Paramount Skydance Corporation Class B Common Stock (PSKY) Q2 2009 Earnings Report, Transcript and Summary

Good day, everyone and welcome to the CBS Corporation’s second quarter 2009 earnings release teleconference. As a reminder, 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. Adam Townsend. Please go ahead, sir.

Good afternoon, everyone and welcome to our second quarter 2009 earnings call. Joining me for today's discussion are Sumner Redstone, our Executive Chairman; Leslie Moonves, President and CEO; Fred Reynolds, Executive Vice President; and Joe Ianniello, Executive Vice President and CFO. Sumner will have opening remarks and we'll then turn the call over to Les, Fred, and Joe who will discuss the strategic and financial results. 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 securities filings. A webcast of this call and the earnings release related to today's presentation can be found on the Investor Relations section of our website at cbscorporation.com. Reconciliations for non-GAAP financial information related to this call can be found in our earnings release, our second quarter Form 10-Q or on our website. With that, it’s now my pleasure to turn the call over to Sumner.

Thank you. Good afternoon, everyone. I thank you for being with us today. Throughout the year, Les and his management team have stayed the course. They made continuing progress in positioning CBS as a long-term industry leader. During the second quarter, we took an active step in improving our liquidity by refinancing near-term debt at very favorable rates. We cut costs in all the right areas. We are operating more efficiently. And in every part of the media landscape, CBS content is at the top of its game and by the way, content is king. I have no doubt that CBS will be a leading beneficiary as the economy recovers and recover it will. We are already seeing the signs of improvement and CBS' operation showed real proof of that. As Leslie will tell you, many of our local businesses began to pick up early in the second quarter and that trend continues today. I am excited about what CBS will do in a steadily improving operating environment and about our long-term prospects as an industry leader in every one of our content businesses. Now as to what is going on at [inaudible], as I said last week, national continues to make excellent progress and has an excellent working relationship with its creditors. Beyond that, as I’ve said in the past, I will reserve further comment until we have something definitive to announce. And with that, let met turn this over to CBS' President and CEO, my very good friend and my colleague, Leslie.

Thank you, Sumner and good afternoon, everybody. Thanks for joining us today to discuss our second quarter results for 2009. As we anticipated and shared with you on our last call, signs of a recovery continued in the second quarter. The trends in our business moved in the right direction relative to the first quarter and the improvement has been very steady and very real. The economic climate is still very difficult, of course, and we have faced and will continue to face a rough economic environment. But despite this, CBS delivered more than $3 billion in revenues in the second quarter. Our OIBDA of $387 million was a strong improvement over the first quarter, as was our EPS, which came in at $0.08 per share this quarter on an adjusted basis. Our businesses once again generated healthy free cash flow, $352 million in the quarter, again more than the first quarter, bringing our year-to-date total above the $0.5 billion market. I am particularly pleased with the success we’ve had converting our OIBDA into free cash flow. We also strengthened our balance sheet during the quarter by refinancing near-term debt, replacing it with longer dated bonds at favorable rates. Fred and Joe will give you more detail on that later. Going forward, we see the year progressing as we envisioned and as we told you it would on our last call. The second quarter was better than the first -- now we are seeing a third quarter better than the second and we believe the fourth quarter will be better than the third and we will continue to improve in the early part of 2010 when we have the Super Bowl and the beginning of what appears to be a healthy political year. There are several reasons for this momentum. First, the signs of recovery that began in the second quarter have been gathering steam in the third. Sales pacing, particularly in the local businesses that were most challenged by the recession have been getting stronger. Just to give you some context, our TV station group picked up more than 16 sales pacing points between the beginning and the end of the second quarter and radio added 11 points. We are seeing a similar trend in the third quarter with both local businesses pacing four to eight points above where they were at the same point in the second quarter. Let me stress that they are not back at the levels we want them to be but they are clearly on the rise. Local businesses were the first to be hit by the recession and it appears they are the first to come out of it as well, particularly major market properties like ours. Other media companies without local assets like ours may not have seen this year but the change is noticeably here. In addition, we’ve got a full pipeline of valuable syndication titles scheduled for release in the