Paramount Global (PARAA) 2016 Q4 法說會逐字稿

Good day, everyone, and welcome to the CBS Corporation fourth-quarter and full-year 2016 earnings teleconference.

Today's call is being recorded.

At this time I would like to turn the call over to the executive Vice President of Corporate Finance and Investor Relations, Mr. Adam Townsend.

Please go ahead.

Thank you.

Good afternoon, everyone, and welcome to fourth-quarter and full-year 2016 earnings call.

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

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

Please note that during today's conference call, the fourth-quarter and full-year 2016 results and prior period comparisons will be discussed on an adjusted basis, unless otherwise specified.

Also I would like to highlight that due to the previously announced Radio transaction we are presenting the Radio segment as discontinued operations, which excludes results of revenue and operating income metrics.

This presentation differs from the analyst consensus which still includes Radio in these metrics.

However, adjusted EPS is comparable.

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 risk and uncertainties that could cause actual results to differ.

Risks and uncertainties are disclosed in CBS Corporation's SEC filings.

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

And with that it is my pleasure to turn the call over to Les.

Thank you, Adam, and good afternoon, everyone, and thank you for joining us.

I'm extremely pleased to tell you that we turned in another great quarter and another terrific year at the CBS Corporation.

For the fourth quarter we delivered record profit with operating income up 10% to $733 million and EPS up 21% to $1.11, also a record.

For the year revenue was up 4% to $13.2 billion, an all-time high; operating income was up 12% to $2.29 billion, also an all-time high; and EPS was up 24% to $4.11, breaking $4.00 for the first time in our Company's history and marking our 7th straight year and 28th consecutive quarter of EPS growth.

This kind of year demonstrates the performance you have come to expect from us and that we continue to deliver day in and day out year after year.

Across every division we are operating with distinction, building our businesses for the future and transforming our Company to capitalize on faster growth.

Let me tell you just a few of the actions we have taken recently along these lines.

First, as you know, we just announced that we are separating our Radio business through a tax-free merger with Entercom.

This will reduce our dependency on advertising to just 45% of our total revenue.

Remember just a few short years ago that number was greater than 70%.

Since then we have told you of our goal to get our revenue ratio down to 50-50 and, like many of our goals, we have surpassed it.

And the 55% of our revenue that is non-advertising is growing faster all the time.

Already here in 2017 we have done three separate but related deals to accelerate that part of our business.

Each one represents a different kind of distribution and together they are representative of the many ways we are getting paid for our content.

I am pleased to announce today that one of those deals is with Verizon, one is with Meredith Broadcasting and one is with Hulu.

First, in the traditional retrans area we have a brand-new deal with Verizon.

It covers our CBS and CW stations, Showtime and cable networks and was done on terms that are consistent with a long-term target of achieving $2.5 billion of annual retrans and reverse comp revenue by 2020.

The next form of distribution deal was in reverse comp where we signed an extension with Meredith Broadcasting, one of our largest affiliate groups.

This represents our continuing goal of getting paid more from our affiliates with every deal that we do.

What is also significant here is that the agreement includes rights for our affiliates to participate in CBS All Access, bringing local CBS over the top to more and more markets.

In addition, as we construct deals with many skinny bundles now coming on the scene, we are the only Company to incorporate the network affiliate business model in these deals.

By doing this, affiliates can get paid for their local live linear feed of CBS and we can benefit from all the programming we provide as well.

And the third area of distribution, we have also recently struck a deal with Hulu for their upcoming live streaming TV service.

This is significant because it represents all of the new skinny bundles entrants who are paying a premium to gain access to our content.

These three deals, Verizon, Meredith and Hulu, give us increased flexibility as we move ahead in this evolving distribution landscape.

As people shift from one way of watching to another we will be there receiving ever increasing value for our content.

These three developments are on top of what was already a tremendous story for us in retrans and reverse comp.

In 2016 we grew this revenue source by 35%, surpassing $1 billion for the first time a full-year ahead of schedule.

And remember, our skinny bundle deals like the one we just said with Hulu are in addition to that total.

At the same time our in-house OTT subscription services are also exceeding our expectations and 2017 is poised to be a phenomenal year.

At Showtime we have the legendary Twin Peaks returning in May, which will no doubt continue to drive OTT subscribers for us -- more on that later.

And at CBS All Access in terms of sub growth, we just had our best quarter ever followed by our best month ever in January followed by our best day ever for sign-ups this past Sunday driven by CBS' broadcast of the Grammys.

In December we added NFL to the All Access for the first time and it helped boost subs dramatically.

We look forward to benefiting from a full 17-week season this fall.

And all of this success has been before we have even launched a single original scripted show in All Access.

This Sunday we will launch our first one with The Good Fight.

This show has already been extraordinarily well received by the critics and fans who have seen it in previews.

If you like The Good Wife you will be happy and, for those who like to see and hear a little bit more on the Internet than you can on broadcast television, you will be happy to.

We also have our real big gun coming soon with Star Trek: Discovery.

Production has begun in all I can say is I am very pleased with what I am seeing and I'm confident the show will live long and prosper.

So, to say we are on pace for 4 million subs each at CBS All Access and Showtime OTT is probably a gross understatement.

2017 is also shaping up to be very good for us in content licensing.

Three of our hit series, NCIS New Orleans, Scorpion and Madame Secretary, will all become available to the domestic syndication market this year.

And these shows, along with our others, will continue to benefit from new multi-platform opportunities and an international marketplace that is stronger than ever.

