Paramount Global

Good day, ladies and gentlemen, and welcome to today's CBS Corporation second quarter 2019 earnings call. Today's conference is being recorded, and at this time, I'd like to turn things over to Executive Vice President of Investor Relations, Mr. Anthony DiClemente.

Good afternoon, everyone, and welcome to our second quarter 2019 earnings call. Joining us with today's remarks are Joe Ionello, our President and Acting CEO, Joanne Ross, our Chief Advertising Revenue Officer, and Chris Spade, our Chief Financial Officer. Following Joe, Joanne, and Chris's remarks, we will open the call up to questions. Please note that during today's conference call, results will be 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 note that statements on this conference call relating to matters which are not historical facts are forward-looking statements which involve risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation's SEC filings. A webcast of this call and the earnings release related to today's presentation can also be found on the investor relations section of our website at cbscorporation.com. Before we begin, I want to note that the purpose of today's call is to discuss our second quarter operational and financial results, and we will not be commenting on speculation regarding M&A. And with that, I'll turn the call over to Joe.

Thank you, Anthony, and good afternoon, everyone. Today, I'm going to give you an overview of our strong quarterly performance and touch on the key highlights across our operations. Then, as Anthony just mentioned, you'll hear from Joanne Ross, our Chief Advertising Revenue Officer. Joanne will talk about the state of the advertising marketplace and give you some color about our most recent upfront. And then Chris will give you more details about our financial results. As you saw in our release, CBS delivered double-digit revenue growth during the second quarter, with solid increases across all three key revenue types. Advertising was up 7% with strong underlying network performance. Content licensing was up 12%, driven by sales from our domestic libraries. and affiliate and subscription fees were up 13% fueled by growth in retrans and reverse comp, as well as increases in our direct-to-consumer streaming services, CBS All Access, and Showtime. And on a year-to-date basis, our growth story is just as strong. These revenue increases are driven by our investment in premium content, which we continue to accelerate. Every decision we make is designed to build upon our position as a global multi-platform premium content company. CBS is now producing 89 shows, up from 70 shows just a year ago. That's a 27% increase. As we create more and more content, we are monetizing its value using a two-pronged approach. The first approach is to produce more shows for our own platforms particularly our direct-to-consumer services. This investment helped drive a 75% increase in total OTT subs from last year's second quarter, representing an acceleration over the sub growth we posted in Q1. And the second approach we are using to monetize the value of our content is to take advantage of an increasingly lucrative licensing marketplace. CBS has become one of the most prolific content producers in the business, with series like Dead to Me, one of the top shows on Netflix, the much buzzed about VH90210, which just premiered on Fox last night, and a new version of Kids Say the Darnedest Things, which we're producing for ABC. So, by increasing the amount of programming we're creating for our own content brands, while also selling our shows to third parties, We are operating at a sweet spot in the industry and setting ourselves up for continued long-term growth. Now, let me tell you how that content is fueling our success across our businesses, starting with the biggest platform in media, the CBS television network, which last month received 44 Emmy nominations, 10 more than a year ago. And as you'll hear from Joanne, CBS has a long track record as the most watched network in America. We have 16 strong and established hits returning this fall, and we will use this stability to launch five new series that we will be premiering on just two nights. This means we can be very efficient in our marketing approach. In addition, we will have ownership in more than 85% of our fall lineup, which is more than we owned last year. And our studio is already developing promising new shows for CBS's 2020 broadcast season as well. Turning to sports, we're just a month away from the return of the NFL. As usual, Sean McManus and his team have worked closely with the league to construct a schedule that we feel very good about, including a rematch of last year's overtime AFC championship game between the New England Patriots and the Kansas City Chiefs. and we are already planning for our next Super Bowl, which will be airing on CBS again in just 18 months. Meanwhile, Susan Zurinsky has welcomed in a new day at CBS