Paramount Skydance Corporation Class B Common Stock (PSKY) Q4 2007 Earnings Report, Transcript and Summary

Good day everyone and welcome to CBS Corporation fourth quarter 2007 earnings release teleconference. Today’s call is being recorded. At this time I’d like to turn the call over to the executive vice president of investor relations Mr. Marty Shea. Please go ahead sir.

Good morning everyone. Thank you for taking time to join us for our fourth quarter and full year 2007 earnings call. Joining me for today’s discussion are Sumner Redstone our executive chairman, Leslie Moonves, our president and CEO and Fred Reynolds, executive vice president and CFO. Sumner will have some opening remarks and will turn the call over 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 fourth quarter and full year 2007 results should have been sent to all of you. If you did not receive the results please contact Poonam Desai at 975-3667 and she will get it to you. A webcast of the call, the earnings release and any other information related to this presentation can be found at CBS Corporation’s corporate website at www.CBSCorporation.com. Now I’ll turn the call over to Sumner.

Good morning everyone. Thanks for being with us today. I’m really happy to say that the new CBS Corporation turned in a terrific second full year results not to mention a solid fourth quarter and I’m more than impressed with the incredible progress this great company has made in such a very short time. CBS continues to create and distribute some of the most valuable content in the marketplace and as always we’re getting paid for it everywhere it goes and by the way, it goes everywhere. We continue to grow our traditional media business while at the same time embarking upon a successful expansion into the interactive marketplace. Les and his team are, as usual successfully managing CBS world class assets today while we’re positioning them for the future and importantly we continue to deliver on our promise to generate strong, healthy free cash flow and to return a significant portion of it to our investors. I’m really proud that we’ve accomplished so much so far and I’m excited about what the future holds. Now, to tell you what’s really going on, here’s Les.

