Adam Townsend - Executive Vice President of Investor Relations Sumner M. Redstone - Founder and Executive Chairman Leslie Moonves - Chief Executive Officer and Director Joseph R. Ianniello - Former Senior Vice President of Finance and Treasurer

David Bank - RBC Capital Markets, LLC, Research Division Jessica Reif Cohen - BofA Merrill Lynch, Research Division Benjamin Swinburne - Morgan Stanley, Research Division Michael C. Morris - Davenport & Company, LLC, Research Division Anthony J. DiClemente - Barclays Capital, Research Division Meghan Durkin - Deutsche Bank AG, Research Division Alexia S. Quadrani - JP Morgan Chase & Co, Research Division John Janedis - UBS Investment Bank, Research Division Laura A. Martin - Needham & Company, LLC, Research Division Tim Nollen - Macquarie Research Alan S. Gould - Evercore Partners Inc., Research Division William G. Bird - Lazard Capital Markets LLC, Research Division James C. Goss - Barrington Research Associates, Inc., Research Division Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Good day, everyone, and welcome to the CBS Corporation Second Quarter 2013 Earnings Release Teleconference. Today's call is being recorded. At this time, I'd like to turn the call over to the Executive Vice President of Investor Relations, Mr. Adam Townsend. Please go ahead.

Good afternoon, everyone, and welcome to our second quarter 2013 earnings call. Joining me for today's discussion are Sumner Redstone, our Executive Chairman; Leslie Moonves, President and CEO; and Joe Ianniello, Chief Operating Officer. Sumner will have opening remarks and we'll turn the call over to Les and Joe, who will then discuss the strategic and financial results. We will then open the call up to questions. Please note that statements on this conference call relating to matters which are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation's news releases and securities filings. A webcast of this call and the earnings release related to today's presentation can be found on the Investors section of our website at cbscorporation.com. Reconciliations for non-GAAP financial information related to this call can be found in our earnings releases or on our website. And with that, it's now my pleasure to turn the call over to Sumner.

Thank you, Adam. Good afternoon, everyone. Another quarter, another outstanding performance. I could not be more pleased with CBS's results. The reason, of course, the reason behind our success, is simple of course. We have great content. We have the right strategy, we have the people who know how to get the job done. That's why I am certain that CBS will continue to reach new highs for many, many years to come. Of course, to tell you more about it, I'm going to turn this over to my good friend and colleague, a man I rightfully call a super genius, CBS's President and COO, Les Moonves. Les, the ball's in your court.

Thank you very much, Sumner, for those very kind remarks. And good afternoon, everybody, and thank you very much for joining us. I'm pleased to tell you that CBS has delivered yet another quarter for the record books. We had double-digit revenue growth of 11% to $3.7 billion, our best-ever in the second quarter. And our profits were the best we've achieved in any quarter in our history. OIBDA of $952 million was up 5%, with growth in every single one of our businesses. Operating income of $838 million was up 6% and EPS of $0.76 was up 12%. Again, all of these profit measures were all-time highs for the CBS Corporation and they were achieved against the spectacular quarter a year ago. Looking ahead, we are well on our way to another record-setting year with lots to look forward to in 2014 and beyond. The driving force behind our ongoing success is our world-class content. Throughout our company, our programming is commanding top dollar across every platform and our non-advertising revenue sources are becoming more and more meaningful all the time. During the second quarter, nonadvertising revenue represented 43% of our total revenue. That's quite a jump from not too long ago when less than 30% was the norm. And we continue to reload our content pipeline for the future. This summer, we debuted 2 exciting new franchise hits, Under the Dome on the CBS Television Network and Ray Donovan on Showtime, both of which have just been renewed for second seasons and both of which we own 100%. These are just the latest assets that we can monetize in the content value chain and help us grow our steady and recurring revenue streams in the years ahead. Meanwhile, the advertising marketplace is improving. Network advertising posted strong growth…

