Good day, everyone, and welcome to the CBS Corporation third quarter 2017 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.

Good afternoon, everyone, and welcome again to our third quarter 2017 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 2017 for EPS and net earnings 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 our website. 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 SEC filings. A webcast of this call and the earnings release related to today's presentation can also be found on the Investors 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. I'm pleased to tell you that CBS has delivered solid third quarter results. Revenue was up 3% to $3.2 billion and EPS was up 6% to $1.11, marking our 31st consecutive quarter of EPS growth. So we're on our way to completing another strong year with an even better 2018 on the way. As always, the heart of our continued success is our content. The only thing that's changing is the way in which viewers want to consume it. The good news for CBS and its shareholders is that we've been anticipating these changes for a long, long time. And because we see change as opportunity, we've moved early to set up even better success both now and in the years ahead, because as the industry has changed, we've often been there first. We were the first broadcaster to get fair compensation for our content through retrans and reverse comp from our affiliates. We were the first network to launch its own SVOD service. Most recently, we've been a pioneer in skinny bundles as well. No matter how people want to watch us, we've made sure to be there. The implications of this are clear and they make us different than virtually any other company in the media space. Where others worry about cord cutters, we don't. We are ready for them. We welcome that. In fact, where others are losing subs to cord cutters, we are growing. This is significant. When you put together our traditional bundles, skinny bundles, and our over-the-top services, we have more subs today at both CBS and at Showtime than we did a year ago. That's right, our subs are growing, unlike those of most other media companies. Best of all, as consumers cut the cord and…

Thanks, Les, and good afternoon, everyone. At CBS, our philosophy has always been that change brings opportunity, so we have a strategy in place to take advantage of all the changes underway in media. As Les said, consumers have more choices than ever before in how they watch content. And we have positioned our company to give them the content they want in any way they want it, meaning in traditional big bundles, smaller skinny bundles, or direct-to-consumer. And as more consumers shift from traditional distribution to newer platforms, we are growing our subscribers with a business model that is much more favorable to us. So our key growth pillars that we laid out for you previously appear to be bigger than we expected. And as we continue to execute on our strategy, we are consistently validating that we have the right plan in place for long-term future success. Now, let me give you some more details about our third quarter results. Revenue for the quarter was up 3% to $3.2 billion. Affiliate and subscription fees were up 52%, aided by the Mayweather-McGregor pay-per-view event. In addition to the sub gains and strong rate increases from our over-the-top and skinny bundles that you heard about, retrans and reverse comp continue to be a terrific story and were up 27% in Q3. We have now made nearly as much in retrans and reverse comp for the first nine months of this year as we did all of last year, and we still have a quarter to go. Content licensing and distribution came in at $860 million for the third quarter. And as you know, licensing revenue varies from quarter to quarter due to the timing of content availabilities. And if you look at content and licensing on a year-to-date basis, revenue…

Thank you. We'll take our first question from Ben Swinburne with Morgan Stanley. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: Thank you. Les, I have two questions for you, one around the NFL, and the other around how you're thinking about programming All Access versus the network. There's obviously a lot of focus on NFL ratings and product and the ad units and dilution of games, and you're very close to the league. And you have your Thursday Night Football deal up at the end of this season. I'm just wondering if you could help us understand the kind of things the league or CBS is thinking about to make the product better, to make it more palatable for advertisers, whether it's shorter spots, et cetera, whether you think the Thursday night package should continue. Anything you could help us to understand why you remain presumably very bullish on the NFL, and what you think the league might be able to do to address some of the controversies around it.? And then on the programming side, I'm just curious. How do you figure out what to put on the network versus on All Access? Obviously, All Access has great economics, but you also have some pretty big retrans deals with some pretty big distributors coming up that I'm sure want the best stuff on CBS the network, so just a little peek into your thinking on how you just make those decisions.

