdout with Hulu and Hulu Plus.

The CW is a different animal.

It appeals to a much younger demographic.

In addition, frankly a lot more of the viewers of CW are watching online.

So the majority of this deal deals with -- it will go on Hulu Plus at first and then eight days later it will go on Hulu.

The significance of this deal is that we did get paid a chunk of money, there's no advertising split on this which is something that we absolutely refuse to do.

Were we considerably more liberal with making a deal with Hulu for CW?

Absolutely.

But as I said before, the CW went from being a money loser for CBS to a profitable venture for us overall.

So these two deals made a lot of sense for us.

And Laura, on the margin, again, I think you're right.

We said this was coming.

It's clear why it's coming.

Retrans, reverse compensation, streaming deals -- these are very high margin deals.

So I think again, as they continue we have a way to go on them.

Advertising is also very high margin, so I think the combination of managing your cost and having these incremental revenue streams -- and we're not just saying the words, you're seeing the results in our numbers.

Thanks.

Doug Mitchelson, Deutsche Bank.

Thanks.

Just a few quick questions.

A couple for Joe.

Have you shifted amortization accounting for production of new TV shows now that the online window has been firmly established for you so you expense less up front as you allocate costs against that online (multiple speakers)

No, let's talk about the CW deal that we just announced for the CBS studio shows.

We've not adjusted the amortization for that.

Obviously we will look at the ultimate accounting in the fourth quarter for that.

Obviously the bigger benefit, Doug, is when you make those shows available to the syndicator is when you recognize the revenue.

But clearly as we get more and more data points and as the value of these properties increase, that will get reflected in our amortization.

So that one-time reset is probably more of a 2012 event than a 2011 event, right?

(Multiple speakers) that's fair.

And then can you give us any sense of how Oprah might have influenced revenue and margin comparisons in entertainment year over year?

Yes, look, we distributed Oprah, as you know, and during the last years the amount of our distribution fee went down significantly.

So I won't say it's terrific to lose Oprah, but a couple of positive things happened for the CBS Corporation.

Number one, Judge Judy became the number one show in syndication.

Dr.

Phil became the number one talk show in syndication, two shows we own.

Number three, obviously Oprah had been on the ABC television stations by and large, so as a result that time period where we became much stronger helped our station group a great deal.

So as I said, no knock on Oprah, Oprah was an institution and we were very happy to distribute her.

But because of these factors I think we are going to be in very good shape as a result.

All right, great.

Thank you very much.

John Janedis, UBS.

Thanks very much.

Guys, just going back to streaming, I think for the most part the deals you've written have been guaranteed or upfront payment.

So I'm wondering looking ahead I think the newer players that are going to be out there are going to have a harder time aggregating the subscribers.

So can you talk about your appetite for deals that are success based or non-guaranteed?

Frankly, we don't believe in them, we're not going to go out and we've even been against joining Apple TV which was an advertiser split.

And these deals are significant in that we are getting guaranteed cash payment.

We like operating on that basis and, as you said, we've been able to do deals worth hundreds and hundreds of millions of dollars on that basis.

That is our position right now.

Would we ever make a statement that that never could happen?

I wouldn't right now because we don't know how the world evolves.

But I like the way we've played our hand and getting this guaranteed revenue stream is a good way to go.

Thank you.

David Miller, Caris & Company.

Great numbers.

Les, correct me if I am wrong.

You guys actually have four separate television libraries in a sense, correct?

You've CBS, Paramount, King World and Aaron Spelling.

How penetrated would you say you are within each of those four libraries with regard to over the top deals?

What inning are we in right now with regard to further exploitation of that content?

Thanks a lot.

Yes, we do have those four libraries, we actually have a couple of others.

We have Rysher is in there as well and a couple of other smaller independent companies that go way back.

Desilu, we have all theirs going considerably back.

I would venture to say in terms of Library -- and right now the good news is we don't distinguish.

I couldn't tell you frankly what was a Paramount show or a CBS show.

We're probably in the third inning, if that, between the second and third inning and we got Albert Pujols coming to bat.

So we're feeling very good about what the future is and there's a lot more room to grow.

Obviously these initial deals did include a lot of the primo titles, but there's still plenty more and these deals are short-term and there are other people going to the marketplace.

That's why this content is forever.

Excellent.

Thank you.

David Bank, RBC Capital Markets.

Thanks very much.

Almost as a follow-up to that question, Les, you pointed out you have 20 of the top 30 shows right now and one of the things you've taught us really well is the value of these shows is far greater often in the ancillary secondary markets.

And so the question is if you look at that mix of shows today that you're having such success with, the only pipeline for syndication that's announced -- Rules of Engagement, NCIS LA, Hawaii Five-0 -- what are the next big shows to kind of come out into syndication given the success you've had so far?

And can you talk about order of magnitude of contribution over the next couple of years?

Thank you.

Yes, obviously Hawaii Five-0 and NCIS LA were the last two big deals that we announced for domestic syndication.

We still have Blue Bloods, we still have The Good Wife.

This year we have a new show called Unforgettable which is substantial and we have a couple of mid-season shows that are coming on, one starring Rob Schneider and another drama from the DeNiro company that is coming on mid-season that we own.

So the pipeline will continue.

Our only problem looking down the road is our schedule is so strong I've got to find places to find new shows that we own, but we will find them.

In addition, there will be Showtime programming that's produced internally by Showtime and by CBS.

We have a lot of different avenues to produce these new programs and we even have a couple of shows on other cable networks, so the pipeline will continue.

Okay, thank you.

Michael Meltz, JPMorgan.

Can you just clarify and perhaps quantify, where is scatter actually pacing for Q4 please at the network?

It's mid-teens right now.

Thank you.

Marci Ryvicker, Wells Fargo.

Thanks.

I have just a couple.

Joe, you said local was up 2% ex political.

So focusing on TV, does this number include retrans or is it a core advertising number?

It actually doesn't swing the percentage, Marci.

Either way it's up the same 2%, with or without retrans.

Okay.

And then in outdoor, can you just (multiple speakers)?

Remember, Marci, I want to point out that the way we record our retran, it's split.

Other TV stations record 100% of it.

As you know, we record 50% in the entertainment segment and 50% in Local Broadcasting.

Right.

Okay, then in outdoor what was the foreign exchange impact in the third quarter?

Almost three points.

Okay.

Then my last one, there's been a lot of M&A in the broadcast space, so any thoughts about revisiting a sale of radio assets or even at some point TV assets?

Highly doubtful.

Highly doubtful, we like the way they're performing and -- if somebody came along and made us a phenomenal offer for some radio station we would always look at it, but we're pretty pleased with what we have right now.

Great, thank you.

Thanks, Marci, and thanks, everyone, for joining us this afternoon.

Have a great evening.

That does conclude today's conference.

We thank you for your participation.