Paramount Skydance Corporation Class B Common Stock (PSKY) Q3 2016 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the CBS Corporation third quarter 2016 earnings release teleconference. Today's call is being recorded. At this time, I would like to turn the call over to the Executive Vice President of Corporate Finance and Investor Relations, Mr. Adam Townsend. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to our third quarter 2016 earnings call. Joining us with today's remarks are Leslie Moonves, our Chairman and CEO; and Joe Ianniello, our Chief Operating Officer. Following Les and Joe's discussion of the company's performance, we will open the call up to questions. Please note that during today's conference call, the third quarter and year-to-date 2016 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, statements in 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 be found on the Investor section of our website at cbscorporation.com. With that, it's my pleasure to turn the call over to Les.

Thank you, Adam, and good afternoon, everyone. Thank you very much for joining us today. As you've seen, CBS continues to perform at a very high level, and the future for us just keeps looking better and better. Along these lines, today's results represent another terrific record-breaking quarter. Revenue was up 4% to $3.4 billion, operating income was up 6% to $798 million and EPS was up 19% to $1.05, an all-time high, and our 27th consecutive quarter of EPS growth. Every one of our businesses grew in revenue and profit during the quarter. So we have broad-based strength across our company, and we are well on our way to another record-setting year at the CBS Corporation in both revenue and profit. Most importantly, we are achieving these results while investing in new growth opportunities all the time. So the state of the CBS Corporation is extremely strong, which is more important now than ever given changes in our industry and as we consider a potential recombination with Viacom. As you know, our board has formed a special committee to work with us and explore this possibility, and we are still in the very early stages. So while the timetable and outcome are unclear, our strategy is not. If it looks right and is structured properly, it could be an attractive opportunity. If not, we are very excited about our prospects on our own and as you can see in our excellent results today. Once again, I'd like to remind you we will only do a deal if it is in the best interests of CBS and all of its shareholders. Whatever the outcome, CBS has a very bright future ahead. Meanwhile, in the broader landscape, we're also seeing the increasing value of premium content, as evidenced by AT&T's proposed agreement to buy Time Warner. Clearly, all distribution always needs great content. And with the number one network in all of television, we like our positioning in the marketplace. The fact is all successful bundles, regardless of size or platform, have to have CBS. This is why our retrans and reverse comp revenue is growing so dramatically, and it's why we're ahead of schedule to surpass $1 billion in 2016. It's also why we're having successful negotiations with new distributors looking to carry our content over the top and through skinny bundles. And these growing revenue figures don't even include the excellent success we're seeing with CBS All Access and SHOWTIME OTT, each of which, as we've said, has already passed 1 million subscribers and growing. Once again, no matter how consumers want their content, we will be there and we are in position to succeed. In addition to that, our base business is very healthy. Nationally, advertising is accelerating here in the fourth quarter due to the higher upfront pricing that kicked in with the new season and a very, very strong scatter market. And locally, political advertising is extraordinarily high with spending like we've never seen before, led by down-ballot races, leading to new records for us at CBS. At the same time advertising is growing, our non-advertising revenue is growing even faster. In fact, this type of revenue is growing so fast that this quarter advertising represented just 43% of our overall revenue. That's the lowest percentage we've ever had for any quarter in our history. And as we separate our Radio business next year, this is a trend that will only continue. Joe will give you more details about the split off of radio in a little bit, but the headline is that it's on track and it's allowing us to return more capital to shareholders even sooner than we've planned. And of course, when the separation is complete, our company will be even more focused on creating and developing premium content. The crown jewel of that content is the CBS Television Network, which as you know, has a long, long track record of success. We've been the number one network for 13 of the past 14 years, including last year's first place finish across all key demos, and just to clarify, first in all demos with or without football. We followed that up this year by kicking off another outstanding season as the number one network yet again. We won each of the first five weeks of the season before this huge World Series began. Kudos to our friends at FOX for televising a great World Series. Look at the power of network television. Going back to the season, we have the two most watched shows on television with Big Bang Theory and NCIS, as well as the number one new drama Bull and the number one new comedy Kevin Can Wait. So it's no surprise we remain strong at the CBS Television Network. The best part is we have ownership in all of our new series. And thanks to the way we license our content internationally these days, we are already selling these shows in hundreds of markets around the world. In fact, Bull was just licensed in 200 territories. And MacGyver, the number one new show on Fridays, has a similar global footprint. And here at home, we are selling our lineup into a robust advertising marketplace. This includes both broadcasting and digital advertising, which continues to work best as a complement to television, not as a replacement. This is a fact we've been saying for a long time, and studies and data continue to support it. So as we do more and more deals where broadcast and digital are sold together, we are pleased that CBS Interactive has just moved up the sixth largest Internet platform in the U.S. Its monthly unique users are only behind the five biggest names in all the Internet, Google, Yahoo!, Facebook, Microsoft, Amazon, and then CBS. We are ahead of every single one of our competitors in that area. So with the number one television network and a top-10 Internet business, we have a powerful combination for advertisers that no other company can match. Plus, one of the most exciting advancements underway is that much more digital viewing will soon be counted together with television. By the time we negotiate next year's upfront, we believe Nielsen's new Total Audience ratings will be a big part of the negotiations. Total Audience ratings counts audiences across nearly all digital and streaming devices as well as traditional video-on-demand