Welcome everybody. It’s great to be with all of you to discuss our fourth quarter 2007 performance and take a look ahead as well. I’m very pleased with our solid results in the fourth quarter and our entire second year as the new CBS Corporation. This morning I’m going to talk a little about our financial performance and briefly walk through some key issues regarding our business and then my colleague Fred Reynolds will cover our financials in greater depth. First, I want to highlight our results OBIDA, operating income, EPS and in free cash flow which we believe is one of the most significant measures of our success. OBIDA was up 4% to $824 million in the fourth quarter as well as being up 1% to $3.08 billion for the year. Operating income was also up 3% to $705 million for the quarter and also up 1% for the year to $2.62 billion. 2007 adjusted diluted EPS from continuing operations increased 9% to $1.88 for the year. Fourth quarter was up 2% to $0.54 due to the impact of our 2007 share repurchase program and limited by a higher effective tax rate. At the same time 2007 free cash flow was up 6% to $1.71 billion dollars and in the fourth quarter free cash flow increased $137 million from a -$15 million last year to come in at $122 million. Year after year we continue to produce excellent pre-cash flow. It is this cash that will enable us to invest in our asset portfolio for future growth, continue to return dividends to our investors and maintain an extremely healthy balance sheet. Through a number of transactions in 07 we ended the year with a portfolio that is well positioned to grow in 08 and beyond. We are truly excited about the prospects of each one of our businesses. At our heart we remain a content company across all our operations. It is the content that is the engine driving us forward into the digital interactive future. The center of the content engine remains the CBS Television Network. The network business remains the greatest mass media option available to audiences and advertisers and what is not really recognized yet is that the content on network TV is also defining success online and on all the emerging platforms now available to consumers. As a matter of fact, content from across the entire company is pushing us forward into the interactive marketplace. CBS Paramount Network Television and CBS Television Distribution continue to supply industry leading programming on our network, stations across America and our growing list of online outlets and Showtime which is having its best run ever both creatively, financially and obviously with a great increase in subscribers began the year with six of the top 10 selling shows on iTunes. In short, the new media business now taking shape is being built on the foundation of our established ones to the benefit of both. Of course, there are certainly challenges and I will discuss how we are dealing with them. First, the economy; like all of you we are tracking the general economic news affecting the marketplace. Fortunately, the hardest hit sectors like home building and real estate are not significant advertisers on our air. At CBS we are not seeing the recession in our day-to-day operations, the scatter market remains very strong and it’s too early in the year to make a determination on the spending of any one category. We will continue to watch trends but please remember in any difficult market it is the leaders who are the must buys for agencies and advertisers and that certainly includes network television and CBS. Next, I’d like to talk about the recently concluded writer’s strike. It lasted longer than any of us would have liked but the good news is the network business is back. We’ve got a full slate of new programming starting in the spring and once again we’ll be presenting to advertisers at Carnegie Hall in May. As we predicted CBS sustained itself very well during the strike in fact, in the short term we were able to manage operating costs at the network very effectively. This was primarily achieved by significantly reducing our programming expenses and the termination of costly writing and producing contracts. Our financial picture was not affected negatively by the strike in any shape or form. Perhaps most importantly many of the economic benefits we were able to achieve during the strike has changed the way we do business and will allow us to operate more efficiently going forward. Regarding ratings, with the new C3 measurement system it’s virtually impossible to draw apples-to-apples comparisons and with the strike adding more repeats there is little conclusion that can be drawn from the numbers this season. What’s important is that advertisers are generally pleased that we have a more precise measuring system. They understand that network television will also be a necessary buy to reach the broadest possible audience and because we have no make good issues we can fully monetize our programming going forward. Monetizing our content is of course the key issue both in our core network operations and on the Internet and as advertisers move into the online arena, guess what? We’re right there to serve them as well because the Internet business is truly an extension of our existing network business and we’ve got the sales teams in place to get that job done too. Whether it’s over the air or on the Internet it is about content and online it’s our strategy to reach people wherever they are and bring our content to them. That’s why we created the CBS Audience Network which has more than 300 affiliated websites and is the number one provider of online television programming in the business. Our CBS Audience Network delivers news, sports and entertainment to more than 190 million Internet users making it one of the largest syndicated networks of content on the web. Each part of CBS is now feeding that growing distribution system exposing our programming to younger demographics and producing industry leading levels of engagement and we’re also creating the community building content that advertisers are looking for. So, when we sit down with clients we are offering a lot more than C3 or live plus seven. We’re also offering opportunities for reach across the CBS Audience Network, our wholly owned sites, CBS Mobile and other community pages and chat built around our content and let’s not forget that mass audience that the networks deliver. Take the Grammys, this year the network broadcast generated