Good day everyone and welcome to the CBS Corporation Fourth Quarter 2018 Earnings Release Teleconference. Today's call is being recorded. And at this time, I'd like to turn the call over to Executive Vice President of Investor Relations, Mr. David Bank. Please go ahead sir.

Thanks Greg. Good afternoon, everyone, and welcome to our fourth quarter 2018 earnings call. Joining us with today's remarks are Joe Ianniello, our President and Acting CEO; Sean McManus our Chairman of CBS Board; and Chris Spade, our Chief Financial Officer. Following Joe, Sean, and Chris' remarks, we will open the call up to questions. Please note that during today's conference call, results will be discussed on an adjusted basis, unless otherwise specified. Reconciliations for non-GAAP financial information related to this call can be found in our earnings release or on our website. Also, note that statements on this call relating to matters, which are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation's SEC filings. A webcast of this call and the earnings release related to today's presentation can also be found on the Investor Relations section of our website at cbscorporation.com. And with that, I'll turn the call over to Joe.

Thanks, David, and good afternoon everyone. I'm pleased to report that CBS has turned in its best quarter ever in terms of revenue and profit as we increasingly benefit from being ahead of the game with our direct-to-consumer focus. Today, I'm going to give you a number of important updates about that part of our business and outline our direct-to-consumer strategy going forward. Then as you heard joining us today is Sean McManus the Chairman of CBS Sports. With more than 40 years in the sports television business Sean has developed and nurtured some of the strongest relationships in the entire industry. He will lay out our sports strategy including our partnership with the NFL which this past season culminated in CBS's broadcast of Super Bowl 53 just 11 days ago. After Shawn, Chris will provide you with additional color about our results and talk about our financial goals. But first let me frame the numbers for you. As you saw in our release, CBS delivered all-time highs in revenue, operating income and EPS for both the quarter and the full year. We also crossed $4 billion in quarterly revenue for the very first time and we have now grown our EPS for nine consecutive years in 36 consecutive quarters. Our track record is clear; we continue to grow CBS's revenue an EPS while positioning the company for an even brighter future. Working with our senior management team and our board of directors we have developed a long-term growth plan that will benefit shareholders for many years to come. The heart of this plan has always been the same creating and distributing premium content with mass appeal on a global scale. What's changing is the way people engage with that content and it's giving us an opportunity for a better…

Thank you, Joe and hello everyone. CBS Sports is in the middle of one of the most remarkable runs ever with four marquee championships in the span of just four months. The Super Bowl, the NCAA Basketball Championship, The Masters and for the first time ever in May, The PGA Championship. Nothing else in media can deliver the type of audience like a major sporting event on broadcast television and we are thrilled that CBS Sports is leading off 2019 with four of the most watched and most anticipated sporting events on the calendar. These high-profile events lift the value of the entire CBS Corporation, they generate significant advertising dollars drive subscribers to CBS All Access and provide a promotional platform that cannot be beat. And for MVPD's, virtual MVPD's and television stations our extensive portfolio of sporting events make CBS a must carry driving strong and steady increases in affiliate and subscription fees. While the biggest of our major sporting events is of course the Super Bowl which delivered an audience of over 100 million viewers easily the most watched broadcast of the year and that doesn't include the 12 million viewers who watch the broadcast outside of their homes. It was also the single highest revenue day for CBS generating hundreds of millions of dollars in ad sales with 30 second spots hitting a new all-time high. In their first Super Bowl together Jim Nantz, Tony Romo and Tracy Wolfson were outstanding. Tony's ascension has been just remarkable. Four years ago, just before the Super Bowl in Arizona, CBS Sports President David Berson and I ran into Tony at the commissioner's party. I asked Tony what he thought of the Super Bowl match-up between New England and Seattle and he responded with an unbelievably passionate and insightful breakdown…