Thanks, Les, and good afternoon, everyone. Today, I'm going to provide some more details about our results for the quarter and year-to-date, then I'll discuss what we see ahead in Q3 and give you an update on our Outdoor initiatives. Let's start with the second quarter. As you just heard, CBS delivered very strong top line growth and our best quarterly profits ever. And we did this while investing in more hours of owned content. Our strategy of creating and distributing our premium content across all platforms continues to drive our results today and it's creating even bigger opportunities for growth in the future. In the second quarter, revenue was up 11% to $3.7 billion, with solid gains in every one of our key revenue types. Advertising grew 5%, driven by an 11% increase at the CBS Television Network, which is an acceleration from the first quarter. Content licensing and distribution revenue grew 22% as a result of increases in international syndication and digital streaming. And affiliate and subscription fee revenue grew 18%, driven by retrans, reverse comp and underlying cable affiliate fees, as well as our Mayweather pay-per-view fight. These revenue increases drove second quarter OIBDA up 5% to $952 million, plus with lower interest expense and share count, we turned this OIBDA increase into strong diluted EPS growth of 12% to $0.76. And once again, these profit measures were all-time records for us. You can get an even better perspective of the strength and consistency of our performance by looking at our results on a year-to-date basis. For the first half of 2013, revenue was up 9% to $7.7 billion, with strong growth across-the-board. Advertising was up 7%, content licensing and distribution revenue was up 9% and affiliate and subscription fee revenue, up 16%. Meanwhile, year-to-date OIBDA was…

[Operator Instructions] And we'll go first to David Bank with RBC Capital Markets.

A couple of questions. I guess, you guys talked a little bit about some of the expense pressure in the Entertainment segment related to the price of content. And I'm wondering if that's sort of a structural issue or a timing issue or maybe related to ratings performance in the past year leading to more pilots or something like that. If you can give a little bit more color around that. And then in the spirit of one question, I'll give you a second part of the question that's completely unrelated.

Yes, right. David, as we expressed, Under the Dome is a brand-new form of entertainment. We haven't done, nor has anybody, done an original drama of this size in many, many years. Now the good news for us is because of the Amazon deal and because of the international sale, we were able to make this show profitable before it even went on the air. Now the fact that it went on the air and is a huge hit is really almost gravy and will bring in a ton of profits into the third quarter. However, this is new programming at north of $3 million an episode. So figure that out. That's in addition to our programming cost that didn't exist last year. It's things like that where you will see us invest more in programming, but also invest with the knowledge that we're going to get it back and then some. That show is going to be very profitable for years to come and it's the greatest way to invest our money.

Okay. So -- but you -- it's not really about having to have to produced more pilots or something as a result of the prior season, just this summer programming?

Since I've been here in 1995, we have always done between 18 and 22 pilots and it's remained the same this year. When we are in last place, when we are in first place, we do the same number of pilots.

We'll go next to Jessica Reif Cohen with Bank of America Merrill Lynch.

I have one for Les, which is sort of a follow up to the first and then one for Joe. Les, given the incredible success as you've said in this call of Under the Dome, can you talk about how much appetite there is by spot players, by distributing players and what do you expect -- you already said that you're going to bring Under the Dome back but is there a lot more room to do more of this kind of first run, high-quality programming?

Yes, I really believe there is. Obviously, the response was tremendous. Amazon is very pleased that they joined up early in partnership with us. Jeff Bezos actually spoke to me personally about how pleased they were that they experimented with this. I think you will see every network, and I know they are, develop and try to replicate the model that we did. I doubt many of them will have the same ratings as Under the Dome did. It was like the second highest-rated new drama of the year. The numbers were pretty sensational, but I think there's a huge appetite with the SVOD players out there to join us, plus the international desire for our content is not slowing down at all.

And is it just like a summer window that you have or do you think there are other times of the year?

Well, look, we're -- we program all times of the year normally. We put on -- the question with Under the Dome when we renewed it is do we put on in February or in the summer and we decided to go with the summer. It's doing numbers that would have made it the second-highest drama on television, on network television. So we consider that but what it means is we get a program all year long from September to September.

Great. And then, Joe, I just -- you just increased the buyback and I was wondering if you could give us some sense of timing and what your comfort level will be on leverage post the Outdoor IPO/REIT?