and DVR usage. This means we can get paid for the full value of the more than 20 million viewers a week we bring in for shows like Big Bang, NCIS and Bull. Just as we told you years ago that C3 would evolve into C7, Total Audience ratings represents another significant step toward getting paid for the audience we are actually delivering. And with viewing habits changing, this will become a very big number. In fact, when all platforms are counted, we have more total viewers watching our shows today than we did 15 years ago, and this year our new premiere week lineup had 6.5% more total viewers than we did last year. One of the day parts where we see cross-platform measurement helping the most is in late-night, where we continue to have great success. Stephen Colbert just posted his highest weekly ratings in more than a year, and he's clearly resonating on television and online during this election season. I mean, he was able to generate millions of views by live streaming kittens watching the Vice Presidential debate. Next week will be another key moment in this amazing election season for Stephen when he hosts an Election Night Live Special on SHOWTIME and live shows on CBS the nights before and after the election. Of course, the James Corden phenomenon continues as well. His brilliant Carpool Karaoke franchise has now been streamed nearly 2 billion times. Thanks to the viral success of Carpool, as well as James's Drop the Mic segment, we've licensed both of these bits into full shows that have been sold to Apple and TBS respectively. And like The Late Late Show and The Late Show, these shows are being produced by CBS Television Studios, which continues to create content for all networks across all platforms. Turning to sports, obviously there's been a lot of talk about NFL ratings with the bulk of the issues having to do with prime-time games. As you know, we do the majority of our business on Sunday afternoon where the ratings are a lot more stable, and with this past week, we were up 13%. NFL programming still remains the premier property of all of television, and we look forward to a strong second half of the season, which begins this weekend, followed by the playoffs and the AFC Championship Game in Q1. At CBS News, our broadcasts have thrived during this election season thanks to our hard news profile and original reporting. CBS Evening News has now had six consecutive years of viewer increases, and CBS This Morning is delivering its best audience in nearly three decades. And we're number one on Sunday as well where we recently completed a seamless transition with Jane Pauley stepping in for the retiring Charlie Osgood at CBS Sunday Morning. We're also pleased that during the quarter CBS News was awarded more Emmys than any competing broadcast or cable outlet. And also thanks to our political coverage, our digital news network, CBSN turned in an all-time high of 60 million streams in the third quarter, and the momentum has continued, including another weekly stream letter during the last Presidential debate two weeks ago. So, once again, we're growing our audience by delivering our content in the way that viewers want it. This is also the case at CBS All Access, our subscription streaming service. During the quarter, we launched an ad-free version of All Access for $9.99 a month, and we also launched our first original program with Big Brother: Over the Top. As a result, CBS All Access continues its steady climb in subscribers with more to come in the first half of next year. With the February debut of The Good Fight, the recently titled spin-off of The Good Wife, and the May premiere of Star Trek: Discovery. This has been an exciting beginning for CBS All Access, and we look forward to growing this revenue stream for years to come. We also have ambitious goals for SHOWTIME over the top as well. Once again, this service allows us to reach literally tens of millions of homes we couldn't reach before with the old model. As a result, we're seeing growth in subscribers with each series we premiere, and we expect to continue that trend when we launch new seasons of The Affair at the end of this month, Homeland in January and Billions in February. And of course, 2017 will also bring the long-awaited return of Twin Peaks with creators David Lynch and Mark Frost and many original cast members returning. Fans can be certain that the new Twin Peaks will be just as provocative and entertaining as the first one. In addition, we continue to license our entire SHOWTIME brand internationally, following deals in Canada, Australia, and several key European markets, we have now extended our footprint into Spain through a new agreement with Telefonica. Each time we do a deal like this we are creating new fans and a growing base of recurring revenue for SHOWTIME at better economics than when we simply license individual shows overseas. So once again, our investment in original programming continues to pay off in new ways all the time. Great content is also driving our success in Publishing, where we had double-digit top-line growth in the quarter, the most recent books from Stephen King and comedian Amy Schumer helped drive our sales but the big splurge came right at the end of September when Simon & Schuster launched what is already becoming the book of the year, Born to Run by Bruce Springsteen. This book was an immediate worldwide best seller and it continues to fly off the shelves, which bodes very well for us as we enter into the fourth quarter and the holiday season. In Local, the big story of course is political advertising. Despite what you may have heard from other station groups, 2016 will be a record breaking year for us in terms of political spending. In fact, our total billing for this year's Presidential race is on track to be 74% higher than it was four years ago and while the top of the ticket may be getting more attention, it's what's happening at the local levels that's really interesting. From prop issues in California, where we own three duopolies, to Gubernatorial, Senate and House races across the country, candidates are spending more than ever before to make themselves stand out. This includes the hotly contested Senate race in Pennsylvania, where we own stations in Philadelphia and Pittsburgh, which is at $140 million is already the biggest spend in Senate history. So from local to national, from television to mobile, this company continues to have tremendous success. We're posting record results quarter-after-quarter, and we're set up for a record 2016, and even better 2017 and a plan for significant growth right through 2020 and beyond. Clearly, there's a lot of talk out there about us and about others. But as you can see from our results this quarter, we continue to perform, no matter what the circumstances, even, and especially, in times of great change. We are absolutely focused on running our business and building on our track record of success. We are a team you can count on. So, it's a great time to be an investor in CBS, and I couldn't be more confident that we have a very exciting and successful future ahead. And with that, I'll turn it over to Joe.

