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CBS Corporation (NYSE:CBS)

Q2 2008 Earnings Call

July 31, 2008 8:30 am ET

Executives

Marty Shea - EVP of IR

Sumner Redstone - Executive Chairman

Leslie Moonves - President and CEO

Fred Reynolds - EVP, CFO

Analysts

Michael Nathanson - Sanford Bernstein

Doug Mitchelson - Deutsche Bank

Marci Ryvicker - Wachovia Securities

Jessica Reif-Cohen - Merrill Lynch

Lee Westerfield - BMO Capital

Benjamin Swinburne - Morgan Stanley

Jim Goss - Barrington Research

Mark Wienkes - Goldman Sachs

Operator

Good day, everyone and welcome to the CBS Corporation's second quarter 2008 earnings release teleconference. Today's call is being recorded. At this time, I would like to turn the call over to the Executive Vice President of Investor Relations, Mr. Marty Shea. Mr. Shea, please go ahead, sir.

Marty Shea

Thank you, Rufus. Good morning, everyone and thank you for taking the time to join us for our second quarter 2008 earnings call. Joining me for today's discussion are Sumner Redstone, our Executive Chairman who, I might add, is suffering from a bit of laryngitis, Leslie Moonves, President and CEO and Fred Reynolds our Executive Vice President and CFO. Sumner will have opening remarks and we will turn the call to Les and Fred for strategic and financial issues. We will then open the call up to questions.

Let me note that statements on this conference call relating to matters, which are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation's news releases and security filings. A summary of CBS Corporation's second quarter 2008 results should have been sent to all of you. If you did not receive the results, please contact Poonam Desai at 975-3367 and she will get it to you.

A webcast of the call, the earnings release and any other information related to the presentation can be found on CBS Corporation's corporate website at the address of cbscorporation.com and now I'll turn the call over to Sumner.

Sumner Redstone

Thank you. Good morning, everyone. Thank you for joining us today. I'm going to begin by saying that CBS Corporation continues to be in a solid position with outstanding brands, world class core business’s and a strategy in place to deliver superior long-term performance. It's in the most difficult environments that an organizations underlying strength emerges. Looking back at the quarter's challenges, considering the difficulty we faced, I'm proud of what the CBS team was able to accomplish.

As you all know, the economy is the midst of a slowdown. That slowdown has affected many sectors and many companies. While national business is holding up well, this softness in the marketplace is being felt mostly on the local level through no fault of management, this obviously, adversely affects CBS's local, radio and television stations. Most important, we are continuing to deliver on our promise to shareholders to generate strong cash flow, paying very attractive dividends while at the same time, expanding the reach of our terrific content to growing areas like the Internet and the emerging international markets.

The CBS Corporation portfolio of assets, we say is best in class and it's getting even better with the adjustments that Les and his team make. The result is an evolving portfolio that will be very well positioned to strive over the long-term. And it's the long-term, that we are concerned about.

I'm certain that you'll be pleased when you hear from Les, the strategy that we have worked out for CBS. I have no doubt that CBS Corporation will be successful for a very, very long time. And now, with my laryngitis, Les?

Leslie Moonves

Thank you Sumner.

Sumner Redstone

It’s a pleasure to hand this over to you, to Les Moonves, whom I consider to be a great executive and particularly a good friend. Take it on Les.

Leslie Moonves

Thank you very much, Sumner. And good morning and welcome everybody. Thank you for joining us today. I'm pleased to be with you once again to discuss our second quarter results. Today I will walk you through CBS's result and some highlights of our business segments and then I will turn it over to Fred for additional information and insight and then we'll be happy to take your questions.

The company delivered revenues of $3.4 billion in the second quarter, up 1% from the same quarter last year, which we consider quite an achievement in today's economy. Top-line highlights from the quarter include strong performances from our international syndication businesses and our Outdoor businesses where we had revenue growth both in North America and abroad. At the same time, we are clearly challenged by the economic conditions affecting many industries, particularly as it pertains to our local businesses. This is affecting sales as well as OIBDA and operating income, both which were down from last year on the quarter.

We posted an increase, however, in net income, helped by the sale of our stake in the Sundance Channel. And because of our stock buy back in the past year, our diluted EPS was up 11% to $0.61 versus $0.55 for the same period last year. What I'm most proud of is the fact that, even as we deal with the current environment and invest for growth, we continue to throw off very healthy levels of cash.

Free cash flow of $464 million in the second quarter, and $1.4 billion in the first half, up 6% from first half of 2007. This enables us to pay our very attractive dividend of $0.27 per share, and we have a strong balance sheet and sufficient cash on hand to not only continue to pay and grow our dividend, but also to manage our businesses effectively and keep investing for future growth.