third quarter. Five shows, including Criminal Minds and Ghost Whisperer have been sold at very attractive prices to leading cable outlets, and as these and other revenues come in, our margins will continue to improve given our streamlined cost structure. We started cutting costs across the company early last year and we are seeing the full effects of that now. As a result, we’ll see more revenues fall to the bottom line as we move forward. All of these expectations were built into the full year OIBDA guidance we gave you last quarter and we have reaffirmed that guidance in our press release this afternoon. Of course, outside of the economy itself, the single most important factor determining our performance will always be the quality and popularity of our content and to quote Sumner Redstone, content is King, and the good news is from viewers to listeners to readers to unique users, we continue to lead the industry with winning content and we are getting that content to a variety of new audiences and monetizing it in new ways all the time. Let me give you an up-to-the-minute example with our hit television show, NCIS. As you know in the past, we would broadcast a show like this and then a repeat or two. Today we are not only collecting revenues from airing NCIS on the network and our stations but in addition, full exclusivity in syndication is a thing of the distant past. As a result, the show has been sold to Ion Station Group, to USA on cable -- it’s now licensed to 196 markets internationally, it’s streamed on CBS audience network and TV.com, sold on iTunes and later this month, we will release the sixth season on DVD, as well as the collector’s edition of all six seasons to date. And this fall, we are debuting an NCIS spin-off based in Los Angeles, setting us up to replicate this whole dynamic yet again with a new hit show. This is why we look at ourselves as a content company first. We are confident that as distribution models evolve and grow, the best content will always win. Of course, the heart of that content is our television segment which posted revenues of $1.9 billion in the second quarter. Leading the way, the CBS Television Network continues to outperform the competition with no signs of letting up. As you’ll remember, we were up in every single key demo this past television season and no other network was up in any category. This summer, CBS is once again the only network that is growing -- all the others are down double-digits and we will continue to have the most time period winning programs more than all the other networks combined. I am particularly pleased with the performance of David Letterman against the new competitions. Ratings have surged for us since the change on June 1st and Dave recently won four consecutive weeks versus The Tonight Show for the first time since 1995. He is now barely trailing NBC in adults 18 to 49 and the advertisers are noticing. Craig Ferguson has now also won the last three weeks in a row. We are very pleased with our position in late night. Speaking of advertisers, we are nearing the finish line of our up-front discussions and we are very pleased with how things have progressed. We’ve been the strongest player in these very protracted negotiations. The good news for us is that despite slight pricing declines, our audience has grown. As a result, we’ve been able to achieve flat revenues for the percentage of inventory we’ve sold so far. Total volume is down this year. We have retained more inventory to sell in the scatter and we like our position as the economy continues to improve and we maintain our standing as America’s most watched network. Advertisers have been coming back very strongly in the third quarter scatter market, particularly in core categories like retail, telecom, pharma, and quick service restaurants. And scatter pricing is up over last year’s up-front, which again bodes well for us going forward. And our third quarter scatter dollars are up 30% from third quarter scatter last year. This past broadcast season, we had no audience deficiency, given our strong ratings, and as a result, we did very well in the scatter market and this coming year, we are even more confident in our stable schedule. So when you couple that with an improving economy, we once again believe we can lead the scatter market, as well as the entire market. Plus we have some experience with this strategy. The last time we managed inventory like this was in 2002 and we ended up making a lot more money in scatter than if we had sold the inventory in the up-front. I am confident that when it is all said and done, our content will allow us to take in the most volume at the most attractive prices. Having the best content is also very important to our premium cable business. At Showtime, subscriber growth was the single largest driver behind our 10% year-over-year gain in affiliate revenues in the second quarter. The continuing quality of our programming is clearly fueling our subscriber growth and we launched another new hit in the quarter with Nurse Jackie. We partnered with more than 100 outlets to offer online and mobile sampling of the first episode and it helped us deliver the highest ratings for a new series on Showtime. Once again, more platforms represent more ways for us to get our content to new audiences. Of course, getting sufficiently paid for delivering these audiences has been the