Viacom, Inc. Q4 2005 Earnings Conference Call Transcript (VIA.B)

 |  About: Viacom Inc. (VIA)
by: SA Transcripts

Viacom, Inc. (VIA.B) Q4 2005 Earnings Conference Call February 22, 2006 4:30 PM ET


Good day, everyone, and welcome to the Viacom fourth quarter earnings release teleconference. Today's call is being recorded. At this time I would like to turn the call over to the Senior Vice President of Investor Relations, Mr. Jim Bombassei. Please go ahead, sir.

Jim Bombassei

Good afternoon, everyone. Thank you for taking the time to join us for our fourth quarter 2005 earnings call. Joining me for today's discussion are Sumner Redstone, our Chairman; Tom Freston, our CEO, and Mike Dolan, our CFO.

Before we begin, let me remind you that statements made on this call relating to matters which are not historical facts are forward-looking statements. These forward-looking statements reflect our current expectations but involve risks and uncertainties that may cause our actual results, performances or achievements to be different from that expressed or implied by these statements. Risks and uncertainties are discussed in our filings with the SEC.

And now I would like to turn the call over to Sumner.

Sumner Redstone

Thanks, Jim. Good afternoon, everyone. Thanks a lot for joining us. Today, as you know, we announced the financial results of Viacom for the full year and fourth quarter of 2005, which was our last period that the operations were part of the combined company with CBS.

It was, as you have come to expect from the exceptional businesses that make up the new Viacom, another strong quarter, capping an outstanding year. The strength of new Viacom is evident in Viacom's full-year performance. Excluding unusual items, revenues, operating income, earnings per share grew at solid double-digit rates over the prior year.

This performance is why we are so excited about having unleashed these growth businesses through our separation. The future will belong to those companies that are not only focused and not only nimble but that also have scale to compete in the global marketplace: companies like Viacom.

With our experienced team led by Tom and our proven track record, Viacom provides investors with a unique and an attractive investment opportunity. The combination of MTV Networks, Paramount Pictures, BET and Famous Music creates the leading pure play entertainment content company, and it is an outstanding growth platform.

So, now having said those few words, I will turn this over to our real boss, Tom Freston.

Tom Freston

Thank you, Sumner and good afternoon, everybody. I am pleased to be with you today to talk about the results of a very good quarter and what we're doing to ensure Viacom continues its strong performance. I'm just back from our roadshow, and it was great to meet so many of you, and I look forward to meeting those of you we did not get to in the coming months.

Before I begin, I just want to point out that the Viacom team expertly managed the split of the Company at the end of the year. We had no question that the split made sense for shareholders, but there is always the concern that taking on something like this could be really disrupting. I am pleased to say that our people handled it incredibly well and our company has not missed a beat.

Today I am going to be brief. I will take you through the performance of the businesses of the new Viacom and talk a bit about our strategy to grow in the future.

As you know, we are reporting the 2005 fourth quarter today, which is or was the final period before the split, and we are excited about the company we are building. The new Viacom is the only multiplatform pure play content company with the world's leading entertainment brands.

Our global footprint provides us with significant growth opportunities, and we are very well-positioned to monetize the growth trend in digital media. We have both the financial model and the financial discipline to meet the challenges of the marketplace and continue our 20-year proven track record of success.

In fact, for the full year, new Viacom revenues increased 18% to $9.6 billion with Cable Networks up 18% and Entertainment up 19%. In the fourth quarter, Cable Networks revenues was up a strong 16% to $2 billion, but Entertainment fell 5% to approximately $788 million, largely reflecting lower worldwide theatrical revenues.

I realize because of the split in the transaction, severance and other charges, this is a much more complicated presentation than we are used to or you are used to. Mike Dolan will give you more information about our financial results in a few minutes. But let me go into more detail about each of our segments.

Cable Networks is our largest business unit representing about 70% of our revenue. It includes MTV Networks and BET networks. Their brands are strong and growing with across the board gains in viewership driven by great programming.

For the year we continued to outperform the industry, capturing a disproportionate amount of cable ad spending across our networks. Advertising revenue was up 18% for 2005. Affiliate fees increased as well due to the strength of our brands and our long-term deals with virtually every distributor, that includes built-in annual rate increases.

For the year, affiliate revenue rose 11%. We are just beginning to roll out exciting new programming to continue our growth. Starting next month, BET will be rolling out a whole new original programming slate from their development team. MTV recently launched a new critically hit, The Shop, and has more on deck.

