Paramount Global

Good day, everyone, and welcome to the CBS Corporation Third Quarter 2019 Earnings Release Teleconference. Today's call is being recorded. At this time, I'd like to turn the call over to the Executive Vice President of Investor Relations, Mr. Anthony DiClemente. Please go ahead.

Thank you, and good morning, everyone, and welcome to our Third Quarter 2019 Earnings Call. Joining us with today's remarks are Joe Ionella, our President and Acting CEO, and Chris Spade, our Chief Financial Officer. Following Joe 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. Risk and uncertainties are disclosed in CBS Corporation's SEC filings. In connection with the pending merger with Viacom, Inc., CBS has filed a registration statement on Form S-4, which was declared effective by the SEC on October 25th and contains important information regarding the transaction. Today's remarks do not constitute an offer to buy or sell or the solicitation of any offer to buy or sell any securities or solicitation of any vote or approval. 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. And before we begin, I want to note that the focus of this morning's call is to discuss CBS Corporation's standalone financial results. And with that, I'll turn the call over to Joe.

Thank you, Anthony. And good morning, everyone. I'm pleased you can join us today. Before we discuss our third quarter results, I want to give you an update on our merger with Viacom. As you may have heard, our S4 has been declared effective and we are on track to close in just a few weeks. In the meantime, we continue to announce a number of key leadership positions for ViacomCBS, including the people who will oversee ad sales, affiliate revenue, and content licensing, as well as our top programming and digital executives. and we remain fully focused on integrating these two great companies. As we head into the merger, I am very pleased with the way we have positioned CBS to thrive in this ever-changing media landscape. We have proven we know how to strategically invest in the right content on the right platforms to drive growth, and the company will reap the benefits going forward. Our front-loaded content investment is the key reason we are driving sustained revenue growth across direct-to-consumer, content licensing, advertising, and our linear distribution revenue. And in terms of dollars, the biggest increase during the third quarter came from a revenue source that's been at the forefront of our growth plan, Retrans Reverse Comp and Virtual MVPDs, which were up 18% despite CBS being off the air with AT&T for more than 20% of the quarter. And now, as a result of our new carriage deals, our retrans revenue will accelerate here in the fourth quarter. Plus, about 50% of our retrans footprint and about 30% of our reverse comp footprint are coming up for renewal next year, which means we will have another strong year of healthy gains from retrans and reverse comp in 2020 as we continue to reset the value of our content to current market rates. Our programming investment is also driving dramatic growth in another key part of our strategy, direct-to-consumer. D2C revenue was up over 39% for both the quarter and year-to-date, As consumers shift from traditional bundles to skinnier bundles to CBS All Access and to Showtime OTT, we are getting paid higher rates per sub. Our rapid growth in direct-to-consumer means that our total subs are growing as well. Even with the headwinds of the traditional MVPD business, when you include subs from virtual MVPDs and our direct-to-consumer platforms, Our overall subs at CBS and Showtime grew 4% year over year, which means consumers are actively seeking out our content as they select the platform of their choice. Our programming investment is also setting us up for growth in content licensing. In a world where other studios are pulling back from the marketplace, creating a scarcity of premium content, we will have an opportunity to determine how to best maximize the value of each of our content franchises. So we are growing our lucrative programming library and we can unlock the value of that programming when we think it's optimal. We now have more than 1,000 episodes of CBS and Showtime content that we have not yet monetized, from the likes of Ray Donovan and The Affair to Seal Team and MacGyver, as well as shows that we have not yet fully monetized, including our global hit franchise NCIS. So we are sitting in an enviable position as this opportunity only gets bigger for us. At the same time, we continue to ramp up our production output. We are currently creating an all time high of 94 shows, up 20% from a year ago, and that's up more than 120% from what we did just five years ago. So we are adding intellectual property to our content pipeline, which gives us even more strategic windowing opportunities in the years to come. Meanwhile, Our base business continues to be strong and stable. Our underlying network advertising revenue was up 2% for the quarter and 2% year-to-date as well. And the momentum continues here in the fourth quarter with strong scatter pricing and steady advertiser demand, which bodes very well for us as we close out the year and head into 2020. And that's thanks to the CBS television network, which is having another great start to the season. We have the number one drama in NCIS, the number one comedy in Young Sheldon, and five of the top eight new shows on television, meaning we will benefit from all five of our freshman series into the future. And even better is we have ownership in four of the five new shows, and in more than 85% of our entire prime time schedule, which in turn will lead to more licensing revenue. So with our balanced schedule of new and established hits throughout the week, we can already predict that CBS will finish the season in May of 2020 as America's most watched network for the 12th consecutive year. We will also finish the year number one in late night yet again, And we're very pleased to have reached multi-year contract renewals with both Stephen Colbert and James Corden. Stephen and James have become the two most powerful voices in late night, and we now have them at CBS for years to come. There's no secret that the ways in which people are viewing content have changed. They are watching programming on their own time, on the platforms of their choice, and outside their homes. and we are changing the business model to capture all of this on-demand, multi-platform viewing. In one major example, starting next September, Nielsen's measurement of out-of-home viewing will be included in our ratings, so we will have an opportunity to monetize this viewing for the very first time. The NFL offers a great example here. Nine weeks into the season, The NFL on CBS is off to a strong start, up 6% year-to-date. When you factor in out-of-home viewing, we get an additional 11% lift to that increase. And while sports is an obvious beneficiary, we are also seeing increases in out-of-home ratings in our primetime, daytime, and news programming, which we