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CBS Corporation (NYSE:CBS)

Deutsche Bank's DbAccess 21st Annual Media and Telecom Conference

March 04, 2013 6:00 pm ET

Executives

Leslie Moonves - Chief Executive Officer, President and Director

Analysts

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

All right. So we're going to get started. Thanks, everybody, for coming to our keynote dinner, first night of our conference. Very pleased to have with us tonight Les Moonves, President and CEO of CBS. So losing track of how many times we've sat down and done Les, but we always love to have you here, always love to hear from you. Thank you very much for coming.

Leslie Moonves

Always great to be here. Looking forward to talking. Let's begin.

Question-and-Answer Session

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So we're going to get started. So let me go to some big picture, Les, just how does management think about driving value at CBS?

Leslie Moonves

Well, obviously, this company have gone through a major transformation, I think, in the last couple of years. And after we announced the REIT and looking down the road, our company is going to be only about 55% advertising. Now just a few short years ago that was north of 70%, the percentage of our revenue that was coming from advertising. So when you look at what has occurred over the last couple of years, obviously a number of new factors have entered into who we are. Retrans has become big, and is only going to get bigger. As all the conversations go on about who is buying what channel and how much they're going to pay for it and whether bundling is a good thing or a bad thing, we are the #1 network. We are the #1 network among 5 broadcast networks. We're the #1 network among 500 cable channels. So if people are going to be paying for eyeballs no matter how it turns out, we're going to get paid. So that means retrans will continue to grow immensely, as will reverse compensation. SVOD has been a major driver for us as well. We think Netflix is great. We think Amazon is great. We think all the new entries are going to be great. We have a huge library. We've sold primary library product. That is going to continue to grow, and as we talk about adding previous seasons of current shows, that's a number -- that will continue to grow. International revenue is growing in leaps and bounds for our programming. So the drivers are -- obviously, are content, which is being sold in many more different ways than possible -- than was previously possible. And when we look towards the future, we only see that growing. I don't see a downside or a risk factor in any of our businesses. I know my lawyers would not like me saying that. But we are very confident we're going to continue to grow. This, people have been doubting, the viability of the television network. The television network isn't what it used to be.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I think we'll talk about each one of those points. Let me start with the network. I always have tons of questions about the network. One thing that comes to mind, I feel like you've put a little bit of extra elbow grease in the network this year, kicking the cord out of the Super Bowl to make it go dark for a while, so you could put some extra advertisements in.

Leslie Moonves

Well, the game at that point have gotten a little out of hand. And we said viewers may be leaving us. So what can we do? And what happened, we got some extra spots in during the 34-minute blackout. The game got closer, ratings went back up and it was a widely successful plan.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I haven't seen the tweet yet with you actually pulling the cord out, but I bet there's a picture somewhere. So just how is the network doing?

Leslie Moonves

Well, we are #1 in every single demographic. Yes, I know we were helped by the Super Bowl. That was a good thing. We were also helped by the Grammys. February sweeps, the first time we've won this February sweeps since 1998 in every demographic. Yes, we talk about the big events, helped us. But we also have the top 10 scripted programs on television. So the network remains very strong. Clearly, the season still has a few months to run. But I think we are going to win across the board. And that's a good place to be as we head into the upfront.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I think my favorite quote from last earnings season, November 7, Les Moonves, "People have to stop looking at overnight ratings because it's really a very, very different ballgame than it ever was." So I think, of course, I'm going to continue to look at overnight ratings. It just is what it is. But maybe go down by the different ways that viewers are accessing CBS content. Can you talk about that and how much of viewing is being done in other platforms?

Leslie Moonves

Yes. Look, I still look at overnight ratings every day of my life at 5:30 in the morning, 365 days a year. And it does give you an indication of what's doing well and what's not. But we hit a tipping point this year, which is why in the fall, numbers were tough to read. By that, I mean some of our hit programs, literally, only watched 60% now live. So the other 40% obviously is coming from DVR usage and to a certain extent, online. What happens now, if you watch in the first 3 days in the DVR, we get paid in full. If it got -- gets watched later than that, that doesn't happen, and online is significantly less than that. So what's happening is you can't tell what's doing really well for a few weeks, the real numbers. But when the real numbers come out, we have over 10 shows that add 3 million to 4 million viewers that have watched after-live viewing of it. As a result, the advertising numbers, you don't have a full picture until much later on. And the press has a tendency still to write down the overnight numbers, which once again while we are winning, we don't mind. But as it goes on, more and more revenues come in from different places. So you talk about multi-platforming. All we want is a fair measurement. We want Nielsen to measure everybody. And ultimately, we want an eyeball to count as an eyeball no matter where you watch your television show.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

It might be a little bit of a dry topic. Since we're talking about measurement, a couple of things. First, is this the season that we go from using C3 to using C7?