News. Quality broadcast journalism is the surest way to success, and we feel very good about the road ahead as Susan and her team continue to make that happen on a daily basis. Just as importantly, Susan and CBS Interactive continue to collaborate to grow CBSN, which is now averaging more than 1 million streams per day, and where our average viewer's median age is just 37 years old. Speaking of digital, CBS All Access continues to grow quickly by becoming a very compelling consumer proposition. It offers all our premium content in news, sports, and entertainment, an expanding slate of original series, live local television, catch-up viewing, and a broad 12,000-hour library of content streaming on virtually all devices. The vast majority of our all-access viewers are in the 18 to 49 demo. So as all-access consumption increases, we are reaching younger consumers all the time. Another good data point we've seen is time spent on All Access, which is up over 60% and growing even faster than total streams. And it's mostly as a result of adding more original series. And we're giving our subscribers more high-profile originals. From the debut of next week's comedic drama, Why Women Kill, to the second new Star Trek series, Star Trek Picard, The two big-name projects we recently picked up, The Stand, which is based on a book from the best-selling Simon & Schuster author Stephen King, and The Man Who Fell to Earth from Alice Kurtzman, who oversees the Star Trek franchise for us. And today, I'm pleased to announce that we are broadening our reach to add kids programming to All Access. Later this year, All Access will begin rolling out 1,000 episodes of library programming and new original seasons of Danger Mouse and Cloudy with a Chance of Meatballs. So now our subscribers' children will have premium content to watch, too. At Showtime, we're also accelerating our investment in content this year with about 40% more original programming than we had in 2018. Much of that programming is coming here in the back half of 2019. This includes the premiere of two dark comedies, Back to Life and On Becoming a God in Central Florida, which is executive produced by George Clooney. And we have several of our fan favorites coming up too, including The Affair, Shameless, Kidding, and Ray Donovan, as well as the highly anticipated return of the groundbreaking series, The L Word. Like All Access, our programming investment is driving significant growth on our Showtime OTT platform. In fact, this year, Showtime's second largest source of distribution revenue is pacing to be broadband, surpassing telco and satellite, and only behind cable. Showtime OTT is proving to be attractive to the growing number of broadband-only households, which are often younger viewers as well. And like All Access, Showtime subscribers are also viewing more and more content over the top, with time spent up approximately 30% this year. Turning to publishing, Simon & Schuster continues to grow on the strength of its content, and there's more to come later this year, with new titles from some of our best-selling authors, including Stephen King and Vince Flynn, as well as the father-son team of Nelson and Alex DeMille, and the mother-daughter duo of Hillary and Chelsea McClinton. In local media, we are ramping up our investment in direct-to-consumer by launching new local versions of our digital news network, CBSN. We have already successfully launched in New York and Los Angeles. And by early next year, we plan to have local versions of CBSN in all 13 major markets where we have news operations. This will enable us to have a more robust multi-platform approach by the time the next election cycle really gets going. so we can fully capitalize on what we expect will be a record year for political spending. Now, before I turn the call over to Joanne, I want to touch on an important announcement you likely heard about this morning, and that is our new carriage agreement deal with AT&T. We are very pleased to have achieved an agreement that recognizes what CBS brings to the table. We have now successfully completed three very significant carriage deals one with AT&T, one with Altice, and one with Nexstar, in the span of less than two weeks. As a result, we remain solidly on track to achieve the retrends and reverse comp targets we laid out for you previously. So, we had a strong first half of 2019, and we have many clear proof points that our strategy is working. We are growing our retrends and reverse comp. We are accelerating the growth of our direct-to-consumer businesses. We are pursuing new opportunities in audience monetization, and we are expanding in the international marketplace where we see our biggest opportunity over time, particularly in direct-to-consumer. And all this is driven by our investment in must-have premium content. So now, as advertised, you guys see what I did there? I'd like to turn the call over to the Dean of Advertising, Joanne Ross. Take it away, Joanne.