Thanks, Les. Good afternoon, everyone. As you heard, we turned in another outstanding quarter and if you step back and look at the big picture, you'll see that we're really transforming our company's business model to one that has a strong diversified revenue base. It's a strategy we've been working on for years, and this year is a great example. Let me explain what I mean. In the first quarter, we had record-setting network advertising revenue. In the second quarter, international content licensing drove our results. In the third quarter, domestic cable licensing led the way. And in the fourth quarter, we expect record local political spending. And to top it off, we've had double-digit increases in retrans and reverse comp, as well as our OTT subscription revenue throughout the year. So we no longer rely on any single source of revenue, which gives us much more visibility and stability in our results now and in the future and it allows us to reinvest in our businesses on a consistent basis. Now let me give you some more details about our third quarter results. As you heard, revenue was up 4% to $3.4 billion. In terms of advertising, revenue for this year's third quarter went down slightly from last year due to 10 fewer hours of advertising from political preemptions as well as the impact of the Summer Olympics. Underlying network advertising was up slightly and local advertising at our TV stations grew strongly, thanks to political spending. Content licensing and distribution had a great quarter and grew 6% to $1.1 billion. The increase was driven by broad growth in domestic, TV licensing of both our CBS Library and our SHOWTIME original series. Our content also remained strong internationally. During the quarter, we locked in deals for all of our new CBS and CW primetime series before they even aired here in the U.S. And as you heard, we also did a deal in Spain for an entire SHOWTIME brand, similar to ones we've done in several other foreign territories, making SHOWTIME a premium global affiliated network. And in affiliate and subscription-fee revenue in the quarter, it was up 13% to $753 million. Retrans and reverse comp grew 32%. And our over-the-top subscription services, CBS All Access and SHOWTIME OTT, continue to become a more meaningful contributor to our results each quarter. Operating income for the third quarter was up 6% to $798 million. Once again, we grew our profit margin, even as we continued to invest in more content. We now have ownership in more than 80% of our SHOWTIME and CBS lineups. Net earnings for the quarter grew 10% to $467 million and diluted EPS was up 19% to $1.05. On a year-to-date basis, our results were equally impressive. Revenue was up 6%. Operating income was up 12%, and EPS was up 26% September year to date to $3.00 per share. And as you know, the fourth quarter is historically our strongest quarter. And when you consider that for all of 2015 our EPS was $3.31, you can see that we're on track for a phenomenal year at the CBS Corporation. Now let's turn to our operating segments. Entertainment revenue for the third quarter of $1.95 billion was up 1%, driven by growth in retrans and reverse comp as well as CBS All Access. Content licensing was down 3% from last year when we had the first-cycle sale of Elementary, but higher sales of our library content more than offset this impact. In addition, as we just mentioned, underlying network advertising was up slightly during the quarter and year to date it's up over 5%. And Entertainment operating income for the third quarter was up 3% to $348 million. Cable Networks revenue of $598 million was up 14% for the quarter. The increase was driven by domestic licensing of some of our SHOWTIME original series, led by Penny Dreadful, demonstrating the strong demand for our content across platforms. Continued growth of SHOWTIME OTT contributed to our results. Cable Networks operating income for the third quarter was up 16% to $285 million. And once again, we grew our operating income even as we continued to invest in more premium content. In addition, our Cable Networks operating income margin for the quarter expanded by 1 point to 48%. As we've said in the past, margins for Cable Networks should be looked at on a year-to-date basis. And for the first nine months of 2016, our operating income margin expanded 2 points to 45%. In Publishing, revenue of $226 million was up 11% in the third quarter. As you heard, best-selling titles included The Girl with the Lower Back Tattoo by Amy Schumer and the recently released Born to Run by Bruce Springsteen. In addition, audio books continue to grow strongly and were up 41% for the quarter, and overall digital sales grew 5%. Publishing operating income in the third quarter was up 2% to $44 million, and our Publishing operating income margin came in at a solid 19%. Also during the quarter, we separated out what we used to call our Local Broadcasting segment into two segments: Local Media, which includes our TV stations and our local digital websites; and Radio. Now that Local Media is a separate segment, in order to better align our results with our industry peers, we are recording 100% of our retrans revenue in