Leslie Moonves

I don't know if it happens this quickly but it will happen within a year. It will happen within a year. The measurement is already there. They give us C7 numbers now. Now it's a question of the advertising community and the networks and the programmers to come together and accept this, whether the C3 to C7 is that a reduction, whether some commercials have to be inserted after 3 days. But it's coming right around the quarter. And that will be good for us.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

But you sold ads on cbs.com, you sell them on VOD, you sold them on traditional. Would you prefer Nielsen to have all of that and sell all of that at once? Or do you like selling them in different parts?

Leslie Moonves

I -- actually, there are 2 separate issues here. Number one, I would like Nielsen to be able to measure it and it should be able to be counted equally. When you watch a television show and you're watching the ad, whether you watch it online, whether you watch it on your DVR after 5 days, it should be the same rate. Now whether it's the smart sales strategy to unify that, our sales groups do work very closely together, but they are very distinctive between the network sales group and the interactive sales group. But I could foresee one day where there'll be a general sales office that sells everything.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Do you try to get the flexibility with your digital inventory that, God forbid, someday you actually have to make good, not suggesting there have been any or would be any, but if you did, that you could use digital inventory as a way to sort of...

Leslie Moonves

Of course, we never think about make good, as you said. But having said that, yes. Obviously, there are certain advertisers who would welcome that, who welcome value online. And generally speaking, there's a lot more sales that go between the network and online. So to pay back certain amount, those conversations happen. And in fact, there are certain times that in actuality, it happens.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So the -- I think some of your competing networks have give or take about 5% of the revenue coming from, let's call it, nontraditional sources. Is that a good ballpark to use at this stage? Could you sort of give us a sense of all of these nontraditional eyeballs, how they are being monetized?

Leslie Moonves

It's hard to do. It's such a moving target. It's growing everyday, how much is nontraditional as a DVRs go up and as online streaming goes on and viewing goes on, it -- I think that number is probably low, it will end up being low at the end of this year.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So it's interesting. As a market observer since you're looking at the ratings so closely, one thing I struggle with is, really, you saw last April and May, the broadcast ratings really fall off pretty hard. And then the fall season started there and it stayed there. So there's been no further falloff, maybe in Idol or Dancing, but really generally. So any -- so for you, that means except we're looking at the overnights and traditional. By the end of season, you'll start to be comping year-over-year, right? Any thoughts around that?

Leslie Moonves

No. Look, I think, frankly, the networks a year ago depended too much on reruns. Rerun -- one of the big changes is reruns do not work as well because there are too many other choices. So you can't count on your shows to rerun as well as they did, which is why there was a falloff in the second half of the year a year ago. You're seeing a lot more original programming between now and the end of the season. In addition, we have added a substantial amount of original programming during the summer. For the first time, we are putting on Under the Dome, a Stephen King book produced by Spielberg, 13-hour limited series, miniseries, which we've never done before, put a drama of that quality on the summer. In addition, there's more reality programming. So originals become more and more important.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So Nielsen is showing that viewership by older viewers is increasing, right? So are you monetizing the 55-plus so...

Leslie Moonves

Yes.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

We're always talking about 18 to 49 and 25 to 54 demos being the ones that are typically sold.

