Paramount Global (PARAA) 2015 Q2 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation second-quarter 2015 earnings release teleconference.

Today's call is being recorded.

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

Please go ahead, sir.

Thank you, and good afternoon, everyone.

Welcome to our second-quarter 2015 earnings call.

Listening on the phone is Sumner Redstone, our Executive Chairman.

And joining us with today's remarks are Leslie Moonves, President and CEO, and Joe Ianniello, Chief Operating Officer.

Les and Joe will discuss the strategic and financial results of the Company, and then we will open the call up to questions.

Please note that during today's conference, the second-quarter 2015 results are discussed on an adjusted basis unless otherwise specified.

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

Also, statements 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 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 my pleasure to turn the call over to Les.

Thank you, Adam, and good afternoon, everybody.

Thank you for joining us.

I'm pleased to tell you that we posted solid financial results once again, including growth in revenue and EPS.

Revenue was up 1% to $3.22 billion, and EPS was up 3% to $0.74, marking another record.

Much of this is being driven by our core business, which remains strong at CBS and Showtime and our other brands as well.

And what's more important is that we achieved these increases now while we continue to build the Company for the long term.

The heart of our strategy is to create must-have content and position ourselves for the broadband future.

During the quarter, we took significant steps forward in this regard.

First, we launched a new streaming service for Showtime.

This will enable us to gain subscriptions from a potential new audience of as many as 90 million households.

Next, we greatly expanded the reach of CBS All Access, our over-the-top subscription service.

We now have deals with our affiliates to stream CBS live in more than 75% of the country, and of course All Access on-demand is already available nationwide.

Sign-ups are increasing consistently week to week, and that will only accelerate when we debut our fall schedule next month.

Plus, we are seeing excellent subscriber retention and time spent viewing, meaning we have strong customer satisfaction.

This success will drive our subscription revenue and give us control of our future as the marketplace continues to change.

With both Showtime OTT and CBS All Access, we are establishing price points for our programming that are much higher than what we've gotten before.

In addition, Showtime, All Access, and CBSN, our growing OTT news product, have all been launched in-house.

We didn't have to buy some other company or outsource anything to get them off the ground.

We own the technology.

So these broadcast offerings -- these broadband offerings, rather, will drive high-margin income as they continue to grow.

All of this in addition to the rapid growth we continue to see in retrans and reverse comp.

In just these last few weeks, we've made deals with several significant partners, including AT&T on the retransmission front and Sinclair and Nexstar and others on the reverse compensation front.

Each of these deals resets the value of our content higher than it was before.

Thanks to the tremendous progress we are making in this area, we are now prepared to say that we will exceed our goal of $2 billion in revenue from retrans and reverse comp by 2020.

In addition, we had previously said we would get to $1 billion by 2017.

We will now surpass that target next year in 2016.

These are dollars that fall right to the bottom line.

Plus, as we read about all the time, there are a number of new players preparing to enter the streaming marketplace.

I assure you that CBS is a must-have for each of them.

This is especially important with any kind of skinny bundle that comes along, and they are coming along.

These new bundles will increasingly pay us higher rates more in line with the large audiences who watch our content.

Remember, out of every network on television, broadcast or cable, and every site on the Internet, we have the most watched programming there is anywhere, and we will get paid the appropriate amount for it.

A similar dynamic is also taking place in the international marketplace.

As the major US-based SVoD companies expand aggressively overseas, local assets with their own SVoD services are now stepping up to compete.

So there are all sorts of new places where we can sell our content around the world.

As a result, we continue to post rapid and sustainable growth in international license fees.

With such great demand for our content across global platforms, we are in a very enviable position, with new opportunities opening up for us all the time.

Our confidence in these opportunities and in the continued success of our base business is the reason we continue to return value to shareholders.

We are using our healthy free cash flow to opportunistically buy back our stock while at the same time significantly investing in our programs, which will ensure our future as the premier content Company.

Next month, we will premier our new fall schedule on the CBS Television Network.

I think we have a terrific mix of shows that importantly will own 80% of our primetime schedule.

That is up from about 70% last year.

Owning more of our content is obviously a priority for us given all the ways we can now monetize it.

After launching four new owned hits last fall on CBS, plus one on the CW and one on Showtime, six hits, we look forward to starting a whole new cycle of content monetization again this year.

And just like last year, we will be adding Thursday night football to a primetime lineup that is already extremely strong.

This allows us to launch our new schedule at staggered times, giving each new show the most promotion, the most powerful lead-ins, and the best possible chance of success.

There is a reason CBS has returned more new shows from last year than any other network.

Meanwhile, CBS is about to begin the biggest single year any network has ever had in terms of NFL programming, including Thursdays, Sundays, and Super Bowl 50.