Before going into our individual segments, I want to discuss several strategic actions we've taken during the quarter to position our company for superior long-term growth. First, we took a couple of major steps forward in our strategy to shift our asset mix out of slow-growth businesses and into higher growth areas. Today, we are announcing our intention to divest 50 mid-sized market radio stations. By selling these slower growth stations, we can focus on the larger markets that are showing some real growth, thanks to the successful reformatting and programming changes we've undertaken. Our top stations nationwide did very well in the second quarter and we expect they will continue to do so, given our new strategy. Our current intention is to use the proceeds from the divestiture to buyback shares.

We also acquired CNET Networks. Now and into the future, CBS is about content and distribution. CNET provides us with both dramatically expanding our premium online content and greatly improving our reach among the most important demographics in the fastest growing advertising marketplace. Going forward, we will be a major player in the newest and most important distribution platform for premium content.

There are immediate financial benefits as well. CNET Networks was forecast to make about $450 million in revenues this year and nearly $100 million in profit and they are on track to do that. So combining CNET with our CBS Interactive business contributes to both our top and bottom lines in 2008, and is immediately accretive to both cash flow and earnings. As we look to the future, we expect it will add at least two percentage points to our base business revenue and profit growth rates. More about this important new business in a few minutes.

So, from our sale of radio stations to our investment in interactive businesses, clearly show that we are moving in the right direction for growth. In addition to shifting our asset mix, we took key steps, during the quarter to reduce our expense base across the board to offset the advertising slowdown, we are seeing in local markets. We've been doing that throughout this year with particular focus on our TV and radio stations and Outdoor. We continue to look at every one of our businesses to make sure we have both the appropriate cost structure and the growth focus to outperform as the marketplace improves. Fred will go into this a bit more, later.

And finally, we raised our dividend again in the quarter, our sixth increase in 2.5 years. We were able to take this action because of our strong free cash flow. Free cash flow is one of the most important ways that we measure our success and at a time, when other companies are cutting or suspending their dividends, as they try to shore up their balance sheet, we will continue paying and increasing our dividends.

We feel very good about our ability to keep generating healthy cash flow and return value to shareholders. These key strategic actions, shedding slower growth businesses to focus on higher growth areas, greatly reducing expenses and returning value to shareholders with attractive dividends, are the ways we can continue to deliver on our promise and position CBS for superior long-term performance. Our company is in good shape today, even with this economy and through these actions we will be in even better shape going forward.

Now, on to the business segments beginning with television. Television revenues were up 2% in the quarter to $2.2 billion, but OIBDA and operating income were down 10% and 12%, respectively. Again largely, due to softness in local advertising marketplace at our TV stations. Network advertising is continuing to perform better than that. The upfront sales process concluded during the quarter and once again, CBS was the market leader in volume with high single digit CPM increases. At a time when advertisers need to make every marketing dollar count, Network Television remains the best game in town, and this year's strong upfront reinforces our faith in this areas long-term prospect.

In addition, scatter pricing remains very strong, ahead of the up front, another encouraging sign for network. The local television marketplace however, is experiencing a more profound impact from the current economic environment. Automotive accounts for the largest share of local advertising has been the hardest hit. The good news is that political dollars are helping fill that gap somewhat. They continue to come into our stations at a record pace in this historic election year. We expect big spending through convention season and all the way to election day. It should be a very interesting campaign and we expect to reap the benefits from that.

There were several bright spots in television this quarter at our syndication group, CBS television distribution. We had another outstanding quarter, particularly on the international front where demand for our content continues to be very high. As you saw in our release this morning, syndication sales were very good and TV licensing fees were up 35%. Domestically, after successful off-network sales of Ghost Whisperer and Criminal Minds, we're preparing numbers for the off-net marketplace.

Our international story is even better. Our new international self-distribution deal for the very valuable CSI franchise is the key driver of the quarter syndication group results. We are also seeing healthy international sales and license fees for all of our current and new content.

Our Showtime series are very popular internationally as well. Strong sales of shows like "Californication" and "Dexter", not only support our investment in new Showtime original programming, they also drive sales across platforms like DVD sales and iTune downloads.

Speaking of Showtime, our premium pay cable operation, just keeps getting better and better. We've added nearly 1.4 million new subscribers in the past year as more and more people are drawn to our terrific original programming. These increased subscribers dollars drop right to the bottom line. The shows that premiered this summer have hit their highest audiences that Showtime has ever seen, including "Weeds", which had the highest opening audience in Showtime's history.

Showtime also just received 21 Emmy nominations for groundbreaking shows like "Weeds", "Californication", "This American Life", Tracey Ullman's "State of the Union", "The Tudors" and "Dexter", and we are thrilled to be bringing inside the NFL to Showtime this fall. This great franchise will only be enhanced by the long-term CBS Sports NFL affiliation and also show the synergies that exist between our divisions.