Leslie Moonves

Right. The thing that the press likes that bothers me the most is when you see 18 to 49, the only demographic advertisers care about. The average age of the 60-minute viewer is 63 years old. They aren't getting too many 18 to 49s. And trust me, we're making a large profit on that. Boomers are growing in leaps and bounds, the demographic group that is growing. Boomers are over 60 now, a lot of them. We program for everybody. We sell half our schedule for an older viewer, must be an older viewer over there. And -- we lost one. And the fact is, we win total viewers by more than we win every other demographic. February sweeps, we doubled our nearest competitor in total viewers. Once again I know we had the Super Bowl and the Grammys, but we doubled our nearest competitor in total viewers. We welcome everybody and we sell to everybody. So the fact that they say 18 to 49, the only demographic advertisers care about, not true.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So heading to the upfront, is CBS a share-gainer or share-loser this year? How does it play out?

Leslie Moonves

CBS will lead volume and CPM increases. I'm not going to give you a number now, which is I'm sure what you want so it'll make headlines, because my sales guys killed me for the last 2 years when I've said I guarantee you double-digit CPM growth. 2 years ago, we were up 13% to 15%, I did okay. Last year we were only up 9%. So I was a little bit of a liar. But they made me swear I'm not going to give out any numbers until we get closer to it. But we are going to be the leading gainer there in terms of market share, I have no doubt about that.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I don't know. I mean, we can take a poll, but I think this audience thinks 9% was close enough to the prediction last year. We should probably go for another prediction this year anyways?

Leslie Moonves

No, I'll show you the bloggers who said, "Moonves is a liar. He said double-digit," they only got 9% so...

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Well, look, I think the thing that I find interesting is we have scatter prices up mid-teens over the upfront, which is actually reasonably healthy, right? So that's what I argue for mid- to high-single digit price increases. But scatter volumes are relatively, I guess, I think I would say tepid, you would say based on your last earnings call that it's improving a bit in terms of scatter volume?

Leslie Moonves

It is improving, demand is improving. And as you said, rates mid-teens, peaked decent rates.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Decent rates?

Leslie Moonves

Decent, better rates.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

It seems to me like the scatter pricing tells you mid- to high-single digits, the scatter volume doesn't really quite lead you there. So would you say that we should focus on the scatter pricing or the scatter volume?

Leslie Moonves

I think we focus on both. Look, the winner gets a premium. We're going to be the winner. We're going to get a premium at the upfront pricing. The scatter pricing -- I mean, they're both significant. They're both significant and demand is increasing.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And there's only one thing we're hearing from some of the guys you might hear tomorrow at ad panel is just the lack of ratings supply ad-supported, broadcast and some of the ad-supported cables, a little bit challenged, so maybe that'll help the pricing a little bit?

Leslie Moonves

Well, look, it's been a challenging year for a few of the networks. Their numbers were down considerably. But I'm not too worried about the upfront.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I thought we'll talk a little bit about genres. We've had a shift to increase on-demand consumption of television. Serialized dramas have really done well with that. Is that a genre that we're going to see an increased focus from CBS?

Leslie Moonves

No. When you say really well, I still say NCIS is still the #1 show on television. It's a procedural. CSI still wins, Wednesday night at 10:00 against Nashville, against Chicago Fire. Procedurals are still very strong. We haven't done very many serialized shows. The Good Wife, I guess, is the closest we have. We have some more in development. I would still argue in terms of international sales, wholly contained episodes are better than serialized. But with the advent of Netflix and Amazon, they have increased in value a great deal. There are different ways to sell those things. Look, in terms of program genres I tell people the same thing as I've told them since 1995 and I took over CBS and we were in -- dreadfully, in last place. What are you looking for? "We're looking for good shows. I don't care whether they're comedy, drama, reality, serialized, procedurals, 1-camera sitcoms, 3-camera sitcoms. Give me good programming." So as we go into this year, and once again, we're going to be dealing with a year of not a great deal of change because our stability has helped us a great deal. I like the position we're in having so many established hits to be able to launch our new shows, which is still very significant. And I do not know what genre they're going to come in, I haven't seen any of the pilots yet. We got good ones on paper and hopefully, some of them will turn out to be good after we see them, and I'm sure they will.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Is it harder or easier to create good television programming these days?

Leslie Moonves

I would say today is the golden age of television. I think there are more good television programs on now today than there have in history. Now cable has added a great deal to that. There been obviously some phenomenal hit shows on cable, led by Homeland on Showtime are ours, probably you look at Walking Dead, you look at Downton Abbey, you look at on Hatfields & McCoys on History Channel, Mark Burnett I know opened The Bible last night. I like his branding. He called it Mark Burnett's The Bible. Since you know Mark, it's not far from the truth, right?