Thank you, Sean and good afternoon everyone. As you heard CBS continues to thrive in the rapidly evolving media landscape driven by our strategy of creating must have content and delivering it to consumers on any platform make you. That's true whether it's the Super Bowl, March Madness or any one of the big sports championships that Sean just mentioned or Young Sheldon, FBI or any one of our hit shows on the CBS Television Network or Lily and Ray Donovan are the premier pay-per-view boxing events we have on Showtime or Star Trek: Discovery, The Good Fight or the upcoming Twilight Zone on CBS All Access. As a result, we delivered all-time highs in revenue, operating income and earnings per share for both the quarter and for the year while also investing more in our content and new distribution platform. As Joe mentioned, we have created a new fast growing and highly scalable revenue stream with our direct-to-consumer streaming services, CBS All Access and Showtime. As consumer behavior and the marketplace evolve direct-to-consumer offers a tremendous opportunity and we are strategically focused to capitalize on this growth. With our strong record of success in developing hit series, we are now further positioning our direct-to-consumer platform for accelerated growth by leaning even more into our programming. Now, let me give you some more details about our fourth quarter results. Revenue in the fourth quarter grew 3% and as you heard exceeded $4 billion for the first time, first time ever and we achieved this increase even without the benefit of Thursday Night Football. Affiliate and subscription fees were up 11% in the fourth quarter to more than $1 billion driven by 53% increase in our direct to consumer subscription revenue and once again as the stand-out in the industry our…

Thank you very much ma'am. [Operator Instructions] And first from Morgan Stanley, we'll hear from Ben Swinburne.

Thank you. Not a Cowboys fan, but will agree with you on Romo being excellent. Sean, I wanted to come back since you're on the call and you're talking about the NFL, I'm sure you're aware there's a lot of focus on the upcoming rates renewal in the marketplace. How do you think about or how should we think about the risk around the technology platforms entering this upcoming auction, I think gets to an auction? And how do you think the NFL in particular is thinking about those platforms as an option? And then I don't know if you people are going to help us on this, but any sense for timing as to when you think there may be a resolution on all those? Is this a 2019 event or do you think this is -- that moves on further into 2020? And then I have one follow-up.

I think it's probably further into 2020 or beyond. And I think the NFL probably wants to get their collective bargaining agreement done first before they talk about the television deals. And I can't speak for the strategy of the digital companies, all I can speak for is CBS and since we brought the NFL back to CBS in 1998, we've been successful three times in renewing our rights and I would expect to do so again. The NFL, I think, values and they've set these values very highly, broad distribution of their product and there's no better broad distribution than the number one network at CBS.

And Ben, it's Joe. Look, I would just add to that. Just look at Thursday Night Football as an example where they could certainly experiment it and went to a streaming platform exclusively. I think they love to reach broadcast which is their core demographic audience, I don't think you ever want to kind of cut off your core audience. So, the broad reach of broadcast is just an example, I think Thursday Night Football just proves that.

Thanks, Ben. Okay Greg next question. I'm sorry. Are you still there, Ben?

I'm still here.

Yes.

Please do, Ben.

Okay. I was going to ask Joe, Am I still there?

Yes. Go ahead, Ben.

Now that the Board, the new Board has been around for a little bit, Joe, I'm just wondering if there's been any change in how they think about the company's strategy or capital allocation. I know you talked about sort of pulling back in the buyback near term and I've heard from you guys, it's never been a better time to invest in the business, but any update on how they think about the company's strategy, positioning and capital allocation that we should be aware of now?

Yes, I think, as I said a little bit in my remarks, Ben, I think working with our entire senior management team going through our new Board process and orientation, if you will, understanding and really laying out the priorities from a management team as we see it, I think we are 100% aligned with the Board in that the best and highest use of our capital is to create more premium content. They're seeing -- they see the returns, they see the math of it, so they see the unit economics and they're saying, well, why can't we do more? So, I think we're really synced up with them on that front. And so, we want to create -- focus our energies and our capital to doing what we do best in creating content. So, I couldn't be more pleased with that.

Thank you.

Okay. Thanks, Ben. We'll take the next question now, Greg.

Absolutely. Next, we'll hear from Alexia Quadrani with JPMorgan.

Hi. Thank you very much. My question is really on the CBS All Access and the impressive targets you guys put up today. Any more color in terms of the mix, in terms of how much is Showtime versus CBS All Access and what the trajectory looks like to get there? What does that suggest for your linear business in terms of you see sort of, maybe -- is it all additive or will it be an accelerated decline in the linear business? I guess, any color on that front.