an audience of more than 40 million viewers but in addition, during the broadcast and for days afterwards many millions more were engaged with Grammy related content online. In fact, that night, the night of the Grammys 50 of the top 100 searches on Google were related to the Grammys. This all demonstrates the power of our medium and the big ticket events on broadcast television. The good news is that the Internet audience is additive to our core business. Let me give you another example, in 2005 when we first introduced live on demand streaming of our March Madness Basketball Tournament we offered it using a paid subscription model and we generated about $250,000 in revenue. The next year we changed it to free ad supported model and took in $4 million. Then the next year $10 million and then to this year’s tournament next month we’re predicting more than $21 million in total revenue and our costs remained exactly the same as they were the first year so, the create majority of that $21 million will drop to the bottom line contributing to the hundreds of millions of interactive revenue across the company. Meanwhile, our tournament ratings are as strong as ever and our associated television revenues are growing. Like I said, the network business is back. With the strike behind us we’re prepared to roll out a whole new list of programs. Earlier this month we announced return dates for 13 of our scripted shows with new original episodes airing as soon as March 17th plus we’ve already renewed 11 of our top programs for next season and are aggressively engaged in finding the best new shows. We’re approaching the upcoming pilot season with an eye on building a faster, leaner development model with fewer expense of pilot and greater cost efficiencies across the board. When we meet with advertisers on May 14th at Carnegie Hall we’ll be offering clients a full range of opportunities for the fall season both on air and online and we will also use it as a great opportunity to showcase the incredible power of all the terrific advertising platforms across the great CBS company. This of course, includes our local stations where some very positive developments are taking place. First, on the re-trans front we’ve concluded 20 deals with MSOs and continue to realize cash for the value of our programming. Some of the bigger contracts are coming up as soon as 09 and we fully expect to get paid for our programming in those deals as well. Second, we are in the beginning of an unprecedented election year. We’re already seeing record spending with the expectation it will continue all year long. In California one of the mostly hotly contested states we own six stations in the state’s biggest markets. And, for the first time more of those political dollars are coming to radio as well particularly in issue related spending in California. So, between political dollars and strong gains in online traffic which were up 35% in 07, radio is looking at two promising new revenue streams in 08. But, of course, the most crucial improvements in radio are coming in the core business of our over the air programming. Everywhere [Dan Maintane’s] team has attacked the problems, the numbers have improved. In the 14 stations where we have introduced new formats or major programming changes, ratings have increased by a combined 29% and revenue is up double digits as well. More broadly, the latest Orbitron show CBS Radio accumulative ratings increased by more than 6% year-to-year at our 140 stations and we were number one in 10 markets across the country including New York, Philadelphia, Boston and Seattle. We are now going about the challenge of effectively monetizing these results and Dan’s team has been laser focused on growing revenues through a new streamlined sales structure. In addition to positioning ourselves to grow the top line, we’ve taken significant steps to improve our cost structures in radio as well making sizeable reductions without hurting our prospects for growth. Now, let’s turn to Outdoor which continues to be one of the biggest success stories at CBS and which like TV and radio is also greatly benefiting from the digital revolution. The segment finished 2007 with tremendous moment including strong double digit profit gains in the fourth quarter. OBIDA was up a healthy 19% during the quarter with our North American billboard operations turning in revenue increases of 9% in the US, 9% in Canada and 19% in Mexico. Across the board both overseas and here in North America we continue to be very excited about outdoors growth prospects. As I mentioned, the new efficiencies introduced by digital make this an incredibly profitable business and we’re building it out fast. By the end of 07 about 4,000 of our display faces were digitized, a number we expect to double by 08. We’ve recently signed several new billboard contracts all across the country particularly in the biggest markets and we will continue to use a prudent amount of our pre-cash flow to make more investments in the high growth business around the world. Those are just some of the highlights from our businesses. Across the board you can see that we begin 08 in great shape. We’ve pruned our asset mix to shed some of our lower growth businesses like certain small market TV and radio stations. We’ve used a portion of the proceeds to invest in other higher growth areas like Last FM which in January announced deals with all four major record labels to stream music online for free and has posted a 92% increase in US listening since that time and we’re beginning to monetize those results now. As well, we’ve invested in more than a dozen interactive properties. We’ve maintained a pristine balance sheet with a sizeable cash balance allowing us to pay out a very strong dividend that now stands at $1.00 per share annually and enables us to be very nimble so that we can take advantage of any content or Internet opportunity that may present itself. Few companies in our space have the resources at their fingertips in this marketplace to be able to act as we can on opportunities in these areas. We are using our established businesses as content engines that fuel the Internet and all of the new platforms afforded by technology as well as continuing to run our core businesses at the very top levels. As a result, we are well positioned to grow revenues and profits in 08 and beyond. Thank you. I’m now going to turn it over to Fred Reynolds.