Sure. Sure. Thanks, Ben. Look, the NFL, obviously there's been a lot going on. The ratings are down a bit this year. There's been a lot of talk on it. Obviously, there were political issues that came up about kneeling during the anthem, and it became very controversial. Look, the product, as I said before, is still the best thing on television. The ratings are still extraordinarily high. I think all the networks are very happy they have the product. And you see when you compare it to other things, live events are still working phenomenally well. Yes, there's a lot of experimentation going on with these shorter ad spots. There's been experimentation with – this year there are four pods per half versus five, which are slightly longer. So there are all sorts of things that are being tried. In addition with the challenges that the coaches have, they are being shortened and the game is trying to be expedited. There's a lot of product there, there's no question about it. I think everybody is looking at everything. We've had Thursday Night Football for the last four years. There are a lot of real values to it in terms of being a promotional vehicle and having those five Thursday night numbers are still very, very strong for us. I think everybody is going to take another look at what's going on as we proceed forward. But once again, we're still happy we have the NFL. It's still a great product. Regarding programming, it's a very interesting question, and it came up when we started talking about Star Trek. Every division at this company wanted Star Trek. Showtime wanted it, the network wanted it. If you remember, earlier versions of Star Trek were even syndicated from station to station. We…

No. I don't know of one sponsor that has pulled out of any spot that they had. I don't think it's affecting advertising or their desire one iota. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: Okay, thank you.

Thanks, Ben.

Thanks, Ben. Don, let's take the next question please

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

Thank you. I have two topics, maybe a multi-part question. But on the over-the-top, a couple of things. On All Access economics, can you give us any color on the contribution to profitability and what the sub composition looks like, meaning how many subs pay the $6 versus the $10 advertising-free? And is there any difference between the two offerings in terms of contribution? And on the coming sports OTT product, how do you think about the addressable market and the price point, the potential price points?

Jessica, I'll start with the OTT piece. Just on the take rate between the ad, the $6 product and the $10 product, we're seeing about 20% of our subscribers take the ad-free product. And so from a contribution margin, we're really indifferent, and that's why we priced it that way because we're basically making essentially $4 of advertising. So we're indifferent. But let me be clear is that we're not managing All Access for margin. We are growing and we're making investments and putting more and more series on it because, again, the long-term ROI is very, very, very attractive, meaning, as Les just said, we just announced again The Twilight Zone coming. So we have a slate, if you will, of original series that, by the way, sometime in the future we might choose to monetize again. So obviously, that will have a lot of margin to it because the costs will be sunk. So our litmus test is, is the product that we're putting on growing subs? And as long as it continues to grow subs, we're going to feed it. On your sports question, this is going to be a free ad-supported service like CBSN. So basically, what we see is an appetite of demand for consumers that want news and highlights of sports where we see a void in the marketplace, and they want it on their terms, on their time. And so we're going to give that to them. And again, we think it's attractive, but we think the demographic is very attractive for advertising. And we will tuck it in as part of All Access as well to bolster that offering in addition to CBSN, which will also be part of All Access.

Thanks. And the second topic was just on the traditional business. On the ratings system, there's still such a major lag. But, Les, you were talking about the big lift you get on C7. And so there's still such a major lag and a discrepancy in ratings versus what everyone thinks the viewing is. Do you expect the ratings system – or how will you guys in the industry address this over time?

It's a very good question, and there is a long lag, and frankly we're not getting in all the numbers, and you often have to wait literally three or four weeks before you see the results. So anybody who's basing anything on overnight ratings is either 20 years behind or crazy. So putting the different pieces together and how we're selling it and how we're measuring it is changing so rapidly that we have to look at new systems. Obviously, Nielsen is still a very big player and an important player and they're adding more and more services, but there are other players getting into the marketplace. And measurement and our dealings with advertising agencies become much more complex than ever before. As you know, only a few years ago we began C3. Now it's C7. Now we're selling some up to C35. There are all sorts of numbers that are coming in from DVR playing, from VOD, et cetera, et cetera. So it's very complicated. I don't quite understand it. I don't get the same thrill as I used to when I put ER on the air and I saw a 40 share in the overnight ratings. Now I have to wait a month to get my thrill. So it's a very different ball game and it's rapidly changing. So it's a very valid question.