Local Media, which then pays reverse comp to the network, again, consistent with publicly traded television station companies. All of this is reflected in an 8K that we filed with the SEC last month, where we showed our last six quarters on a comparable basis. Local Media revenue in the third quarter was up 9% to $409 million, driven by strong political spending at our TV stations that you just heard about. In addition, higher retrans also contributed to our results. Local Media operating income for the third quarter was $122 million, up 21%, and our Local Media operating income margin expanded 3 points to 30%. In Radio, third quarter revenue came in at $319 million, up slightly from last year. Radio operating income was up 5% to $77 million, thanks in part to the restructuring activities we put in place in 2015. And the operating income margin for Radio expanded 100 basis points to 24%. Speaking of Radio, let me give you a brief update on how we're progressing with the separation. Last month, CBS Radio issued $1.46 billion of debt with a weighted average interest rate of 5.25%, and we are on track for an IPO in early 2017. That said, we may have a small window of opportunity to go even earlier if market conditions are favorable here in Q4. Similar to the Outdoor play book a few years ago, the next step after the IPO will be an exchange offer sometime in 2017, resulting in more capital returns for CBS shareholders and further focusing our company on our core content businesses. Turning to cash flow and the balance sheet, free cash flow for the first nine months of 2016 came in at $1.2 billion, more than double the $546 million in 2015. The increase was driven by growth in affiliate and subscription fees, higher advertising revenue, and our first quarter broadcast of the Super Bowl. So while EPS growth has been strong this year, cash flow growth has been even stronger. We also ended the quarter with a gross debt-to-EBITDA leverage ratio of 2.68 times. And as you may recall, in late July we made a series of announcements. We issued $700 million of debt with a coupon of 2.9% due in 2027. We increased our dividend by 20%, which took effect October 1. And we replenished our share buyback program to $6 billion. We also bought back $500 million of our stock in Q3, and here in Q4 we plan to repurchase another $500 million, just as we told you we would. We are also accelerating our share buyback program and plan to repurchase an additional $1 billion of our stock in Q4 using some of the debt proceeds we received from Radio. As always, first and foremost, our priority is to reinvest in our businesses, which we have been doing consistently. This includes launching three OTT services in CBS All Access, SHOWTIME OTT and CBSN, owning more and more of our shows on both CBS and SHOWTIME, creating original programming for the summer and producing content for other platforms, just to name a few. We are fortunate that through our strong free cash flow generation, our solid investment grade balance sheet and the benefits of the Radio transaction we are also able to return this level of capital to our shareholders, and as we look ahead to 2017, with our ongoing share repurchase program, coupled with the proceeds from the Radio IPO and subsequent split off, investors can expect another healthy year of capital returns. Now let me tell you a little bit about what we see ahead. In local advertising, we expect an extremely strong fourth quarter for Local Media driven by political spending. Local Media is pacing to be up mid-to-high teens, and Radio is pacing to be up low-single digits. And on the national front, we see underlying network advertising strengthening from third quarter levels driven by our new upfront pricing as well as scatter pricing that is up strong double digits. In content licensing, we have ownership in all the new shows that we just launched on the CBS Television Network, and we've already renewed three of them for a full season. So we continue to fill the content pipeline with new programming that we can monetize across multiple platforms for years to come. In affiliate and subscription fees we will achieve a milestone in the fourth quarter when we surpass $1 billion in retrans and reverse comp revenue for all of 2016. And next year we're set to grow even more with 21% of our retrans and 14% of our reverse comp footprint coming up for renewal. So, in summary, we turned in another terrific quarter, and we are well on our way to yet another record year. Even more importantly, as we deliver strong results, we continue to execute on our long-term strategy for our future. By creating the best content, we are driving revenue growth from sources like retrans and reverse comp, over the top, skinny bundles, international content sales, dynamic ad insertion and more. So we are making solid progress and achieving all the goals we outlined for you at our Investor Day in Q1 of this year and our results today should give you even more confidence that our revenue opportunities for 2020 are very achievable and that CBS is well-positioned to succeed in the ever-changing media landscape. And with that, Noah, let's open the line for questions.