Yes. Sure, Alexia, it's Joe. Look, the 25 million sub we just provided, I think you should assume it's approximately about 50:50. We have healthy competitive rates going on between our two siblings here. And so, we like to tweak them both each if one passes each other for a period of time. So, it's really healthy. But about -- I would think about that 50:50, if that helps. As you could see, we've moved up these targets quite substantially. As you can see, today, it's really driven by original programming, live, big event television, catch-up viewing, deep library, all of those things are really what's driving the subscription services. But I would say, look, it's been additive certainly to-date and we see that continuing, because as we've said, our subs are up. So, in the traditional space, when you look at our subs across CBS and Showtime, forget about the ARPU, I'm literally just even just focused just on the sub count. So, our subs are up and clearly All Access is growing rapidly. And so, we want to lean into that further. So, we really like the position that we're in.

And then with 25 million subs, what does that say about the advertising opportunity? I would assume that's a pretty sizable opportunity on your digital platform?

Alexia, I mean, I hope it came across in my comments, but again the data that we're getting, we're really starting to sell beyond demographics. And I think that is really proven to be extremely valuable to our advertising clients, but also to the content creators as hopefully, we can make shows that speak to our audiences as we learn more and more about them. The example I always use, Showtime has been in the subscription business since inception, but never had any of the data on the subscribers, because the third-party distributors had a hold of that. Now we have that for the first time and we're being -- we're getting smarter and smarter with all that. So, it's really -- this data is really helping us on a two-pronged approach. The advertising has been much more effective for our clients and really helping our content creators to be more efficient.

Thanks, Alexia. Greg, we'll take the next one.

Thank you very much.

Moving on, we have Jessica Reif Ehrlich with Bank of America Merrill Lynch.

Thanks. My first question, Joe and/or Sean, is on sports gambling. How are you thinking about that opportunity for CBS from multiple perspective as an ad category to monetizing across the board as a company?

Hi, Jessica, it's Sean. We're looking at it really carefully. It's still only allowed in eight states, so it isn't really a national play yet. The local advertising has been there and I think once it becomes more national, you'll probably see more national advertising. I mean we're looking at it really closely. We have not yet chosen a partner. A lot of people want to partner with us. We haven't chosen anybody yet, but we're looking at it very carefully. And I think both from an advertising standpoint and, hopefully down the line, from an engagement standpoint, it can increase the value of our live programming.

Yes. And, Jessica, all I would add to that is obviously, from our programming standpoint, we have CBS Sports HQ, which is a 24/7 streaming service and we have a cable property with CBS Sports Network. So, we certainly have platforms to really monetize this type of content as well, as well as just selling it, I think, our reach will be very available to the publishers as they want to expand that business.

And then -- thank you. And then my follow-up is, Joe, you just made a really interesting comment about selling to -- as others pull back, you see that as an opportunity. Could you talk -- just give us a little more color on that? And where are you in your current Netflix deal?

Yes. Well, when you say current -- I mean, we're in -- we have multiple Netflix deals. Just we sell different pieces of property to Netflix and others. So, look, I highlighted a two-pronged approach, meaning we certainly want to evaluate if we have a franchise, let's use Twilight Zone as the example coming up, how many subscribers are we going to generate here and abroad? And are we maximizing the value of it? And what is the marketplace willing to pay us for that franchise? The content licensing business is a great business. Make no mistake about that. So, we want to make sure we're always open to doing that, because if a third-party is better able to monetize it than our infrastructure, we should take the excess value we've receive and redeploy it into making more contents. So, you're hearing others pull back on selling to third parties. And so, we believe that our beachfront property is going to be even scarcer. So, we really want to sit back and evaluate our approach to licensing, but we definitely see it continuing for the foreseeable future.

Thank you.

Thanks, Jessica. Greg, ready for the next question.

Next from Guggenheim, we have Mike Morris.

Thank you. Good afternoon. Two questions. First, at the entertainment segment, the rate of affiliate growth, the subscription growth slowed compared to the prior quarters. And I'm hoping you can help us with maybe what some of the factors were there? And how to think about that pace of growth going forward? Was it on -- was there anything -- I know you've got renewals in the fourth quarter last year, did that contribute or Thursday Night Football payments or anything related to that? And you mentioned the 70% renewals over the next two years. Could you help us with any renewals that will impact the coming year? And then I want to ask one about programming.