And Super Bowl advertising is already proving to be more lucrative than ever, with 30-second spots selling for $5 million and additional digital revenue being generated for Super Bowl ads online.

With the NFL and a prime-time lineup that will be even stronger than last year, I'm also prepared to make a bold statement.

CBS will win the 2015/2016 season, just as we have done 12 of the last 13 years.

Our prospects next year are why the upfront marketplace played out well for us this summer.

We were once again the leaders in pricing with mid-single-digit CPM increases.

True; volume was not as robust as in years past across the industry.

People are just waiting longer to make their buying choices.

But right now, we are seeing the scattered ad market accelerate rapidly in the third quarter with double-digit gains in pricing.

We see that extending beyond Q3 and are confident that the strength and stability of our lineup will lead to increases throughout the season.

In the end, big-ticket programming will prove to be the best place for advertisers to be.

In addition to primetime and sports, I want to point out two day parts that performed particularly well for us in the upfront.

The first was late night, where we posted very healthy upfront increases in both pricing and volume.

Advertisers are clearly as excited as we are about the debut of Stephen Colbert next month.

They also like what they see from James Cordon at 12:30, who has exceeded our expectations in every way, including online where his show is approaching 200 million clip videos, led by his carpool karaoke bit with Justin Bieber, which is now at 31 million views.

Late-night programming obviously lends itself to online clips and increasingly to international syndication, too.

Our ownership in both of these shows is allowing us to monetize them across platforms and around the world in a way we never could with this day part before.

Second, CBS News also posted solid upfront gains.

Every single one of our news broadcasts has more viewers now than it did a year ago.

Our hard-news approach is clearly working, and it will pay off that much more in the quarters to come as we broadcast our shows through the election cycle.

Finally, on the upfront, C7 was an even bigger part of our sales this year.

As you know, this has been a very important initiative for us.

Every single ad impression has value, and we're still in the early stages of this opportunity.

Measurement will eventually become sophisticated enough to capture all viewing regardless of when and where it happens.

As it does, those with the biggest audience will benefit the most.

Turning to cable, as I mentioned at the top, our new Showtime streaming service is a very significant development.

It only launched less than a month ago, but we've seen a terrific level of interest.

We are up and running on Apple, Roku, Hulu, and Sony PlayStation, and we will be announcing many new partners in the very near future.

Just to give you a sense of opportunity here, every million subs we have for Showtime OTT represents $100 million in new annual revenue, much of which will drop right to the bottom line.

As I said earlier, there are about 90 million households in the US that will now have the ability to add Showtime directly for the first time.

This includes broadband-only homes and homes that previously could only purchase Showtime after buying basic cable packages.

Capturing just a small percentage of these subscribers will begin to pay off immediately and will lead to a tremendous upside for us.

We feel very good about our ability to do this given the creative momentum we have going on at Showtime.

New seasons of Ray Donovan and Masters of Sex have been the best yet, and we have Homeland and The Affair returning in the fall.

Plus, we will have our new Wall Street drama, Billions, and the highly anticipated Twin Peaks premiering next year.

Also at Showtime, we continue to benefit from our boxing deal with Floyd Mayweather.

During the quarter, his fight with Manny Pacquiao was the highest-grossing pay-per-view event of all time, grossing more than $600 million.

And just yesterday, we announced our next Mayweather fight coming up on September 12.

In publishing, Simon & Schuster is also producing great content.

Pulitzer Prize-winning All the Light We Cannot See continues to sell extremely well for us.

It's been on the New York Times bestseller for more than a year and near the top since the holidays.

In addition, we've just begun to have great success tapping into a new generation of authors by signing some of the hottest young online personalities.

With their tens of millions of followers on YouTube and other platforms, these books have punched through and become fast-moving best-sellers for us.

We have also added a new subscription model at Simon & Schuster where people pay a monthly fee for access to books from a wide variety of publishers.

This is yet another example of growing a whole new revenue stream on the strength of our content.

Turning to local broadcasting, we knew 2015 would be a challenge, just as we know 2016 will be much, much better.

The coming election cycle will clearly trump anything we've ever seen before.

And despite all the talk that campaigns will be moving their dollars online, and indeed some money is going there, Politico estimated last week that TV ad spending for the 2016 campaign will top $4.4 billion.

That's $0.5 billion up from 2012 and 4 times as much as campaigns are expected to spend on digital.

Other estimates see political spending coming in even much higher than that.

What's clear is that our TV stations are terrifically positioned to capitalize on this, and it will also be a great opportunity for our radio stations to build on the momentum they achieved during last year's midterm elections.

Meanwhile in radio, our new management team is making the right moves to rejuvenate the business for the digital future.