Thank you. We'll take our first question from Ben Swinburne with Morgan Stanley. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: Thank you. Les, we're I think on the precipice of a lot of new bundles being launched. I realize we've said that before, but this time it seems real. I'm wondering if you could just remind us of your strategy when you look at negotiating with the Hulu's and the DIRECTV Now's of the world and Slings where you haven't done a deal? And then with the YouTube's, where you have – at least press reports suggest the deal has been done. What is it you're trying to get done as you look across these bundles? How does the All Access strategy fit into that? And any changes to your thought process as we move into 2017?

Look, Ben, it's our goal to be in every new bundle. And as we said before, we don't think any new bundle is complete without CBS. It's hard to go out to the marketplace and say, "Hey, I got everybody, but I don't have CBS." You know, that means no football, no Big Bang, no Corden, no 60 Minutes, et cetera. Our strategy is, once again, we need to get fair value. In addition, there are other considerations. We're a content supplier, and it's really important that we get terms that we can live with. Once again, we are in conversations with virtually everyone, some we're closer to making deals with than others, but at the end of the day we think we offer a great value, and we think we're very fair in what we ask for. But once again, we value our content and they need to be reasonable in what they pay us. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: And just as a follow-up on a different topic, obviously there's been a lot. With the NFL, you mentioned in your prepared remarks some of the primetime ratings. This might be a case where a short-term deal works to your benefit. Any change in how you think about the NFL Thursday Night package, which I believe is a two-year deal, given the ratings performance that we've seen so far this season?

No. Look, as I mentioned, primetime is down a lot across the board. Sunday night is down a lot. Monday night is down. Thursday night is down. Once again, we're done with our Thursday night games. We have it next year. It's half a season. We don't want to make any decisions or any thoughts about that. As I said, we're really happy that 95% of our games are on Sunday, and those numbers are a lot better. Plus, there are a lot of factors. It's a little early, and obviously the election has been mentioned. Let's see what happens a little bit down the road. As I said, we were very encouraged, we were up this past Sunday. So, no vast decisions made on a little bit of information. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: Got it, thank you.

Thank you.

Thank you, Ben. Let's take the next question.

Our next question is from Jessica Reif Cohen with Bank of America Merrill Lynch.

Thank you. I guess, a couple of things. First of all, on Viacom, can you at least talk a little bit about what you think the timing might be? And the parameters of how you're thinking about the potential recombination?

Jessica, all we're going to say is exactly what I said early in my prepared remarks. There are special committees, there are bankers, it's in the very early stages. I honestly don't know of any timetable, and it would be inaccurate for me to even try to suggest one. So I hate to be vague, but literally it's at that stage. And it's not even in the second inning yet.

Okay. And then just to follow up on actually the first question, just on NFL, with the ratings declines across the board – and everybody thinks the back half – I mean, we've heard a lot of people say they think the back half will be stronger – has there been any impact or any discussion of an impact from advertisers from the softer ratings?

Not really. Once again, the advertisers who invest in the NFL are there for the long term. As I said, we were up 13% this past week. It's way too early. There have been no make-goods, and we're hoping that there won't be. So the advertisers are not concerned. There is so much noise out in the marketplace right now, it's really hard to draw a judgment per se. It's halfway through the season. We're anticipating a better second half, but the advertisers are totally supportive. And once again, it's still the best product on television.

Great, thank you.

Thank you.

Thank you, Jessica. Next question?

Our next question comes from Alexia Quadrani with JPMorgan.

Thank you. My question is on the political spending that you highlighted the strength that you're seeing is a big driver this quarter and next quarter. What do you think accounts for the disconnect in the political spending that you're seeing versus the weakness your peers keep highlighting? And then just a quick follow-up on the scatter, which seems to be so strong. Just any color on how much inventory you have to take advantage of it? Do you have an inventory to take advantage of? I think you just mentioned you don't have make-goods, so I guess that would imply yes, but any color there?

I'll answer the first. Then I'll have Joe answer the second. In terms of our competitors, number one, some of it is market-driven. As I mentioned, California is a hot bed. We have six TV stations in California, and if you're out here there are so many propositions on the ballot, frankly, it's really hard to understand most of them. But there's a lot of money being spent there, and as I said, Senatorial and Gubernatorial races – possibly because some of the disconnects from the top of the ticket that there's more being spent locally. We're really strong in Pennsylvania with Pittsburgh and Philadelphia. We're really strong in Florida, which has Miami, which clearly is a very important state. We're strong in Colorado with our Denver station. So a lot of it has to do with that, and maybe our salesmen are just better.

Alexia, it's Joe. On your question regarding scatter, this is why we don't sell 100% of our inventory in the upfront. We always keep the scarcity. So the scatter is up in excess of 20% of pricing. So we do have units available. We are selling them. And again, usually 9 out of 10 years, scatter pricing is significantly higher than the upfront, and that's why we think the upfront is such a good buy for advertisers because in the spot rate they end up paying more but we kind of like that too.

Thank you very much.

Great. Thanks, Alexia. Next question?

Our next question comes from Anthony DiClemente with Nomura Securities.

Thank you for taking my questions, and good afternoon. First for Les, since I guess we're done on the Viacom questions, I'd like to ask you about the AT&T, Time Warner proposed merger. CBS works with Time Warner in a few different ways. You co-own the CW, you jointly carry March Madness. Warner Bros. is a supplier of content to the CBS Network. Do you think the deal should be approved? And any implications there for how the combination could affect your business operations? I think we'd love to hear it. And then for Joe, you gave us the underlying advertising growth. I think you said underlying was up slightly in the 3Q. You said it was accelerating in the 4Q. So we're assuming it'll be up by more than slightly in the 4Q, but all the drivers are so strong, right? You'll have new CPMs from the upfront which were up double-digits, so a big lift there. It sounds like the NFL for you guys is at least hanging in there. It sounds like the new shows are doing great, and you just said scatter was up in excess of 20%. So at the risk of sounding a little greedy here, wouldn't your underlying ad growth in the fourth quarter be up by more than just "more than slightly?" Thanks.