Thank you.

Thank you, Jessica, next question, please.

We'll take our next question from Alexia Quadrani with JPMorgan.

Thank you. On CBS All Access, on your decision on programming, you have The Good Fight in terms of exclusive programming, Star Trek, now Twilight Zone. I guess how much are you trying to broaden your audience in terms of demographics? And perhaps any color you can share in terms of what the typical demo looks like, how much overlap you have in subscribers with your linear viewers. And then a second question, staying on CBS All Access, I think you mentioned that you're on the path to monetizing all viewing. I guess any color you can provide on really what has to happen before we can really see a notable uptick in the advertising opportunity on the digital platform.

Let me talk about the demographic. Obviously, as I said before, in terms of the programming, we're looking to distinguish it from CBS, from regular CBS. Obviously, the demographic, what we've noticed, it's approximately 20 years younger than our average viewer. So we are getting a younger demographic, which is really good. As I said, it doesn't have to be as broad. It can be much more niche. We started out with Good Fight, which obviously brought a great deal of the female component over from CBS because it was a very female-skewing show. Star Trek is more male than female and also, as you would expect, a younger demographic as well. Star Trek will continue to expand it. We're looking. The good news about All Access, we don't care whether you're 8 or you're 80. We're bringing in people from all over the place. And different people are watching for different reasons, some to get old library product, some to get catch-up on our current series, and obviously a lot of people that are looking to see the new product. So it's very interesting, it's very exciting, and we're going to be adding new content all the time.

And, Alexia, for monetizing it, obviously we are monetizing it. But as we reach more scale, you'll see that number obviously move heavily. Again, as Les said, as the demographics are younger, we're getting away from selling demographics and selling behavior. We know if you're in the market for a car or pet food, and so the return on investment for advertisers is much higher. So with that said, we still have to get millions more into CBS All Access. It's why we're making that investment to grow that. But we do see the opportunity there, but that's not – let me be clear – that's not in the Nielsen rating. And so that's where you're going to see the advertising really distinguish itself because again we are selling that on different metrics.

Thank you very much.

Thanks, Alexia, next question, please.

We'll go next to Michael Morris with Guggenheim Securities.

Thank you. Good afternoon, guys, a couple questions on content. Joe, I appreciate the context of looking at the nine months instead of the three months with respect to the content revenue this quarter. I'm wondering if you can give us a little more detail on the categories that saw a timing shift between the first half of the year and the third quarter. We don't have too much insight into digital versus traditional syndication, domestic, international, et cetera. So maybe help us understand that. And outside of the big items like Madam Secretary and NCIS: New Orleans, which we know about, is there anything else that maybe is a fourth quarter item that last year would have been in the third quarter? And then along the same lines, you mentioned the 65 shows. You guys mentioned that a couple times, and I think that that's an even bigger number in terms of the number of shows produced than we discussed last quarter. How should we think about the pipeline, the backlog for syndication sales going forward in the context of that number? Thanks.

Yeah, Mike, it's Joe. So look, on the categories, look, in Q3 of last year we had two sales. We had a Penny Dreadful sale and a renewal of our library with Netflix. And so that occurred last year in the third quarter. That's why, again, we always say over a longer period of time you take out the lumpiness of that. Obviously, we're looking at a strong fourth quarter in content sales, because, again, Madam Secretary is done. And Les alluded to active negotiations for NCIS: New Orleans. Look, we look at it, and on platforms, really SVOD and cable still need the content. They still need that for ratings, for certainly basic cable. We sell them all through the broadcast television. So the marketplace is there domestically, but international continues to be the best growth story that we have. Again, as we're doing that, we just sold Dynasty, which is going to be a CW show. And we're able to license product to Netflix in this case, or Amazon again. So we're able to do global deals much more effectively in today's marketplace because of the global nature of some of these SVOD services. That said, is there are a lot of local SVOD players that are very competitive, and so we just want to make sure that that dynamic in the marketplace continues. As far as the 65 shows goes, just to give you some context, that's up 14% just from quarter over quarter. We're doing 14% more hours, so that's an investment choice we're making, because, again, because we see the returns. So as we keep pushing this snowball downhill, as we said, we have more than 600 episodes domestically that we haven't sold, and every day that goes by it's more and more. And by the way, all this also feeds All Access as well. So you can see where you get the trifecta benefit from producing great content.