Yes, sure. Obviously, we reloaded the program getting ready for the Outdoor transaction. So as we lever that business up and IPO, we'll have the capacity to buyback our stock quickly. We're continuing the same pace as the underlying program goes. And we're going to continue to relook at our ratios as we become more content focused and less advertising dependent. So we think we're creating tremendous financial flexibility and this program gives us the ability to capitalize on that.

We'll take our next question from Ben Swinburne with Morgan Stanley.

If you look at the Under the Dome viewership, I think 1/3 of it was outside of C3 just highlighting again how important it is that we broaden out -- the industry broadens out the measurement. Can you talk about the upfront and sort of how that went as you think about extending to C7? And also, bringing on measurement for screening and tablets, what the time line is for there? And then I have a follow-up.

Yes, that's a very good question and obviously, you're right. We -- the initial viewing of Under the Dome was $13.7 million. Then when you added DVR, you add streaming and VOD, it was north of 20 million people. So literally 1/3 of them. Now we did get paid for some of them on the DVR. I think within a year, by the next upfront, C7 will be the currency. I think there are some C7 deals done now because it's a question of reeducation. But since they were at C3, they're there. In addition, Nielsen is getting better by the day in measuring streaming. And I think we're closer and closer to our goal of getting every single eyeball measured. In addition, we have ways to measure beyond the C7 and put in more advertising. So once again, all this technology and all this measurement only is going to be helpful for us because everything is going to be counted and we're going to get paid in full.

Great. And, Joe, if I could just follow up. You said underlying ad growth should accelerate in Q3. So at the network, am I thinking about 4% is the underlying network growth in Q2, if I back out the March Madness, is that the number?

Yes. Yes, Ben, that's correct. So the underlying, we said, would -- clearly going to accelerate in Q3.

We'll go next to Michael Morris with Davenport. Michael C. Morris - Davenport & Company, LLC, Research Division: I have to ask a question about retransmission, not specific to any one agreement but -- and I apologize if it seems a bit rhetorical, I just want to get your current thoughts. The pushback that we hear on retrans or the concern is that your signal is available for you to air or there are different services that I won't name, but that people could perhaps use to get your signal or the content is on-demand in some places. So I guess the question is, why do you think you should be able to collect this retrans? I realize that's basic and I'm going back in time a little bit, but I think it's important to get your thoughts on that now. And then I have a follow-up.

First of all, right now, over 85% of our airing, our viewing is done through satellite cable or the phone companies. That's number one. And the remaining 15% are not the most advertiser-friendly and the most appealing to our advertisers. Once again, these services and you, obviously, were referring to Aereo and we think it's a lot more wind than reality. It's an illegal service that would be in essence, stealing our content. We don't think it is catching on at all. When you see and talking in general terms of the MVPDs charging the amount of money they are to the public for their content, we feel like, and the have stated it, that he who has the most eyeballs should get paid the most. And since we are the #1 network, putting on NFL and putting on the #1 program in NCIS and the #1 comedy in Big Bang Theory, that we should be paid appropriately, that it's more important to take care of CBS. Once again, all the statistics, the average home has 100 channels but they're watching 10 to 15 of them. And we are one of those 10 to 15. In every home, we're actually #1 in every home, so we feel that it is justified and we should get paid for it and that's the way of the world. And by the way, most everybody agrees. Most everybody agrees and we are getting paid fairly in most places. Michael C. Morris - Davenport & Company, LLC, Research Division: And then also, can you comment at all on the regulatory environment? It seems that if there is any concern on the political side, it's just in the perception of disruption is hurting the consumers. What -- any thoughts you have on that as you approach negotiations?

You know what? Some people on the other side have gone to Washington and tried to shake things up. We have seen absolutely no movement on the part of Washington. Obviously, local leaders are appropriately concerned about their consumers in their areas being disrupted. And we understand that concern. We don't feel it's going to change anything. We're certainly willing to have discussions with them, and they are concerned, but we're not worried about the regulatory environment affecting our business one iota.

We'll take our next question from Anthony DiClemente with Barclays.

First off, Joe, congratulations on your new role. I have a couple of questions. First off, Joe, I wonder if you can clarify for us and for investors how we should be thinking about the sequencing on the Outdoor IPO/REIT? Where are you in terms of the likelihood of getting that PLR before the IPO and are there any benefits for the IPO actually coming before that happens? How should we think about that?