CBS Radio has huge brands, like WFAN in New York and The Score in Chicago, that are now able to find new ways to grow by expanding onto digital platforms outside of their own markets.

Speaking of the digital future, just last week CBS Interactive also launched a whole new paid subscription business called SportsLine, which plays off the original name for cbssports.com.

This new site will tap into the growing appetite for data-driven sports analytics and the growing market for the daily live fantasy games.

With the power and reach of CBS Sports behind it, SportsLine is another example of how we're leveraging resources across our Company to generate new incremental revenue streams.

So, across our business segments from entertainment to cable to publishing to local broadcasting, we are investing in our core as a content Company and capitalizing on current and future digital opportunities.

The future is now; we are part of it across the board.

The future continues next month with the launch of our new schedule, the debut of the Late Show with Stephen Colbert, and the return of Thursday night football followed by Super Bowl 50.

The future also continues when we launch another round of new owned shows this fall.

And because space is so tight on the CBS schedule, our studio continues to debut content on other networks as well, including promising new shows in development for non-CBS broadcasts and cable outlets.

Our future also continues as we embark on a whole new chapter, streaming Showtime over-the-top and expanding CBS All Access and CBSN.

Plus, our streaming revenue will expand significantly as we sign deals with the big-name companies we're talking to right now.

And our future also includes national advertising accelerating in Q3, as well as the Super Bowl and a frenzied political season in 2016.

And it also includes all the non-advertising revenue sources that will drive our earnings going forward, including retrans, reverse comp, and international licensing.

With Showtime OTT, All Access, CBSN, new domestic and international SVoD services, inside-the-home rights, outside-the-home rights, our new SportsLine site, subscription books, and much more, CBS clearly is built for now and for the future.

We're here to win, and we are confident we will.

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

Thanks, Les, and good afternoon, everyone.

As you seen, we've delivered solid results while we continue to invest in the content and technology that will lead to even more success in the years ahead.

This investment in our strong networks and content brands has uniquely positioned CBS to take advantage of all the shifts underway in our industry.

We remain focused on creating the best programming, enhancing our incremental revenue streams, and capitalizing on the new ways consumers want their content.

As a result, we will continue to benefit while we set ourselves up for future growth.

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

Revenue was up 1% at $3.22 billion, and we achieved an even 50-50 split between our advertising and non-advertising revenue sources thanks to all the actions we're taking to diversify our ready mix.

For the quarter, affiliate and subscription fees grew 28%.

The increase was partly driven by the Mayweather/Pacquiao fight, which, as you heard, was the highest-grossing pay-per-view event of all time.

Separating out the pay-per-view revenue, underlying affiliate and subscription fees were up 11%, driven by another strong quarter for retrans and reverse comp, which were up 40% in the quarter.

Content licensing and distribution was down 10% due to the timing of domestic TV licensing sales, including a large Criminal Minds deal last year.

Meanwhile, international continues to be strong and grew 20% during the quarter.

And advertising was down 3% due to a decline in local ad spending.

However, underlying network advertising came in even with last year.

Operating income in the second quarter was $641 million, compared with $730 million last year, due to a higher investment in original programming and our digital distribution initiatives.

As Les said, EPS was up 3% to $0.74.

These numbers were adjusted to exclude $55 million in restructuring charges primarily at our radio and TV station operations.

The costs we took out will result in annualized savings of about $70 million, which is less than a one-year payback.

Now let's turn to our operating segments.

Entertainment revenue came in at $1.79 billion for the second quarter, compared with $1.84 billion last year.

That's when we had that Criminal Minds sale.

Meanwhile, network revenue, which includes advertising and affiliate fees, was up 4% for the quarter.

Entertainment operating income in the second quarter was $262 million, compared with $341 million last year.

Part of this is due to our continued investment in original programming hours, which were up nearly 20% from last year's second quarter.

In addition, the results reflect a higher investment in digital distribution as we expand CBSN and CBS All Access.

Both are attracting a much younger audience.

The average age of a CBSN consumer is 40 years old, and 70% of All Access subscribers are in the 18 to 49 demographic.

And for the $6-a-month All Access subscribers, they are taking advantage of all the additional programming available to them, and they are watching twice as much online content as non-subscribers.

At our Cable Network segment, second-quarter revenue was up 19% to $615 million, helped by the pay-per-view event on Showtime.

As you heard, the early adoption of our Showtime streaming service has been very strong, and we expect to see a surge of subscriptions when we premiere our new seasons of Homeland and The Affair in the fall.

Second-quarter cable operating income was up 3% to $220 million, including the cost of the pay-per-view event and the launch of our over-the-top service, which we expect will drive revenue growth in the quarters ahead.