Yeah. And let me just add on to that. The 65 comes from – we started out, number one, Showtime, CBS, obviously producing more content for ourselves. Then you add in The CW, where either Warner or we are producing or co-producing together. Then you add in All Access, which is obviously only produced shows. And then suddenly, as you heard us mention, we're selling to 11 different services. With the aftermarket being as strong as it is in terms of both domestic and international syndication, the idea of selling to all sorts of different people has become very, very lucrative, which is why virtually every time we invest in a new show, we already know it's going to be profitable from day one. So when we sell a show to Turner or we sell a show to Netflix or we sell a show to anywhere, to Apple, we already know these are going to be in profit before day one of production. And that means that we're going to continue to increase that 65 number to a lot more.

Great. Thank you, guys.

Thanks, Mike.

Thanks, Mike, next question.

Thank you, our next question from John Janedis with Jefferies.

Thank you. Les, maybe a bit of a follow up. But given your positioning for the network in the skinny bundles and VMVPDs, can you talk about maybe to what kind of traction or growth you're seeing in the marketplace, understanding it's early? And longer term, there's been some concern in the market that the premium economics you're seeing will be ruined (47:20) upon renewal as distributors reach scale. So wanted to ask if you see this as a real risk looking out a couple of years.

The skinny bundles, it is way too early to judge on the success or not success of what they're doing. I think the concept of skinny bundles is a smart one. It's based on the idea that people really want to pay for what they're watching and that they're paying the huge amount of money for 12 to 15 channels that they watch and they're getting 180 channels. So I think they are absolutely viable. Will they all succeed? I don't know. By the way, the technology on them, they're pretty cool devices to use. And they make it easy to watch the content and watch what you want to see. I don't think, as I said to you, the success or failure of various skinny bundles, once again, doesn't matter to us. Because when people cut their cord, they're not going nowhere. They're going somewhere. So they either go, they're on a traditional bundle or one or two of the skinny bundles or All Access. So if people are going to – we don't view people as trying to squeeze us for price, because we're going to be must-have television. Every deal that we make, we are convinced that bundles will not work without CBS on them. You've seen us make a few deals in the last few months, and I think it's proven that you can't have a complete bundle without CBS.

Okay, maybe quick one for Joe as a follow-up on All Access. Joe, as you roll out into the new markets, can you talk about the incremental cost to enter the new markets? Are you able to leverage maybe your existing presence of the syndicated programming to help market the offerings?

Yes. John, sure we are. Look, obviously as we expand internationally, there's a fixed cost base that as it scales, we're going to get more and more benefits of that. But clearly, we're making an investment in people and systems and infrastructure to do that. But we're also – again, we're going to use content that we have in our library to help that. We're going to use our News product, we're going to use our Sports product. Wherever we can bolster the offering, we're going to do that. And so there's clearly an investment we're making, but clearly we can leverage the fixed cost base over multiple countries as we expand.

Thanks a lot.

Thanks, John. Don, next question please.

We'll go now to Vijay Jayant with Evercore.