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So oftentimes you sort of have a number of holes. I think last year might have been 4, and you give us a sense of pilots that you're shooting year-over-year. Are those numbers...?

Leslie Moonves

We are up a few pilots. We went from 18. I think we'll end up with 21 this year. We increased by a few the number of comedies we have. Because we have How I Met Your Mother is going to be on for next year, but it is it's last year. So we sort of have to get the bench a little bit better prepared. We are still looking for that 8:30 hit on Monday night that we can put in there for that, but we don't have a lot of holes. Once again, our schedule is pretty solid, a couple of shows are getting a little low but the bulk of our schedule, we have the #1-rated show in NCIS, it's the #1-rated drama. We have the #1 comedy in Big Bang, we have the #1 news magazine 60 Minutes and we have the #1 new show in Elementary. So we're in very solid shape to launch our new shows next year.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Last year, you took off a long-running show and were you able to put that into your Netflix SVOD deal. Any potential for that kind of move this year?

Leslie Moonves

I mean, yes. There are shows we could take off that we have a deal in place with Netflix to put on. It's way too early to tell. As I said, I haven't seen the pilot or started making my scheduling moves, but we do have that option in a number of shows that are scheduled. If we took them off, we would have that automatic put to Netflix which would be for a substantial amount of money.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Can you give us the cost of making a television show, scripted television show is changing. Is it starting to go up?

Leslie Moonves

Not anymore than historically it's gone up. Obviously, the actors all want more money. And in a hit show, you have to share a little bit more, but there's more to share. In terms of absolute costs, I don't think so. Yes, we have a schedule that is filled with hits, that's filled with some renegotiations with the actors in the shows and all that sort of thing. But basically, we keep our production cost within 5% year-over-year. And if advertising rates go up 13% 1 year and 9% the next, we are in good shape with that.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I was hoping to talk about sports a little bit. I thought I'd just start with a pointed question. Do you make money on sports?

Leslie Moonves

We make money on every single sporting event we have at CBS, every single one. We make money on the NFL, we make money on the NCAA basketball tournament, we make money on golf, we make money on the U.S. Open tennis tournament, we make money on SEC Football. Those are our marquee sporting events. Margins aren't great in some of them. The NCAA became very profitable for us, when we did the partnership with Turner, where we reduced our risk in that, and the NFL even though the rights fees continue to go up and we have a new contract beginning in '14, is still the best television event possible. The rates go up. The ratings generally go up, the excitement for football shows no sign of abating and we're very happy about that. The Super Bowl number was terrific. We're the third highest-rated program in history and considering it was almost a blowout the beginning of the second half, that we were very happy with that number.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Glad you fixed that. You did mention the NFL, the new contract, and that comes in the second half of calendar '14. Does the NFL become unprofitable at that point. I mean, you work your way back?

Leslie Moonves

No. What we've done over the last 8-year contract is we stacked the fees so it goes up accordingly. Obviously, the years that we have the Super Bowl, that fee goes higher. So the jump from the '13 contract to the '14 contract is not that tremendous, overall, the average. But by that point, once again advertising rates are going up. There are certain sponsors who cannot live without the NFL and it is a must-see programming. So we will be profitable. Profits in '14 may not be quite as high as '13, but then you begin to escalate once again.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So sports is seen sort of an area of increased investment across media companies. There might be new sports network announced tomorrow. The -- what should investors expect from CBS on sports?

Leslie Moonves

I'm so relieved that each one of those contracts that I mentioned is to more than a decade except for the U.S. Open tennis. NFL, NCAA, SEC Football and golf. We know what they cost, we know what the fees are going to be, we know they're not escalating past a certain amount so we know they're going to be profitable. To go out and redo any of these deals today, would be very, very tough. The good news is when they're up for renewal, I probably wouldn't be sitting on this chair so the next guy will have to worry about it.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Do you worry at all about internet video competition? We talked about some of these great shows, House of Cards on Netflix, a terrific show, Walking Dead, so on?