In publishing, second-quarter revenue came in at $199 million, compared with $211 million last year, due to the timing of strong title releases.

Digital represented 24% of total sales.

Best-selling titles for the quarter included The Wright Brothers by David McCullough and Finders Keepers by Stephen King.

Publishing operating income for the second quarter was up 9% to $25 million as a result of lower production and distribution costs.

In local broadcasting, second-quarter revenue of $654 million was down 2%.

Despite the difficult comparison to last year when we had midterm elections, our TV stations were actually up 1%.

Radio was down 5% from last year when we had 9 additional radio stations.

As far as advertising categories go, entertainment and financial services are somewhat soft.

However, auto, which is our largest category, and health care were both up nicely.

Local broadcasting operating income for the quarter was $198 million, compared with $215 million last year.

As I mentioned, we've implemented restructuring activities that will improve the performance of our local businesses in the quarters ahead.

Turning to cash flow on our balance sheet, free cash flow in the second quarter grew to $435 million, up from $4 million last year.

And for the first half of 2015, free cash flow was $835 million, up from $524 million in the first half of 2014.

Some of the increases were due to the timing of receipts related to the pay-per-view event.

We also ended the quarter with $320 million of cash on hand.

Our capital allocation strategy is to first and foremost reinvest in our businesses for growth.

At the same time, the market is giving us an attractive opportunity to retire a significant number of shares.

During the second quarter, we repurchased more than 13 million shares for nearly $800 million.

As of June 30, we had $3 billion remaining on our current buyback program.

As we have previously said, we plan to complete this program sometime next year, and we will do so while adhering to our target leverage ratio which we raised last quarter to 2.75 times.

Now let me tell you what we see ahead.

As Les said, the demand in the scatter marketplace is picking up as we head into the third quarter, and we see underlying network advertising improving.

In local, we are obviously going to be, again, coming up against some tougher comps during the second half of the year primarily from political.

However, underlying local ad revenue is pacing to be even in the third quarter.

We also expect strong growth in affiliate and subscription fees, with 10% of our retrans and 11% of our reverse comp footprint coming up for renewal during the rest of 2015.

And as we peek ahead in 2016, we're set up to start the year strongly with Super Bowl 50 and end the year strongly with the presidential elections.

And throughout the year, we will continue to see steady growth in affiliate and subscription fees.

As you heard, we are now on track to hit $1 billion in retrans and reverse comp revenue in 2016, which is one year sooner than we first predicted.

And we also expect to exceed our $2 billion target by 2020.

So in summary, we continue to position CBS for success by investing in global content and launching new distribution platforms.

These are new drivers of future earnings.

So from Showtime OTT to CBS All Access, from international licensing to new streaming entrants, and from retrans to reverse comp, there are terrific growth opportunities before us, and we have a lot to be excited about.

At the same time, we are holding the line on costs and strengthening our financial position.

So we are confident we have the right strategy and continue to execute on it.

The future holds significant earnings upside for CBS and its shareholders, and we look forward to capitalizing on it.

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

(Operator Instructions) Ben Swinburne, Morgan Stanley.

My questions are around the NFL and your relationship there, which obviously is quite beneficial, particularly on the retrans side.

Can you talk about your appetite and what kind of discipline you may be applying to a long-time Thursday night deal, assuming the NFL looks to do a longer-term deal after this extension with you?

And in that fold, can you talk about your expectation to include the NFL games in All Access?

I think that would obviously be a really nice addition to the product if you can get those rights as well.

Yes, Ben, it's a good question.

Obviously we have a very long-term deal on Sunday.

We like that.

But we are in the second year of one-year deals.

And of course, for the right price, and we feel like we are currently paying the right price, we would like to extend the Thursday night package.

And we have been disciplined, and, frankly, they've been a great partner.

The discussions about All Access are ongoing.

Obviously the NFL is now experimenting with putting their games online and with digital opportunities.

And we talk to them about it maybe once a week, if not more.

We were there as recently as a few days ago, and our relationship with the NFL couldn't be stronger.

And as I said earlier, it's the first time somebody has had a Thursday package, a Sunday package, along with the Super Bowl.

So we are in a lot of discussion with them on a lot of fronts, and we are -- all those things that you mentioned are on the table.

And just as a follow-up around programming, how are you feeling about the summer strategy going forward?

You've had a couple years now where you have really leaned in with some investments around content that have been helped by some of your SVoD partners.

But are you thinking maybe differently about the go-forward strategy around the summer originals?

The strategies still work, and Zoo is the highest-rated scripted programming of the summer.

And by the way, the strategy of the original programming is based more on the afterlife.

In other words, the deals that we have with Amazon and Netflix plus the huge international appetite for our shows.