challenge. The good news is that new initiatives like authentication appear to have us on a track towards closer economic parity online and on air. The initiative represents the latest consumer friendly technology to make content along with its advertising available across multiple platforms and be measured in a uniform way for clients. Whether you call it authentication, reverse comp, or retransmission fees, our content is increasingly benefiting from multiple revenue streams. With greatly expanded reach and scale, our CBS Interactive segment plays a key part in these initiatives. Thanks in part to the addition of CNET, Interactive revenues have tripled over last year to $126 million in the second quarter. Plus with cost down significantly on a consolidated basis, we are producing dramatically improved OIBDA and the division is contributing to the company’s free cash flow. Nearly all of our key sites, including CNET, CBS.com, CBS Sports.com and BNET grew monthly unique users by double-digits year over year in June and we continue to find effective ways to cross promote our premium online content. CBS Interactive is already a leader in news, sports, entertainment, business and technology and now will be adding the CBS Interactive Music Group as well. As you’ll recall, this new group combined CBS Radio’s leading online streaming business with Last FM. Taken together, we have an audience of nearly 40 million unique monthly users in this music vertical and a committed national and local sales force to monetize it. We are increasingly seeing advertisers buying across our interactive properties as well as across TV and online. In this way, interactive has helped all of our content businesses broaden our client base by offering multi-platform solutions for our advertisers. Turning to radio, as I mentioned, sales pacing has steadily been on the rise for a couple of months now and it continues to be a solid contributor to our company’s results, $322 million in revenue and $95 million in OIBDA in the second quarter. Many businesses would love to product 30% margins in the toughest economic environment we’ve seen in decades, not to mention generating strong free cash flow quarter after quarter. Plus radio listenership is holding steady. The fact is CBS Radio has not lost audience over the past five years and as competitors in weaker financial shape fall off, we can only get stronger. That’s because in radio as with our other businesses, great content always wins out in the end. We see the proof of that every day. The format changes we’ve made in major markets like New York and Los Angeles are delivering higher ratings and revenue share. In fact, ratings for CBS Radio are up in all of the top five markets from a year ago. We also continue to maintain a leading presence in the outdoor business. Outdoor contributed $434 million to our second quarter revenues and produced a 10% OIBDA margin. And just like in radio and TV, we are seeing signs of stabilization with pacing showing some improvement. We believe outdoor will perform well over the long-term, especially the investments we made in digital boards and emerging international markets. Meanwhile, our publishing segment generated $181 million in revenues in the second quarter. We anticipate here also a stronger second half, given a number of upcoming releases including new titles by Stephen King and Vince Slim. Simon & Schuster also has a great opportunity to expand our content to new audiences by making our titles available on Kindle, iPhone, and BlackBerry, among other devices. Across the company, our long-term goals remain the same -- creating premium content and delivering it to a broad audience, offering increasing value to our advertisers, running our businesses as efficiently as possible, maintaining our solid financial footing, and positioning CBS to be a long-term leader in the media industry. The economy clearly has a long way to go but what we are seeing is that the worst is behind us, people are coming to mass media to get their message out. Campaigns for cash for clunkers and healthcare initiatives come to broadcast first to reach the American people and we are seeing a number of key categories coming back from all of our businesses, from automotive to pharmaceuticals to financial services. Looking forward, our balance sheet is strong. We continue to product healthy free cash flow and have just once again announced a quarterly dividend of $0.05 per share, among the highest in the industry. Now I would like to turn the call over to my colleague, Fred Reynolds, and to our new CFO, Joe Ianello, but first allow me a word about Fred -- Fred and I have both worked together since we both came to CBS in 1995. He has been a steady hand as our Chief Financial Officer, a brilliant mind for our company and a terrific guide and colleague for me as well. He has been instrumental in the shaping of this great corporation and he will be missed by a lot of people, especially me, both professionally and personally. At the same time, one of the attributes of a strong leader is the ability to prepare the next generation for success and that is precisely what Fred has done working with Joe over the course of the last 12 years they’ve been together. I am confident that as we move forward, we couldn’t possibly be in better hands in this crucial role. So with that, thanks again, Fred and welcome, Joe. Fred.