Sure. Look, we said Q1 of 2014, and like I said, we remain on track for that. We will -- we filed with the SEC, so we got clear of the SEC and we're waiting for the ruling on the IRS. So the way you should think about it is what we're -- the current plan would be to lever the company up in Q1 of 2014 and IPO within the same quarter. So those proceeds we would use again to buyback our stock. If we don't have the private letter ruling at that time, obviously, we'll have to make a decision at that time based on current market conditions, where we go from there. But we still remain very confident in the process and our ruling request.

And then one for Les, please, if I may. Les, there's some growing evidence out there that mobile advertising is starting to gain some real traction. I assume that you see that and you wonder the best way for CBS to monetize its content on mobile devices and I know that given your ownership of Syncbak, you have the technology to stream CBS or stream the CBS signal direct to mobile viewers for a subscription fee and so forth. So I guess, the question is, can you do that? Would you guys consider doing that? Or would your affiliate contracts require you to remain part of an authentication process with your existing distributors?

A, Syncbak would include our affiliates as well; that we want them to be part of it and Syncbak, once again, a much more legal use of our signal than Aereo might be. So look, mobile is advertising, is growing in leaps and bounds. We're part of it. We're right there. We're on the iPad after 8 days right now, and we will be there earlier as soon as it's counted appropriately. So we welcome mobile. Once again, we welcome all sorts of legal use of our content that is paying us appropriately. We -- what's great about who we are, we continue to do great content and we're very nimble. We realize the models are changing. As I referred to in Under the Dome, we're now getting paid in a hundred different ways just from that one series. So we welcome what's happening with technology and we're on top of it.

We'll go next to Doug Mitchelson with Deutsche Bank.

This is actually Meghan Durkin standing in for Doug. I wanted to just get your feeling on how you are set up going into the new season. It's seems like you're positioned pretty well given your comps aren't going to be as tough on Mondays and you get the political hours back and the NFL networking, where there were last year for the full 13 games or whatever it was. So how do you feel about that? How should we be thinking about it?

Well, you sort of answered my question there. I mean, there's a lot less political hours from conventions, from primaries, from debates. Remember, there were 4 debates, election night. We only have 5 new shows, not every single one of them are going to work but they're all positioned in very good time periods where they can work. We do expect to improve on a few nights of the week and we're very pleased with the process and how our schedule looks for the fall. Look, this is spring training and everybody thinks they're going to do great as you get closer. But having returned 20 shows, we sort of know we're going to be in great shape no matter what else happens, that 20 shows will perform and we'll get an opportunity to launch some of them and we think we have a couple of real super hits there. So we're very excited and once again, the NFL is going to be strong, no political, we can't wait for the fall to begin.

We'll go next to Alexia Quadrani with JPMorgan. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: My question is the -- on retransmission discussions, in general, not specific to any one, but do you find that they're getting more challenging now than they have been more given that more people have their hands out? Or is it just each one is its own animal and they're all the same kind of in a way?

I think each one is its own animal. Look, each contract has different components and different requirements and you have different relationships with all these people. So look, every deal that we've made in the last 2 years has been an improvement from the one before. And I think once again, our job is to continue to produce the content that we're doing and get paid fairly for it so -- and each one is the same. [indiscernible] is not the same. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And just a follow-up on you're recent Netflix renewal. Any sense of how we could look at the revenue recognition, the timing of revenue for that renewal?

Yes, Alexia, we have some flexibility. We make those shows available to Netflix. So again, really, it's going to depend. I think, again, the takeaway is we renewed and extended the relationship so it continues to work well into '15. They're pleased with our product. So we're going to continue again, as Les said, produce the best content and continue to figure out ways to maximize the revenue. The timing of when it hits and what year and what quarter is really secondary.

We'll go next to John Janedis with UBS.

Les, I'm wondering, with the FOX Sports 1 launch coming, are you seeing any change in the dynamic for the sports business given the increased inventory for sale? And is it impact pricing?