Showtime has been busy filling its movie pipeline at very favorable terms. We recently made a seven year exclusive film distribution deal with the Weinstein Company. That will deliver up to 95 films to our Showtime subscribers, and between the Weinstein Company and our own CBS film output and other deals to come, we'll have more than enough quality, theatrical releases to supplement Showtime's original programming and going forward, and at significantly lower costs than we've had in the past.

Across our television businesses we feel confident about the work we are doing to produce and distribute premium content in the network and paid channel areas. We truly are a content engine, building our presence internationally, across networks, and in the premium cable space, and tapping into all of the revenue streams available to us.

Turning to radio, where as I've said, we intend to divest about 50 mid-sized market stations. We continue to see proof that focusing on better content in our largest radio markets is working. The 15 major market stations that have recently been reformatted, have together dramatically improved their profits, under scoring radios' potential. Again, divesting our mid-sized radio stations will allow us to focus on this opportunity.

Another radio growth area in the quarter was political advertising. As with our TV station, political revenues achieved record levels during the quarter, a trend we expect to continue through year-end. And we are making progress with our online initiatives in radio as well. With our AOL deal underway, we are selling inventory on additional 250 radio stations nationwide, and have doubled our streaming audiences at our major stations.

We are also excited to have our radio stations streaming on the new iPhone. This is a key example of how we are taking our core content and putting it on new technology platforms to reach a broader audience. We know if we can improve our performance in radio, it will mean a lot for the company and our shareholders, and I want to assure you that Dan Mason and his outstanding team are making the adjustments necessary to focus on the opportunity at our large market stations and best capitalize on long-term growth prospects.

At Outdoor, we closed on our acquisition of IOA, the largest outdoor company in South America, early in the quarter, and it is already exceeding expectations. This important new asset greatly expands our presence in a growing vibrant marketplace. It is also consistent with our goal of accelerating growth by focusing on the most promising area.

Beyond South America, we're also seeing strong growth across most of our international markets. In North America, we are also growing as we continue to have success, moving out of the lower margin transit business and into higher margin billboards. And digital continues to play an important role in our Outdoor business. Demand is very high for digital displays in iconic locations like Sunset Boulevard in Hollywood and Times Square in New York. International advertisers have been interested in our creative digital strategies, like cross track projection and digital boards placed along escalators in the London Underground which can be quickly and cost effectively updated with a touch of a control room button.

It brings me next to Interactive. As you know this is an integral part of our long-term growth strategy. Acquiring CNET immediately catapults CBS to the top 10 among global internet companies by unique visitors. Our newly expanded CBS Interactive business is ranked eighth today, versus 24 prior to the acquisition, with 160 million users worldwide and leading online brands across every important category.

We like the upside of the new CBS Interactive going forward and its core CBS is a premium content and distribution company and adding CNET's stable of sites in news, technology, business, entertainment, video gaming and other areas, adds tremendous complimentary reach, where consumers are increasingly spending their time. Right now most online revenue is generated from search, but engagement, the amount of time consumer spend with their favorite content, leads to significant revenue opportunities. We believe as the Internet develops as the new medium, advertising will follow engagement, and premier content site like ours would be the best bet to reach consumers online.

The reach for promoting CNET through CBS properties can be truly dynamic. Let me give you an example of our success so far integrating CNET and making this happen. When iPhone 3G launched this month, we aggressively used CBS properties to drive traffic to CNET. CNET editors made appearances that aired more than 30 times on CBS shows including The Early Show, Entertainment Tonight, and many local TV and radio programs, and when we added video content from The Early Show to CNET's iPhone launch coverage that day, video streams and organic search traffic on CNET sites tripled. This is precisely the kind of success that we had years ago, when we bought sportsline.com and began promoting it on CBS Sports. The mass reach provided by broadcast television and our other core businesses are some of the greatest weapons we have to drive traffic online and we can apply the promotional power of all of our CBS properties to all of our new interactive ones.

At the same time, CNET's broad reach is helping our existing businesses too. In July alone, CNET sites have delivered more than 200 million impressions promoting CBS brands. All of these cross platforms initiatives offer tremendous opportunities for our clients. The good news is that, CBS and CNET do not currently share many top advertisers. Our main focus right now is offering both sets of advertisers, new ideas to work with all of our properties. Once again, the advertising clout of CBS will certainly help CNET, or as it's now referred to the new CBS Interactive group, which will cause it to grow tremendously. The same time CBS Interactive is exploring third party partnerships to achieve incremental revenue from the sale of our network inventory.

I look forward to updating you on new developments in this regard and their financial impact in the coming months. I'm excited about all we are doing to build this business and create new growth opportunities for the company. Our stated goal is to reach $1 billion in CBS Interactive revenues within the next three years from this year's mid $600 million mark, recognizing its value to our company, and its different growth profile, we will be begin breaking Interactive out as a separate segment in the third quarter. When we do, you'll see just how big a part CNET's many global destinations and users play in our newly expanded interactive business, and how central it is to achieving our growth goals.