Anthony, we're not really going to comment on the Time Warner AT&T potential merger there. Yes, Time Warner is a company we do a lot of business with. We have a great relationship with them. It's way too early for us to judge on anything, so we're staying out of the frame for the moment until we've had a chance to look at it further.

Anthony, just to clarify on Q4, I said Q3 was up slightly and Q4 is accelerating. So I think directionally you can see where that's going. I will just remind you, obviously, underlying network advertising last year in the fourth quarter was up 8%. So it is also coming up against a strong comp. But I think again, the takeaway for us at the local and national level, the demand for advertising and the pricing is strong.

Okay, thanks a lot.

Thanks, Anthony.

Next question.

Our next question is from Michael Morris with Guggenheim Securities.

Thank you. Good afternoon, guys.

Good afternoon.

A couple questions on All Access. First on the NFL, Les, can your share your latest thoughts on including NFL content on All Access just in light of what we've learned over the last few months? And specifically, the product seems to be doing great without it. So the question would be why would you want to spend on it? And secondly, to kind of put it maybe a little more bluntly, NFL is on Twitter. Why was it on Twitter instead of with CBS? You guys are a great partner and have a digital platform. And then I have an international question as well. Thanks.

All right. Regarding the NFL, we are in fairly active discussions about putting it on All Access, you're right. The product is doing better, but the NFL is still extremely important to us, and we're hoping that we're able to reach agreement with them to get it there. It will make it even better. Look, the Twitter deal, the NFL, like all of us, is trying to figure out what is their digital strategy going forward. They're experimenting. Obviously, the numbers on Twitter aren't particularly high. They're certainly not affecting our ratings whatsoever. And I think everybody is trying to figure out what life looks like in the brave new world. Our relationship with the NFL remains very strong. And as I said, we are hoping to have a deal with All Access fairly quickly.

Great, thanks for that. And then keeping on All Access, internationally, how do you think of this as potentially being a global product at some point? Both technologically, how difficult that would be? And also selling your programming internationally to third parties is a big part of the business. But is there an opportunity to grow that product outside the U.S. at some point?

Mike, obviously, we think about those things. We watch Netflix closely and watch their model. But clearly, owning the underlying intellectual property, and that's why the ownership was so important to our core strategy. By the way, it goes to CBS All Access as well as SHOWTIME. I think as you can see that, there could be an opportunity again to go direct instead of through partners and stuff. Obviously, that will be an option we will have. We love the current business model we have now, but clearly down the road that is an option we have.

Great. Thanks, fellows.

Thanks.

Thanks, Mike. Next question.

Our next question comes from John Janedis with Jefferies.

Thanks. Les, you spoke about domestic streaming growing. And as you know, there's been the view that demand domestically and pricing have both slowed. So can you give us an update on what you're seeing in that marketplace, and do you see domestic syndication more broadly as a continued growth category?

Look, domestic streaming obviously is something that's catching on. The numbers are getting fairly astronomical, so it's a real growth area. Once again, we separate – you look at the ratings of Corden, I'll use that as another example. The ratings are okay. It loses to Seth Meyer (sic) [Seth Meyers]. But when you count 2 billion streams of Carpool Karaoke and where the pricing is going with streaming, those numbers really turn into something very significant with both clips and full shows that are going on there. It's obviously expanding, and once again, the domestic syndication market, once again, may be slightly down from where it was before but once again, enhanced, and I'm talking about off-network syndication, enhanced so much by streaming and other SVOD deals that the amount of revenue we are taking in domestically is greatly increased. So ownership of our shows becomes more and more important, as we referenced. So when you add in what's happening internationally and domestically, the afterlife of these shows, the back end, becomes more important every day than the front end. So it's good to have a good advertising marketplace, but it's also good to have good programming that we own and we could cash in on.

Got it, thanks. And maybe separately, you talked about Nielsen Total Audience Measurement next year. Based on the data that you see, is the revenue recapture opportunity, are you talking tens of millions, or is it something greater? And then really I guess on a practical level, how quickly can you recapture some of that revenue?

John, it's Joe. Look, I think part of our Investor Day presentation, if you remember that fourth pillar, if you will, we put up monetizing delayed viewing. And this is exactly doing that. This is the audience we are delivering today. So it's a question of just getting paid for that. So as we quantify that, we think that's a 9-digit opportunity, meaning hundreds of millions of dollars. And so how quickly we can get there, we'll see how the marketplace develops. But now that the technology is there from a DAI perspective and is being measured by an independent third party, I think we have the ammunition to execute.

Thanks a lot.

Thanks, John. Next question?

Our next question comes from Bryan Kraft with Deutsche Bank.