Leslie Moonves

They're great programs, there's always room for them. There's always room for great programs. Great programs beget more great programs. People watching more television than ever before. As I said, our ratings are up, Showtime's ratings are up an enormous amount as are their profits because of this. So House of Cards, that's great. Netflix, we want to be very successful. We don't view them as a competitor. They are paying a lot for our library programming and there's a lot in the future with Netflix and if they want to get into the original programming game, that's only great. Once again, we've talked to them as a production company. We're the second-largest television production company outside of Warner's about producing shows for them. So they're our friend, not our enemy.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So let's talk about distribution revenue that going to be highlighted in your intro remarks. There's been some talk that a couple of broadcasters are shifting from trying to get $1 per sub per month in these retrans deals with the cable and SVOD operators trying to get $2 a sub a month. At least in the later years of a deal, that would reshape the curve a bit later this decade be on where a lot of folks might have initially thought. Is CBS sort of participating in pushing the envelope on retrans pricing?

Leslie Moonves

I think it's fair to say that. Look, I think we have a great deal of leverage. Our program -- our programming people can't live without. We've gone through a number of renegotiations, we haven't gone dark for a moment. It's awfully good to be renegotiating a deal when you have the Super Bowl coming up and football coming up and the kind of programming that we have. And once again, there is complaints about the sports rights and how much people pay and if it really comes down to a system where people are paying for eyeballs, and if ESPN is getting 5 in a quarter, we should be getting about $20 a month per sub for CBS. So that's going to be our next request. I'm only kidding, Glenn Blitz is going to have a heart attack before he retires. But clearly the value of the network is irreplaceable. And the value of pushing that number up there is going to get bigger and bigger and bigger. The Fox guys, Chase Carey, has been very active in pushing that number up as have we. I think we've been the main perpetrators of that. Comcast obviously has a dual dog in the hunt. And ABC worries about ESPN more than ABC.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I know you guys don't like to talk about timing too much, this audience also cares about the cadence and how all that lays out and you've had some announcements you have DirecTV, you had Cablevision, I think Time Warner Cable is coming up soon in the middle of this year. Is that sort of finished off a cycle or is it ongoing?

Leslie Moonves

No, it's sort of ongoing. What is unknown in between these big deals, there is about 250 smaller deals done like every year. So the numbers are going up plus remember, we are only in 40% of the country. The other 60% of our affiliates who have these deals coming up. And as their numbers come up, our reverse comp numbers go up. So it's going to be an ongoing process where the number just keeps going up higher and higher, which is another thing you don't have to worry about as the number goes higher, so do our profits because remember, those drop right to the bottom line. So yes, Time Warner Cable is up in the middle of this year. As I said, we view this people as our partner, we haven't gone dark, we don't intend to go dark. We're very reasonable people.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So that's good to hear. So TV production. We talked a little bit about it but how much growth do you see left in that business? I say that because it's been growing quite rapidly the last half a decade.

Leslie Moonves

Internal production?

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Yes. Internal TV production.

Leslie Moonves

Well, we have about 70% of our schedule is product that we produce ourselves.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I'm sorry, I meant broadly. Yes, not for CBS network but your television production business...

Leslie Moonves

Got it. Okay. Well, we are producing for Showtime now. We just produced our -- we're producing our first series for USA, that's happening. So we're getting out of our -- and will we produce for other networks? Probably. As of now, we haven't done that. We've developed a couple of shows with them. Right now, we sort of like the position we're in without helping them.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And what does this syndication pipeline look like right now?

Leslie Moonves

We have 2 shows this year and 2 shows in '14.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Yes, and are those selling at pretty good prices given...

Leslie Moonves

They are. They are. I mean, it's still preliminary but there should be an announcement fairly shortly on one of them.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Now, are you selling digital...?

Leslie Moonves

Well, some of them are also -- we've already sold like NCIS: LA is already done. So that's one of the 4 in production. And Hawaii Five-0 is already done at very high prices. So we have Blue Bloods and The Good Wife, which are now in the process of being sold.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Now what happens when you're taking a show into syndication? Are you keeping digital rights, packaging the digital rights with them?