Good morning to all of you. Let me quickly provide you with a few highlights on our fourth quarter and 2007 operating performance. As Leslie mentioned at the start of his comments adjusted diluted earnings per share for the fourth quarter was $0.54 versus 53% in the fourth quarter of 06. For the full year we came in at $1.88 earnings per share up 9.3% from 2006 $1.72. The items we adjusted from both years include non-cash write downs we recognized on publically traded investments, gains and losses on the divestiture of stations and the benefits from tax settlements. During the fourth quarter 2007, we wrote down our investments in Spanish broadcasting in [Westford I] to their stock price at December 31st. These write downs resulted in a fourth quarter non-cash charge of $72.3 million after tax or about $0.11 reduction in earnings per share. A year ago, as you may recall we took a similar mark to market write downs related to these investments which totaled almost $98 million after tax or $0.13 reduction in 2006 fourth quarter earnings per share. Now, revenues for the fourth quarter 2007 totaled almost $3.8 billion. The divestiture of nine TV stations, 39 radio stations and the non-renewal of significant but low margin transit and street furniture contracts in New York City and Chicago coupled with record setting political spending in the fourth quarter 2006 reduced revenues by four percentage points versus the year ago results. 2007 fourth quarter revenues were led by strong growth at our outdoor segment as our US billboard revenues were up over 9% versus the fourth quarter of 2006. Our UK business was also up strongly posting revenue growth of over 9% local currency and a 17% overall versus a year ago. The CBS Network ad revenues in the fourth quarter 2007 were flat to year ago. As strong scatter market pricing offset the effects of the now settled WGA strike which required us to air far more hours of reruns in the fourth quarter 2007 versus 2006. Total fourth quarter operating income before depreciation and amortization and operating income were $824 million and $705 million respectively up 4% and 3% respectively over the fourth quarter of 2006. In the fourth quarter 2006 we recognized an impairment charge related to the sale of TV stations of $65 million. Operating income was led by 29% growth at our outdoor segment along with lower corporate and residual costs versus the fourth quarter 2006. As Leslie mentioned free cash flows for the fourth quarter was very, very strong as it has been all year. Free cash flow totaled $122 million which included $150 million discretionary pre-funding of our qualified pension plans. Taking into account the pension pre-funding in both the fourth quarter 2007 and 2006, free cash flow was up a very strong 47% over year ago. Our ability to drive strong free cash flow across all our businesses despite of investing in higher capital spending has been just terrific. Cap ex spending for the fourth quarter totaled $167 million and for all of 2007 cap ex spending totaled $469 million, a $75 million increase from 2006 led by a $71 million jump at our outdoor business as we continued to expand our digital boards. Our non-outdoor segment cap ex spending for 2007 totaled $283 million, up only $4 million from the previous year as we do what Leslie said, we spend our money where we have the fastest growing assets which is digital boards outside the US and inside the US. Free cash flow for 2007 was $1.7 billion which again includes $150 million pension pre-funding. Taking into account the pension pre-funding for both 2007 and 2006, pre-cash flow was up slightly over very strong free cash flow in 2006. Turning to our share buybacks, since the start of 2007 approximately 113 million shares had been repurchased including 6 million shares acquired this January as part of finalizing our second accelerated share repurchase transaction. In total, over 14% of our shares outstanding have been repurchased. Let me quickly highlight the fourth quarter results from our three largest segments. First, the television segment; television revenues totaled $2.5 billion, down $100 million from the fourth quarter 06. The absence of record political advertising in the fourth quarter of 06, divesting the nine TV stations accounts for all of this drop in revenue. The TV segments operating income before depreciation and amortization for the fourth quarter was $502 million down $30 million from the previous year. Lower profits from the absence of political and syndication of higher margin programs such as Star Trek Voyager and 7th Heaven last year offset the benefits of significantly, significantly lower program and production costs and the profits from the off network syndication of NCIS this quarter. Radio’s fourth quarter revenues were down on a same station basis by 7% versus year ago and operating income before depreciation and amortization in the fourth quarter totaled $167 million, a $44 million drop from the fourth quarter of 06. Turning to outdoor, the fourth quarter 2007 revenues totaled $619 million up 7% over the prior year. North America’s revenues were flat to 2006 fourth quarter as a 9% growth in our billboard business was offset by the absence of revenues from the transit and street furniture contract we did not renew in 2007. Europe and Asia’s fourth quarter revenue jumped 18% with half of this growth coming from organic growth. Fourth quarter operating income before depreciation and amortization for outdoor increased 19% from the year ago to $199 million with North America up 16% and Europe and Asia up 28% over last year. So, to wrap up the fourth quarter and all of 2007, we successfully strengthened our portfolio by divesting the, for very attractive values, lower margin slower growth businesses. We returned over $4 billion of cash to our shareholders, delivered on our profit growth expectations and we leave 2007 with, as Leslie just said, with a very strong balance sheet which has the capacity to both fund investments and initiatives to increase our profit growth going forward and to return cash to shareholders. Let’s turn briefly to our expectations for 2008 and let me just as a reminder let you know in the fourth quarter 2007 we aired the Super Bowl. Unfortunately, we did not get to air the Super Bowl again this month. Also, in the first quarter of 2007 the NCAA Basketball March Madness Final Four games aired in the first quarter and the Championship Games aired in the second quarter last year. In 2008 both the Final Four and the Championship Games will air in the second quarter of 2008. For 2008 we expect as we said in the earnings release today that our operating income before depreciation and amortization and operating income to grow between 3 and 5% over 2007 results excluding stock-based compensation expense. We are forecasting 2007 stock-based compensation expense to amount to $155 million to $165 million this year. We expect our effective income tax rate should be between 38% and 38.5% excluding any potential gains or losses on the sale of assets. We expect capital spending to be between $500 million and $550 million in 2008. Thank you and with that we’d now like to open the telephones lines and take all of your questions.