In conclusion, from TV, to radio, to Outdoor, to Publishing, to Interactive, I believe we are taking the right steps to perform well in the current environment, and position our company for impressive long-term growth. We are adjusting our asset portfolio, shedding slower-growth assets like mid-market radio stations, and acquiring businesses in higher growth areas like CNET and IOA. At the same time we are being very disciplined in cutting costs, continuing and in certain cases, accelerating efforts begun early this year, long before market conditions became evident.

Finally we are staying focused on our shareholders, our businesses continue to generate strong free cash flow, and we are committed to paying very attractive dividends and looking at the potential of a share buy back. Yes, the economy is tough right now. But we are managing our businesses effectively, focusing on improving both efficiency and growth. And as soon as the marketplace improves, we are going to be ready and in a position that capitalizes on the upturn.

Now, I'll turn the call over to Fred Reynolds for some more remarks on our performance. Fred?

Fred Reynolds

Thanks, Leslie and good morning to all of you. Let me first discuss the second quarter and first half financial highlights and then provide additional information on our operating performance including free cash flow, our balance sheet and our plan to change our portfolio of businesses to drive growth.

Revenue for the second quarter totaled almost $3.4 billion, up 1% over last year second quarter. Strong growth in our license fee revenues from domestic and international syndication, along with the timing of airing the NCAA Final Four games, drove our second quarter revenue growth. Offsetting some of our revenue growth, however, were lower revenues at radio and TV stations, due to divestiture of stations, a decline in same station ad sale, and that's what caused us to offset some of that growth. At the CBS Network, time period sales were down 2.9% versus last year's second quarter.

Turning to profits. Adjusted operating income before depreciation and amortization, which excludes stock-based compensation expense and restructuring charges was $802 million for the second quarter, down 10% from last year at this time. The drop in adjusted OIBDA was due to a shift in our revenue mix, from very high margin ad revenues to syndicated revenues. Now, our margins from syndicated revenues are still very attractive, however they are not as high as our traditional ad revenues.

On the operating cost and overhead front, we have aggressively reduced our operating expenses in 2008, by almost $150 million. And we have taken almost $48 million of restructuring charges as we reduced headcount across the company. Most of the reductions have been at our local businesses; radio, TV stations and Outdoor, which as Leslie just mentioned, are experiencing some softness in their ad revenue due to the slowing US economy. We will continue to focus aggressively on reducing all of our costs, especially at the local businesses.

During the second quarter we sold our 37% ownership in the Sundance Channel and recognized a pre-tax gain of $127 million, which is reflected in other items net. The gain increased our second quarter earnings per share by $0.12. Now reported net earnings for the second quarter were $408 million, which is up 1% over the second quarter last year. Our reported diluted earnings per share for the second quarter totaled $0.61 versus $0.55 last year, an 11% increase as we benefited from last years share repurchase program, which reduced our diluted shares outstanding by almost 8% compared to the second quarter last year.

Free cash flow for the second quarter was $464 million and as we noted on our call in the first quarter, some of the very strong free cash flow we enjoyed in the first quarter was due to some timing between the two quarters. So, if we look at the first half of 2008, which is a better measure of the strength of our free cash flow, free cash flow was over $1.4 billion, up 6% over last year comparable period. We continue to drive our working capital usage down, increasing the speed at which we turn our accounts receivable into cash. Our company has a strong history of driving free cash flow, and as you will note, we ended the second quarter with over $800 million of cash on the balance sheet and that is after our all-cash acquisition of CNET.

Our balance sheet remains very, very strong. Our leverage is at the low end of the conservative range, which we believe is prudent given the overall US economic environment and the somewhat fragile state of the credit markets. As Leslie mentioned, we are committed to returning value to shareholders. Since the second quarter 2007, we have raised our dividend 23% from $0.22 a share per quarter to the current $0.27. We believe dividend increases best signaled our confidence in our ability to produce strong free cash flow in the future, coupled with maintaining a very strong balance sheet.

Turning to other key highlights in the quarter. On the last day of the second quarter we closed on the acquisition of CNET. Our balance sheet at the end of the quarter reflects a preliminary value for CNET. In the third quarter, as we just mentioned, we will report the results of operations of our interactive businesses including CNET, as a separate segment. And as Leslie just mentioned, we are off to a terrific start integrating CNET into our CBS business. CNET scale and brands provide us with an invaluable platform to dramatically accelerate our growth in the fast growing interactive market. We have quickly capitalized on eliminating organizational overlaps, eliminated their public company cost, and are in the process of melding together brands and sales teams.

We also announced today, our plan to divest 50 radio stations in 12 markets. Our stations in these medium-sized markets are competitively well positioned. However, as we have discussed, we are focused on the top markets, where we are seeing solid operating improvements in the changes our radio team has made. Divesting these 12 markets would add about two percentage points to radios revenue growth based on the most recent months. Our large markets have much deeper and diverse economy and we believe give us the most upside for future growth on air, online and in the broader interactive market such as mobile.