Thank you, Joe. Hello, everyone. I'm happy to be here to discuss the health of our advertising business. We are on a great run in 2019, and that reflects the strength of our ad sales team, which is the best in the business. We have integrated digital and network into every negotiation, which was a big transformation, and now we're reaping the benefits. Going into each sale fully aligned has enabled us to bring the full power of our multi-platform company to the marketplace, and you are seeing the results of that today. Our team drove impressive results both in the quarter and in the upfront, which bodes well for the new season. Thanks to the power of our number one primetime schedule, the CBS television networks are a robust scatter market in the second quarter with healthy premiums above upfront rates. This helped to drive underlying network advertising revenue up 3% during the quarter, an acceleration from Q1 when it grew 1%. The momentum continues as we gear up to launch our new fall schedule. We had remarkable client interest and excitement about our new lineup, resulting in a very strong upfront sales performance for the 19-20 television season. CPM increases across the network schedule were substantial. It was the strongest up front we've seen in recent years, most notably in prime time and late night. We are really pleased with the results and believe that our rock-solid performance was driven by several key factors. The first was our loyal viewership. CBS finished the 18-19 season as the ratings leader for the 11th consecutive year. We anticipate CBS being number one again in the upcoming season. The second was our strong schedule. Marketers and agencies understand the value of our premium, brand-safe content, and as I mentioned earlier, they are bullish on the direction of our new dramas and comedies and the returning favorites that we've presented. Strong day park growth was another significant contributor in our upfront performance. Prime time and late night led the way in CPM rate of change, boosted by our long-winning streak in primetime and the rise of Stephen Colbert to his number one position in late night. Stephen's dominance, which included winning the key 18-49 demo, drove new advertisers and categories to that state part. And sports news in daytime showed solid growth as well. Healthy category growth was also a factor. We saw year-over-year increases in almost every category during this upfront. CBS remains an important investment for pharma, financial, insurance, and telecom companies. In late night, retail, QSR, and auto were especially strong. Brands in emerging categories, such as direct-to-consumer companies like Chewy.com, Peloton, Wayfair, Uber Eats, and others, are turning to television advertising more than ever, using the unparalleled reach of broadcast to drive awareness and sales. The immediate and significant sales lift these brands have seen from their growing scatter investments with CVS has led to more robust planning and spending in the upfront. And another driver for us, digital. Digital sales in this year's upfront show significant pricing increases from 2018 levels. Thanks to our leadership position in OTT, we are seeing a greater share of premium digital video budgets than ever before. our direct consumer offerings including CBS All Access, CBS.com, CBSN, and many of our other sites are giving brands extended, unduplicated reach as well as a safe and transparent option in their media planning. So we are combining the power of the number one networks on beatable scale with the reach, engagement, and targeting of our leading digital properties to give advertisers a one-stop option to build awareness, ignite interest, and drive sales. In a rapidly changing media landscape, the success of the CBS ad sales team is built on strength and stability fueled by innovation and creativity. By capitalizing on our deep and established relationships and taking a personalized and integrated approach with all our clients, Not only are we growing revenue, we are also finding new and impactful ways to deliver value to brands in every category across our linear and digital properties. CBS has the biggest platform in media. It provides brands with unmatched ability to reach millions of current and prospective customers. Companies like Amazon, Facebook, Google, and Netflix are spending big, big dollars on network television. When they launch a new product, where do they advertise? on network television. In addition, our lineup of popular digital and cable properties gives CBS a unique opportunity to offer our advertising clients the scale, targeting, and outcomes they require in their media plans. CBS Interactive is made up of more than two dozen digital media properties, including CBS.com, CNET, GameSpot, MaxPrep, and Scouts. as well as our growing stable of AVOG platforms, which include CBS All Access, CBSN, CBSN Local, CBS Sports HQ, and ET Live. And we bring all of these properties collectively to market with great success. So while CBS clearly offers advertisers the value of quickly, powerfully, and safely reaching large audiences, we are also poised to capitalize on the opportunities emerging across the advanced advertising landscape to further monetize our audiences and deliver even better ROI to our clients. Data-driven linear was the starting point to move beyond demos to audiences. Looking at what's next, CBS is moving fast towards addressable TV via set-top boxes and smart TVs. This has the power to revolutionize advertising to get us all closer to that not-so-distant future of delivering a brand's message to the right consumer at the right moment and to drive their business. This is already happening on our OTT platform. And as always, CVS is committed to providing brands and agencies with the most precise and insightful measurement reflecting the impact of their advertising. The universal goal in the industry is to get to a place where every single viewer is measured and monetized no matter where and when they are watching, and we are making great strides towards achieving that. So, as you can see, we've had a strong first half of the year in advertising. We had a fantastic upfront, and we can't wait for the NFL and SEC football seasons to kick off and our highly anticipated new lineup to premiere this fall. We are energized by the great potential ahead to monetize audiences in new and exciting ways. We have our eye on the future and immense pride in the strength stability, and consistency our company delivers year in and year out. Speaking of delivering, here to tell you more about our financial results, Chris Spade.