Thank you, Leslie and especially thank you for those very kind words. It’s been a lot of fun, as you know, and this has been great. Good afternoon to all of you and as Leslie mentioned, we are passing the CFO baton to Joe and I can't tell you how very pleased and proud I am that Joe will succeed me as CFO of CBS. As Leslie said, our last 12 years, it’s just been a real pleasure to work with Joe, especially the last four years and working shoulder to shoulder with him has just been terrific and I am very, very proud of his accomplishment. So for this call, you are going to get two of us to talk about the highlights. One, Joe and myself will cover the second quarter highlights and expectations for the balance of 2009. So for our second quarter financial results, I hope you have seen those, have shown marked improvement over the first quarter and we expect our financial performance to show improvement each quarter for the balance of 2009, with our second half results showing the most improvement. For the second quarter, our revenues totaled $3 billion. That was down 11% from last year, which was a 3% improvement over the first quarter’s revenue performance. Foreign exchange, largely at outdoor, lowered our reported revenues by almost 1.5 percentage points versus year ago. Our operating income before depreciation and amortization totaled $387 million for the second quarter -- again, an improvement over our first quarter performance. As you will note in today’s earnings release, our OIBDA for the second quarter was negatively affected by a few items in comparison with the year-ago quarter. First, we recognized a $14 million write-down of third-party programming at our TV station unit to its expected net realizable value. And as part of the final switch from the analog to digital transmission, our TV stations wrote down $5 million related to exiting an analog TV transmitter lease. Finally, the strong U.S. dollar versus year ago reduced our OIBDA by $6 million versus last year’s second quarter. These three items accounted for about three percentage points of the decline in OIBDA versus last year at this time. As we noted last quarter, the impact of our cost reduction actions continue to be significant. Our second quarter non-programming operating expenses, along with sales and G&A expenses, were about $80 million lower than the second quarter of 2008. In the first quarter, these expenses were $75 million than the previous year. Our programming costs in absolute terms were higher in the second quarter of 2009 as last year due to the writers’ guild strike we produced fewer episodes and fewer pilots. However, on an ongoing basis, our programming costs are lower per episode than they were last year in the second quarter. A few other items to note in today’s release -- for the second quarter, we recognized a $30 million loss on the early extinguishment of our 2010 notes which we redeemed in May. And as previously discussed, in the second quarter our tax provision is unusually high due to the reduction of our deferred tax asset that is related to stock-based compensation expense, which resulted from the difference in our stock value at the time of the grant and our stock price at the [vest] state. These two items reduced our earnings per share by $0.06. Also last year in the second quarter we recognized $127 million pretax gain, or a $0.12 earnings per share gain on the sale of our interest in the Sundance Channel. The gain was reflected in other items net. Let me now provide highlights in our major segments for the second quarter, and then I will turn the call over to Joe who will discuss actions we took this quarter to refinance a significant portion of our 2010 debt maturities, also discuss our strong second quarter free cash flow, and our balance of year expectations and business outlook. So turning to our television segments, we said second quarter revenues of $1.9 billion, which was down 10% from the second quarter last year -- now again, this was an improvement of 2 percentage points versus the first quarter’s performance. Local advertising softness at our TV stations drove a significant portion of the decline in second quarter revenues compared to year ago. The CBS network time period ad revenue was down 6%, with primetime down 4% versus the second quarter of ’08. As Leslie just noted, our network ratings have been terrific. However, the scatter market pricing, while still higher than last year’s up-front, it was not nearly as robust as it was a year ago and as we just noted, the third quarter scatter market is quite a bit stronger than we experienced in the second quarter. Affiliate revenues, which consist of subscriber and transmission fees from cable, satellite, and telco companies totaled about $330 million for the second quarter, up 10% over a year ago. Turning to OIBDA for the television segment, it totaled $307 million, down from $512 million last year at this time. The previously mentioned program write-downs and analog equipment charge at our TV stations lowered OIBDA by $19 million compared to last year’s second quarter. Turning to radio, second quarter revenues totaled $322 million, down 23% from last year, an improvement of 6 percentage points over the performance in the first quarter of 09. We continue to see improving sales trends in the third quarter versus the second quarter for radio. Outdoor revenues for the second quarter were $434 million, a decline of 27% from last year. The strong U.S. dollar versus last year’s second quarter caused us 6 points of this revenue decline. And finally, Interactive’s revenue for the second quarter totaled $126 million, up from $40 million last year in the second quarter. As you’ll recall, we closed the CNET acquisition on the last day of the second quarter of 2008. And operating profit for Interactive segment was almost $6 million versus a loss last year at the OIBDA line of $17 million a year ago. So with that brief overview, let me now turn the call over to Joe to discuss additional financial and operating highlights. Joe.