Hi. Good afternoon. I wanted to ask you two questions. One, you recently embarked on an expansion of production activities in unscripted. I'm just wondering how quickly you expect that to ramp up. And do you have a sense as to how material it could become over the next few years? And then my other question is just on All Access as well as SHOWTIME's streaming product. And specifically there, should we assume that that momentum has been sustained since you crossed that 1 million subscriber mark, or has that growth curve somewhat flattened since then? Thanks.

All right, Bryan. I'll take the first and Joe will take the second. You know what, unscripted is obviously growing all over the place. And as we mentioned with Carpool Karaoke and Drop the Mic, suddenly we find ourselves developing unscripted that we're selling to other outlets other than just CBS or the CW entities that we own. So we created this division within CBS Studios to specifically, obviously supply CBS first and foremost, but also there are so many outlets. Netflix is now getting into unscripted. Amazon is getting into unscripted. And we were able to bring back an executive who helped us create Survivor and Big Brother and The Amazing Race, who had a great track record, and we decided to form a new division. Because, once again, as I said before, the back end is becoming more important than the front end, and being able to have these units that are able to produce more and more quality content is a real positive for us.

And, Bryan, on your All Access and SHOWTIME over the top question, the momentum we have is really driven by the content. So on All Access, we launched a new season. You have the new Big Brother over the top. You absolutely see a surge in subscribers going into Q1 with The Good Fight and then Star Trek, so clearly expecting solid growth. And on the SHOWTIME side, The Affair coming, then Homeland and Billions leading into Twin Peaks, so we have that constant flow of new originals. So that's what's really driving the subscribers. Every time we put new content up there, audience seems to find it and subscribe.

Thanks. And, Joe, if I could just ask a follow-up?

Sure.

If people are subscribing as this new content is released, what are you seeing after they consume that season? Are you seeing a corresponding turn spike? Or do they tend to stick around?

Look, they stick around. I think what we're seeing is those who watch it are watching twice as much. So they're definitely getting used to watching content that way. So, we have deals for SHOWTIME we have deals with Amazon and Hulu, and those subscribers tend to stick – they are much stickier because they understand that environment better. I still think, again, it's in the early innings of others migrating. But, again, we're in the early stages of this growth cycle.

Thank you.

Thank you, Bryan. Next question, please?

Our next question comes from Doug Mitchelson with UBS.

Oh, thanks so much. Good afternoon. So, Joe, I just wanted to make sure. Did you say you're going to buy back $1.5 billion of stock in the fourth quarter?

That's correct.

That's what I thought I heard. So I guess two questions, one for Les. Strong start to the season. Is there anything you would point out in terms of any CBS strategy shift on the programming side or shift in competitors' strategy that drove the share that you've gotten so far this season for CBS? I know it's early but perhaps there's something to tease out there. And then one of the really interesting dynamics around the launch of virtual MVPDs is the ability for content owners to more aggressively monetize in-season stacking rights. So I'm just curious how broadly you've sold your in-season stacking rights to both the traditional, MVPDs? And do you see that opportunity with the virtual MVPDs? Thanks.

On the programming side, there really is nothing that unique. As we stated, we're off to a really strong start. We launched three shows in September. We've renewed all three of them. We just launched three more last week. We'll see what happens there. I think every network – there have been some successes at other networks. ABC has Designated Survivor and NBC has This Is Us and FOX has Lethal Weapon. So I think everybody has something good to point to about what's going on. Once again it's good to be the leader of the pack again. And FOX certainly was helped by seven days of great World Series ratings, damn them, but good for them, and it's all very healthy. Nothing has really changed with our strategy. We have more comedy on this year. We have eight comedies, which is the largest that anybody has had for quite a while. It seems to be working preliminarily, so but it's sort of business as usual, you know? Joe, do you want to answer...

And, Doug, the full stack, obviously that's important. We don't sell full stack. We sell rolling five. The full stack is available on CBS All Access.

And so you have no plans to sell that to the traditional or virtual MVPDs at this point?

We have no plans, but we're always open for business, Doug. We're reasonable people.

Thank you. Thank you, both.

Thank you, Doug.

Thank you, Doug. Next question, please?

Our next question comes from David Miller with Loop Capital.

Hey, guys. Congratulations on the stellar results. Les, a question for you on television syndication, and Joe, I would be interested in your thoughts as well. I just continue to believe that the – I'm sorry, not syndication, licensing. Television licensing, particularly out of SHOWTIME. The SHOWTIME shows and a lot of your, of course, CBS shows – I just think that remains this kind of underappreciated gem within your company that just goes vastly underappreciated by the Street, and I hope that the results kind of underscore that today. So with that in mind looking out into next year, Joe, what should we assume in terms of number of shows that might be licensed? Volume? What are the tough comparisons? What's the low-hanging fruit? I'm just trying to get a sense of the cadence of that particular business within that line. Thanks very much.