will begin monetizing next fall. And at CBS News, our emphasis on quality reporting is leading to additional opportunities as well. For example, because CBS News programming travels well around the world, there is significant opportunity for us to grow our international revenue. And moving the CBS evening news to Washington, D.C., just as the political season kicks into high gear, will help create premium content that we can monetize well beyond ratings. This programming will also help feed CBSN, which leads to incremental digital advertising, as well as subscription revenue as a complement to CBS All Access. CBSN is already on a number of platforms, including Pluto, and I am pleased to announce today that we have a deal in place with Viacom to add more AVOD channels on Pluto starting tomorrow. And we continue to look at our content to see how we can expand our reach of our CBS properties on a growing number of platforms. Next, I'm going to take a minute to talk about the programming at our direct-to-consumer services, CBS All Access and Showtime OTT. This is a revenue stream that represents one of the biggest growth opportunities. Each time we add content to these services, we are accelerating our growth reaching new viewers, and reducing the number of customers who pause their subscriptions. This progress was demonstrated during the third quarter in a number of ways. First, we launched a new original series on All Access, Why Women Kill, starring Lucy Liu, which was just renewed for a second season and helped drive subs for us during the quarter. Next, we had a summer reality show, Love Island, which launched on the CBS television network and attracted a much younger audience on All Access, where more than a third of the viewers binge the show. So this represents an example of our ability to expand our reach across multiple platforms. In addition, combined streams from the NFL and the SEC are up nearly 60% over last year's strong growth. All of these things, along with the premiere of our new fall schedule on the CBS network, helped make September the third highest month for new subs in the 60 months since we launched All Access. Meanwhile, the momentum continues here in the fourth quarter as we broaden our reach by adding children's programming to All Access. And the production is nearly complete for four more All Access originals coming in 2020. including the highly anticipated Star Trek Picard, the true crime drama Interrogation, and The Stand, based on Stephen King's best-selling novel. And the investments we are making this year on these premium shows will fuel our subscriber growth on All Access next year and beyond. We are also very excited about a new development for All Access. We will now have exclusive live marquee sports for the very first time. The UEFA Champions League, including UEFA Europa League and the newly created UEFA European Conference League will be coming to CBS and CBS's sports platforms with all matches available on all access and select games airing on broadcast. We will now have more than 400 matches per year, spanning nine months across the calendar. Soccer fans know these rights represent some of the most prestigious and popular soccer tournaments in the world, so we couldn't be more pleased that we won this hotly contested process. We are currently finalizing contracts for this multi-year deal, and we will be releasing more details in the coming weeks. With over 10,000 episodes of library content, catch-up viewing from the most watched television network, a live stream of your local news and syndicated content, big tentpole sporting events, and a growing slate of premium original series, All Access has something for everyone. And it continues to differentiate itself by offering this unique value proposition to consumers. Like All Access, our strategy of adding more programming is also paying off at Showtime. During the third quarter, we launched three new critically acclaimed series, The Loudest Voice, City on a Hill, and On Becoming a God in Central Florida. And these original series are helping drive sub growth at Showtime OTT. And there's more to come with big programming lineup that rolls right into next year. Here in the fourth quarter, we have Shameless, Ray Donovan, and a brand new version of The L Word. And in 2020, we have a number of new shows with lots of star power, including Penny Dreadful City of Angels starring Nathan Lane, The Good Lord Bird starring Ethan Hawke, and Your Honor starring Bryan Cranston. With such a strong programming slate, we expect continued strong growth on Showtime OTT in the months ahead. Turning to local media, While political spending won't really kick in until next year, our Boston stations are already receiving orders for the New Hampshire primary in February. And our TV stations in Los Angeles, San Francisco, and Sacramento will all benefit in Q1 from the California primary moving from June to Super Tuesday in March. Plus, by early next year, we will have our local versions of CBSN in all the major CBS markets where we have local news operations. So we can benefit from a more robust multi-platform approach as we head into the next election cycle. As we've said before, we expect 2020 to be a record-setting year for political ad sales. In publishing, Simon & Schuster continues to create great content that inspires programming for our other businesses as well. This includes the best-selling book, Three Women, by Lisa Tadeo, which was recently picked up as a series by Showtime. And we have a strong publishing lineup here in Q4, including the new edition of The Joy of Cooking, being released today, just in time to help all of us prepare our Thanksgiving meals. So, Across our company, we are focused on creating and distributing premium must-have content. And as you have seen, we have a strong and consistent track record of monetizing that content in ways that generate incremental revenue and position us for long-term success. We were pioneers in achieving fair value for broadcasters in retrends and reverse comp. We were an early entrant in direct-to-consumer By launching CBS All Access and Showtime OTT, we were leaders in working with Madison Avenue to fully measure and monetize all viewership. And we strategically exported our shows to create global content franchises that resonate with viewers around the world. What's most exciting is how we've evolved our traditional businesses by embracing changes in technology and consumer habits. And as a result, we have grown CBS into a preeminent global multi-platform premium content company. I'd like to take a moment to thank all of our hardworking and dedicated CBS employees. Day in and day out, they execute and deliver the success we continue to see at our great company. I am very proud of all that we have accomplished. And as always, we will keep our eye on the future. So as we prepare to close our deal with Viacom, we view this as a new beginning, a way to take all of our CBS growth opportunities and make them even bigger. With that, I'll turn the call over to Chris.