This includes another deal we just announced this week to license our CBS and Showtime content to Japan's leading premium pay-TV provider, Wowow.

Yes, I said that -- Wowow.

When you couple these fast-growing revenue sources with underlying strength of our base business you can see why we are very excited about the year ahead.

In fact, even though we will be comping against 2016's Super Bowl and political advertising, we still expect to grow our top and bottom lines in 2017.

Of course at the center of all this success is our content.

From CBS to Showtime to the CW and beyond, producing and distributing valuable programming assets is what we do best and it is at the heart of our strategy.

The number one platform for this is the CBS television network which continues to produce the most-watched programming in the universe of more than 200 television channels.

We are once again on track to win the season which will be the 14th time in 15 years and the ninth straight year in a row.

And we are winning by a lot.

We are averaging more than 10 million viewers per night in prime time; that is not only millions ahead of our competition in broadcast, it is multiples ahead of any cable network.

In fact, CBS averages about 1 million viewers more than the top four cable networks combined and we average about 4 million viewers ahead of the top six cable news networks combined.

We are able to do this year in and year out thanks to the broad-based strength of our schedule where success breeds success.

We have established hits including the number one drama, NCIS, and the number one comedy, Big Bang Theory, which by the way we are very, very close to renewing for two more years.

And we have new hits too including the number one new drama Bull and the top four new comedies on television with Kevin Can Wait, Superior Donuts, The Great Indoors and Man With a Plan.

Just to give you an example of our strength, this past week, yes, we had the Grammys; but we also had the top seven programs in network television and 16 of the top 20 shows.

Most significant in this 20 are six brand-new shows from our schedule and, by the way, we own every single one of those shows.

So we are refilling the pipeline with programming that we can monetize across platform for many, many years.

This is important because consumers are increasingly finding new ways to watch our shows.

In fact, when you count all viewers on all platforms, we have bigger audiences today than we did more than a decade ago.

This is true with our big events, with our sports franchises and our news programming.

And it is true with our regularly scheduled prime time shows as well.

Fully measuring and monetizing the value of every single viewer represents terrific upside for us.

Whether it is Nielsen's new Total Audience measurement ratings or any new measurement system, one thing you can count on is that we will get there and the revenue will be significant.

We also have a great story in late-night where The Late Show with Stephen Colbert has been building momentum and for the second straight week has been the most watched show in late-night.

I believe they will win this week as well and it will be a third straight week.

And online streaming of Stephen's Late Show is up more than 70% this season across CBS.com, YouTube and other digital platforms.

Meanwhile James Corden is fresh off his latest hosting gig with the Grammys which pulled in more than 26 million viewers, its highest number in three years.

And James continues to be a sensation online as well.

His Carpool Karaoke segment with Adele was the number one trending video clip on YouTube for all of 2016.

And our new Carpool Karaoke series will premiere this spring on Apple which will be their first original video programming.

So late-night is clearly a reenergized and exciting daypart for us right now, delivering 10% growth in advertising in 2016 and continued growth here in 2017.

Another area where advertising growth is following ratings growth is CBS News.

During this quarter CBS This Morning delivered its most viewers in nearly three decades, leading the way to 16% overall revenue growth across the division.

CBS Sunday Morning and Face the Nation also recorded their most viewers in almost 30 years.

And nearly 50 years in 60 Minutes is the only prime time news program that routinely lands in Nielsen's top 10 including finishing in second place just a couple of weeks ago behind only our NCIS.

We are also extremely excited that the incomparable Oprah Winfrey will join 60 Minutes this fall.

This will be a terrific match and will ensure the continued dominance of 60 Minutes among all of the news programs on television.

In addition to high ratings on air we have seen dramatic growth at CBS News online as well.

Total streams in 2016 more than tripled 2015 and during this quarter we had a record 90 million streams, because obviously of what was going on in the country, which is 50% above our previous record from the third quarter.

At CBS Sports this is always an exciting time of year for us as we get ready for March Madness and it is especially true this year when the Final Four and championship game are all on CBS.

In terms of the NFL I'm pleased to say that was a ratings improvement toward the end of the season.

Clearly this has been a hot button issue across the industry.

It does bear repeating that the NFL is the premier property in all of media and we feel very good about our long-term partnership.

It is also fair to say that this season's decline, as well as having three fewer Thursday night football games, affected our advertising revenue.

The good news is with that behind us overall underlying network advertising is now accelerating here in the first quarter.

At Showtime it was another very successful year.

We grew subscribers in 2016 over 2015 and in the fourth quarter over the third.

As I said before, we are seeing a very positive reaction to our OTT offering which is now growing faster than we have seen with any prior distribution model and which better economics as well.

And looking ahead we will continue to strengthen Showtime by strategically scheduling our original programming throughout the full calendar year.

For example, we moved this season's debut of Shameless from January to October and, despite all that was going on in the world this fall, it had its most-watched season ever.

Then in January we launched season six of Homeland which had its highest-rated premiere yet and led Showtime to its biggest monthly increase in OTT subs.

Up ahead we have a steady stream of original programs that will continue to drive sub growth.

It starts this Sunday with season two of Billions, followed by three new shows between now and May, Guerrilla which stars Idris Elba; I'm Dying Up Here from comedian Jim Carrey; and of course the return of Twin Peaks.

And we have an ownership in all three of these new shows just as we do in Billions.

So like the CBS television network, Showtime continues to add to its stable of original series that we can license around the world well into the future.