Leslie Moonves

That's a good question. A few years ago when we made the NCIS: LA deal, which sold for a huge amount of money, at that time it was over 2 million for a domestic syndication show to Cable, the SVOD rights went along with it. So each deal is different. Nowadays, most of the time, if they pay a high-ticket price, they will get all the rights, but now you're looking at deals where you split it up more. You slice and dice it even more than you did before, where you'll sell it to a Netflix or an Amazon and then sell it to a cable, then sell in syndication. So the whole package will be very different than before we would just go to TNT or USA and sell the whole package. so you're seeing a lot more creative dealmaking.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Netflix is talking more and more about controlling their content cost. They've spending a lot to build a service. You've got a big deal with Netflix, any concerns that when they talk about controlling content cost, CBS might be one of those items?

Leslie Moonves

Not really, not really. We have worked with them. The first year with them was sort of an experiment. They brought -- bought a lot of library content. Some of which worked extraordinarily well, some didn't. They asked us to change some of the packaging, which we did. We put certain titles in and certain titles out. As I said, we're rooting for Netflix. We -- our relationship is good with them. We're in constant conversation about doing more. In addition, Amazon is becoming a much, much bigger player. We just announced a big comprehensive deal. So Amazon is jumping in, in a big, big way. They're becoming a legitimate competitor with Netflix. So there's not only one game in town and you hear conversations about other people coming in as well.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

You hear conversations about that?

Leslie Moonves

Well, everybody's heard Intel talk about what they're going to do. We're still waiting to hear what Apple's going to do. The good news and the reason we feel strongly is we have the content. We have the content on the air that's winning and we have a huge library that's very successful.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

You talked more recently about now selling shows that are currently in the air into the online window or the SVOD window, whereas before it was only shows that are off the air that you're willing to sell.

Leslie Moonves

Correct.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Can you give a sense of what caused that change? Why you're more comfortable now with selling to the online window and -- but also how much value is there relative to what you've been selling...

Leslie Moonves

Well, we haven't done it yet. We haven't concluded one of those deals. Obviously, the SVOD has helped some of the serialized shows. People catch up. They do binge watching and then they catch up to previous season. So once again, our attitude towards all of this has been let's wait and see, let's see what works, let's see what doesn't work. The worst thing that we could do is cannibalize our on-air content. And we've been careful about doing that. Having seen what SVOD is now, we're less concerned with that in certain cases. So when you see the amount of dollars that are available by putting previous seasons of existing shows on, suddenly the value proposition becomes much better. You say, "Okay, I can make X amount of money." In addition, the web people catch up. People that are watching it on SVOD will have more of a tendency to come in and discover some shows. So as good as our schedule is, there are certain shows that we think are a very high quality that should be seen by more people. So we'll introduce it to them, at the same time, they pay for it. So as I said, it's a slow process, we're going to put our toe in the water and you'll see more and more of that from us.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Do you think Pandora's box has been opened? If we're all wrong and it turns out that there is cannibalization and this was a bad idea in the end, do you think CBS and other media companies are willing to pull back on the SVOD?

Leslie Moonves

Yes, but that's why you didn't see us joining Hulu. We're in control of our own content, right? That's why we didn't sell a lot of existing content to Netflix until it was off the air. We'll do it with a few shows. We're not going to do it and risk our entire schedule. We make billions and billions of dollars in revenue from selling our first run network content. We're not going to risk that for $25 million from Netflix. That's rule #1, don't risk your content. Main reason why we didn't join Hulu. And I think it's certainly helped our performance in that our content was less readily available than some of our competitors, that you do have to turn on CBS or at least DVR it on CBS, by and large, to watch the content. Doesn't mean if you go to cbs.com, you can't do it. But guess what, I can pull that in 10 seconds. At Hulu, you can't. Once you give it up, it is gone. Your child has left you. And we're in control and that's a key to our relationship with our viewers.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

International syndication, you talked about that as an ongoing growth driver. How much growth is left in international syndication?

Leslie Moonves

I think I did about $1.1 billion this year. It's grown 10% to 15% to 20% over the last 3 or 4 years. We expect that to continue for the immediate future. New markets are opening up. Value of the content goes up. We keep have second, third, fourth cycles of existing shows and it keeps building and building. So we're very confident that's going to keep growing. New show from Showtime called Ray Donovan coming out in June, big international seller. That should grow. We consider it continue to be a growth engine.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Movies, tough business?