So as I said before, we currently have the three dramas on the air.

They are profitable before we put them on the air.

So you can anticipate us having at least three dramas and continuing with Big Brother, which remains very profitable and keeps my wife employed.

So it's a very good thing.

(laughter)

Everybody wins.

Thanks.

Jessica Reif Cohen, BAMO.

I have two questions or two topics.

On Showtime OTT, it's obviously exciting potential for CBS.

I'm not sure if I heard you say how many subs you need to break even.

And could you just talk about what -- where you -- I guess timing of upside and any plans for international because there's clearly an appetite for this kind of programming overseas.

It's Joe.

I'll take the first part of it.

Certainly -- as we said, every million subscribers equals $100 million of profit, so it's not a whole lot of subscribers for us to break even.

So clearly that's not a metric we are even looking at.

We fully expect it to be incremental margin dollars.

And again, we do think we're addressing those 10 million broadband-only households as we are seeing those subs grow nicely, and there's no erosion to the base business.

So I think -- we do think it's incremental.

Looking at international -- international on the upside, I think, is great.

It starts with making sure we own the intellectual property.

I think that was a strategy we put in place years ago to make sure we owned our shows and worldwide rights.

So obviously we can certainly export Showtime OTT internationally within certain windows, but we use Bell Canada as another example of working with a local partner to basically have a Showtime over-the-top service and make the money that way.

So we're trying to be indifferent and being flexible to what the opportunity is.

But basically the fundamental theory is the content is working, the brand is working, and Showtime, we have to think about as a global brand.

Exactly.

And the second topic is advertising.

It's great that you guys did so well in the upfront, but there's so much change in the industry now.

So besides the movement towards C7 and hopefully measurement of devices soon -- I don't know if you have an opinion on that -- how do you see the currency changing?

And can you talk about your views of how important addressability will be and when?

Jessica, obviously what you've asked is the question of the day, is how much can we know and how good can Nielsen be.

C7 is a step in the right direction.

Dynamic ad insertion is becoming much more visible to us, which means that we are getting paid now not only for the first seven days or the first three days or whatever it may be, but well beyond that.

I think Nielsen is making major strides in that area, and there are other people who are entering the field.

So we are getting to the point where we are knowing more and more, and data obviously becomes more and more important in our selling tools.

Our Internet guys and our national sales group are working hand-in-hand.

As I mentioned before, it's the first time that most of the ads that are going to be on the Super Bowl are also going to be online at the same time.

And we are learning a lot, and as you can see, as you can read, what Comcast is doing, what Dish is doing is the addressability.

It's absolutely becoming clearer and clearer, and that only is good news for us.

The more they know, the more we're going to be able to sell.

Thank you.

David Bank, RBC Capital Markets.

Les, you mentioned in your introductory remarks that you had achieved agreements with, I think, 75% of the affiliate base for CBS All Access.

And I wanted to say does that base that you've come up with that agreement for, does that translate to being able to negotiate and distribute on their behalf through a third-party linear OTT service like an Apple as well as just your first party All Access?

And additionally, can you give us a sub-count for All Access?

Second, in an unrelated follow-up, historically, I think you needed 80 to 100 episodes of a show to strip and syndicate on a linear basis.

But Elementary changed that model on linear TV at closer to probably 60 to 65 episodes.

So if we are doing our math right, you should have a similar episode count by fall 2017 for CSI Cyber and NCIS New Orleans, Madam Secretary, and Scorpion.

So is it realistic to think that the backlog for 2017 linear syndication should include those titles?

Thanks.

In terms of the first -- our relationship with our affiliates remains very strong, and they are very much a part of All Access.

And the 75% is actually a rather low number; it should be much higher than that.

We are basically going to have the entire country before too long, or most of it.

And once again, the thing that they appreciate greatly -- it's the first time they've been cut into a deal like this where there is an online deal, there's an online service, and they are going to share in our revenue stream.

Once again, I want to reiterate the national service is available everywhere.

It's only the part that's the live linear stream is where they -- we need all of them on board and they are on board.

The good news, as well, is as we talk about third-party services, our deals with them will include our being able to negotiate directly and then make deals with our affiliates where they will be able to share in that.

And that's built up over a good partnership and obviously is going to be beneficial to us financially, and it's going to be beneficial to them financially.

Sub-count on All Access, we are not giving that out, as I'm sure you know.

But needless to say, we are very pleased with where we are right now.

It is going up considerably week after week.

And as I said, when the fall season begins, which we are really excited about, and it's a month away, we think that number is going to continue to rise, and we're very excited about it.

And I will let Joe talk about 2017 and all our (multiple speakers).

Yes, David, I think you're right.