(Operator Instructions) We’ll go first to John Blackledge, JP Morgan. John Blackledge – JP Morgan: Just a couple of questions on Outdoor, it looks like CBS Outdoor on the US billboard side outperformed the industry in the fourth quarter of 9% top line growth. Just wondering how the US billboards are pacing in the first quarter at CBS Outdoor it seemed you saw [inaudible] in top line growth that the other customers are experiencing given the macro environment. Then, what was, I know you mentioned it earlier in the call, what was Outdoor cap ex in 07 and what type of growth can we see in Outdoor cap ex in 08? Then, how many large static boards are expected to be converted to digital boards in 08?

Let me answer, while we don’t give specific guidance on pacing, I guess I would tell you that Outdoor’s first quarter looks sort of like its fourth quarter. Again, I think as Leslie said at the outset because we’re not involved in a lot of the more troubled sectors of the economy relating to home building and real estate and mortgages that we’re having a very – the momentum continues in the US billboard business and just as you should note going forward we won’t have to have the lap of the transit contracts because we’ll pretty much be comparable going forward. In 2007 our cap ex spending for Outdoor for the full year was $186 million and that was up from $115 million in 2006. And on the digital boards the numbers that Leslie gave you are all our displays and so that contains a lot of displays in the London underground but the big billboards, we expect to add north of 100 billboards of the big display such as outside of the Bay Bridge and Oakland and maybe north of that. We have at least that many on order that should start coming on stream in the first half of the year and Leslie has been pushing for us to step that up. Leslie John, the only thing I want to add to Fred’s comments is I think one of the reasons we are outpacing the industry is we are primarily in the larger markets which we think is a much better place to be right now with this economy. That is still staying strong and will continue to be strong.

We’ll go next to Michael Nathanson with Sanford Berstein. Michael Nathanson – Sanford Berstein: I have two for Fred. First, I wonder if you can talk a bit about the quarter’s improvement in free cash flow, how much of it was driven by the strike through the shutdown of pre-production?

Michael I would say the way we looked at it, it’s probably of the working capital it probably saved us between $60 and maybe $75 million of savings in no production cost. One of the beauties of our schedule, as you probably know is our drama repeat really well so we didn’t have any cash going out and yet we retained 70% of the ratings or more and so we were able to retain that cash. As you noted the revenues stayed pretty flat despite the fact that we had a preponderance of reruns. So, I would put it kind of in that $70 million range. It’s not exactly a precise number because we still had some cost going out but I think that’s probably a good estimate Michael. Michael Nathanson – Sanford Berstein: Then one for [inaudible] and another one to [inaudible] which is in 07 you purchased over 3 billion of stock, you spent $400 million in acquisitions. I’m wondering as we look in 08 there’s some concern that maybe the buyback will come to an end and you’ll spend more on doing deals. Can you talk a bit about what your expectations are for spending on deals this year and what types are you looking for?

I mean obviously and we mentioned it, we are a content company and we are looking at new media. We are in the position to make deals if the right deals come into play. Obviously, our first priority is to pay dividends. We will continue to do that and we might increase the dividends over the course of this year; that is our first priority. Secondly, as I said before, we are in a position that few companies are in having the balance sheet that we have that we can move quickly and there are certain deals that might be available today that might be more attractive to us than some of the prices that have been paid over the last couple of years that we felt were a bit out of line. So, we’re pretty nimble and we’re ready to go.

We’ll go next to Victor Miller with Bear Stearns. Victor Miller – Bear Stearns: First of all, just the radio division could you give us any additional insights on to the changes that you announced recently and what impact that might have on the expense base for the radio division? Secondly, in the fourth quarter you say a $51 million drop in revenue but only a $7 million drop on the expense side. Can you talk about what you decided to do in the radio division in the fourth quarter?

I’ll do the first part and then I’ll turn it over to Fred. Obviously, on radio we have an entirely new team, we moved over our CFO from the television group Anton Guitano who’s a world class CFO. Plus, we added a new head of sales from Interep and literally market-by-market we’ve gone through restructured where appropriate. We have made changes, we have certainly downsized in certain markets that they were clearly overstaffed, we’ve changed programming. I think our radio division from top to bottom has an entire new look and the efficiencies that we’re seeing not only by the layoffs but just by the operations are extreme. And, as I said, where programming changes have taken place or format changes, we’ve seen immediate numbers go up and ratings go up and we think that’s going to be monetized very, very soon.

On the cost side, as you may remember we took some significant reductions at the end of 06, early 07 so you are seeing the full impact in that in the fourth quarter. Also, you’re seeing some of the stations that we divested that were lower margins or no margins so you’re seeing less cost there. All the initiatives that Leslie referred to are really going to fall, the new initiatives are falling into 08 so you’re going to see a further reduction. I mean, it is clear that we’re not reducing on programming and we’re not reducing our promotion costs. We’re redeploying a lot of these savings but still having a net savings from these cost reductions. We have totally revamped that structure. They’ve taken out lots of layers, they streamlined a lot of the organization, they move quickly so we’ll see almost a full year benefit after any severance cost in 2008 with this new restructuring which is not insignificant. Victor Miller – Bear Stearns: Fred, just to follow through, the EPS, you didn’t say anything about EPS. In your previous you’ve also given a longer term view of the revenue and EBITDA expectation for the company. Have you changed your view of those longer term growths and any comments on EPS?