Thank you, Joanne, and good afternoon, everyone. As you heard, the premium content we offer across our company is driving our results in advertising. Just as it's fueling increases in our other key revenue sources, As a result, we delivered second quarter records in revenue, operating income, and earnings per share. Clearly, our must-have content is the cornerstone of our success today. And as we continue to execute on our long-term strategy by investing in our programming and direct-to-consumer streaming services, it will continue to drive our growth in the future. Let me tell you about our second quarter results. Revenue was up 10% to $3.8 billion. Advertising overall increased 7%, driven by the broadcast of the semifinals and championship game of the NCAA men's basketball tournament. As you heard from Joanne, underlying network advertising was up 3% and acceleration from Q1. Content licensing and distribution was up 12%. The increase reflected higher domestic licensing sales of our library programming, which will continue to generate revenue for us for years to come. Affiliate and subscription fees grew 13%, led by a 43% increase in revenue from our direct-to-consumer platforms, CBS All Access and Showtime. Retrans and reverse comps continue to grow and were up 17%, including strong increases in virtual MVPD revenue. In terms of subscribers, our overall subs from CBS and Showtime continue to grow year over year, with the strongest increases coming from both CBS All Access and Showtime OTT. Operating income grew 1% to $702 million in the second quarter as we continue to invest in our content and our direct-to-consumer services. And earnings per share for the second quarter grew 4% to $1.16. We also delivered strong growth for the first half of the year. On a year-to-date basis, revenue of $8 billion increased 10%, which is consistent with the second quarter, and again, we delivered growth across our three key revenue types. Advertising was up 13%, content licensing was up 5%, and affiliate and subscription fees were up 13%. Operating income grew 1% in the first half to $1.5 billion, and again, includes our higher investments in our growth initiatives. And EPS for the first half of the year was up 2%, $2.53%. Now let's turn to the quarterly performance of our operating segment. Entertainment revenue increased 14%, $2.7 billion in the second quarter, with growth across all of our revenue sources. Advertising was up 9%, driven by the Final Four and NCAA championship game. Content licensing and distribution was up 18%, thanks to our domestic licensing sales, as well as the increase in programming we're creating for third parties. and affiliate and subscription fees grew 22%, driven by reverse comp and subscriber growth at CBS All Access and Virtual MVPD. Entertainment operating income was up 16% to $426 million, even with our higher investment in content, particularly at CBS All Access, which added the Twilight Zone during the second quarter. Cable networks revenue increased 2% to $562 million in the second quarter, driven by growth in our Showtime direct-to-consumer service, as well as the inclusion of POP, which we fully acquired in March. Cable Network's operating income for the second quarter decreased to $185 million, reflecting our higher programming investments, as well as the timing of licensing our original series. And as Joe mentioned, for the full year, we are adding about 40% more original programming on Showtime than we did last year. In publishing, revenue increased 5% to $218 million with growth in print and digital audio sales. Best-selling titles during the quarter included new books from Howard Stern and David McCulloch. And publishing operating income increased 6% to $33 million. Local media revenue increased 1% to $423 million compared to last year when we had strong political spending. The increase was driven by higher retrans along with the final four, and local media operating income increased 2% to $130 million. Turning to free cash flow, for the second quarter, we had an outflow of $157 million compared with an inflow of $296 million in the prior year. The decrease was largely driven by two things, higher programming investments and tax payments. First, let's talk about the taxes. During the quarter, we made a one-time cash tax payment of $260 million. This payment was driven by tax regulations that were finalized in 2019 and affected the timing and calculation of taxes that we owed on the repatriation of foreign earnings. With regard to our content investment, we invested 20% more in programming during the second quarter than we did in Q2 of 2018. Because of the proof points that we're seeing in our growth strategy, we believe the highest and best use of our cash is to continue to invest in our premium content and our direct consumer services. And as our business model continues to transform, we are creating additional financial flexibility that allows us to be opportunistic in how we prioritize the use of our cash. Now let me tell you what we see ahead in our three key revenue sources. From our strong start in 2019 with the Super Bowl, through the NCAA Men's Basketball Tournament and PGA Golf, to our healthy upfront pricing that will take effect in Q4, we expect 2019 will be a record year in advertising. In content licensing, we continue to ramp up our investment in programming and are creating more content than ever before, with 89 series across 15 broadcast cable and streaming outlets. So we are uniquely positioned to license more shows to outside parties, build upon our content library, and drive long-term growth on our direct-to-consumer platforms by adding more original series. In addition, as others pull back from the licensing market, we continue to believe the upcoming scarcity will create opportunity for us. So we feel very good about the strength and flexibility afforded to us as creators of premium content. In affiliate and subscription fees, we are confident we will reach our goal of $2.5 billion in revenue from retrans and reverse comp in 2020, and we are growing revenue and subscribers on our direct-to-consumer services by adding more original programming. So we feel very good about achieving our target of 25 million subscribers combined by the end of 2022. So in summary, as we continue to execute on our long-term strategy of investing in premium content to accelerate the growth of our direct-to-consumer streaming services, We are delivering robust growth in OTT subscribers and in revenue, with increases across our key revenue sources for both the second quarter and the first half of the year. With these solid results, we feel very strongly about our ability to achieve our three-year guidance of revenue CAGR in the high single digits and EPS CAGR in the double digits. With that, Greg, we can open the line for questions.