I think, again, we sold Elementary after three seasons, about 66 episodes.

So clearly there is a trend in the industry that we think is actually positive for some of our franchises to get it into syndication sooner than four years.

So I think you're thinking about it right.

I think all of the shows Les mentioned is six hits.

Again, I wouldn't think about it just on CBS.

Think about CW and Showtime as well.

So we are replenishing that pipeline that we can monetize probably in 2017.

I think that probably makes the most sense for us.

But if you recall a few years ago, we had, like, five shows going into syndication in one year, and it was all the fruits of the labor that we are planting right now.

So that's why we are very optimistic about our future.

Okay.

Thanks very much.

Alexia Quadrani, JPMorgan.

My questions are on the ad market, which you mentioned was improving in the third quarter.

I think one of your peers this morning said the same thing.

Could you give us any more color in terms of really what's driving it?

Is it the fact that there may be a lack of inventory in the marketplace because some of your peers may have been having to give up some may goods?

Or is it really -- does it have legs to it?

Is it pricing?

Is it demand?

I guess any color you can give would be great.

Yes, Alexia, it's Joe.

Look, it's definitely demand across the board.

Obviously we have inventory; that's why you don't sell out 100% of the upfront.

Because, again, you want to have that scatter available, and we're taking advantage of it.

As Les said, the price increases are double digits.

If I was just looking at a couple of categories, auto and healthcare are two categories that are really spending here in the scatter.

So when you see big categories coming across and putting more dollars, I think their buying habits may be changing over time.

But at the end of the day, they are buying franchises -- the strength and stability that only a few broadcast companies really offer, and we are the beneficiary of that.

And once again, the reason -- we are once again confident in our schedule.

We're confident that we will get a great percentage of the scatter.

And, as we said earlier in the call, people want to buy a little closer to the time when it goes on.

So that's why the amount of the upfront -- the volume is down a little bit, but it's something that truly does not concern us one iota.

All right.

Thank you very much.

Michael Morris, Guggenheim Securities.

Two topics, Les.

First on -- my question is on programming spending in light of your earlier comments about growth in broadband.

It's just the growth in broadband-based demand, right?

So I guess my question is this.

Showtime is at the higher price point, and it seems like there's more flexibility on Showtime in terms of the type of content and the ability to give a show some time to grow.

When you think about fueling that business, do you think about that as being incremental spend that you want to put behind that?

Or, over time do you maybe reallocate -- start to reallocate budget between CBS and Showtime?

And then I have a second question about pay-per-view.

I wouldn't say that.

You know what, there -- frankly, in terms of programming, what's changed about the marketplace is -- and we have mentioned it -- is that the back end is becoming as important as the front end.

So investing in more original programming for both CBS and Showtime offers so many more possibilities, which is why that we've increased the number of originals we have on CBS.

And we are also increasing what's available on Showtime because we are able to monetize it.

Every time we order a new show, we have an entire game plan, so there is very little risk.

And the upside is pretty tremendous when you can -- when I put on a show like NCIS New Orleans, three years from now, I know I'm going to be talking about hundreds and hundreds and hundreds of millions of dollars of profit.

And for us, the amount of original content is more important than the movies.

Okay, that's helpful.

And then on pay-per-view, I'm curious about the economics of the fight.

It feels like Showtime does so much of the heavy lifting in terms of the production and securing the rights.

And yet, obviously you share a lot of the economics with the traditional distribution ecosystem.

What would it take to get to a point where you can distribute that directly, eliminate the middle man and maybe participate more in the economics there?

Well, on this fight, Floyd Mayweather did better than CBS did.

That's all I've got to say.

(laughter) But you bring up a valid point.

And look, for this fight, since it was such a huge fight, the economics with our traditional partners did change quite a bit.

Looking forward, as you have digital assets that you own yourself, you could look even further out at putting it directly to the consumer, and we keep 100 cents to the dollar.

That is something that obviously is coming.

But we did fine on the Mayweather fight.

We made a sizable amount of money.

As I said, not nearly what Floyd or Manny made, but we did fine and the system -- the future looks better, and you bring up a very good point.

Great.

Thanks, guys.

Anthony DiClemente, Nomura.

I have one for Les and one for Joe.

Les, a lot of anxiety today in the marketplace around the bundle -- around the breaking apart of the traditional bundle.

You guys have the least exposure to the bundle.

So subscriber leaves a traditional ecosystem, and maybe you are agnostic.

Maybe you can pick them up on All Access, as you mentioned in your remarks.

So just how do you feel about the bundle at this point as it relates to CBS?

Is there a way you can exploit that advantage given how nimble you are relative to your peers, even more so or more creatively than you've done up until this point?

Yes, look, you made a valid point, one that we've been saying for a long time.