Thanks. Just following up, Joe, on your comments about those four drivers into 2018 in excess of $100 million, it does seem to be all pretty good margin increments, so it implies that you're suggesting operating income could grow mid-teens just based on that. I just want to confirm if that's the sort of triangulation we can come to. And second, obviously tax reform is now taking on new life. I just wanted to understand. Given your revenue that is disproportionately domestic, even though the mix is probably shifting more international as you grow, can you help us understand if the current form becomes real, what kind of free cash flow conversion benefits can we see?

Look, Vijay, look we don't give guidance, so that's why we pointed out these opportunities. So clearly, they are high margin opportunities. But again, we are investing and growing and expanding our content in the pipeline. So we're not going to get into predicting what the OI margin is going to grow by in 2018. But clearly, that's why we wanted to highlight these things that are very significant to our top line. So we'll manage that. We're managing the company to growing the top line and stuff. And so if we wanted to manage for margin, clearly, as Les said, we could have sold Star Trek to Netflix and we could have increased our margin in 2017, but we're looking at this as a long-term investment. Second, on tax reform, most of our income is domestic, so we're not anticipating a whole lot of change, certainly in our book tax rate. Obviously, it's a little higher, so that would go down a little bit. But then we've got to factor in what happens with state deductions or not. So we're going to monitor this closely. We don't think it's again going to be a huge driver one way or the other for our cash flow or our GAAP earnings. But we'll stay close to this to make sure we're maximizing our after-tax cash flow whatever the rules are.

Thanks so much.

Thanks, Vijay. Don, next question.

We'll take our next question from David Miller with Loop Capital Markets.

Yes, hey. I have two questions for Joe. Joe, just with the action in media stocks today top of mind with most investors, could you just reiterate your retrans guidance? I believe it's $2.5 billion in retrans and reverse comp fees by 2020. I just want to make sure I have that correct because I just think it bears – it's worth accentuating that bogey just in light of what happened today. And then also for you, Joe, is there any reason to suspect that the deadline on the radio exchange might be extended beyond the November 16, or do you feel pretty good about that November 16 deadline? Thanks a lot.

David, I appreciate you pointing that out, first of all. It's a flaw in my remarks. I should have said it at the top and the bottom that $2.5 billion by 2020, as you said, and we're crossing the halfway point this year, and you saw it. Year to date, retrans and reverse comp is up 27%.

Yes.

And so to continue to do that, I reiterate that on our call, so we feel very good about that. And again, I just want to say why. Why do we feel good about that? Because the ratings, the audience that CBS is delivering, is five times the amount of retrans and reverse comp fees we are receiving. So we are way, way, way, over-indexing on what we deliver. So until that's a one-to-one ratio, I will not rest. So that's the first point. The second point on the deadline, look, it's a little bit out of our control because there are obviously all the customary approvals we have to go through, but we fully expect to be closing this transaction in about two weeks. I don't want to predict the exact day, but certainly we feel good about it. We think the offer to CBS shareholders is fair. We priced it to complete it, and that's what we fully expect to happen in a couple of weeks.

Okay, wonderful. Thank you.

Thank you, David, next question, please

We'll go next to Dan Salmon with BMO Capital Markets.

Good afternoon, everyone. Les, can you talk a little bit about your mid to long-term view on programming costs? We spent a lot of time talking about how many more owned shows you have in feeding the syndication pipeline, but it would also seem that that gives you a much higher degree of control, or at least visibility into programming costs, which would seem like a relative advantage in an industry where inflation continues to be the norm, as players like Netflix and Amazon keep pushing into original programming. So I recognize that's not the only thing, but I would love to hear your view on the mid to long term for that.