Thank you very much, ma'am. And ladies and gentlemen, for any questions, please signal by pressing star 1 on your telephone keypad. And if you just make sure that your mute function is turned off, allow us to receive that signal. Once again, for any questions at this time, that's star 1. And first, from Morgan Stanley, we have Ben Swinburne.

Thank you. Good afternoon. Joanne, thank you for all that color on the ad market. One of the big themes this quarter across earnings has been the role of digital inventory and driving upfront sales in the business, and you talked about that a bit. I'm wondering if you could give us a little bit more on maybe sizing how much of your upfront gains came from your digital inventory. And if you'd be willing to size the digital ad business for CBS, I think you guys will do about $6.5 billion of ad revenue there. for the year this year, maybe more. Could you give us any sense of how big the digital business is inside of that, and where are the biggest sources of inventory for you across the CBS digital properties? And I'll just ask my follow-up maybe for Joe. You know, Altice, AT&T, Tegna, Nexstar, you guys have been quite busy on the renegotiation front. Should we expect to see affiliate subscription revenues in your entertainment segment, that growth rate to accelerate? in the back half, now that you're able to put all these deals, get them all signed. Thank you, guys.

Ben, it's Joe. I'll take the first – the second part, and then Joanne will go. Look, you know, those deals have those expiration dates, so they're factored into our, you know, the financial targets we laid out for you previously. So it's just, you know, when they come up. So our team has been busy at work. I mean, you're seeing the results in that affiliate and subscription line. I think you're going to continue that. And like Chris said, we feel very comfortable with the $2.5 billion we laid out. And if you remember from two investor days ago, we were 2011, which is almost a decade ago. That number was hundreds of millions of dollars. And so we're pretty proud. of the track record of success we have, and that track record is built on the premium content that our team is able to stand behind. So we feel really good about that, but, you know, the timings are whenever the timings expire, and we flow that in. But, Joanne?

Hi. Thank you. So, yes, I think I'd start with how we went to market as a combined sales team with network and interactive working hand-in-glove and working with the agencies that are set up As video investors, they don't separate what's going on in digital from what's going on in broadcast. Our digital sales in the upfront were very, very strong, and the CPM increases were basically in line with the CPM increases in prime that we saw in linear. And their top categories of digital going through were pharma, which is interesting because that's also a top category for us in broadcasts. telecom and consumer products goods. And I think the important proof point here is that there is no question that our success with digital was driven by the fact that we have all the OTT brands that people want to buy in complement to the CBS brands. And as a leader in OTT, we're seeing a greater share of premium video budgets than ever before, whether it's on the CBS All Access, or cbs.com or several other platforms. Obviously, the CPMs, they are important because they're giving us reach and targeting. And we have new clients that are coming to digital. As I mentioned, you see the clients like Google and Netflix and the digital natives coming back to CBS. We're positioned really, really well going forward. And don't forget, we also have CBS Sports HQ. We have ET Live. You know, five years ago, we went all in on OTT, and then we have, you know, gone into CBSN, CBSN Local, and people are looking for premium video content, and that's what we're giving them. So, yes, a big success for us in the upfront related to our digital properties.

Thanks, Ben. Greg, we'll take our next question, please.

Sure thing. Next, we have Jessica Reif-Ehrlich with Bank of America Merrill Lynch.

Thank you. It's so great that Joanne's on the call. So I think there's going to be a lot of questions for you, Joanne, and I'm going to continue along. This is the best up front in recent memory, and I would love to get your take on what's going on in the overall market. Where are the dollars coming from? Is it coming from digital or is somebody losing share? And how has CBS's share of advertising dollars changed over the last few years? Who do you see as your biggest competitor in the market? I mean, I don't want to put words in your mouth, And then so far you've been really good about avoiding any specifics on CPMs, CPM growth overall and volume. If you could give us any color on that. And you kind of alluded to targeting. If you could just maybe talk about where you are in targeting on linear.

So, Jess, was that eight questions or just five? So, yeah, this is what I think. Just going back to what Bennett asked, the upfront in general, and I think you may have heard that on some other earnings call, is the strongest and the best upfront I have seen in years, and I've been doing this for a long time. But I want to talk about why we are seeing the influx of money, because it's the way we're positioned. Remember, we have the biggest broadcast network. CBS reached over 240 million viewers this past season across all day parts. We're stable. People love our programming on linear. They know what they're buying. They know we deliver. They trust us. And we have the biggest reach. So we have that going for us. And then we marry it with what's going on with technology and consumption patterns. And we were, I'll say it again, we were the first mover in the OTT space. And as Joe and Chris spoke about, we keep pouring money into the original content and And clients are out there that want this original premium video that's in a safe and well-lit environment, and we're offering that. We're not playing catch-up. CBS All Access has been a huge success with programming that's coming there. I believe that CBS is a leader in the market, so the competition is everybody that's behind me. But, again, in the space that we're in, we have been first movers. In terms of technology and addressability, that will be the holy grail. And we're working with MVPDs. We're working with Nielsen. You know, we have a lot of conversations going on. Addressable is not there yet, and it probably will take a while to scale, but we're looking at something maybe towards the back half of 2020 or earlier in 2020. But the MVPDs and the OEMs have to get their act together, but we are having conversations with all of them. And if clients want to test and learn with us on data-driven linear, whether it's in scatter or during the upfront, we're able to do that as well. I think I covered everything.

Okay. Thank you, Jessica. Greg, let's move on to the next question, please.

Absolutely. Next we have Alexia Quadrani with J.P. Morgan.

Thank you very much. Just sort of staying on the digital advertising topic, when we look at CBS All Access, Can you give us a sense of what the revenue mix is in All Access between advertising and sub-revenue, and kind of which revenue stream you're more excited about, and maybe how big of a step-up are you seeing this year, given the strong demand in advertising? And then just a follow-up, I think, on your announcement on moving into the kids' programming in All Access. I may have missed it. Did you say when that was going to be introduced, and will we see a step-up in marketing spend around that to attract the new demo?