David, look, I think the cadence always is the marketplace that drives the timing of it. So I know everybody wants to go quarter and just say, hey, what is it going to grow percentage-wise over that? I think the good news is we have hundreds of episodes yet to be monetized, beachfront properties such as NCIS: New Orleans, Madam Secretary on syndication, NCIS: Los Angeles on streaming. So we have some really big titles. I think you hit the nail on the head though, I think what's underappreciated is the SHOWTIME. Part of our strategy from years ago was to own more and more of SHOWTIME. So because SHOWTIME's only in 25ish million homes here, there's a lot of people that don't have the exposure to SHOWTIME. So I think monetizing on that and locking that because we own that intellectual property – it's huge amounts of cash flows for years to come.

Thank you very much.

Thanks, David.

Thank you, David. Next question, please?

Our next question comes from Marci Ryvicker with Wells Fargo Securities.

Thanks. I have two questions. The first, it sounds like the virtual MVPDs are having a tough time getting the affiliates, and I think you're probably the only network that actually has an agreement with affiliates in place for a virtual MVPD. The question is, how important is it for the stations to be included in these bundles and do you think they will be? And then a second question is, how should we think about your marketing plans for SHOWTIME OTT and CBS All Access, especially for next year? Is there going to be a point in time where we should think about this relative to margins where you're going to have a big advertising campaign?

Marci, regarding the affiliates, they've always been an important part of our fabric and who we are. We've always had a great deal of respect for them, and having their cooperation throughout time, helping us promote our shows – they're part of the family. So as we enter into the new era, we have always found it really important and beneficial, and by the way, in certain ways beneficial financially for both them and us. And we've always sort of insisted that they be included in these deals, and as a result, All Access has grown faster because they share in the revenue. They're pushing it, they appreciate it and it makes for much better affiliate meetings in May than I expect our competitors having it. Regarding the marketing, it's a very good issue and something that we deal with on our OTT platforms. Once again, we are planning in the next few months to announce the ability to sell both of them together, CBS All Access and SHOWTIME OTT. Selling them together. We haven't come to a price point together, but once again, that ties into marketing. As we head into the spring and have Star Trek and Twin Peaks coming out on those competing platforms, how great will it be looking forward to be able to market them together at a slight discount if you buy them both, but that's part of our intent. The more people are exposed to these platforms, the more they like them. The more we're doing original content on them, the more they like them. So, once again, having a direct relationship with our consumer is a really important thing. Owning the CBS Television Network allows us to directly promote to them, and we have a lot of exciting marketing plans for both of them as we go forward.

Thank you.

Great. Thank you, Marci. And why don't we take one last question, please?

And we'll take our last question from Laura Martin with Needham & Company. Laura Martin - Needham & Co. LLC: Hi, thanks, two programming questions. So, Les, assuming karma ends you up with 24 channels, I don't know from where, you've always talked about the fact that you've got the two best channels on the dial and everybody's got to be in your bundle. Philosophically, does that world view change because that scale is now becoming more valuable, or should we expect to see a General Electric kind of approach? If you're not one or two in your segment, you're out – sell it, divest it, let Joe go to town maximizing the return on capital? That's sort of a programming question. My second question is also programming. I think it's really interesting that you've taken James Corden and you're developing a series for Apple, and you are taking Drop the Mic and developing a series for TBS. Could you just share sort of your programming philosophy with those entities? Why not put them on CBS All Access? Or how do you think about, Star Trek is going on CBS All Access but these other two you're going to develop for a third party that sort of competes with you at some level? Thanks.

Right. Thank you, Laura. The philosophical question, with all due respect, I cannot answer. That's pure conjecture, and I'm not talking about – all I'm talking about is CBS and SHOWTIME, a little bit CW, a little bit Pop, a little bit CBS Sports Network. Those are the only channels that I am dealing with, and I'm worrying about programming right now. Moving to your next question, look, Carpool Karaoke exploded out of nowhere, as did Drop the Mic, not to quite that extent. What we do, and as we look at the universe – and the universe has changed greatly – where everything's first call is not necessarily to CBS. A show like Carpool Karaoke works much better on Apple iTunes. It's going to be promoted by them, and it's not a show that really fits per se with CBS. It fits better there. The same thing with Drop the Mic. Perhaps better on Turner. Star Trek, obviously we could have sold to Netflix. We could have sold it to Amazon. SHOWTIME would have loved to have it. The CBS Television Network would love to have it. We had a wealth of opportunity, but once again, I think it told people how important All Access was to us. I think our goal of getting 4 million subs by 2020 is greatly enhanced by the knowledge that we're taking the family jewels and a really special property that has millions of huge fans for STAR TREK and putting it on CBS All Access will help give that a great boost. So, once again, I love having the ability to program everything from the SHOWTIME down to syndication, game shows, soap operas, great shows on CBS, and what's happening with our production group is we're now selling – I think we have shows now with 13 other venues outside of the CBS family, and that's going to be an important growth opportunity for us as we look down the future. Laura Martin - Needham & Co. LLC: Okay. Thanks very much, guys. Great numbers.

Thank you.

Great. Thank you, Laura, and thank you, everyone else, for joining us this evening. Have a great night. Thank you.

And that does conclude today's conference. Thank you for your participation, and you may now disconnect.