Sure. Hi, it's Chris. Thanks for the question. So, in terms of this year, it's all timing. I mean, in terms of our trajectory for growth, it's strong and there is no concern there. It's truly timing. In terms of the next two years, the 70% renewals, it's consistently across the two years and we really feel that we're going to reset our rate to fair value like we've done in the past. So, from the standpoint of where we are with that, we're coming from a position of strength.

Okay. Just to be clear then, when you mention timing about the 17% growth in the fourth quarter, does that look like a run rate for you as you go into the next year? Was that sort of...

Mike, it's just the timing when the deals get reset. I think Chris was highlighting. So, I think again, as you know, we have a big one in the middle of next year that will reset. And so, I think it's really what quarter it falls in. But as you know those deals when they get reset depending where they're coming from, obviously, the increases could be substantially higher than 17%.

Okay. Thanks for that. And then on the programming side. As you look to drive more subs to All Access and you put more original content on there, how do you think about All Access being a first window for your programming investment and then making that content available perhaps in your primetime slate later in the year, is that something you're concerned about?

Yes, Mike, it's an interesting comment, because we're discussing that literally as we speak in that -- again, the great part of owning the intellectual property is you have choice. And so, for instance, just how the syndication business has proven to be extremely valuable over the years, it's not a new business, but historically, right we've taken shows off net after three or four years and put them on cable networks and/or streaming services, the older series, to drive awareness back to the broadcast network. When we look at A Good Fight, for example, and we see a few million people have watched The Good Fight given that it's exclusively on All Access, what if we took season one of The Good Fight and put it on the CBS broadcast network to drive subscribers back to CBS All Access. And so, we're literally thinking all of the possibilities through. It has to be broad enough to have mass appeal for the CBS broadcast network. So, we're not going to ever lower our standards there. But because the quality of the content we're producing at All Access does that, the promotional platform that the network has is bigger than the streaming platform and/or other Cable Networks. So, we're really thinking about that going forward and obviously that has an effect, Mike, of reducing costs, because it would reduce development cost across the company. So, it's really an efficient use of the intellectual property, i.e. the franchise we have. And so, that's a pretty astute observation you made and just know we're discussing it as we speak.

Great. Thank you.

Thank you, Mike. Greg, next question, please?

Absolutely. Next, we have Michael Nathanson with MoffettNathanson.

Thanks. I have one for Sean and one for Joe. Let me start with Sean, first. I hear you on why reach is why the NFL stays with you and why digital may not get the next contract. But how you guard against maybe another broadcaster moving into Sunday Day and chasing CBS out? So, how do you think about that competitive set versus other broadcasters?

Michael, it's like every sports negotiation. There are usually more than one party that wants to acquire a right. I think they'll be competition potentially for all of the different NFL packages. But, I'm confident. And listen the exposure we give to NFL obviously is important just as important obviously is the rights payment that we pay. We've always been competitive in that area when it comes to the NFL. And I would think Michael we would be competitive the next time around. So, I can't predict who else is going to come after our package or how much competition there will be, but knowing the kind of support the corporation has given the NFL and knowing the kind of contribution NFL makes to the overall company, I would think we would hopefully figure out a way to come to a deal with the NFL as we have so successfully in the last 20 years.

Okay. Thanks Sean. And then for Joe, can you give us a little color on international syndication? What are you guys seeing in the marketplace? Is anything slowing? Are you holding back any content internationally that may affect growth rates going forward?

Yes. Michael, look, the international marketplace remains robust. So, like I said earlier, again, that's sold a little differently than the domestic marketplace, as you know. So, when we have five of the top 10 new shows on television that really reloads our international sales team. So, we haven't seen any slowdown at all, quite the opposite. I mean, we see strong demands. We see that continuing. So, I don't know will our approach be different as we roll out All Access internationally. We still probably see it initially as the second cycle or co-terminus, but really depending upon what these licensors -- licensees, I should say, want to pay. We're going to have optionality as we approach the marketplace, but I don't see anything changing in the international marketplace in the foreseeable future.