You know what? We haven't really seen any great effect of it. We're obviously, going into football season for us and that's doing very well. In addition, our sports network, although relatively small in terms of advertising, is seeing growth in that area as well. By the way, I'm very happy we have our 4 major sports rights tied up for the next decade because clearly, the price of poker may go up but we have the NFL, we have the NCAA, we have the PGA TOUR golf and we have the FCC football contracts, so I'm really happy about that. Obviously, Fox is putting a lot of money and effort into it. They know what they're doing. I think they're clearly competing more with the ESPN than with us. And football sales look strong for the fall.

We'll take our next question from Laura Martin with Needham & Company. Laura A. Martin - Needham & Company, LLC, Research Division: Les, one of the things we're seeing in the Internet premium video market is prices for video ads under pressure. A year ago they were $23 CPM. Today, Yahoo! is telling us they're getting $18 CPM. And that's the problem with infinite inventory. But I'm wondering looking at your upfront, where you came in at kind of 8%, 9% and I think with hopes for double-digit as we've gotten the last couple of years. Do you think increasing premium video online is putting downward pressure in your business, as well as the Internet premium video business?

You know what? We don't look at it that way. Yes, we ended up close to 8% and we sort of said high singles, low doubles and we were high singles. I think your assessment about Internet video becoming bigger and stronger and there's a lot available, there's scarcity, still doesn't compare to what the network can bring. And I even noticed our competitors got substantial price increases as well, which actually surprised me how well they did. So look, I'm glad we're in the Internet video market, but I'm even happier that we're the #1 television network and getting paid the right amount for our ads. Laura A. Martin - Needham & Company, LLC, Research Division: And then my follow-up is on, again, back to this Under the Dome, which is such an interesting model. We saw Netflix pay DreamWorks for 300 hours of kids programming, a type of programming DreamWorks has never done. Do you think we're going to see you guys kind of front and center of a lot of these SVOD platforms coming to you like Under the Dome because of your success and we're going to see a lot of new -- like a new profit center that we aren't thinking about from these guys getting you to produce content for them?

That's exactly right. We are looking forward to producing content for all these guys. For Netflix, for Amazon. When people say, "Oh, gee, is Netflix a competitor?" Netflix is doing original content. They're buying a lot of good movie packages. Are they a competitor to Showtime? Probably. But by the same token, the CBS company would be happy to produce for them. Under the Dome is an exciting new model. And when you think about it, it's getting a lot of noise, but it's something that hasn't existed in many, many years. But without Amazon's help and without the strong international marketplace, we couldn't have done that with normal summer pricing for programming. Now with these guys wanting to get involved and get involved early, the sky is the limit in terms of that and what great assets they're creating for us. So we're happy they're around.

And we'll go next to Tim Nollen with Macquarie.

I have 2 advertising-related questions, please. First, I think the answer is no, but anything you could say, please, about any impacts from the recent Publicis Omnicom merger, that forming a major media buying agency. I just wondered if any of you can say in terms of how negotiations may work under that new arrangement? Secondly, your interactive growth looks like it was excellent and I wonder if you could say anything about Nielsen's online campaign ratings? And -- or cross-platform ratings and if is being used and if that makes any difference?

I'll answer the first, and, Joe, you can answer the second. The first, it really is too early to tell. I remember, we had been concerned when WPP was amassing all those variety of advertising agencies and we were able to do a lot of business with them as we do with -- we have great relations with both Omnicom and Publicis. And once again, it's about -- we have good business with them. We'll see what it becomes like in the future. But in talking to our head of sales about it just the other day, Jo Ann had no great concerns. She said, look, we know the guys, we know the brands. It's not going to affect how we do business but it really is too early to tell.

And, Tim, on the interactive growth, I think, again, what's driving the growth, really, again, is the content. It's the premium video that's doing it. Clearly, obviously, it helps if Nielsen is measuring this and you can always back things up with advertisers and give them metrics, it always gives us another data point but I think again, the content is really what's driving the growth.

We'll go next to Alan Gould with Evercore Partners.

Les, you may be seeing this less than your competitors given the strength of CBS, but as the cable networks are getting closer to the reach of broadcast networks, do you see a decline coming in the cable broadcast CPM gap?