Leslie Moonves

Movies is a very tough business. We're in a very small way. We do 3 or 4 movies a year, 1 or 2 we produce, 1 or 2 we acquire. None of which has cost more than $30 million, $35 million. So far, we're doing okay. You're not going to see us do Jack the Giant Slayer or John Carter. You're not going to see those coming out of our film division. We're just the little guy trying to produce content. So investors need not worry that we're not going to go crazy and suddenly be doing $200 million movies.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I mean, just like a television business, film is scale business, right? So do you see scaling at some point or?

Leslie Moonves

Well, not right now, not in the immediate future. Until I can figure out that it's a wonderful business, which I haven't yet, we'll keep playing the game that we're doing it. We're looking for a couple of singles, even a couple of bunt singles and that's enough. We're not going to be a home run hitter, but we won't strike out too much either.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I've praised Showtime in the past and I'll do it again tonight, EBITDA growth, 19% per annum for the last 6 years, $300 million grew to $800 million, 8% average revenue growth, doubled the margin, pretty incredible. So does Showtime have more growth in front of it?

Leslie Moonves

Absolutely. Once again, when we go to renegotiate with the DirecTV or Cablevision or Time Warner Cable, they can't live without it. You can't turn down Homeland, you can't turn down Dexter or Weeds or -- Weeds is gone. But they continue to produce first quality, first-tier content. There are more subs to be had. We're still about 5 million subs short of HBO. So that's a goal. We're still getting additional revenue by producing our own content. We just got the Floyd Mayweather fight, which is exciting, which is for boxing fans, the only guy you want to see anymore. So we got that, which is good. And 60 Minutes sports is now on Showtime inside the NFL. So it's content you can't live without and the growth is still there.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So Weeds off the air, Dexter is ending next year. What's the pipeline look like of the original programming?

Leslie Moonves

Ray Donovan is coming on with Liev Schreiber which comes on with -- it comes on with Dexter's last season starting in June. And then we have Masters of Sex, a story of Masters and Johnson, which is a very exciting show. A show that you wouldn't see on CBS, but it works on Showtime. And that comes behind Homeland in September. So and just announced, we're doing a series about the Vatican, which I think is rather timely, which Ridley Scott is directing for us. So we're very excited about that. So David Nevins is as good a programmer as there is out there, so I'm fortunate to have Mina Tasro [ph] on the CBS side and David Nevins on the Showtime side, 2 of the best programmers in the business.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

What's the international strategy? I mean, do you own enough rights in the original program that you have that you can launch a strong service overseas?

Leslie Moonves

Probably not, not yet. We don't own Homeland, which obviously is our #1 driver. But I'll still take it. It's hard to start Showtime as an international channel.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Radio? The ad market for local isn't -- hasn't really come back and radio is relatively flattish. What's the outlook for CBS Radio?

Leslie Moonves

We like radio. Once again, low-single digit growth, revenue, OIBDA. It's still a very great cash business with great margins. We still like running it. We have no intent to sell it as many people are watching terrestrial radio today as watching 10 years ago, even with all these going on with satellite and everything else. It is what it is. We like the business, it produces cash every year. We like having the amount of cash we have, where our balance sheet is certainly in great shape, partially because of radio.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

You emphasized how CBS' exposure to advertising has dropped over the last few years and if radio wasn't part of the company, advertising exposure would drop even more. Interesting...

Leslie Moonves

Yes, I know. Let's not get crazy here. We're moving Outdoor, we're doing something with Outdoor, that's enough. We like the radio business.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

One at a time, I'm sorry.

Leslie Moonves

Let's not shrink down so we're so small that somebody would come after us.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So Outdoor, that was a major announcement. Can you walk us through how sort of REIT decision developed and when you became convinced it was the right move for CBS?

Leslie Moonves

Yes, as you know, and I think we may have begun talking about it at this conference a year ago, we determined Outdoor is not a core asset. The International business was very tough. It's a business both internationally and domestically, it's not a content business, it's pure advertising. It led let us to be susceptible to what was happening in the world. Italy has a bad week and our stock price goes down. I don't understand that. So obviously, it was an asset that we could get rid of and take that money or spin out or sell. So we're beginning the process of the REIT, which gives us optionality to spin it out, get a great deal money for it and do something more productive with the revenue that we think we can grow.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I think you and Joe we're pretty clear in the last conference call that you could affect the REIT by year end 2013. But it's a few weeks later so just for this audience, can you sort of reaffirm that position that...