No. I guess we’re just focusing on operating income and operating income before depreciation and amortization. The only reason Victor I haven’t looked at EPS going forward is I still expect us to have further reductions in our tax rate and at this point I think giving you the range I gave of 38 to 38.5 is good for now. I hope that we will beat that as we get more clarity in that. But, no we still think earnings per share will outpace OI, operating income and operating income before depreciation. There’s nothing else that will affect it because interest expenses is pretty stabilized.

We’ll go next to Lucas Binder with UBS. Lucas Binder – UBS: A couple of quick questions, I know Les you discussed a little bit about how the business model has changed following the strike. Can you give us a sense of how long do you think this will be in place? Do you think this is a permanent change? Or, over the next couple of years we go back to some of the traditional pilots and sort of a little bit longer tail associated with the whole development process? The other question is when you think about investments, I know you mentioned before how diligent you’re being, are there specific areas that you’re focused on for potential investments? Or, should we just assume content and online and leave it at that?

The changes that have happen, number one we have cut our overall deals by more than 50%. We have cut the number of scripts that we’re going to do by quite a bit. We are going to do a lot less pilots, a lot more presentations because I think that is a very efficient way of doing it and knowing what product you have. I think many of these changes, certainly the overall deals, we will never get up to the number that we had before so these changes will be fundamental and you’ll find it throughout the system and certainly at our place and I think there will be a great deal of cost reduction. In addition, the upfront process we will be going back to Carnegie Hall but we will be a lot less bells and whistles. We’re not doing an affiliate meeting this year. So, there’s a number of cost savings things we’re doing in the network business that will last forever. Regarding the potential investments, I’d really rather not going any further than that. As I said, we are a content company, we’re looking for other avenues for content which will involve either content or interactive places that can use that content. We’ll leave it right there. Once again, another place that we’re looking to expand and invest is our outdoor business which is thriving both domestically and internationally.

We’ll go next to Jessica Reif-Cohen with Merrill Lynch. Jessica Reif-Cohen – Merrill Lynch: First, quantify the Q4 impact of the writer’s strike. I was wondering if you could do the same for the first quarter and to the extent that you’re now ramping up production, will we see a bounce back in costs? Also, you normally give long term guidance, can you comment on that?

On the first part of it, Jessica we will end up at the end of this year probably with 17 or 18 episodes of our top shows versus 23 or 24. So, that will be a significant cost reduction. In addition, some of the marginal shows that we ordered an initial 13 we have not ordered back orders on which we won’t determine until May so there will be a significant cost reduction on that as well. Plus, as I mentioned before the overall deals, the ability during the strike to literally cut our script production in half has saved many millions of dollars doing that.

Jessica, on the long term guidance again, I think with the core business we have today again, we think that we should be able to grow mid single digits our operating income and EPS high single digits. I don’t think that’s changed at all so we’re still on that same path. That should be the long term prospect. But again, I would ask as digital becomes more powerful and as retransmissions become more powerful, the revenues from that in that 9, 10 and 11 there may be an uptick to that. We’ll have to access that along with the general economy and all the other things. But, right now we think the long term prospects are unchanged. Jessica Reif-Cohen – Merrill Lynch: Can I ask one follow up, on Showtime is it clear that when the film contracts come up they’ll come back at a lower rate? What is the timing of that? When will we see that? Will that be 08 or 09?

We’re talking to all three companies we currently have existing deals with. There’s one that was up recently and a couple that are up at the end of the year so we will see the effective of this in 08.

But Jessica, I missed your opening comment. You said what will happen when they renew? Jessica Reif-Cohen – Merrill Lynch: They’ll be renewed at lower rates?

That the telecos will have lower rates?

No, no the movie companies.

Oh, I thought you said Teleco.

No, the output deals. They will be that way but I think some of them will happen over the next few months.

We’ll go next to Anthony Di Clemente with Lehman Brothers. Anthony Di Clemente – Lehman Brothers: First, for Fred, if you exclude the year-over-year impact of political in 4Q07, what was the core advertising trend year-over-year first at the TV stations and then secondly at the TV network? Secondly, this one is for Les, Les you’ve talked a lot about getting cash for retransmission consent, if you look at the deal that Cox signed with the ABC TV affiliates this week, it seems like Cox is giving the ABC affiliates value in form of participating in the VOD economics, they’re disabling the fast forward function of the VOD so you can get an advertising spot in there. I know you have contracts coming up in 09, 2010 and 11 each the next three years, is that kind of a proxy of how value could be reflected in terms of retrans? Or, will it definitely still, in your mind be cash as you negotiate with those MSOs?