We believe we can attract very good after-tax values for these 50 stations from strategic buyers and we'll keep you posted on the results of our divestiture efforts. Our strategy over the last few years has been to upgrade our portfolio by divesting, for very good values, the slower growing business, and using the proceeds to acquire attractive, fast growing businesses, and importantly returning cash to shareholders by the way of increased dividend and share buy back. As Leslie mentioned, our intention is to use the value we receive from divesting these stations to reduce our shares outstanding.

Now, let me briefly update you on some additional information on our segment performance in the second quarter. First we'll talk about the television segment, television revenues were $2.2 billion, up 2%, led by international syndication revenues, primarily CSI franchises along with strong syndication revenues for NCIS, and Numb3rs, and airing again of the Final Four basketball game, drove our revenue growth in the second quarter. Also our affiliate revenues for Showtime and CBS college sports were up 5.4%, as Showtime added almost 1.4 million subscribers, a 10% increase in the subscriber base since June of last year, and college sports added 1.5 million subscribers.

Operating income for the television segment for the second quarter totalled $496 million, down 10% from the second quarter last year. And as I mentioned at the outset, the shift in revenues from non-sports ad revenues to revenue from syndication, the airing of the final four games, and higher stock-based compensation expense reduced television segment's operating profit before depreciation and amortization.

Turning to radio, radio's second quarter revenues of $416 million were down 10% from last year second quarter, as declines in the same-station ad sales and previously divested stations lowered our revenues. On the same-station basis, revenues were down 9% for the second quarter of last year. As we noted on the earnings call last time, we continue to see improvement in growing revenues in our top markets. For the month of July, which is just concluding today, revenues for 50 stations in our top market were up in growth over last year's revenues at the same time. Radio's operating income before depreciation and amortization for the second quarter totaled $159 million, down 15% a year ago, again, divesting radio stations and the drop in same-station ad sales lowered our radio profits versus last year.

Next Outdoor, Outdoors revenues for the second quarter totalled $598 million, up 8% over second quarter of '07. North America sales on an as reported basis grew plus 2%, however when you take into account two very profitable municipal contracts that we were unable to renew at appropriate values, lowered our North American growth rate by 2%. International Outdoor was up 18% in revenues, led by strong results from the United Kingdom and France coupled with the weak US dollar.

Operating income before depreciation and amortization for Outdoor was down 9% in the second quarter versus last year. However, international operating income before depreciation and amortization increased 9% over last year to approximately $27 million. North America OIBDA of $127 million decreased 12%, due to higher transit and billboard lease costs, the municipal transit contracts, which we were not able to review and $2.6 million of restructuring charges that we took in this current second quarter. IOA, our group of billboard businesses in South America, which we acquired in April, is off to a terrific start, exceeding our profit expectations. IOA is part of our International Outdoor division, as part of all of Outdoor.

Finally, as you'll note in today's earnings release we have updated our business outlook for 2008. We expect to grow adjusted operating income before depreciation and amortization low single digit over 2007, with operating income comparable to year ago. Our outlook excludes the growth and operating income before depreciation amortization that we expect from the acquisition of CNET to provide, and excludes the impact of the additional station divestitures, which we just mentioned.

While the US economy has slowed since the first quarter, largely affecting our local businesses, we have taken numerous actions to lower our operating cost and we will continue to look for opportunities to reduce cost, but also invest in businesses we believe will add to profit growth both today and into the future. We are very focused on managing our businesses through this economy and we believe the various actions that we've taken will produce even stronger profit margins and higher growth in the future.

With that, I think we'd like to turn the call over the operator, so we can open up the lines for your questions. And operator Rufus, if you open the call, that would be great.

Questions and Answers Session

Operator

Thank you, sir. (Operator Instructions) And for our first question, we go to Michael Nathanson with Sanford Bernstein.

Michael Nathanson - Sanford Bernstein

Two for, Fred. You didn't say, but can you give us what the update was for local station revenue for TV in the quarter? And then can you take out cost as fast as the revenue declines, give me a sense what the stations did in the quarter?

Fred Reynolds

Second quarter, the TV station were down versus last year. We don't break out the complete comparables, but they were down. As you probably know, the second quarter has the least amount of political. Its very strong in the first quarter, strong in the third, and strong in the fourth, which we are starting to see build. So, stations were pacing down versus last year. And on the cost, can we take out cross faster? As you know Michael, ad revenue has a high margin; I don't think that's possible. As you look at this business as you have, our costs have always been flat to down. We've taken out $150 million that will reduce cost in 2008 and we are still looking at areas of opportunity to take costs out.

Michael Nathanson - Sanford Bernstein

Would you say revenues were single digits or double digits decline?