Leslie Moonves

Yes. We're obviously applying for the REIT to the IRS, which is going to be done very shortly. And over the period of time, we expect it to take place before the end of '13. That's our goal and stay tuned.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I know this is your favorite question. And we'll go to the audience after this, see if there's any questions and then I'll finish off. But #1 question by shareholders, how much of the REIT-proceeds will go to buy back CBS stock?

Leslie Moonves

A lot. I'm not going to give a number. But you will see a sizable chunk go to repurchasing our stock. That's our intent right now and we usually live up to what we say. So that is fully our intention at this moment and I think that will happen.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Do we have any questions for Les? Anyone at all? Or I can -- we've got a few minutes left so I do have a couple more questions I'll ask. We do have one, Danny in the middle.

Unknown Analyst

I think you mentioned the possibility of doing an exchange offer in connection with Outdoor, which would accelerate the share repurchase. Is that still one of the options as to how you will structure it?

Leslie Moonves

Right now, we -- it is still one of the options, yes. Right now, we do not know where we're heading. The intent is to spin out after the REIT is approved, that is our first goal. But it very well could be involved with share buyback.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Anymore from the audience? So a final question that I had was M&A, is it a 21-part in the U.S., companies are redeploying resources to acquire growth, stock market has done very, very well. At CBS, does M&A look increasingly attractive?

Leslie Moonves

Not really. There isn't a whole lot out there that we're desirous of. There isn't a whole lot that's available at a decent price. Our company is running so well. Obviously our stock has appreciated a great deal over the last couple of years. We know our investors are appreciative of our not taking a lot of money and investing in something. It would have to be something that's very, very attractive, obviously a content company and we've seen nothing of any size that was attractive to us.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I think what was one of the cable networks business -- I mean, you're going through this retrans negotiations where you happen to have a reasonable amount of leverage, you're getting nice price increases, right, have you ever just considered launching a CBS II cable network as you go through these retrans deals?

Leslie Moonves

It's -- we have never offered that as a viable alternative. I don't think the cable operators were excited about that possibility so it never was really discussed. We never thought of it. Would we like a general entertainment cable network? Sure, we would. I've said that before. Do I think we could run it extremely well? Of course, We could. We have a great deal of production, we have a great deal of expertise in that. Could CBS II be far more effective than a number of cable channels that are currently out there now? Absolutely. But I think the last thing the cable operators want is another general entertainment channel from us.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Is it better to build or buy a general entertainment channel? Or there buy a stick that's 60 million, 70 million subs relatively unexpensive versus that operation?

Leslie Moonves

It's hard to say. It's hard to say what their carriage deals are. To build from scratch, if walk in the door, they wouldn't want it. They wouldn't want it. Now once again could I get it if I wanted to reduce the amount of money I'm getting from retrans? Yes, but that's not a wide -- a wise use of our money. That's not a wise thing to do right now. If there's a stick available, if there's something available, we'll look at it, we continue to look at it, but not at some of the price that people are talking about. We're running our business so efficiently. We've grown, they have been levers to pull and we will continue to do that. I think people by now realize we know what we're doing. Our operations has been fairly successful over the last couple of years. The stock has reacted accordingly, there's still a great deal of room for growth on doing what we're doing. So we don't want to screw that up.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And then the last one for me, not a balance sheet question but advertising exposures shrinking. So that would suggest that you could actually -- if you wanted to, raise your target leverage or leverage could rise over time.

Leslie Moonves

We don't like that idea. We don't like that idea. We like where we are now. We paid down a lot of debt. We're in -- our fiscal sheet is in as good a position as we've been -- our balance sheet is in good position we've been ever. To load this with a lot of debt, we don't think is a smart thing to do right now.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Any closing comments for the audience?

Leslie Moonves

We told you 4 years ago, when we were $4 a share, we're going up -- we're at $44 a share, we're going up.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Thanks so much, Les, for being here.

Leslie Moonves

Thank you. Thanks, Doug.

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