We are -- as the world proceeds into the skinnier bundles, the smaller bundles, it does leave anxiety out there for a lot of companies.

We are a big proponent because, guess what, every skinny bundle deal that's out there -- and obviously we've made a few of them already -- the ecosystem gets validated towards he who has the most viewers gets paid the most money.

I know it's an odd concept for some of the cable companies, but that's the way it should be.

It was sort of re-regulating what the system should be.

So anytime there's a new bundle that you hear out there, you can assume that CBS is applauding it because we are going to get paid more than we get paid by the traditional MVPD.

So we are one of the few companies that is very much in favor of it.

Our major brands are CBS and Showtime.

And as this world evolves, and it is evolving, we are ready for it.

We are ready for it, so it should be greeted well.

Okay, thanks, Les.

And then Joe, I just wanted to talk about syndication within the entertainment segment.

So you called out the tough comp on Criminal Minds into 2Q.

Can you just give us anything on the back half on the licensing comps?

And then broadly over the course of your annual budget, the 2015 budget, if you took CBS syndication and broke it up into SVoD versus traditional syndication, can you just help us with can either or both of those grow versus last year given the tough comp quarters that we've seen before?

Thanks.

Look, obviously you guys know this in that it's all timing of when those shows are available.

So if I'm just looking at the back half of this year, Elementary, as we just heard on a previous question, will be made available.

That deal is done, so that will happen in the back half of this year.

So last year we had more going in into first-cycle availability that we did this year.

That being said, international is growing faster as well.

There's more players out there.

We continue to re-up our library portion.

So, Anthony, we never make excuses and we never budget or forecast to make less money than we did the previous year.

So our sales guys, we think, have a lot of content to sell, and we expect them to do that and maximize the value.

So I can't predict when a deal happens and when it doesn't happen.

It will be all timing when the marketplace is.

But the good news is it's a very competitive marketplace, and that bodes well when you have beachfront property.

Okay.

Thanks very much.

Doug Mitchelson, UBS.

So look, I think one was on the new $1 billion guide.

Does that include the benefit of potential new OTT services like Apple TV, or is that based on what's signed so far or just --

No, Doug.

This is Joe.

It's straight retrans reverse comp.

(inaudible) about that one.

I know you didn't want to give a number, but CBS All Access seems, from the data that I've seen, to be surprisingly well.

It seems like you are headed to reach 1 million subs within the first year.

Is that rational, or is it too early?

Why do you say surprisingly?

(laughter) We're not surprised.

(laughter) Doug, look, again -- look, that's why we are -- look, again, we are obviously -- we are planning to get millions of subscribers, not hundreds of thousands.

I think, again, the good news for us is we're seeing that each and every day, and we're doing that without the NFL content at $6 a month.

So, again, back to the skinny bundle, back to the price point where we are, we are kind of looking -- we're looking at the marketplace saying our broadband offering, which clearly consumers have an appetite for, growing rapidly at the highest price point we have in the marketplace.

So you should assume we want to lead into that and continue to push on that.

But clearly, we're not going to get into -- we hit 1 million this month or next month or whatever month.

It doesn't really matter.

I think the key is each and every day it's growing.

Yeah, I remember that when you put out there press release saying you hit 1 million subs.

So the -- so that leads to the big question, are the OTT services doing well enough even though it's early days that you're thinking about investing in more content, specifically for those services?

I know you mentioned more originals, of course, your bread and butter.

But short-form library, super-fan content -- HBO talked about ramping its content market investment for HBO Now given how well that's doing so far.

How do you balance investing versus your desire to deliver earnings in the short to medium term (multiple speakers)?

You know, it's early days with these services, as you know.

Showtime OTT is a month older.

So we're looking at everything.

And how do you distinguish yourself?

How do you make it special, as special as you can?

So we're looking at those things as long as we remain contained and conservative about what we spend.

But we are a content Company, and we know how to do content.

And Doug, I would just add this.

Look, there's low-hanging fruit.

I think, again, our thesis is there is a demand out there that we don't have to invest more in content; it's there.

The price point for these subs was such that they couldn't have access to Showtime and/or CBS.

So we are clearly -- as we both said on our remarks, we are investing in the future.

We spend $11 billion of cost each year, and we do pull back in other areas and lean into other areas.

Obviously, you saw us take out $70 million of cost in there.

That allows us to reinvest for growth, and I think that's the key is we understand how to allocate capital and where to lean and where to lean out.

All right.

Okay, thanks so much.

David Miller, Topeka Capital.

Les, just a question on the Super Bowl, if I might.

The general rap that I think the sell side and the buy side has on the Super Bowl every year, no matter which network has it, is that it looks great on your revenue line but just the sheer production cost of the game plus the incremental sports rights make it tough to make money.