Yeah, Alexia, it's Joe. Just all-access subs, two-thirds of the all-access subs are taking the limited commercial option. So, obviously, the vast majority of that, that's a $9.99 price point. Obviously, there is still advertising in the live linear portion of that. So we do have that two-pronged approach, but we obviously offer it with a subsidy of advertising for $5.99. And so, like I said, the mix is there. You know, we're very cognizant of the pricing. So we premium price the stuff on digital so that it doesn't lower the price points on, you know, linear. So we're sensitive to that. So we're indifferent. if somebody signs up for $5.99 plus the advertising or the $9.99. I think, again, more and more just the consumer preferences are leading to the ad-free. The limited ads, as I said, the $9.99 product. And as we roll that out internationally, we will obviously be going, again, with the commercial-free options. So as we're sitting here today, I think the subscription revenue is a huge opportunity. But, again, the advertising and the targeting capabilities is also big. The kid program will roll out later this year. Like I said, it's 1,000 hours. There's going to be some library, but new original seasons of some pretty big franchises. And again, because the average age of those subscribers have young children, we just thought it was such a sweet spot, really a natural way to expand our premium content. So we're really going to look for some proof points there to expand the sub-base based on expanding the product offering. So We feel pretty good about that.

Yeah. And, Alexia, this is Chris. Just to answer your marketing question, we will market more, and we have been marketing more consistently this year with our added original series offerings. Perfect.

Thank you very much. Thanks, Alexia. Greg, we'll take the next question, please.

And next we have Michael Nathanson with Moffitt Nathanson.

Thanks. I have two. I'm sorry, no advertising questions, Joanne. Okay. I have two for Joe. Joe, can you help us just think through the profit picture of when you make a show for an S5 service or a cable network, what types of rights are you retaining, and what's the payback versus maybe doing your own NCIS is where you keep all rights and syndicate it. So any color in kind of the windowing and when do we expect to see the payback. And then secondly on the kids' question, on kids' content, what type of research do you have about You know, is KIDS an opportunity for you to add new subscribers? Is that something that your research finds to be, you know, a hole in service, and you think that that could drive incremental subscribers as KIDS becomes a bigger program in this lifespan?

Sure, Michael. Yeah, obviously, making this investment in King's program, we believe that, and we also believe, Michael, it reduces what, you know, the word, I guess, the term is churn. Again, I think we termed it pausing, so we're trying to eliminate that. I think, again, Kids programming is critical to that because, again, it's just more things for more people because, you know, just think about a family, a subscriber, everybody has different, you know, preferences. So we want to serve all those appetites. And so we feel, you know, adding this kids programming is going to drive, you know, new subscribers and reduce churn. The analysis, you know, we go through, you know, about licensing, Michael, obviously is – is fulsome because when we, you know, make a show, the question is if we can license it to some third party and we will receive licensing revenues. Obviously, we're protecting, you know, the underlying library value, so it certainly comes back to CBS some point down the road as opposed to keeping it on our new service. And so what we – the analysis really is is how many new subs do we think we can drive with the infrastructure we have in place? compared to the licensing revenue we can receive from this other third party. Now, if this other third party happens to be larger than us, they might be able to put it through a different infrastructure to make more money and thus pay us more. We will then take that money and do two more shows and build our own service that way. And so, again, because we haven't, we're really not fully able to exploit these opportunities internationally yet, We're really limited to the United States, which are again, great, but it's only 325 million people. So if somebody could put it through an infrastructure that has billions of people, our thought is if they're willing to pay us that, we're going to look at that very hard. But if they're not, we're going to put it through our own infrastructure. So it's a high-class problem, but we literally do it, Michael, you know, franchise by franchise because some think, you know, some brands and titles or franchises are great. You know, Star Trek is obviously, you know, in demand. And so for us, it's about quality premium content and putting volume through our offerings. That is our priority. That's why I said international is our largest opportunity. That's the long end.

But, Joe, in most of your deals, you're attaining your long-term rights, right? So they'll revert back to you over time as you sell your content? That's correct, Michael.

All right. Thanks, Michael. Greg, let's take the next question.

Next from Guggenheim, we have Mike Morris. Thank you.

Thanks. Good afternoon, guys. A couple more programming questions. My first one's about the programming asset that you have been investing in and building, and you talk about the ways to monetize it. But my question, I guess, is how much of this asset that you've built so far and continue to build is fuel specifically as you grow these domestic OTT platforms that you've laid out some goals for us? And how much is monetizable now? you know, being contemplated for monetization, whether it's through licensing or international. And I guess what I'm really trying to get at is the opportunity on the licensing side. I mean, you had a strong quarter this quarter in content licensing, and how much of that may be underappreciated relative to the domestic OTT trajectory that we kind of already know about. And then I have a follow-up as well.