In Publishing, Simon & Schuster had a terrific year doing what it does best, growing its library of best sellers.

In 2016 we had 277 New York Times bestsellers, up from 249 in the prior year, and we had 33 number ones which is also ahead of 2015.

Leading the way of course was Born to Run by Bruce Springsteen which was our top-selling title for all of 2016.

And we have a strong slate ahead in 2017 including books from Stephen King, Mary Higgins Clark, Nelson DeMille and Dr. Oz.

Turning to local media, our major market television stations are playing a bigger and bigger role in our success thanks to retransmission fees and now revenue from skinny bundles as well.

At the same time the traditional business of our stations also had a tremendous year including record-setting political spending.

And 2017 has begun very strongly led by outstanding local sales for the Grammys, which is now up 70% over the last six years.

That is very good news because we recently signed the Grammys for 10 more years.

And also locally we benefited from the AFC Championship Game which featured New England and Pittsburgh, two markets where we own stations and collect both national and local ad revenue.

So, as we begin 2017 and look out into 2018, I am extremely confident about where we are and where we are going.

Our-based businesses are performing just as they should and our fast-growing revenue drivers are ahead of schedule.

And it bears repeating that we have reduced our dependency on advertising to 45% of our Company's revenue.

This has been a goal for years and it means you can count on our revenue to be more stable and predictable.

As we have said, we have a plan for 2020 that is both conservative and eye-popping and when we commit to a plan we deliver.

Across our Company we are creating the content that people want and maximizing its value at every turn.

No other company is better positioned to take advantage of the opportunities in media than we are.

We have the content, we have the strategy, the leadership to capitalize on the constant change going on in our business and as we take action and seize these opportunities we will continue to deliver on our commitment to shareholders.

Thank you again for joining us and with that I will turn the call over to Joe.

Thanks, Les, and good afternoon, everyone.

As you heard, CBS delivered extremely strong results for the quarter and the year.

For the fourth quarter we grew our operating income by 10% and our EPS by 21%.

And for the year we grew our operating income by 12% and our EPS by 24%.

So we are consistently demonstrating outstanding operating leverage.

What is even more impressive is that we are achieving these results while increasing our investment in content and there is more to come.

Last year we laid out a plan to generate significant new incremental high-margin revenue and we feel even better about those opportunities today.

Add to that the deal we just announced two weeks ago to separate out our Radio business, which I will tell you more about soon, and we are now better positioned than ever to take advantage of our content first strategy.

Now let me give you some are details about our fourth-quarter results.

Revenue for the fourth quarter came in at $3.52 billion compared with $3.59 billion in Q4 of 2015.

And I am going to pause here to remind you of what Adam said at the top, that Radio results are excluded from revenue and operating income metrics and are presented as discontinued operations.

Total Company advertising revenue was down 3% due to three fewer Thursday night football games from 2015, as well as nine fewer hours of prime time programming that were preempted by our election coverage.

The NFL ratings that you heard about also affected our underlying network advertising which was down 2% for the fourth quarter.

However, for the full-year underlying network advertising was up more than 3% with strong demand throughout 2016.

And in local advertising we had a record-setting year with fourth-quarter political spending up 25% over the last presidential election.

Content licensing and distribution for the fourth quarter decreased to $893 million from 2015 when we had a significant international licensing sale of our entire Showtime portfolio, as well as a domestic streaming sale of one of our original Showtime series.

Looking ahead to 2017 we expect a stronger year for content licensing based on our pipeline of content availabilities.

Affiliate and subscription fee revenue continued its growth trajectory during the quarter and was up 13% with retrans and reverse comp up 25%.

In addition as you heard, our over the top subscription services, CBS All Access and Showtime OTT, are growing rapidly, a trend that we expect to continue.

Also for the fourth quarter operating income was up 10% to $733 million driven by healthy increases in our high-margin revenue sources as well as record political advertising.

And our operating income margin expanded 230 basis points to 21%.

Net earnings for the quarter were up 9% to $476 million and EPS was up 21% to $1.11 for the quarter and, as you heard, an all-time high.

As previously noted, our fourth-quarter results were adjusted for a few nonrecurring items.

First, we opportunistically reduced the size of our pension plan obligation by offering certain employees a lump sum distribution.

This was a great use of pension assets.

It reduced our potential liability by over 10% and it de-risked future obligations.

As a result, we took a one-time accounting charge in the quarter.

We also took out cost across the Company, leading to restructuring charges of $30 million which will have a one-year payback.

And in connection with our Radio transaction, we wrote down the Radio book value to current fair market value based on accounting rules.

Now let's turn to our operating segments.

Entertainment revenue for the fourth quarter came in at $2.39 billion compared with $2.46 billion in 2015.

Advertising was affected by three fewer NFL games and nine fewer hours of prime time programming that we just mentioned.

At the same time retrans and reverse comp continued to grow strongly and CBS All Access had another terrific quarter as well.

Entertainment operating income for the fourth quarter came in at $371 million, up 7% driven by our growth of our high-margin revenue as well as lower sports programming costs.

And our entertainment operating income margin expanded 140 basis points to 15.5%.

At our Cable Network segment revenue for the fourth quarter was $501 million compared with $562 million in 2015 when we had the licensing deals we just told you about.

And for the year Showtime grew subs by 3% and affiliate revenue by 5% driven by our more profitable OTT business model.

Similar to CBS retrans, as existing Showtime affiliates' contracts expire we expect to reset those contracts to reflect the fair market value of our Showtime portfolio.