Okay. Thanks, Joe. Thanks, Sean.

Thank you, Michael.

Thanks, Michael.

Greg, next question?

Next, we have Bryan Kraft with Deutsche Bank.

Hi. Good afternoon. I had a couple. Sean, I wanted to ask you, the basic structure for the Sunday Afternoon and Monday Night Football packages have been in place for a long time. Could you envision that structure changing this time around in order to allow more companies to participate in broadcasting NFL games? And then, Chris, I just wanted to ask if you could help us to size the political revenue contribution in the fourth quarter or the contribution in the growth? And then, I don't want to leave out Joe, so one for you too Joe. Canada All Access launch, how's that gone so far? What have you learned? And can you talk about the timing and the ramp for additional international launches? Thank you.

I'll go first Bryan, it's Sean. It's a little hard to predict. I know that there are -- there's obviously a number of very successful packages on broadcast television and on cable television. I think though the mix of games and the individual schedule works really well for the consumer. So, it wouldn't surprise me at all if the same kind of paradigm existed during the next negotiation. But I do think there could potentially be increased interest in different packages by different networks. So, I hope I'm answering your question. I think we need to be flexible. I think the Sunday AFC package works really well for CBS. It aligns perfectly with a lot of our owned-and-operated stations. So, that would be the package that we would, hopefully, renew. And again, I can't speculate who else would want that, but I know the value of that it brings to the network, I think we'll hopefully do what is necessary to make sure the NFL stays on CBS.

Hi. Bryan, thanks for the question about political. So, I said 72% twice on purpose in my comments. We did a little over $100 million in revenue for political advertising, so it was really a strong quarter and political inciting is good for CBS. Joseph Ianniello -- President and Acting Chief Executive Officer And Bryan on Canada, what I could say is that, I wish the country was bigger. As you know, it's a little north of 10% of the United States and it seems to be following that pattern when we launched All Access here in the States. So, that's good news. I would say though as we launched Australia in Q4, what we saw there was actually a faster pickup and I think that's because we had live local programming, because we own Network 10. So, the offering in Australia is a little bit different with the live local programming and I think that's also a key part of the overall value proposition that consumers are resonating and that's why we're launching our local services here by market, because what we think the streaming services for CBSN Local again ad supported, but very valuable to the consumer engaged with the content local news, sports, weather, traffic 24/7, really is a nice value proposition from a trusted reliable brand at CBS. So, we're going to continue that. So, internationally, we're going to continue to roll these out, kind of market by market. I think we should think in English language speaking first and as we expand where we have pockets and it's not impacting content licensing negatively, we'll go aggressively in some of these emerging markets. So, stay tuned for more.

Okay. Thanks very much.

Thanks, Bryan. Let's take the next question, Greg.

Next question will be from Doug Mitchelson with Credit Suisse.

Thank you much. So, Joe, I'm going to ask a question and you are probably not going to answer, so I'm going to give you my follow-up and my clarification at the same time. The question Joe is, there's been a lot across the board actively concerning strategic options for CBS particularly pursuing a merger with Viacom, is that accurate? And the clarification, Christina, is on the multiyear double-digit EPS guidance, should we assume as also double-digit EPS growth in each of those years? And how much of those growth is, if any, should we assume is driven by buybacks? And lastly my question is, Joe, does your data and research suggests CBS All Access would be dominated by cord-cutters in core networks? Or do you think consumers of the live TV bundle will also subscribe? And if so, like how much more content do you need to make it attractive for those households? Is there anything beyond content that you're doing to drive growth at CBS All Access? Thank you so much.