On Nick, SpongeBob SquarePants will premiere its first global television event with the new original special, Lost in Time, which will air on Nickelodeon channels around the world. Nickelodeon's top-rated tween star Jamie Lynn Spears will star in her first television movie based on her hit series Zoey 101.

Throughout this quarter, Comedy Central will have more than 60 hours of new original programming. That said, to date, as I mentioned in the recent past, ad dollars are coming in later and later, and this quarter is no exception.

As we look to the future, we see additional opportunities to distribute our content across new platforms that are perfectly geared for our audiences. For 2005 digital revenues were approximately $150 million, primarily from advertising and subscriptions, and we expect to reach $500 million in the next three years. On average new Viacom's digital properties have more than the 24 million unique users and serve more than 100 million video streams per month.

Let me outline our digital strategy. This strategy largely mirrors our approach to cable. We are vertical. We offer deeper, richer, more engaging experiences around our areas of expertise and our target audiences. In 2004 the Internet began turning towards video. We accelerated our multiplatform approach by considerably enhancing the consumer experience on our website by,, and

Last year we created a unique broadband video platform and tapped into the branded video content production capabilities we already had at our channels. The test case was MTV and MTV Overdrive, a best-in-class on-demand broadband video experience.

Moving ahead, we quickly replicated Overdrive with broadband sites for Nickelodeon, VH1, Comedy Central and MTVU. In the fourth quarter, we acquired new brands like IFILM, Go City Kids and

Now it's about scale and distribution outside of our own properties. We need to make sure we are accessible everywhere to consumers beyond our own destinations. So understanding that, we have signed video search deals with Yahoo!, AOL, TV Guide and others, making our content more available and bringing that traffic back to our websites with our advertising embedded.

Generating scale also means getting our content on the latest devices like iPods and cellphones, which we have accomplished. Just a few weeks ago we began to distribute content on iTunes, and our programs have quickly become some of their most popular video downloads, downloading over 900,000 episodes to date.

Moving forward, we are exploring bigger distribution deals with the portals who are telling us they can't rely exclusively on their own development to offer compelling video content, so we will work with them in a mutually beneficial way to export our brand experience.

Over at Paramount, we are continuing to make progress in the turnaround of the studio. It is no secret that Paramount has had a few rough years, but we took tough action and put new management in place.

For the year, worldwide theatrical revenues increased 58% as War of the Worlds, The Longest Yard and Four Brothers outperformed our 2004 releases. Home entertainment revenues increased 20% driven by titles such as The Longest Yard, War of the Worlds and the SpongeBob SquarePants movie.

However, in the fourth quarter, worldwide theatrical revenues dropped 42% due to lower revenues from that quarter's theatrical titles. The 6% increase in worldwide home video entertainment for the quarter included contributions from War of the Worlds and Four Brothers.

During the quarter we made a great strategic acquisition in DreamWorks, which closed earlier this month. We are close to a deal on the sale of the DreamWorks library, which we expect will reduce our overall capital commitment to the transaction to be less than $650 million.

As we have discussed, this transaction will be a key element in the acceleration of the turnaround of Paramount. We all know that taking Paramount to where we want it to be cannot happen overnight. The movie business does not work that way. It takes a long time for projects to get initiated, put into development and make it to the screen. But we are confident about the turnaround process we have begun. Paramount is an extraordinary studio with a great heritage and an enormous opportunity for financial upside in the future.

We understood that the split of the company gave us a great opportunity to reset all of Viacom. Along with the improvements at Paramount, during the year we took tough action and made substantial changes throughout the organization to make us leaner, more flexible and more efficient. Naturally there is some disruption that comes with that, but we feel that the moves we made are key to the future success of the Company.

With that in mind, for 2006 Viacom will continue to operate with strong financial discipline, considering acquisitions in the cable, international and digital spaces that fit our strict financial requirements. Our focus is on improving shareholder value through strong, day-to-day managing of the business and acquisitions that bring value to the Company.

I now want to turn it over to Mike Dolan, our CFO, for a closer look at the numbers.

Mike Dolan

Thanks, Tom, and good afternoon, everyone. Our results for 2005 and 2004 are presented on the same carve-out basis presented in Viacom's final Form S-4. These results are referred to as our historical results and are summarized in the first page of the release.