Fred Reynolds

I am not going to comment on the comparable sales.

Michael Nathanson - Sanford Bernstein

Okay. Can I ask Les, one. How big is the revenue base and the OIBDA base of the businesses that, stations that you're divesting in radio, what percentage of the overall base is that and have those revenues grown at similar rates as the large stations overtime?

Leslie Moonves

Let me turn that over to Fred.

Fred Reynolds

Michael, it's a little bit fluid on as far as what stations we are going to sell. We've identified the market. This would be roughly $300 million in revenue and about $100 million in operating profit before depreciation. So it's probably, 15% or so of the radio revenue and about 10% to 12% of its profit of the segment.

Michael Nathanson - Sanford Bernstein

Thank you.

Operator

For our next question, we go to Douglas Mitchelson with Deutsche Bank. Mr. Doug Mitchelson, your line is open.

Doug Mitchelson - Deutsche Bank

Sorry, can you hear me? We are almost on the new broadcast season with the disruptions we had in the pilot season. I know you talk a little bit on the last call. Can you give a sense of your level of optimism for ratings this upcoming season? And can you guys subdivide the network ad market between sports and your prime time entertainment? It seems like sports have been strong. Can you just aggregate those two categories?

Marty Shea

Sure. We left the strike CBS and we hit the grown running frankly and we ended up having more pilots done than anybody else, and frankly if you just left the television critics association, they were very pleased that we were able to show them our new product, which I'm very high on. Post strike, our ratings began to come back. Everybody is encouraged, Network television is up over the summer months, which is a very encouraging sign. And I think everybody in the world underestimated, what the upfront marketplace would be.

We had all heard that it was going to be flat, and it wasn't. It was up for everyone in terms of CPMs and also volume was exactly where we wanted it to be and about where it's been in previous years. The sports marketplace continues to be very strong, but so does Prime Time. We are pacing extremely well with football as we head into the fall. We are very pleased with those numbers. We had an extremely good year last year with football and we are doing even better this year. And once again, judging from how the ratings came back post strike and how they've achieved over the summer and the quality of our products right now, as I've said, we have five new shows which I'm very encouraged and I would arguably say this is the best development we've had in about five years from my point of view, ironic since we have less of an amount of time, we spent less money on it, so maybe we learned a lesson from that. But I am guardedly optimistic that this network season is going to be a great improvement over last year.

Doug Mitchelson - Deutsche Bank

Right, thanks.

Operator

We'll go next to Marci Ryvicker with Wachovia Securities.

Marci Ryvicker - Wachovia Securities

Thanks, I have two questions. The first for the radio station sales announced today. Have you identified potential buyers and can you talk about a specific timeframe in which you want to do this, especially given the economy? And then secondly, in the Outdoor division, I think the press release said, there was 4% organic growth. Does that include or exclude IOA?

Fred Reynolds

Okay. Marci, this is Fred. On the radio stations, as we've said, these are very attractive mid-sized markets and we have been in preliminary discussions with some strategic buyers. So, they will be very attractive to market. I am not going to explain on the phone now, because again, it's a little bit fluid as to, there's a series of buyers that would be interested in this and we've had preliminary discussions with them. On the Outdoor, that is without IOA. Organic is without acquisitions or divestitures. So, that 4% was without the lost contracts or IOA.

Marci Ryvicker - Wachovia Securities

Thank you.

Fred Reynolds

Sorry, on timing, as soon as we can get the radio stations. With the way approval process goes with the federal communication commission, my guess is this would probably, if we struck a deal within the next 30 days or so, we wouldn't close until sometime in the first quarter. Maybe it could slip depending on the timing. The deals we just did last year took, on average, about seven or eight months for the approval process. We don't expect problems but it takes a little bit longer.

Operator

We'll go next to Jessica Reif-Cohen with Merrill Lynch.

Jessica Reif-Cohen - Merrill Lynch

A couple of questions, unrelated. First, I was just curious with the radio sales proceeds being marked for buybacks, why only buybacks, why not acquisition in this environment? There must be a lot of opportunity around? Okay, go ahead.

Leslie Moonves

I was going to say look, we don't rule out the possibility. As Fred mentioned, we bought CNET and we still have $800 million in cash on the balance sheet. When these divestitures happen, we are going to have a lot more money. If there's a great opportunity and there's a great value that fits into our game plan, of course we will look at that and look at it very seriously. What I don't think people understand is our free cash flow continues to be very powerful. So, we are able to do acquisitions, and do dividends, and do buybacks and we will continue to be able to do that.

Jessica Reif-Cohen - Merrill Lynch

And Les, another one for you. In the up front, was there anything unusual in terms of the commitments? Was more money deferred to calendar quarters one, two and three of '09 versus the fourth quarter of this year?