Cable Networks, operating income was $219 million for the fourth quarter compared with $228 million in 2015.

Our cable Networks operating income margin expanded 3 points to 44% due to lower cost from the timing of our series premieres.

In Publishing revenue for the fourth quarter came in at $209 million, down 10% from 2015 which included a best seller from Stephen King.

Audio books continue to grow strongly and were up 20% in the fourth quarter.

Publishing operating income of $36 million for the fourth quarter was up 6% driven by lower production costs and our Publishing operating income margin expanded more than 200 basis points to 17%.

Our Local Media segment had a terrific fourth quarter with revenue up 16% to $526 million.

The increase was driven by record political spending and strong growth in retrans at our local TV stations.

And our Local Media operating income was up 45% during the fourth quarter to $216 million, once again driven by growth in high-margin revenue and the operating income margin expanded 8 points to 41%.

Now let me give you an update on our Radio transaction.

As you heard, we announced a deal to merge CBS Radio with Entercom following a tax-free split off and the transaction is expected to close during the second half of 2017.

CBS shareholders who participate in this split off will own 72% of the combined company which will have best-in-class assets and will clearly be the best capitalized Radio company in the industry.

The combined Radio business will benefit from increased scale, stronger cash flow and real operational synergies which should drive higher profitability.

The new company will also have the ability to pay an attractive dividend.

This is a great transaction for CBS.

It will further diversify our revenue mix while also increasing our overall growth rates.

And it will allow us to retire more shares of our stock through an exchange offer.

Speaking of retiring shares, during the fourth quarter we used some of the proceeds we received from the CBS Radio debt issuance to repurchase $1.5 billion of our stock, just as we told you we would.

So for all of 2016 we repurchased $3 billion of our stock, retiring more than 54 million shares.

Here in 2017 we can expect another solid year of capital returns for shareholders, including the impact of the Radio transaction we just highlighted, a continuation of our ongoing share buyback program, and our ongoing dividend that we recently increased by 20% to $0.18 per share per quarter.

Collectively this will represent a meaningful percentage of our equity market cap.

Returning excess value to shareholders remains important to us.

But as always our number one priority, which we are consistently doing year in and year out, is to reinvest in our businesses, specifically in the creation and distribution of premium content.

Turning to cash flow and our balance sheet.

For 2016 free cash flow came in at $1.25 billion, up 22% driven by growth in retrans and reverse comp as well as higher advertising revenue.

And we ended 2016 with $598 million of cash on hand.

Now let me tell you what we see ahead in 2017 for our key revenue types.

Network scatter pricing continues to be robust in the first quarter and is up more than 20% over upfront levels.

And underlying Local Media revenue is pacing to be up low-single-digits.

As you heard, in content licensing and distribution we have three hit shows that can go into domestic syndication this year, NCIS New Orleans, Scorpion and Madame Secretary.

Together these shows represent more than 200 episodes of programming.

In addition, the competition for premium content continues to intensify internationally.

So we see strong demand for both our CBS series as well as our entire Showtime portfolio.

In affiliate and subscription fees we are continuing on our path of steady and strong growth.

As Les said, we surpassed $1 billion in retrans and reverse comp for the first time in 2016.

And in 2017 we expect retrans and reverse comp to be up about 25% from last year as we continue to reset contracts as they expire.

So we are well on our way towards achieving our goal of $2.5 billion from these sources by 2020.

In addition, we expect our over the top services to continue to be a bigger contributor to our results.

Just to give you some perspective, less than a year ago we laid out our 2020 goal of reaching 8 million subscribers for CBS All Access and Showtime OTT combined.

Last summer we told you that together our OTT services in total had already surpassed 2 million subscribers.

Since then we have continued to grow our subs nicely and we haven't even hit our programming stride yet.

As we sit here today, with four years to go and less than 6 million subs to achieve our goal, it appears that our goal may have been too conservative.

Another opportunity we feel great about is the skinny bundle.

Les told you about our digital MVPD deal with Hulu and others.

I can add that, based on agreements we have already signed today, we think this growth area could be even bigger than what we initially outlined for you.

So in summary, we are less than 12 months into our five-year growth plan and we have already executed on a number of proof points that validate our strategy.

And after we complete our radio transaction we will be focused on a few key brands that will center around our content creation, which in turn will allow us to accelerate our growth rates and drive incremental profitability in the years ahead.

So it was a great quarter and a great year.

And we are confident that the opportunities that are ahead of us are significant and the best is yet to come.

And with that, Noah, let's open the line for questions.

(Operator Instructions).

Ben Swinburne, Morgan Stanley.

Thank you.

Good afternoon.

I wanted to ask Les a couple questions on the retrans MVPD front and then I just have a quick cash flow question for Joe.

Les, I think this Hulu agreement is an important data point as we think about this year and sort of beyond.

Can you talk a little bit about, first, the stacking rights and how you thought about those in the context of your agreement with Hulu?

I know those are important rights in driving All Access.

So did you have to sacrifice any of those to get the Hulu deal done or give up anything on rate to get that in exchange for those?

And then second, how might this template be used with DIRECTV where I believe you are still not on that service?

And any update on that relationship would be helpful.

Thank you.

Thanks, Ben.

We signed the deal with Hulu; there are no stacking rights included in that.

Stacking remains with All Access which makes it much more attractive to the people using All Access.

It was a very good deal for us economically.

Obviously for Hulu it was good because it completes the cycle of their ownership plus us are the major players.

We are very happy with the economic deal and the terms of it.