The carve-out results include the results of cable and entertainment segments, as well as allocations of old Viacom and Paramount corporate overheads through the separation. Debt has not been allocated. Transactions between Viacom and CBS Corporation have not been eliminated. Finally, no shares are assumed to be outstanding, and as a result, there is no EPS.

To be more helpful, we've also presented pro forma information in the release. Pro forma adjusts for certain items as if the separation had occurred on January 1st of 2004. For example, the historical results are adjusted to eliminate transaction costs attributable to the separation and to reflect the interest associated with debt as if it were outstanding on January 1 of 2004.

Pro forma results provide more meaningful comparisons; however, neither carveout nor pro forma results necessarily reflect what our actual results would have been, nor are they indicative of what our results will be as a public company.

In addition to the reporting quirks of carve-outs and pro formas, MTV Networks and Paramount management each undertook significant actions related to the spin-off in 2005, to rightsize their organizations. Also, at Paramount, Brad Grey and his team thoroughly reviewed projects in development and decided to abandon a significant number of them.

We described the financial impact of these management actions taken in the fourth quarter of 2005 as unusual charges. These include $71 million in severance expense, $48 million of which occurred at MTV Networks and $23 million of which occurred at Paramount. They also reflect $32 million theatrical inventory write-downs related to abandoning the projects previously in development at Paramount. Tables showing the reconciliations can be found in the body of the earnings release. The reconciliations by business segment are located in the supplemental disclosure sections.

Now let's focus on several key points about 2005's Q4 and full-year results. Let's start with the full year. Revenues grew 18% to $9.6 billion, and thankfully there are no pro forma adjustments to revenues.

Moreover, the growth was well-balanced. Cable was up 18%, entertainment was up 19%, ad revenues were up 18%, and as Tom said, affiliate fees were up 11%. Pro forma operating income, excluding the unusual charges in 2005 and severance charges in 2004, grew 15%. Cable was up 17%, and entertainment was down 28%.

Pro forma net earnings from continuing operations, again excluding unusual charges, grew 10% to $1.35 billion or $1.70 per diluted share, from $1.23 billion or $1.43 per diluted share. Let me point out again that the share count is based on an assumption of 50% of the former Viacom Inc. shares outstanding.

Free cash flow from continuing operations in 2005 was $1.45 billion and included approximately $55 million of payments made in 2005 for transaction-related items. Excluding those payments, free cash flow from continuing operations was $1.51 billion, down about 4.5% versus last year. In 2005 pre-cash flow represented about 54% of historical EBITDA.

Speaking of taxes, on a pro forma basis, excluding unusual items, our effective tax rate in 2005 was 42.4% compared with the pro forma 39.4% rate in 2004. The higher effective tax rate is substantially due to reduced foreign tax benefits, which, by the way, speak to tax planning initiatives we have underway which we believe will reduce our effective tax rates in the future.

Our effective cash tax rate for 2005 compared to pro forma pre-tax earnings from continuing operations was 43.1% compared to 40.7% in 2004, excluding the $77 million cash benefit of an audit settlement in 2004.

Let's now turn to the fourth quarter. Total company revenues were up 9% to $2.72 billion due to strong growth at cable, up 16%, driven by ad revenues which were up 15%, affiliate revenues, which were up 13% and other revenues, which were up 25%. Entertainment was down 5% to 788 million, driven by lower theatrical revenues and moderating growth in worldwide home entertainment revenues.

Pro forma operating income, excluding unusual charges in 2005 and 2004, was up 8% to $670 million. Cable remained very strong with pro forma operating income excluding unusual charges in '05 up 22% to $762 million on a revenue growth rate of 16%.

Entertainment, however, reported a decline of $86 million and pro forma operating income excluding unusual charges. The drivers of Q4 performance include lower revenue, $38 million; write-downs related to 2006 theatrical releases, and higher operating expenses.

Let's turn to guidance for 2006. We believe strongly that the business is double-digit in terms of revenue growth, double-digit in terms of operating growth -- and that is operating growth against 2005 pro forma operating income, excluding the unusual items --that number is $2.6 billion. We are targeting EPS per diluted shares from continuing operations in a range of $1.95 to $2.00, up from $1.70 per share in 2005.

With that, let me turn the call over to questions. Operator.

Question-and-Answer Session


Thank you. (Operator Instructions). We will go first to Doug Mitchelson, with Deutsche Bank Securities. Mr. Mitchelson, your line is open, please go ahead.

Jim Bombassei

Can we move to the next question?