Number one, I don't particularly see that gap changing all that much. It has on a few shows but there's still a wide margin between their hits and our hits. I mean, NCIS is still watched by north of 20 million people every single week. Other than The Walking Dead, there hasn't been a cable show that's come even close to it on premium or on basic. And once again, they're doing some quality programming. So we don't view them as a threat in terms of taking our pricing anywhere. Our pricing has gone up for the last number of years and we think that will continue.

We'll go next to William Bird with Lazard.

Les, could you talk a little bit about just your strategy and plans for TVGN? And then separately, how would you rate the likelihood for streaming deals with new players in the next 6 months?

Okay. TVGN, great acquisition, cheap price for our half. Lionsgate, a great partner, great -- other content company. There was a lot of low-hanging fruit. We put on Young and the Restless repeats and we put on Big Brother: After Dark, which increased the ratings like hundreds and hundreds percent. Now I realize that made -- that you saw the low number doing that. But it's the highest rating they've ever had. There are a lot of plans incorporating more CBS content, more live event programming from the red carpets, et cetera. So it's been, so far, wonderful and as I said Lionsgate is a great partner and our people are very excited and we're already seeing great results from advertising agencies as well. In terms of new streaming deals, we've had a lot of conversations. I don't know who's going to be the first one to step up to the plate. Whether it happens within 6 months, I don't know, it's possible with some of them. But we're talking to everybody and there are a lot of very interesting things going on out there. So I hate to be so general, but I really don't know much more than that.

We'll go next to Jim Goss with Barrington Research.

I have a couple of questions. First, I was wondering, does the consolidation in station ownership, that appears to be underway, seem likely to benefit their group pre-transmission [ph] efforts and therefore, your potential for a reverse comp and does it also prompt you to consider any additional property transactions, buying or selling mode in that area?

Good question, Jim. Look, the consolidation, the acquisitions, number one, only proves how valuable television stations are in this day and age. We have 27 of them. We have 27 of them, and once again, we're happy we held on to them. We're happy we didn't get rid of any them because it only bodes well for the future. Does the consolidation mean they will get more retrans? That's a very possible outcome of this. It's very interesting to see where the landscape comes out. We look forward to -- we have great relationships with all the big companies, and we don't think our relationships should change and everybody is moving towards you have to pay for the guys who have the best content.

Okay. And separately, does the -- how is the value of your older content faring as Netflix and Amazon focus on newer and/or proprietary series?

Some of it works, some of it doesn't work, like everything else. I mean, we sold Netflix a huge bundle of content, as you remember, a few years back. Some of it did extraordinarily well. I mean, they'd kill for more Star Trek episodes. They love that. Some of it, not so well. But once again, we've, as mentioned before, as Joe mentioned, we've renewed the deal through 2015 and it has some of what was existing before and some of it going forward. So the good news about us is we have great current programming and we have a great library, and we will sell them both as need be.

Marci Ryvicker with Wells Fargo.

Two questions. The first, Joe, can you give us a little bit more color on the Q3 pace and maybe separate what's going on with the TV stations, same station radio and then the U.S. Billboard business? And then the second question is just have you gotten any indication from the IRS whether or not you'll get the private letter ruling even if it the work group study is not finished by year end? I don't know if your comments about your private letter ruling not coming by year-end had anything to do with this work group study.

Yes. No, look, the work group study, again, is really, again, been a nonfactor in terms of -- the dealing with the IRS. Whatever internal process they go through, I guess, is obviously up to their discretion. But again, we continue to have an open dialogue with them and we'd never expected to have our ruling in hand today. So again, right now, it's the normal course, and we'll evaluate that and update you, again, as we know more. But again, we are pretty confident in our request. As far as color on Q3, look, U.S. Billboards, again, is the bread-and-butter. So that's definitely kind of leading the way, but I would kind of characterize the U.S., the Outdoor business, again, up that low-single digits range, 1% to 3%. And looking at Local Broadcasting, radio is kind of pacing flat and TV remember, we have a difficult comp in political. So we'll see how that kind shakes out exactly but as I said earlier, kind of flat to up low-single digits, again, is pretty impressive given the tough political comp from a year ago.

Great. Thanks, Marci, and this concludes today's call. Thank you, everyone, for joining us. Have a great evening.

That does conclude today's call. Thank you for your participation.