Yes, you are right; we have not yet struck a deal with DIRECT.

We have got a deal with Verizon; we have got a deal with Hulu and other people.

So, we are still anticipating conversations and hopefully we come to a good resolution with them as well.

Great.

And Joe, just on free cash flow, can you just talk about the outlook for 2017 either directionally do you expect it to grow, or any comments around working capital that you could help us with?

And generally as you spin off or split off Radio, what are your thoughts on leverage?

How should we be thinking about your appetite for leverage?

What is the range you guys are comfortable with?

Thanks, Ben.

Look, obviously we don't have the Super Bowl from a cash flow perspective in 2017.

And as we said in our remarks, we are investing in content.

We are probably spending 18% more than just a couple of years ago.

So for instance obviously Star Trek, The Good Fight, that is the best use of capital for us.

I mean those returns, all of that revenue that we will get, all that cash flow comes later so that will be building.

So I think, again, we look at that only has timing, Ben.

This is the best use of capital for us is to have another hit owned series.

And those returns on that are significantly better than any other use of our cash.

So, that is a priority for us, so you should assume we will continue to do that.

Obviously Radio throws off cash flow and will be smaller, but obviously our share count will be down as well.

So we are going to look at leverage holistically.

We are improving the predictability and stability of our cash flow.

And because the growth rates are growing much faster I think we replace the radio cash flow in short order.

So I think, again, we are going to be very opportunistic as we have been but always be prudent with our balance sheet.

Thank you both.

Jessica Reif Cohen, Bank of America Merrill Lynch.

Thank you.

I have two completely separate questions.

One is just on NFL and the ratings volatility you saw this year.

You mentioned that plus the fewer games impacted advertising.

Can you just talk about how you are going to approach the advertising sales for the 2017/2018 season?

And then I have a different question.

Look, obviously there has been a lot of conversations about the NFL and the ratings and clearly there was improvement after the election was over.

That was one of the factors.

The good news is the playoffs did extremely well for us, so we made up for that.

And as we said, we had fewer games.

So going into next year we plan -- it is still -- as I said before, it is still the best content on television.

I am still happy we have our Sunday football and our Thursday night packages.

And Jo Ann and her team are planning on selling it aggressively as we always do.

The fact that it was down this year is not really going to affect that.

Okay, it didn't seem like it really affected it that much.

And then completely different topic, but there has been tons of speculation about distributors interested in owning some of the content companies and you are probably the most attractive of the independent content companies.

Do you feel like you will create more value being aligned with a major wireless company or do you feel like you have a stronger hand remaining independent?

We have always said we are self-contained and we are very strong.

We like our position.

Thank you for calling us very attractive, we feel that way too.

Obviously the wireless companies as well as the Silicon Valley company are all looking at the content companies as being very valuable and they are all trying to get into the content business.

But we feel very secure in who we are and we are going to continue to play the game that way.

Great, thank you.

Anthony DiClemente, Nomura Instinet.

Good afternoon and thanks for taking my questions.

I have one for Les and one or two for Joe.

Les, international content licensing, this is one of the four pillars that you talked about at the Analyst Day.

And I just want to ask about that because I feel like it got maybe a little less airplay in our prepared remarks.

So that goal of $800 million incrementally by 2020, how is CBS pacing there?

Is the demand internationally strong enough to support that goal?

I mean, I acknowledge this year you have a tough comp in terms of last year's big sale internationally of Star Trek to Netflix.

So I would love to hear about that pillar.

For Joe, just want to clarify, have you guys said what the number of SHOWTIME OTT subs are?

I think it came out that it is 1.5 million but just wanted to clarify?

And then in terms of Showtime, I am actually curious whether the pace of that OTT sub growth, is that offsetting cord shaving from traditional MVPDs?

And along those lines, if you kind of exclude the 1.5 million, if that is the right number, from OTT are core traditional Showtime subs also growing or what is the trajectory there?

Thanks.

Anthony, on the international front, yes, we are well on pace to beat that number.

We have a lot more content going on.

You referred to Star Trek; once again, All Access is a brand-new service that is going to have more and more programming.

As you know, we have increased our summer programming and our ownership continues to go up, both at CBS and Showtime.

In addition, the international marketplace is really on fire because of all the new SVOD players and -- that are out there.

Suddenly we are finding in markets there's so much more competition so the numbers continue to go up strongly.

We didn't dwell on it a lot in our prepared remarks only because it continues to do extraordinarily well.

The Star Trek number was incredible from Netflix.

There is a lot of competition out there.

We are getting second and third cycles on shows, so we are very comfortable with that number and beyond.

And Anthony, it is Joe.

We haven't officially said the Showtime sub number.

Obviously we said over 1 million and we said we are growing to 4 million.

So I think you can kind of do the math from here to there and make some assumptions.

But again, we are telling you today we are more pleased than we were at our Investor Day and we haven't, again, really started getting that murderer's row of content that Showtime is beginning to release.

So we are feeling very good and really, again, what is driving that is the consumer.

It is the demand, that is the way they want to consume content.

It is on the go via broadband wherever they want, they want access to it and they are willing to pay for that.

And I think that is the demand we are satisfying and the opportunity could be bigger.

As far as the overall sub growth I would say it is additive.

I think what we are seeing here is the base business, there are some puts and takes between maybe satellite and cable and telco and stuff.

So maybe a little jockeying around from subs, but overall we don't see that deteriorating much.

And again, so a lot of this growth is coming from households that are broadband only and, again, we will continue to grow.