Yeah, look, I think that's a very good point, Mike. I think, again, you know, some of these assets we're building, again, for our own services, and that's based on the research that we have from all of the data we're getting when subscribers churn. And so we know original series really drive intent to subscribe. We know key engagement metrics as we put more and more originals on the surface are really significant. Again, that's why with time spent, number of streams, all of these things, we're getting more and more data on that. Now, that said, we're doing things differently. Again, I use an example of the good fight that is premiered on CBS All Access is now on the CBS network. I mean, that is a high-quality show that obviously would cost a lot of money to produce, but you can see how we're utilizing that asset. Again, that's internal, but obviously we could have licensed the good fight outside of that. So we're continuously building that library value where we have nearly 1,000 episodes of premium content that we have not yet licensed. And so, again, we're strategically holding that to see how this marketplace moves, but yet we're still putting it through our own funnel, again, to drive engagement. So, again, as we said in our remarks, we think we're operating in the sweet spot. We think we have the ability to continue to produce for others. Again, I look at 90210 for Fox. which premiered nicely, solid in the key demos, great for Fox. It was only behind in total views to Big Brother, but it was a great show. We're doing Diary of a Female President for Disney+. You know the shows on Netflix. So we're continuously being able to do that, yet we're still creating library value in the future for things we haven't yet monetized. So that's why this machine is like pushing a snowball downhill. It's getting bigger and bigger.

And, Mike, it's Chris. To that, I'd also add that, you know, it's really important in where we are now to own the shows, the rights to the shows. So, as Joe said, in our fall schedule, we own 85%, which is more than we've had. So, once we own the rights, we can monetize it, and we have a lot more flexibility, which is where we want to be.

Okay. Thanks, Mike. I just – Paul?

Yeah.

Yeah, on the good fight, that was the follow-up I wanted to ask. So, Joe, you brought it up. Can you just tell us, you know, what was the impetus to make the move? I mean, I think it's very logical. We talked about it before. But, you know, how did you evaluate the success of it? And is it something that you would do with any of the other programs you have on all access right now?

I think what we're doing is we're doing it in a case-by-case basis. Again, I don't think it's anything, any policy that we're saying. Again, it was to basically introduce The Good Fight, which we think is a highly acclaimed show, to a much broader audience that's on the CBS television network. You know, again, that was just season one. So if you like season one, they can now catch up during these coming months for seasons two and three. And in January, you'll have season four. So we're going to be looking at the uptick. Like, you know, sometimes we license shows to syndication and it drives consumption of current seasons. So, again, similar type of analysis is really what we're looking for to introduce, you know, again, content while, again, we're selling advertising against the good fight, which rates well. It's a high-quality show, so it makes sense it's on the CBS network. But, again, it does that. It's expanding, and we can drive a CBS All Access subscriber. That's going to be a good use of that property.

Okay. Thanks, Mike. Greg, next question, please.

Next, we have Doug Mitchelson with Credit Suisse.

Thanks so much. I want to go back to the well with Joanne, but first I wanted to say, Anthony, you did a bang-up job in that safe harbor, so I appreciate that. A lot of practice. Joanne, everyone says they led the market, so who won? What was your strategy around inventory? Upward pricing was strong, but you have to comp big scatter pricing markets. increases that you had this season. So do you sell a lot of inventory to strong upfront, or do you hold back and hope the scatter market stays strong and that your ratings are good? And then I've got to follow up for Jo.

Thank you. Yeah, so I've been doing it for quite some time along with my team, again, the most stable ad sales team in the business, and our Interaccess team, led by David LaWenda, the most experienced ad sales team in the business. So it's You evaluate every market differently. We did see signs early on, as early as March, that this was going to be a strong upfront based on conversations that we had with our clients and the agencies. And that was before we announced our schedule. Coming out of May, after the schedule announcement, we also felt a lot of pressure to kind of move quickly from clients and agencies because I believe that with the influx of new categories, and I know other people have talked about the digital natives. We were also first mover in that space going back probably 15 years ago with a little client that has a gnome as its mascot. Anyway, we knew what was coming because we had seen strength in scatter in every quarter. We kind of, like, we're back into numbers. It's not an exact science, but we do see the whole landscape before we send out our first plan. And we see the whole landscape usually through different ways, client interest, what's been spent. We go back historically. But, you know, on comps of, you know, where the sellout is, it's probably very similar to where we were a year ago. And we're well positioned for the scatter market going forward, which, has already started to kind of percolate. Clients are still out there putting their presentations together and presenting. But since we finished the upfront, we've written more money in NFL and in SEC, which kind of moved separately. It moved along with the upfront this year, but we're already seeing that market pacing along very nicely. So, again, not an exact science because you have to put the ratings into the equation. But, you know, anybody that's been in this position and the other teams that we work with across the company obviously can look at historical information, key data points, and know where we're going to be going. And then I have to present to Joe, so that's always a lot of fun.

And so, Doug, I would just say, you know, our strategy always going into these upfronts is we're always willing to bet on our schedule, and that proves out year in and year out. And so as you all know, the scatter premium is significant above upfront. So I'm very careful not to sell too much in the upfront because certainly Joanne could have took more and more money. But again, like I said, I think the upfront is a hell of a deal for advertisers. So I'd much rather sell in the scatter where there's more scarcity now and based on our performance. And so as Joanne, it is art, not science. And the proof points and the track record we have are undeniable. So we are as bullish as we can be on advertising.