We will go next Jessica Reif Cohen, Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

Tom, you said the -- I just wanted to drill down a little bit on the cable network outlook, particularly for the first quarter and what your comfort level is. You had a great fourth quarter in terms of revenue, but I think you said that the ad dollars are coming in later. I just wanted you to go through -- I'm not sure why the trends would not continue into the first quarter. Affiliate fees are locked in, advertising upfront. Can you just talk about what you're seeing into the first quarter?

Then the second question is on Paramount. Just talk a little bit about the integration of DreamWorks into Paramount, and do you expect any further charges?

Tom Freston

Well, the good news about the first quarter is the economy is sound. Advertisers seem to be of a good frame of mind and our ratings are good on virtually all of our services. The bad news, as I said, is the money continues to come in late. Well, we have seen that for the last two or three quarters.

We are also lapping an extraordinary first quarter of last year when our ad sales were up 26%; and we have had Easter move into the second quarter, which tends to move back and forth every year. But overall we see business coming in. We are writing in a later date and still have a good feeling about the quarter in terms of our goals.

The second piece, the integration of DreamWorks is done. We don't expect any major moves. Change can be wrenching, but we really needed to make some changes at Paramount, and I do believe that as we went through the DreamWorks integration process, we were able to get the best of both companies onto what is now a new single team. It is under solid and terrific leadership. The changes are over. The new slate for the year for Paramount starts May 5th with Mission Impossible 3, and we're very excited about the year.

Jessica Reif Cohen - Merrill Lynch

But will there be any charges?

Mike Dolan

I don't think there will be any additional significant charges at Paramount. You know, there will be normal course of business charges as there are in all the businesses.

Jessica Reif Cohen - Merrill Lynch

Okay. Thanks.


Our next question comes from Michael Nathanson, Sanford Bernstein.

Michael Nathanson - Sanford Bernstein

Thanks. I have two for Mike. The first one is, can you help to mention what the P&L benefits are going to be of the severence charges? How much will you save in '06, and when is the timing of that?

Secondly on DVD, if you can add in for us what DVD revenues were in entertainment plus cable nets, what is the total DVD number at the new Viacom and what percentage of it is TV-based DVD?

Mike Dolan

Okay. Let me start with the first one. The severance, as I indicated before, the severance at MTV is about $48 million in 2005 and about $23 million at Paramount, and that equals up to the $71 million that I mentioned.

We would roughly estimate that the payback on that is about one year, and we would expect to see that type of return over the period of 2006. So I think that order of magnitude, $70 million -- $60 million to $70 million, would be a fair estimate for 2006.

Michael Nathanson - Sanford Bernstein

On a cash basis, it is going to lag a bit?

Mike Dolan

It will lag a bit. We have some of the severance is related to action taken internationally, and it's a longer tail on the severance of people internationally, as you probably know. Could you repeat the question about the DVD?

Michael Nathanson - Sanford Bernstein

The second one is, if you could look at the DVD entertainment and then look at the DVD exposure in cable networks and add them together for us and what is the total exposure to Viacom for DVDs? Then -- maybe this is too much -- then to mention what percentage is coming from DVD versus theatrical?

Mike Dolan

Well, at Paramount about 60% of the revenues are DVD related. At MTV, do we --?

Tom Freston

We don't break that out.

Mike Dolan

We don't.

Tom Freston

It is just in other revenue. We don't break that out in the individual pieces.

Mike Dolan

So I guess the answer to the question with regards to Paramount is about 60%, 55% to 60%.

Tom Freston

On the MTV inside, it is about total consumer products revenues in which they are included, about 10%.

Michael Nathanson - Sanford Bernstein

Okay. Thank you.


Our next question comes from Anthony Noto, Goldman Sachs.

Anthony Noto - Goldman Sachs

Thank you very much. Tom and Mike, I was wondering if you could give us a sense of what you are seeing in terms of growth rates for the DVD market overall and compare that environment to a year ago as it relates to both revenue and pricing?

The second question, Tom, you had talked about digital revenue for the full year, and obviously that number is probably ramping, given the growth rate. Could you give us a sense of what it was in the fourth quarter so we could kind of get a run rate for 2006?

Mike Dolan

Anthony, the DVD growth numbers for Paramount were about 20% to the full year, and that tailed off in the fourth quarter to about 6%. So it clearly, as we said in the comments, has moderated. Partly that is due to the weakness of the slate we believe towards the back-end of the year and also as we start into 2006 as well.