So, Doug, you are right, I'm not going to obviously comment on any Board actions. I think that's obviously up to the Board of Directors. The management team is focused on operating the company. Obviously, we just posted our best year in quarter, as we said, in our history. At a company where it's over 90 years old to give guidance of a multiyear where your revenue growth rate for the next three years are going to grow faster than your last three years, it's pretty impressive. So, that's what we're focused on. I know you asked Chris about the EPS and stuff like that, we're not going to break out individually by year, because we think it's important to look at it over the two-year period. I think the numbers are quite healthy. Like I said, we see it accelerating. On the data stuff. Look, I think, we're going to see. And so, what we know to-date is our consumers are saying they want more. So, we're going to give them that and we're going to see as we go. And that's why we said we're going to add four new series. We're not adding 10 new series, we're adding four. And so, after that goes, we're going to see what data suggests there and then as that goes. So, it's opportunistic the investment. So, we can scale it back. We can lean into it further, but everything we're seeing again is our best and highest use of our cash is to make another hit original and put it on Showtime or CBS All Access and monetize it for many, many years to come. And, obviously, you've seen the power of the broadcast television network as part of that strategy. And so, we're really in an enviable position. And I think that's why you see lots of other companies coming into the media space, tech companies, distribution companies, they wouldn't be allocating fresh capital to this sector if they didn't see significant growth opportunities and the good news is, we're well positioned, we've been ahead of the game and we're experts of what we do and we're going to continue to do what we do. So, I'm not sure if I answered your question Doug, but it was a good one.

I think the part, Joe, I think the heart of the question is, is it as simple as more content will bring in more subs or are there other things you need to do to execute a CBS All Access to drive that kind of scaling up of the service?

Well, Doug, I think there is other things. I mean the technology have to work. So, the first thing I want to take a little victory lap for is our technology works. I believe, it's the only platform in this country that is done partnering with all of our local affiliates that has 180 different commercial ad loads that has live local programming plus catch-up viewing, plus original series inside and outside the home. So, you got to have scalable technology that works. It gets out of the way of the consumer. You have to have premium content that engages them on a consistent basis. And so, if you do that, I mean, at some point will you get to the law of diminishing returns? Sure. We are nowhere near that as we sit here today. And so, we're going in based on the data points that we've seen because we've been at this for three years now. And so, we have some really good proof points that suggest that. So, we don't have to bet the company in order to kind of lean into this. And so, we will see how big the opportunity is. But again, you just see the numbers today. We pulled up -- when we made the prediction in 2016 at that Investor Day, we had basically zero subscribers. We said 8 million by 2020. we've crossed 8 million already. So, I mean just pause and think about that. And they're telling us when they passed this subscription they say, we want more. So, let's give them more. And hopefully again as I said in that, the reacquisition cost is much more efficient and they're coming back. They're not leaving the ecosystem. They just want more. And so, let's give it to them.

Yes. I would also add to that that we have a strong programming pipeline that we're going to pull from. So, it's not just about creating the programming but it's also creating quality premium programming that people want to watch.

Okay. Thanks very much, guys.

Greg, we're going to go to our last. I'm thinking we have time for this final question.

Okay. So, finally, we will hear from David Miller with Imperial Capital.

Yes. Hi, guys. Chris, two questions for you. Are you noticing anything changing with regard to your news gathering cost due to the process of CBSN? I would think that as you scale that entity up, that's just an enormous advantage with your news gathering cost, but it's obviously new and it might be early days. I'd like to hear that from you? And then also on the $105 million restructuring charge, how much of that was related to any kind of impairments on the mid-city Wilsor building, the CBS Television City building? And then I have a follow-up for Sean, if I may. Thanks.

Okay. Sure. Thanks for the question. So, on the news side, there is really not of incremental cost that really drives revenue growth. We're highly monetizing the products and it's really going to just build our revenue portfolio. On the restructuring, $0 are related to that.

And David, you should know that deal closed in January, so that cash again was received in January.

Right. January 31st.

So, you have a follow-up for Sean?

Got you. Yes, and then Sean, correct me if I'm wrong, weren't there a couple of years with regard to your Masters broadcast where either all four rounds or maybe two of the weekday rounds were broadcast ad-free? And if you intend to do that again, what kind of dynamic ad insertion opportunities do you see taking place for this year's Masters? Thanks.

Yes. No, we do not intend to do anything differently with the Masters commercial rotation this year. It'll be the same as it's been.

There's no change. As you know, those are limited sponsorships spots that they have there, David. And we do the weekends, we do Saturday, Sunday.

Yes, Thursday and Friday are on, David, on ESPN, we just do Saturday and Sunday.

Okay.

Got you. All right. Thank you.

Thanks, David.

Thank you, David. Okay. Thanks, Greg. This concludes today's call. Thank you everyone for joining us, and have a great Valentine's Day evening.