I think we will see and play it all out, but again we couldn't be more opportunistic about the opportunity.

Okay, thank you very much.

Alexia Quadrani, JPMorgan.

Thank you.

My question is also on over the top, really on both CBS All Access and Showtime over the top.

How should we think about the incremental margin?

And what should we think about in terms of subscriber acquisition cost or payment to your affiliates for those incremental subs?

And then just a follow-up -- kind of a follow-up on Anthony's question as well.

When you look at the growth, the tremendous growth you are seeing in CBS All Access, should we assume that it is also sort of coming mostly from broadband only homes?

Alexia, it is Joe.

Look, the answer is I think you should assume it is accretive to our margin.

Our overall margin for 2016 is 22%.

I think, again, when we laid out our plan at our Investor Day we thought we could be generating $800 million of incremental revenue.

And again, I think you should think about that as margin accretive.

Obviously we are building the foundation today by producing those shows like Star Trek and Twin Peaks and [stuff] from a cash perspective, but we see that continuing to grow.

And yes, I would say again to CBS All Access, you should see that, again, as incremental because, again, the traditional ecosystem really is unchanging with that.

I think again, just look at Netflix, Hulu and others, there are tens of millions of incremental subscribers out in the marketplace that are consuming content.

So I think it it's the form of distribution that is satisfying that appetite.

And again, stay tuned because I think there is more to come.

Thank you.

Doug Mitchelson, UBS.

Thanks so much.

I have a few; I will just ask them one at a time.

Following up on Alexia -- well first, Joe and Les, you both suggested the 8 million subscriber goal for CBS and Showtime OTT services might be too conservative, so what might be a better goal?

Above 8 million.

It is hard to say.

As Joe said earlier, we said we're pacing above where we thought we would be.

We haven't even introduced the original content on All Access.

So we are confident it is going to be above the 8 million; we are not willing to give you a number today.

The follow-up to Alexia's question, Joe, is just to pin you down, now that you have some scale, is the economics of OTT as good as you hoped?

I get it is margin accretive, I get it is lots of incremental revenue.

But relative to what you thought going in, churn management, billing, customer service, all of that, is the economics as good as you hoped?

Absolutely.

I think it is exactly spot on.

I think we are managing it that way.

I think we have an ad free product out in the marketplace as well.

I think we priced that right.

So I think again, Doug, we are serving an appetite and I think that is critical.

I think the consumer, the average demographic, the average age of that is much, much younger.

It is sticky and, again, the theory as we always have something coming.

So with the library CBS has, with the original programming strategy, the big tent pole live events, again, we look at that opportunity and we say how big can big be, to your point.

And look, 8 million subs is $800 million and each million of subs is an incremental $100 million which is meaningful to us.

So we are laser focused on that opportunity but this is playing out better than we had hoped.

And then they last question, Les.

A little bit of angst out there in the ad market right now and cancellation options I think for 2Q are up just slightly, not much.

You are saying scatter pricing is good.

How would you describe the health of the ad market?

Is the volume there?

It is sort of too early to ping you on the upfront, but just (multiple speakers).

Our cancellations, I haven't gotten the call from my salespeople.

So this is the first I'm hearing that they are slightly up.

Maybe you're talking to the wrong network (laughter).

So anyway, yes, scatter is strong.

Once again it is too early to predict pricing on the upfront, but we are anticipating another strong upfront.

It is still the best game in town and I am optimistic.

Okay, great.

Thank you very much.

Michael Morris, Guggenheim Securities.

Thank you, good afternoon, guys.

Two topics, one on retransmission and one on All Access.

I'm hoping you can help us a little bit with the trajectory of how to be thinking about retransmission renewals over the next couple years.

Can you help us with what percentage of your subscriber base you expect to renew over the next one to two years?

And as you enter into these deals are we still seeing significant year one step-ups as you keep moving towards your targets or are we in a place now where you are seeing sort of smoother unit pricing growth over the course of the contracts?

And then second, on All Access I am curious -- clearly it is very rich with your owned content.

Would you envision a scenario where you may license some content to continue to bolster the offering there?

Thanks.

I will take the second question.

At the moment the economics work much better as it does for the CBS network that we own it.

Obviously we will look at everything and if there is an attractive coproduction opportunity we will look at that as well.

And I think what we have proven at CBS is we are very flexible to make deals.

We are dealmakers, we like content and if there is an ability to do that and put it on All Access at the moment it is solely owned content but that could change in the future.

And Mike, on you are retrans question, here is what I -- about 33% of our footprint expires over the next 24 months, so between 2017, 2018.

So we get a chance to reset that.

Look, they are still catching up because the marketplace obviously has moved.

So I would say again that first year is generally a much higher step-up than the out years.

But as importantly I want to make sure you also focus on the reverse comp portion of that because, again, that is two-thirds of the country.

And there we have about 26% of our footprint coming up in the next two years, so you can expect to see similar or even bigger increases there.

So again, we gave you the $1 billion, we gave you the $2.5 billion, we told you we are going to be up 25%.

So I think we have been pretty specific on where this revenue is headed.

Great.

Thank you, guys.

John Janedis, Jefferies.

Thank you.

Les, you have been rightly bullish on the global licensing opportunity.

And I guess with the domestic landscape evolving, can you talk about to what extent the domestic buyer will be different in the future?

You have gone from typically one to multiple buyers and with some potential cable buyers under pressure I was wondering if there is anything to call out there?

It is very interesting.