Leslie Moonves

Not really. It was a much more ordinary process than anybody anticipated. As we mentioned in our comments, clearly the mainstream network, the broad tent, is benefiting ironically from some of the local slowdown. So, when you look at the quarterly designation, it's not really drastically different from any other year.

Jessica Reif-Cohen - Merrill Lynch

And the last question is, I guess for Fred. What is in the new interactive division besides CNET?

Leslie Moonves

Well, it's all the old CBS properties as well. CBS, the former sportsline, CBSsports.com, CBS.com which is our entertainment site, the audience network, as well as our news site,s plus LastFM, have all melded very nicely. And as Fred mentioned, we are extremely pleased with how the integration is going. It really is rather seamless and they are off to the races and the structure is in place and there was very little crossover and we think it's moving along very quickly.

Fred Reynolds

Jessica, I would add that, those CBS properties, as we sort of said, are kind of north $200 million of revenue so you would add on a full year basis, add you would add on CNET, that is the 600 plus number that Leslie referred to in his comment.

Jessica Reif-Cohen - Merrill Lynch

Anything needs to be reinstated from prior periods?

Leslie Moonves

Well, as you break out the segment as you know, we will have all comparable periods reported in third quarter, so you'll see third quarter '07 on a comparable period. Of course, 2007 wouldn't have CNET in it because we don't do pro forma’s, but we'll give you enough information so that we can provide an equivalent without getting into the forbidden pro forma world, what it would have been with CNET.

Jessica Reif-Cohen - Merrill Lynch

Thank you.

Leslie Moonves

We will inform you, if we get that information.

Jessica Reif-Cohen - Merrill Lynch

Thank you.

Operator

We go next to Lee Westerfield with BMO Capital.

Lee Westerfield - BMO Capital

Thank you. Actually Fred, little more color on the radio potential sale. Two questions here. First, are you prepared to treat them as discontinued ops at this point? Is it not yet based upon the identification of the assets? And second, these assets as they may be sold, are they at a zero cost basis at this stage or what is the tax base we should think of?

Leslie Moonves

Thanks, Lee. We will not be in discontinued Ops because the rules would not allow us to do that because this is really a division within an individual market. Actually, these have a decent tax base, its not as much as you’d like. As you know, we are very tax efficient driven, so there may be some structures that we want to keep the most dollars after tax. The tax basis, this group of stations is kind of in the $400 million to $500 million range of tax basis. Obviously, we think we'll get good values for that so there would be a tax leakage. We don't want to have tax leakage, if there's a structure that will mitigate some of that.

Lee Westerfield - BMO Capital

Thank you.

Leslie Moonves

Sure.

Operator

We go next to Benjamin Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley

Good morning, thanks for taking the question. I'll ask two if I can. One, on the new CBS Interactive, maybe you can talk about revenue synergies as you bring the CBS sales force over to the CNET properties, what categories are you targeting that you can build more online sales on and how does the CPM differences between sort of the premium stuff you've been selling on CBS digital compared to CNET and how do you see that blended rate tracking overtime? And then second, any update on retransmission? I think you have some contracts with some of the larger public cable operators coming up next year. Any update in the current environment of how you are thinking the benefit to CBS there?

Leslie Moonves

Sure. Thanks, Benjamin. In terms of the CNET integration, what we are doing is we've established certain verticals in our premium content areas i.e., we have the CNET, which is technology, we have BNET which is business. Our news division, CBSnews.com, will fit into with CNET. Our entertainment properties can go together seamlessly. The cost benefits that we are seeing, now that we have a sports presence into the games spot presence into the BNET, means we can sell demographics much more efficiently and the CPMs together will work extremely efficiently and be much high are than they've been before for either grouping.

In addition we have set up a structure with the sales heads, report directly to the GMs of their verticals, plus we have set up a sales force where the CBS Television Network is involved with their sales force as well as synergistic opportunities amongst the various verticals at CNET or at the new CBS interactive group. But we are able to get extreme synergies in terms of that. And the good news is that it seems to be working extremely well with the new brands fitting very well into these verticals.

Fred Reynolds

I would just add Leslie that clearly, we think there's some opportunities. We have well positioned with CBS with the auto manufactures, with pharmaceuticals, with financial services, and yet if you look at CNET, that's the audience they attract, particularly on CNET.com, and they are not as strong with that. They are selling more towards like the Dells and the Microsofts of the worlds, and the Googles, those more on the tech side. Yet those users, we think there's going to be a great crossover. We are already seeing it, Neil Ash and his team are welcoming the access that we give them.

Also, to your point, CBS Interactive sells very high value video, which is in the $25 to $30 CPM and CNET doesn't have as much video. Today they will as we go forward, so they have a large sales force selling at a lower rate, probably in the $10 to $15 CPM range, but it's a very attractive sales force, where we have a smaller sales force selling high. That's why we love what Leslie just said, we love blending the two together because we get the best of both worlds.