So we are very bullish about the DVD business going forward. We think there is growth to be had. But we think a lot of the growth will come from the better slate that we will be producing beginning about the midyear of 2006.


Our next question comes from Douglas Shapiro, Banc of America Securities.

Douglas Shapiro - Banc of America Securities

Thank you. I was just wondering if you could drill down a little bit into the strength in the advertising numbers this quarter, and maybe break out the 15% between what was GRPs and what was pricing and what was inventory? Just as an example, I think both Nick and Spike were down a little bit in the ratings, and both posted pretty impressive advertising growth.

The second question is, if there was any update on the number of releases you expect at Paramount this year in light of the write-downs?

Mike Dolan

Let me handle the second question first, if I can. You know they are targeting about 14 to 16 films per year, and that would exclude anything that they would do on what they call classics, Paramount Classics. That would be the range of number of films that they would be targeting.

The issue that Paramount has for this year is that many of those films will be more back-end loaded beginning in May. We have several movies at the beginning of the year, but the real slate of the new team will begin to appear May of this year with Mission Impossible 3.

Tom Freston

Just going back to your advertising question, we don't really break out CPM growth or pricing strategies by individual network. I will say vis-a-vis our ratings to-date for the first quarter, and if you look at them really in the demos that they target, they are on average, probably flat. BET is up some 29%, but everyone is flat, marginally down. You had mentioned Spike. Spike is off 3% to date. Trust me, that does not make any real impact at all in terms of the kind of revenue that we can bring in.

Douglas Shapiro - Banc of America Securities

I guess what I was getting at is, to what degree is some of the strength this past year in '05 been driven by adding inventory and then how sustainable is that if that is the case?

Mike Dolan

In no case did we add inventory.


Our next question comes from Kathy Styponias, Prudential Securities.

Kathy Styponias - Prudential Securities

CBS has talked a lot about the implication for Nielsen now basically reporting three sets of ratings, and the fact that the inclusion of DVR homes actually helps broadcast network programming ratings, especially the top 10 programming. I was just wondering if Viacom had any color that they could provide on what it believes it will do for its programming? Thanks.

Tom Freston

Well, it is really too early for us to tell with any specificity. It is fair to say that the larger bulk of DVR viewing accrues through the top 10, 20 shows. The only show on cable that really figures into that on a regular basis is The Daily Show. So at this point in time, given the sense of the universe, it really seems to be something that is largely sort of a broadcast issue.


We will go next to Richard Greenfield, Pali Research.

Richard Greenfield - Pali Research

A couple of questions. One, your free cash flow was relatively flat year-to-year. When you look at 2006, you are obviously going to have the burden of a higher debt level within Viacom. What do you expect for free cash flow? You said 54% of EBITDA in '05. How do we think about that in '06?

Then a follow-up on the Nickelodeon question. Your ratings were down modestly in 2005. What do you see really doing to change that in 2006, and how much focus are you putting to reverse that ratings performance in '05? Thanks.

Mike Dolan

Yes, we think the flow-through of free cash flow from EBITDA at 54% was unusually high and your point is exactly right. That does not really reflect what we would expect to see in '06 with the added interest that we will expect to have. So I think a more reasonable target would be in the '40s, mid-40s as a conversion ratio between EBITDA and free cash flow.

Having said that, as I have said to numerous people along the way, I still think that we have opportunities going forward over the next couple of years to improve that rate, and we would love to see it back at the 54% again. I think for 2006 I would target something in the mid-40s, and then we would hope to move up from that base.

Tom Freston

Now, on the Nick ratings front, I'm happy to say Nick was the number one rated network last year on a full-day basis among all cable networks, and it had beat Cartoon and Disney by 59% and 61%.

Having said that, there was a slight decline in Nick ratings that happened almost exclusively within the 2-5 preschool sell. If you look at the 6-11 ratings, they were basically flat and that is where the bulk of the money lies, and 8-14 is our tween audience. Their ratings there were at an all-time high.

I can assure you that a lot of time and energy is going into our Nick Jr. lineup to make sure we can get the ratings there back up. The overall financial impact of the preschool audience ratings is very insignificant compared to the other two groups.

Richard Greenfield - Pali Research

Mike, just following up, your comment would imply that free cash flow based on your guidance is relatively flat year-over-year?

Mike Dolan

Relatively. Right.

Richard Greenfield - Pali Research



Our next question comes from Lowell Singer, SG Cowen.