You point out something very interesting in that our off-network product initially went to cable, then it went to the SVOD players, then it went to both.

And I think on each show that we do we sort of do a different analysis and there are more players in the marketplace that are now looking for content which is great on the streaming services as well.

So it is really a mixed bag.

I think some of the cable operators are coming back to buying off-network product, they realize they can't do their own all original content.

So as long as we keep doing what we do, which is produce good original content that we own, we are going to be -- not only [we're going to] exploit international marketplace, but domestically the numbers are -- continue to get higher and higher every year.

Okay.

And maybe separately to Doug's point I guess, I think we all know better than to ask you about the upfront forecast.

But you spoke briefly about measurement.

And with the upfront three months away to what extent do you think that we are going to see multi-platform deals using Nielsen's Total Audience measurement?

It is a little early to tell, but clearly there is going to be a lot more of it, just like we said.

We said there is going to be more C3's and there were and then C7's and there were.

Now Nielsen is doing a better job and getting better data as well as other services.

So, I think there is no question when we talk to advertisers, everybody is looking at a more complete picture and that only means more viewers and more revenue for us.

So, I think it is going to be more and more important with each year and I think some of those services will be important this year.

All right, thank you.

David Miller, Loop Capital Markets.

Les, as you know, President Trump has appointed Ajit Pai as the new FCC Chief who is obviously considered pro-consolidation, pro-free market, etc.

What odds would you put on the station cap rule being altered from 39% up to say 49%?

And if you were a betting man, what would you say the timing of that might be?

Then I have a follow-up.

Thanks.

Look, we know Ajit Pai very well.

I think he will be very beneficial to our business.

As you said, he is de-regulation and we would be very interested in the cap moving up.

Frankly, I have no details aren't no idea if that will happen or when it will happen.

I can tell you in the right circumstance if the cap is lifted we would strategically want to buy some more stations because we think it is important.

And as you just heard, through retrans and through political advertising, the local markets are extremely good for us.

So we are looking forward to not having as much regulation and having the ability to do more.

Okay, great.

And then also, Les, I am sure you are aware the NCAA just release the top four seeds in each bracket for the upcoming NCAA tournament.

Has this stoked additional interest amongst your media buyers beyond what would be considered normal for this time of year?

And any color on pacings for the tournament would be helpful if you are willing to give it.

Thanks a lot.

Look, there is no question.

I think what it has done is brought March madness into the end of January, which is great for us and our sales guys.

And there is renewed interest in sports and in the tournament and people are already complaining about the seeds which we love because that is part of what makes the tournament so exciting.

So the answer to your question is, yes, it has increased the activity and the pacing is very strong.

As we mentioned before, we are really happy all three games of the Final Four our own CBS this year which will help us a great deal.

So bring it on, we are excited.

It is an exciting time of the year.

Wonderful.

Thank you.

Bryan Kraft, Deutsche Bank.

Good afternoon.

I wanted to ask you two questions.

Joe, wondering if you would comment on the auction proceeds that you expect to receive in the spectrum auction?

And then separately, just curious as to how much of viewing on All Access is live versus on-demand?

And I know that the NFL has been a recent addition to the lineup, but how much of that live viewing is sports and live events?

Thanks.

Bryan, it is Joe.

Let me answer the second one first.

The live viewership is it tends to be about 10% to 15% on All Access.

It is the on-demand feature I think, again, the content on the go is really what -- we are seeing significant usage, more than double that of what is freely available and stuff.

So I think that is going to do it.

But again, it is a complete offering.

Our vision is we always we have something for everyone and I think that has really been the strategy.

So that is why the network affiliate model is important and that is why we bring our affiliates along in this and they participate in that.

But I do think it is the strength and breadth of CBS programming that is the main driver of that.

Look, the auction [process], we looked at it.

At the top we saw those initial values and we said that could be interesting in certain circumstances.

But we did not sell any full power signals in the auction.

As the auction continue to drop rapidly in value it just didn't make sense for us to participate because we make so much more money by broadcasting in the highest standards possible.

So that is our bread and butter, so we were going to participate in a process where values were going down significantly.

So we did not sell any full powered stations.

Okay, great.

Thanks, Joe.

Tim Nollen, Macquarie.

Thanks very much.

A couple of things, please.

I wanted to come back on the subject of advertising, recognizing it is a difficult year with a comp ahead in 2017.

But I want to come back to the question of Nielsen's Total Audience measurement.

And you had said I think on the last call that you see dynamic ad insertion as a potential 9 figure opportunity in the future with help from better measurement.

I just wonder if you could give us some sort of an idea going into the upfront how you will go about doing these deals.

And if there is any sense you can give us on what incremental percentage of revenue growth you can get from this versus C3 or C7?

And then separately but related, coming back to the NFL.

I'm sure you saw recently Roger Goodell had some comments on ways to perhaps address the ratings issue for the NFL next year, possibly talking about shortening game times if they could or even reducing ad loads.

I just wondered what your take is on that, if you think any potential downside there might be offset by the very scarcity of the games on the pricing on that or making these games available on All Access?

Just wondering how we should think about the NFL for you next year.

Thanks.

Okay, Tim, I will answer the second question first.

Obviously we have met with Roger and we have met with the NFL a number of times.

We are all looking at how the product can be more efficient, possibly speeding up the games, possibly things in terms of [pods], possibly things in terms of the referees looking at the replays, how long that takes, etc.

So we are looking at some reformat ideas.

Obviously we are not planning on cutting advertising.