Leslie Moonves

When we were looking at the acquisition and compared the top 20 advertisers of both CBS Interactive and CNET, there were only three that were on both lists. So, there's great opportunity for introducing new clients on both sides of the fence, who are very excited about making a larger buy with us, which makes the synergies happen. In terms of the [re-trans], we are in active discussions with some of the larger guys and we are very confident, they are progressing along very nicely. We don't make a big deal out of it. Over the last year, we've done 25 of the smaller MSOs. We are in conversations with the larger ones and very productive conversations. So, I'm guardedly optimistic its going all go well without making a whole lot of noise, except at the end of the day there will be more revenue for the CBS Corporation.

Benjamin Swinburne - Morgan Stanley

Thank you very much.

Leslie Moonves

Thank you.

Operator

We go next to Jim Goss with Barrington Research.

Jim Goss - Barrington Research

Thank you, couple if I might. First with regard to Outdoor, one of the strengths I believe of CBS Outdoor has been in its international operations, it's been focused on a couple of key markets. As you move into another market, I wonder should my comment on the balance between domestic and international that you see ultimately and the focus in concentration of the international markets? And then secondly, with regard to the radio station deals, lately evaluation and buyer financing issues have really posed an impediment in getting deals done and I am wondering if you might comment on the time frame and the challenge of getting that accomplished and what the timeframe might be?

Fred Reynolds

Yes. Jim, this is Fred. Our international versus domestic in Outdoor, we want both to grow quickly. Clearly, internationally, we are focused. Our biggest enterprise is in the United Kingdom with the London Underground and we have the quiet enjoyment of that relationship for a number of years into the future. What you see with international Outdoor advertising, IOA, is that we think South America is going to be fast growing. In Argentina, they have a strong position, Brazil and Chile. It's a billboard market, which has a really good margins, so we'd like to grow that. But the biggest business is always be North America anchored by the United States. We still have a lot of growth, particularly in the billboard business in the United States.

Everything is turning into digital, and the progress we are seeing on digital like in the United Kingdom, where we have several thousands displays up now, is that the advertisers are really coming to us in droves. The revenue that we are earning on that is up dramatically year-on-year. So, it's changing the medium that way. On radio, clearly, with the strategic buyers, there's a number of ways, either through financing or other kind of structured deals, where we think we can get the value that, after tax that we need. And again, I'd say we are shooting to have the deals wrapped up sometime in the first to second quarter of next year with full approval. So, that is the time line.

Leslie Moonves

Jim, you never know how quickly the SEC is going to act on these things. We are optimistic in that this can move fairly quickly once we've ascertained how we are going to do it.

Fred Reynolds

Rufus, we have time for one more question.

Operator

And that question will come from Mark Wienkes with Goldman Sachs.

Mark Wienkes - Goldman Sachs

Thank you. Back to Outdoor real quick, are there significant differences in large market results by regions in the billboard business specifically, non-transit. We're hearing the average contract duration is still shortening, the deals of booking later. So, if you talk to the health of the local versus the national advertising as you look ahead and then a follow-up on the digital side.

Fred Reynolds

Mark, this is Fred again. Listen, the big markets are growing pretty well, and we tend to be in big markets not only in Outdoor but the other. Outdoor doesn't get a lot of national business anyway; it's a lot of local business. We have not been hurt by any of the real estate or home building. We have a very low presence in that. We never have, because we're in the major markets. But we are seeing a lot of good movie business. We are seeing auto in the Outdoor category in the United States actually up and it has been up. So, no, I don't think there's that dichotomy like you see in the broadcast assets between national being strong and the local business’s slowing. You don't see that in Outdoor.

Mark Wienkes - Goldman Sachs

And I guess to switch gears –here; the 1.4 million net new cable subs you talked about, are they coming in the international markets such that the affiliate revenue growth was just 5%?

Fred Reynolds

No, That's Showtime, which is domestic, its domestic here through our regular MSOs. Showtime is the domestic premium cable service, and we really believe that through the Weeds and the Dexter and the Tudors and the quality of our programming that more and more people are signing up for subscribers.

Mark Wienkes - Goldman Sachs

How do we think about the 5% bump in affiliate revenue versus the 10% increase in subs? It's just a stage until the affiliates ramps up?

Leslie Moonves

Well, yes. Clearly that's right because we will have a full year effective in the $1.4 million yet, but we will as we build on that base.

Fred Reynolds

In addition Mark, that includes college sports, which is obviously at a much lower rate of growth financially than Showtime.

Mark Wienkes - Goldman Sachs

Got it, okay. That’s great, thank you.

Fred Reynolds

Thank you.

Leslie Moonves

Thank you very much everyone. We'll be around for the rest of the day to answer any more questions.

Operator

And ladies and gentlemen, this does conclude the CBS Corporation second quarter 2008 earnings release teleconference. We do appreciate your participation and you may disconnect at this time.

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