On the political question, obviously 06 has a tremendous amount of political, we still sold those spots but at a lesser value. So, it probably had three points or more kind of impact on a growth rate at the TV station. The network gets no political, we don’t take advocacy ads so the political spending in any year is of no matter or moment with the network, it’s only at the local assets radio and TV stations. So we would have seen obviously 07 would have grown, the underlying growth would have been strong over 06. Anthony Di Clemente – Lehman Brothers: Just at the TV stations if you strip out the impact of those three points, what is the advertising year-over-year at the TV stations in the fourth quarter?

In the fourth quarter, that was the full year, in the fourth quarter you know Anthony I don’t have that broken out that way so I’ll have to get back with you on that.

On the retrans issue, obviously as I mentioned, we did 20 contracts so far, they’re smaller and midsized MSOs. We’ve gotten paid cash for them. We’re looking at all sorts of deals, we intend to be paid cash but, once again, whatever the value may be, if it goes through the bottom line we are open to any form and any way people want to call it. We know that we will get paid for our content and whatever form that may take, we are open to any sort of deal. Anthony Di Clemente – Lehman Brothers: How about in terms of getting value for a second CBS signal, a second HD signal, does that make sense or no?

It could make sense in the future. As of yet, nobody’s been able to do that successfully but we are obviously making plans and there are possibilities that will happen.

We’ll go next to Marci Ryvicker with Wachovia Securities. Marci Ryvicker – Wachovia Capital Markets, LLC: I have a couple of questions and the first I apologize if you already addressed this but, do you still believe that CBS Radio will generate revenue growth in 2008? Then, secondly, Les you mentioned that the scatter market is strong, can you quantify the strength of scatter pricing? Lastly, I know you mentioned you are not seeing signs of a recession but clearly the economy is weak and since you’re involved in a variety of media, is there one segment in particular that is being impacted by the economy more than any other?

There will be revenue growth in the CBS Radio group, we believe that. In terms of scatter market pricing, right now it maintains itself north of 30% higher than the upfront. In terms of recession, once again, I don’t want to say the company’s recession proof; we have not seen it yet. My guess it would affect the smaller market radio stations and television stations first but we have not see the affect of that yet.

We’ll go next to Doug Mitchelson with Deutsche Bank. Douglas Mitchelson – Deutsche Bank: A couple of questions, Les, look over the last decade you’ve probably been the best programmer of network television out there, especially primetime. It seems like we’re hearing from all of the network guys about cost savings from the strike and redoing the businesses but, we haven’t had a lot of new hit shows from any of the networks the last year or two. How do you feel about creating new hit shows in this environment with less spending going into the development process?

You know what, I think there’s been a lot of wasted spending. When I look back over the various shows that I’ve been involved in that have been hits, it hasn’t been necessarily the most expensive shows that have hit it out of the ballpark. There’s some feeling that you don’t need to spend $5 million on a pilot to know whether you have a potential hit series. I think pilots are vastly overrated, it’s all about episode 20 not episode one. You want to get a flavor of what it is and I think what the strike has given us the ability to do is reexamine how you get from point A to point B. Yes, I have been involved in a lot of hit television shows, this hasn’t been a great era in the last two years for just about anybody. I think we all could use a few more hits but I don’t think you have to spend a huge amount of money to find those hits if you know what you’re doing. Douglas Mitchelson – Deutsche Bank: Let me go back to the old days when the networks were a lot more patient with shows they liked.

I don’t think I could point to any shows in the last three of four years that have been pulled too quickly that may have turned into hits. I think nowadays you know by in large you know where you’re at fairly quickly. We’ve gotten it down fairly well so you can see the first three or four week’s ratings and seeing whether you have the potential to grow. When a show drops from the first week to the second by 20% that’s not a create sign that people are hanging in there with that show. You can sort of tell trends and when you’ve been doing it as long as I do there’s rarely a surprise or a show that dips 20 or 30% which eventually comes out of it. So, I think there’s enough patience there and experiences teaches you what to do. In addition, there’s one thing Doug, when we cancel a show after two or three episodes you guys don’t realize we’ve seen the next four episodes. So, we’re pretty patient. Douglas Mitchelson – Deutsche Bank: Alright. So, the second question also for you Les, I think when you look at the upfront this year, whatever the upfront process is going to turn out to be I’m not sure I’ve ever seen such a strange dynamic between incredibly strong scatter pricing but a softening in the economy. In the conversations you’re having with advertisers, can you give me any insight as to what they’re thinking as they start to plan for next season?