Look, Netflix and Amazon are throwing a lot of money at a lot of product out there, and there's no question it makes the marketplace more competitive. Having said that, once again, we have been fairly diligent in that we know how to produce shows for the maximum value. Obviously, each platform has a different price point. Shows at Showtime and All Access generally cost more than shows at CBS, and shows at The CW cost somewhat less than CBS shows as well. But by the same token, we take that into account. We know what our international output deals are. We know what our domestic syndication probably is. We also once again can regulate what the back-end participation is for our producers here, and there's a real upside for them for coming here versus Netflix or Amazon, where oftentimes they will be giving their rights away. But every show that we do, we do ultimate. So if we are spending more like on a Star Trek, we know, A), what Netflix is going to pay for the international rights. We also know what it's going to mean to CBS All Access. Before we green-light a show on the CBS Television Network, we have an absolute based on, as I said, international output deals or international deals in general as well as the domestic potential. So as costs may go up somewhat: A), we're able to control them better; and B), we know we're going to be profitable on every single one of the shows. So the outlook for us is good, and that's why we will invest in more programming, and that 65 number very well could turn into 80 within a couple years.

Great, thank you.

Great, thanks, Dan. Don, next question.

We'll go next to Doug Creutz with Cowen & Company. Doug Creutz - Cowen & Co. LLC: Hey, thank you. I know it's still a bit early, but we are halfway through the NFL season. I was just curious how your experience with the viewership on CBS All Access may or may not impact how you view the importance of having the digital rights to the NFL in addition to the linear rights. Thanks.

There's no question. The NFL, as we may have told you, you may remember, we only had the last two weeks last year of the NFL season. So having it this year certainly helped the subscribers. Probably helped more by Star Trek, but having those two things both go on in September-October has certainly launched a number of subscribers. As you know, we're not giving the numbers, but it definitely has helped. And every Sunday, we do see a spike in the number of signups. So I think it's really important. As we look down to the next big contract in 2022, obviously digital rights will be an important part of it. We expect that some of the larger players will be involved. But who knows, we may get all the digital rights ourselves at the same time. Doug Creutz - Cowen & Co. LLC: Great, thank you.

Great. Thanks, Doug. And, Don, let's take one final question please.

Thank you. We'll take our final question from Bryan Kraft with Deutsche Bank.

Hi, good afternoon. I had a few quick ones. First, Joe, you mentioned the pension change and it would be accretive in 2018. I want to see if you could just clarify what you mean by that. Are you just talking about a reduction in operating expenses, and can you put any numbers around that to help us quantify it? Secondly, I wanted to ask if you could provide some color on what you're seeing in the scatter market as far as pricing, demand, any comments on category strength and weakness. And then lastly, it was reported recently in the press that you're exploring a sale of Television City Studios. I'm just wondering if that's accurate, and if so, how you're thinking about that opportunity and when you might make a decision on it. Thank you.

I'll take the last question first. TV City was formed in the 1950s. It was a production facility. It's on very valuable real estate. We're in the very preliminary stages. We have received an offer from one of the people in the neighborhood, and so we hired somebody to explore the possibility. As I said, it's very expensive real estate. It may be money that can be used better elsewhere. But it's at the very preliminary stages. I'll turn the rest to Joe.

And, Bryan, on scatter price, scatter pricing is up double digits over upfront and up double digits over scatter last year. So the demand is very strong, and it's across a broad array of categories. So we're feeling very good about the advertising climate. And so we're monetizing the ratings points or the consumption, we should say, of all the ways consumers now watch the content. So that's our focus. In terms of the pension, look, it's slightly accretive because obviously there's interest cost on the borrowings offset by the premium savings on the insurance premiums. And so net-net, given where the interest rates are and the costs of what we're paying for underfunding just made no sense. So it's not going to move the needle a whole lot. It's just accretive and is why we did it now. And so it was opportunistic. We looked at it, it's a no-brainer. It reduces risk and volatility going forward, and it's at a lower cost. So it seemed like a no-brainer.

And that will be funded in 2018 you said, Joe?

No, it's going to be funded in Q4. It will be funded in Q4. And then that liability, that over $800 million, will be transferred to an insurance company, thus off of our books by the end of the year.

Okay, great. Thank you.

Great. Thanks, Bryan, and thank you, everyone, for joining us tonight. Have a great evening.

That does conclude today's conference. Thank you for your participation. You may now disconnect.