If there are ways of doing advertising in different ways that are equally beneficial we are looking at that and we are trying to make the game as good an experience as we can make it.

And your first part of the question, Tim, on the advertising -- look, I think as people continue to shift and watch content on their terms, our thesis has always been we expect to get paid for it if people consume it.

And so, if it is not in the measurement and advertisers aren't paying for it, we are going to use that available inventory because the technology now exists to give other advertisers the opportunity.

And we think that is a real opportunity that drives it.

If you watch an episode of NCIS on Tuesday it airs, but then you watch it on Sunday and we don't make any money from it that doesn't really make any sense to us.

So we think it is the number one show on television and would garner a lot of appetite from advertisers.

So it will take us time to execute that and build that marketplace, but it is absolutely a 9 digit opportunity.

So even -- if I can just follow up briefly, Joe.

So even if the entire industry doesn't have the syndicated data from Nielsen, you can still go ahead and use that in certain ways and try to monetize it?

Absolutely.

Absolutely.

Thanks.

Laura Martin, Needham.

A couple for Les, one for Joe on the model.

So Carpool Karaoke is your new series on Apple, and I think you are still doing Under The Dome for Amazon.

Les, could you update us on these new orders from CBS Studio from Digital First players?

I am sort of forgetting where we are with all those and I'm trying to size the revenue opportunity from these new buyers.

And then second, I am just looking at the margin expansion here and it was really powerful in both the quarter and the full-year, this operating leverage.

But my puzzlement comes because we reading a lot of headlines about 400 new series in production, all-time high, upward cost pressure your competitors are talking about for content.

Is there some reason that CBS is immune to these upward content cost pressures at Showtime and CBS maybe because you are number one or something?

I don't understand why you are having such awesome margins when your competitors are all reporting faster content cost growth versus revenue.

And then Joe, one for you on the model.

You said in your comments that there was record local ad revenue of 25% year-over-year.

So if we're going to hold presidential -- if we are going to just assume that also for the presidency, that gets me to like $180 million to $200 million of political for you guys.

My question is, since you are projecting higher local in 2017, was all of that political cannibalistic and therefore 2017 you can still grow off that?

Because I would have thought some of it would have been additive but then that would have been hard for you to project higher local in 2017 than 2016?

Thanks, guys.

Okay, let me jump in first.

Carpool Karaoke, digital buyers, etc.

CBS Productions has made it a real goal.

Initially they were formed to supply programming to CBS, then they were joined by supplying programs to the CW.

Now they are supplying programs to All Access as well as we are either in development or in production for 13 different outlets other than that.

So virtually every player we have either development or production with Amazon, with Hulu, etc., etc., Netflix obviously.

So there is a lot of activity.

What we are doing here, we have brought in -- we have a new reality group, unscripted group, that is going to be specifically targeted towards the digital players.

Because in terms of your next question, that is part of the question.

In some of these services, they spend more than we do one programming.

There is no question that the Netflix's of the world spend more than we do.

They do, it is a different model.

We know production, we produce a lot of it ourselves.

We do manage cost control because we know production.

And frankly when we do some co-productions with other studios we see that they are probably not as stringent as we are in our costs.

And I think maybe it is because I've been doing this a long time.

I know where the money should be spent and where it is wasted -- where excess money is wasted.

So I think we do, we are prudent about how we produce our programs and it seems to be working.

And Laura, just to clarify what I said.

I said underlying TV station.

So just to be clear, that is kind of on a comparable basis.

So obviously your $180 million to $200 million is directionally accurate and stuff like that, so that will obviously be a headwind from a reported standpoint.

Is it all additive, Joe?

Is what all additive?

Political?

No, there's not additional spots, right?

And so, it is just replacement.

It is more buyers for the same set of inventory, so it drives price up.

But no, you are absolutely right in that we don't look at that and we don't give our TV -- the station sales guys a pass to say it is all additive.

And so, maybe there is some halo to it, but by and large we always tell them you are selling the same number of spots.

Perfect.

Thanks, guys.

Very helpful.

Marci Ryvicker, Wells Fargo.

Les, I want to go back to the station M&A.

Assuming that the regulatory environment is relaxed and the UHF discount is reinstated, how aggressive would you be, would you be willing to go outside of the top 25 markets?

And then secondly, you talked about acceleration in advertising.

Were you referring to the networks, to the local stations, to both?

And if you could just give color on where that is coming from.

And just generally if you feel like advertisers have a little bit more confidence post the elections?

I will do the first one; I will let Joe finish it up with the second one.

Look, how aggressive are we going to be?

You know us, we are going to be smart in what we do.

Would we go outside of the top 25?

Probably not.

I would doubt that.

We are a big market Company and the big markets generally work out.

Especially when you have local football teams in our marketplace, that becomes important.

We will be aggressive but we are not going to be stupid about it.

And we are happy with what we have, but we can expand more.

And we have a very well functioning local stations division that obviously could take more in.

Marci, on your advertising -- I think in Les' comments he was referring to the network.

And again, it is really driven by the strong demand on pricing.

And again, above healthy upfront levels.

So he said that and I gave you the pace for the locals saying underlying for Q1 was pacing up low-single-digits.

So I think, again, that just describes again the way we see the market today.

We have our eyes on it but, again, the demand seems strong across multiple categories.

Got it, thank you.

Thank you, Marci.

And this concludes today's call.

Thank you, everyone, for joining us.

Have a great evening.

And this does conclude today's conference.

Thank you for your participation and you may now disconnect.