Lowell Singer - SG Cowen

Mike, I have a question. I want to follow up on a couple of your comments on the DVD market. You said that you're bullish about the business. So when you modeled the DreamWorks acquisition and when you budgeted for Paramount over the next couple of years, given the spending on the slate, what sorts of assumptions are you making about the size of that market and the trends in that market? Not just for '06, but really if you look out over the next few years.

Mike Dolan

Well, clearly the growth trends are moderating from the incredibly high growth rates that have existed in the past. High definition will add a kick to the growth rate. I don't think anyone is quite sure what the magnitude of that kick will be, but I think the feeling in the business is that it will clearly add some growth to the sector.

The point I was trying to make earlier was that so much of the DVD business is a throw-off from the flywheel of the slate. That as the slate improves, the DVD business improves almost cause and effect. So, as we look at the slate for 2006 and 2007 as it begins with the midyear, we are optimistic that the slate will be improved, and the DVD business will grow accordingly.

Lowell Singer - SG Cowen

I guess my question is, is your assumption that the conversion rate off whatever that box office input turns out to be, that that conversion rate will be comparable in 2008 to what it was in 2003 and 2004?

Mike Dolan

I cannot say. But we believe that the dynamic ought to work in our favor. Because the other point to be made -- you asked about DreamWorks -- the other benefit which we have mentioned in the past about DreamWorks to us is the benefit of having that library, which really provides the additional growth as well to our DVD business and was one of the sources of the benefits and the synergies that we saw in the transaction.


Our next question comes from Gordon Hodge, Thomas Weisel Partners.

Gordon Hodge - Thomas Weisel Partners

A couple of questions. I'm curious on the digital front if you could just elaborate a little bit more on what you're seeking to achieve in a portal deal? Generally speaking, without getting into specifics?

Also just an easy one. I presume the EPS guidance of $1.95 to $2.00 would be after any kind of FASB 123 stock option expense, but I just wanted to be clear on that.

Mike Dolan

Well, on the first one, we're looking to the portals, I mean, first of all, we're looking and in some cases have already done video search deals with the portals, which I think you understand how those work.

They revert back to our website with our advertising involved, and we are in active discussions now with several portals to make sort of a larger content play that would involve supplying, creating an environment that would be similar to those on our networks, making some layer of exclusive programming available, along with some generally available programming, and these deals -- the terms are really being negotiated now, but generally it works out to some type of split on ad revenues.

I mean this is obviously a great thing for us because it kind of can attach us to the firehose of traffic you get from portals and I think from their perspective gives them some competitive advantage particularly in terms of good video programming.

Mike Dolan

Back on the option question, we have not issued any options this year. The Company is in the midst of a review of its compensation strategy for senior executives, which would include the entire stock option program. So the numbers that we have, the $1.95 to $2.00, exclude any option expenses, simply because we don't know what it is yet.

Gordon Hodge - Thomas Weisel Partners

Okay. So if you took your stock units or something it would -- presumably the compensation number has whatever structure factored into it already?

Mike Dolan

The RSUs are in.


Our final question of the day comes from Jeff Logsdon, Harris Nesbitt.

Jeff Logsdon - Harris Nesbitt

Tom, there have been a lot of discussions, you and other studio executives, about shrinking windows, collapsing windows relative to the theatrical home video, video on-demand markets. It does not seem like it is really in your interest to turn customers who pay you two or three times for product into customers who pay you once. Can you give us some rationale around just the verbiage that is going on in the industry and how you see that playing out for Paramount?

Tom Freston

Well, there is certainly a lot of verbiage going around. I happen to think, for one, that the windows system has served the film industry quite well. From a profitability standpoint, the studios have been a great beneficiary from this sequential release of product. We don't see any reason to change that.

It is fair to say windows may continue to tighten a bit, and I don't know if it is an all or nothing thing. You might see some types of titles might have a smaller or shorter window into DVD, but clearly Paramount is not going to be someone leading that charge.

I do think it is going to be very difficult to collapse windows, and I don't think it is something we will be seeing happening in the near future. I mean the only window that you might see collapsing could be the VOD window on top of the video window. That is certainly a more active discussion.


This does conclude today's question-and-answer session. At this time I would like to turn the conference back for any closing or additional comments.

Jim Bombassei

We just want to thank everybody for joining us on our fourth quarter earnings call. Thank you and have a good evening.


This does conclude today's conference. We do thank you for your participation. You may disconnect at this time.

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