Do you agree with that?

And with these rates approaching $5 million per spot, as you mentioned in your prepared remarks, what opportunities are there for operating leverage in the gain?

And then I have a follow-up.

Thanks.

David, if there is a rap on it, tell them we will take the Super Bowl every single year -- year in, year out -- forever.

So, you know what?

The incremental doesn't outweigh the amount of money you get per spot.

What NBC got last year, it is very, very worth it.

You are going to see it in revenue and in profit in 2016.

And we love having it; we are very excited about having it.

There is no downside.

Okay.

And then just a quick follow-up, just during the upfront season, a lot of our media buyer guys seem to be pretty high on Code Black, Limitless, and Supergirl.

Those seem to be the three new series that everyone seems to be excited about in general.

Any others you want to call out in terms of what you are excited about once the fall season starts?

And any other expectations you're willing to share would be great.

Thanks.

Well, we have five new shows, and you mentioned the three dramas.

Those are the three dramas, and they are all extraordinarily good, and they are all extraordinarily different.

And we have two comedies of which I'm excited about as well: Life in Pieces, and Angel from Hell.

So they have acknowledged the three.

And, frankly, the media buyers generally are attracted more to drama initially.

And there haven't been a lot of big comedies recently, but we think we have a real good shot.

Once again, we're not going to bat a thousand, but our batting average has been better than anybody's over the last decade, so we're feeling pretty good.

But thank you, buyers, for the compliments.

Appreciate it.

Thanks very much.

Jason Bazinet, Citi.

Just a question for Mr. Moonves.

Yes.

In the past, you have been very vocal about your belief that broadcast will fare better than cable advertising as more dollars go digitally.

And I suspect that's influenced in part by what happened over the last few decades as cable network advertising grew and broadcast held its own.

But I was just wondering if you could comment on the synthetic ability of these Internet properties to deliver massive reach.

How do you think CBS stacks up against that?

Well, as I said, my thesis, which I think has been borne out, is that broadcast reaches a mass audience, and there are certain niche cable networks that are replaced by the Internet, so it might be more effective in reaching them.

Once again, the proof of purchase from the Internet is not yet there as strongly as it is on broadcast.

We fairly well know the results of it, and you won't see a major advertiser.

You won't see it in a major car company or a Procter & Gamble or -- most industries will not veer away from broadcast.

Digital obviously is the brave new world, and we are a part of it.

But most digital advertising is actually off-network product that you find digitally.

So that's a big, big part of it.

And we still feel very bullish.

There's a reason year after year our CPMs go up, and the broadcast business is in better shape than basic cable.

Okay.

Thank you.

Marci Ryvicker, Wells Fargo.

Thanks.

(technical difficulty)

Marci, we lost you there.

Are you still there?

Marci?

She has disconnected.

Okay.

Well, why don't we take one more?

Let's go to the last question here and close it out.

Omar Sheikh, Credit Suisse.

I have just got a question about your content licensing business.

I wonder if you could just give us a sense of unit pricing trends in your content licensing business amongst your SVoD customers.

So one of the arguments you are going to hear quite a lot is that some of your SVoD customers are trying to drive down pricing for the bundles of content they buy from you and others.

So I'm just trying to get a sense of how you think about that and how we should think about the dynamics of your SVoD business growing over time.

Thanks.

Initially -- or obviously, our initial deals with the SVoD companies incorporated a huge amount of library product.

And there were huge amounts of money that took place, exchanged hands over it -- hundreds and hundreds of millions of dollars.

And as the model evolved, obviously they went into wanting more recent series on the air, and they have put on a certain amount of original content.

But once again, as I mentioned regarding our summer programming, we have deals with Netflix and with Amazon to put them on a few days after we are on the air.

Our franchises also, of which we have just sold CSI and we sold NCIS to the SVoD services, bring in a huge amount of content.

Remember, these are shows that had literally 200, 300 episodes at a time.

Plus the international SVoD marketplace is expanding all the time, as I mentioned.

The big players are there, and now the local players are there.

So we -- our business with the SVoD services has evolved, and it's different than it was before, but it's still lucrative and it's still beneficial to us.

And are there any particular markets internationally that you would highlight as being particularly attractive?

The marketplace -- the general marketplace in terms of Western Europe obviously is our biggest place, it's our biggest source.

The UK, Germany, France, those companies do extraordinarily well, and Canada remains obviously a major, major place for us to do business.

So those are the major highlights.

Thanks.

Thank you, Omar.

And thank you, everyone, for joining us.

This concludes today's call.

Have a great evening.

And ladies and gentlemen, this does conclude today's conference.

We appreciate your participation.