You know what, I think the advertisers are pleased there’s going to be an upfront even though it will be a scaled down upfront. I think once again, as we said in the earlier remarks I think network television is still the best game in town. There’s a reason there was a plus 9% CPM last May and granted that was a while ago, I still think people believe in network television. I still think FOX was getting with this big recession in the second week of February, FOX got $2.7 million for a couple of 30 second spots in the Super Bowl. That doesn’t tell me that there’s something drastically wrong with the economy when guys will pay that much for those kinds of spots. I think television is still very, very strong and if you want to amass a large audience even as you look towards a potential recession, the last thing you want to do is pull back from network. Douglas Mitchelson – Deutsche Bank: So, we shouldn’t expect any worse advertising grumblings than we have every other year?

It will be the same. It will be the same. We’re ready for the onslaught.

We’ll go next to David Miller, SMH Capital Markets. David Miller – SMH Capital Markets: This is a question related to Doug’s question. Les, in the past I believe the most successful genre you’ve had from a programming perspective in prime time has been crime dramas. Those tend to be very expensive pieces of programming and yet you say in your prepared remarks that you’re prepared to streamline production costs. I’m just wondering if there’s going to be an emphasis on a different genre going forward in 08, 09 rather than crime dramas that have been very successful for you in the past? Then Fred, you also said I believe in answering another question here that you expect a lower marginal tax rate in 08, why is that?

In terms of the crime genre, number one CSI costs no more than Lost, Desperate Housewives, Heros and by the way, our CSI franchise, our big crime franchise, as brought in over $2 billion worth of revenue. I’ll take that any day of the week. I think when we’re talking about streamlining I think there are certain things you can do in the pilot process per say but at CBS crime has always paid.

I’ll just take the second one on tax rate. One, the reason that we’ll have a lower effective tax rate is because we put into place over the last couple of years including 07 tax strategies that have lowered our rate both at the state and local level but also federal and overseas. So, these are permanent reductions because of different tax strategies that we put in place so we feel pretty good that we’ll be in that range of 38 to 38.5%. But, I have to tell you, I still think we can drive it a little bit lower. I don’t have the set of plans right in front of me that gets us there but you can just count on we’re going to be looking at every opportunity to lower that rate.

Our next question is from Ben Swinburne, Morgan Stanley. Benjamin Swinburne – Morgan Stanley: One for Fred, one for Les; Fred, you may have said this before, I may have missed it but can you give the network organic revenue growth in the fourth quarter and any commentary on how 1Q is trending on a year-over-year basis at the network level? Then Les, the shift in network planning heading into next year is obviously very significant how do you think about CPL levels on an absolute basis for network television given the scatter market pricing heading into another upfront with less shows and potentially at least headline ratings down, I realize whether these ratings are that relevant is an open question but, with headline ratings down so the effective CPM need to grow well above inflation. At what point do you worry about network primetime CPMs, the absolute dollars relative to say cable networks but even looking at things like online video and just other national platforms that may begin to look cheaper and cheaper for advertisers?

On the first question, as I mentioned at the opening that the network advertising revenues for the fourth quarter were flat with fourth quarter of 06. Now, I would say that’s just something that goes on in the network, if you follow as Leslie has said, that the content that goes on to other platforms outside of network, that ad revenue actually made a positive because we’re getting a lot of ad revenue online or via mobile. But, the traditional network was flat even though we had significantly more reruns in the fourth quarter 07 versus fourth quarter 06 because of the strike.

Ben, I don’t think the changes are going to be quite as drastic as people think. I’ve been doing this about 20 years now, the amount of years that the CPMs have been down are about two or three over that period of time. Obviously, we’re in a new ballgame with C3 and everybody is still trying to figure out what it is, we have ascertained and we really believe C3 will help broadcast television and it’s proving to be the case versus cable network and the other platforms. Network is still the strongest game in town. It’s proven by scatter pricing and those people who don’t participate in the upfront at those CPM games generally are paying more and more money. They’re a couple of advertisers that made a big deal about not being a part of the upfront and they have ended up regretting that. We think that will still be the case right now. We think pricing remains very strong, we’re very pleased about it. Once again, it’s hard to figure out the players without a score card, C3 is unusual it’s a new system, there’s been a strike so there’s been more repeats so once again, I expect CPMs to be up in May and I think network remains strong.

Thanks everyone and we’ll be talking to you during the day.

This does conclude today’s conference. Thank you for your participation. You may now disconnect.