It feels like others have increased their sellouts. If it's all right, Anthony, if I can ask a follow-up for Joe. I just wanted an update on international streaming. I mean, Joe, you keep talking more and more about the experience and scaling of your streaming services. You know, is there a big opportunity overseas? When do you get the content back that you can actually go after that? Anything on international would be helpful. Thanks.

Yeah, sure. I mean, as we said on our last call, I think, you know, Latin America and Europe is kind of up next for our rollout. And as you said, what, you know, I'm trying to give our team some flexibility and timing because we want to get the offering right. But there is a strong demand in premium content delivered via broadband in the international marketplace. And it's incumbent upon us to serve that, you know, appetite. And so stay tuned, you know, for more, you know, down the road. But, you know, again, I just look at the number of people and the consumption of Netflix's subs. So I'm very encouraged that this is single-handedly the largest opportunity that we have in front of us.

Okay. Thank you.

All right.

Thanks a lot, Doug. Greg, next question, please.

Next is Laura Martin with Needham & Company.

Hi there. Maybe two on OTT. So, Joe, one of your competitors is talking about putting together a bundle of three services they own. You guys also own a number of services. Could you talk about your thinking about the power of bundling your both ad-driven and subscription-driven services together as a marketing tool. And then staying on the subject of marketing, as you think about some of these new Apple Plus, Disney Plus, some new competitors coming in the marketplace, how does your marketing strategy have to change? Because I'm sure it's lost on nobody that you've been in the market with All Access for four years, and now you're introducing kids right as Disney comes into the market, right on top of them. So it feels like you're reacting a little bit differently. to new entrants, so could you talk more generally about how your marketing plans need to change with more competition in OTT?

Sure. Sure, Laura. The first part about OTT, look, we offer CBS, All Access, and Showtime together. It's an opportunity. We don't force consumers to do it. They can buy it a la carte. If they want to buy them together, we obviously discount that. We think, again, those are different offerings and they're complementary. So we like that. So we have that available. So I can understand why others want to kind of do that together because people will subscribe for different reasons. So like I said, we've been doing this, as you've said. All Access is actually almost, you know, five years old. So we've been at this. The kids programming really has nothing to do with Disney at all, quite frankly. It has to do with the data and the research that we have done, you know, on the service based on, you know, the consumption patterns, the average age of the viewers. So really it's that that's really led us to doing this. And as you've said, as you've seen all along, Laura, All Access first started really serving the super fan, giving CBS some kind of catch-up viewing, you know, abilities, a deep library. You know, then we added live linear, you know, programming to it. Then we really started producing originals. And that is all based on data that we got back from our consumers. So this is a natural progression, you know, for us. So, you know, we're going to continue to roll it out, but we've been pretty measured with the investment spend. You see that come through the P&L, but I think we've been pretty judicious about managing that. And, again, it's all proof points along the way.

Thank you. Very helpful.

Thanks, Laura. Greg, we have time for one last question.

Okay. In that case, we'll take the final question from Dan Salmon with BMO Capital Markets.

And I'll take it back to have one last one for Joanne. Joanne, look, obviously CBS is probably known first and foremost to large advertisers for all the great content and anchoring their big branding and awareness campaigns. But as the business gets a little bit more digital over time, do you think CBS needs to be looking more at direct response style advertising, which makes up the vast majority of online spending? And then similarly, you've also got a really strong local footprint as well. You know, again, as the business becomes a bit more digital, do you think it makes sense for CBS to be looking at self-service or the type of tools that could be used by more small and medium-sized businesses?

Thanks. Good question. On the direct response piece of it, I don't have a concern now that we would have to go that route. just based, again, on all the data that we have and the fact that, you know, we are America's most watched network for the last 11 seasons. The demand, to answer it in a different way, the demand is still there in broadcast for the big advertisers. And for some clients and some advertisers, they are going to migrate to digital. But I do not see the direct response replacing what we're seeing now in our ecosystem. they're always going to want that big, big reach. And then on digital, those are clients that may be going more niche, more targeted. And we're doing that actually in OTT right now. I don't recall the second part of your question.

Just whether you think, you know, we see a lot of the big digital platforms will build self-service platforms or self-service tools so small and medium-sized businesses can use it themselves. Is that something you think makes sense for CVS? And you're targeting that as more of a local play? Yeah, usually not the type of thing that Procter & Gamble is using on a daily basis, but more small and medium-sized businesses that might do that.

I mean, if you look at some of the bigger services like Google and Facebook, a lot of their revenue is driven by local. I don't see our digital play going that way because we're offering premium, safe content. premium video and the local play is usually like the message boards or the story boards where, you know, Facebook is creating content about the latest diet. So I don't see that as a game changer or a game play for CBS.

All right. Thank you everyone for joining our call and this concludes today's call.

Once again, ladies and gentlemen, thank you for joining us today. You may now disconnect. Thank you.