Thanks, Fred. I want to thank both you and Leslie for giving me this opportunity to build on all that we’ve done together at this point. This afternoon, I will focus my comments on our balance sheet, our free cash flow, and our outlook for the remainder of the year. First, with regard to the balance sheet, we took some important steps during the quarter to refinance our near-term debt. We issued $1 billion of long-term maturities, $400 million due in five years with a coupon rate of 8.2% and $600 million due in 10 years with a coupon of 8.875%. We were able to take advantage of the easing credit markets and extend our weighted average debt maturities to approximately 16 years. We also tendered for our 7.7% notes due in July 2010. We successfully retired $825 million of those notes, leaving only $415 million outstanding, a very manageable amount that we will pay down with cash flow from operations. You should also note that cash on hand as of June 30th amounted to $342 million. We remain focused and committed to maintaining our investment grade balance sheet. We will continue to [inaudible] some mid-sized radio stations and on the acquisition front, although we look at everything, the hurdle rate has been raised and I do not see any major acquisitions on the horizon. You will also note that net debt decreased $246 million from the first quarter, continuing our deleveraging strategy. As of June 30th, there were no borrowings outstanding under our $3 billion credit facility and this facility doesn’t mature until December 2010. However, we will be discussing an extension with our banks in the coming months. Turning to free cash flow which, as Leslie said, came in at $352 million for the quarter, a significant improvement from the first quarter. This was driven by higher profits, lower capital spending, and lower cash taxes, as well as positive working capital. We continue to manage our balance sheet effectively, focusing on our collection efforts from our receivables. So for the first six months of 2009, free cash flow totaled $556 million, representing an 87% conversion rate from operating income before depreciation and amortization. Included in the 556 is $43 million of payments related to previous restructuring charges. Now let’s look at the remainder of the year. As you know, we have reaffirmed our full year OIBDA guidance ranging from $1.725 billion to $1.925 billion. We continue to be encouraged by the factors that Leslie outlined earlier. First, by the visibility of the sales trends we are seeing in the third quarter at our local businesses. Second, by the commitments we have received during this up-front season. Third, by the cost savings we received from the initiatives that began last year. And finally, by the strong slate of syndication programs that will begin the back half of this year. All of these factors give us confidence that the back half of 2009 will be notably better than the first half. I also want to highlight some information that was included in our 10-Q that we filed today. For full year 2009, we expect to pay approximately $100 million to $125 million in cash taxes, of which $72 million have been paid through June. And capital expenditures for the year will be in the range of $275 million to $325 million, of which $139 million has been spent through June. At this level of CapEx, there is still investment capital being deployed. The consensus by U.S. economists is that GDP will be positive for the third quarter, the fourth quarter, and 2010 compared to negative growth we’ve experienced for the last few quarters, which bodes well for us because as you know, approximately 85% of our revenues are derived from the United States and there is a high correlation between GDP growth and advertising spending. So let me wrap up by saying as the U.S. economy improves, CBS is well-positioned to deliver stronger operating results, improved margin, and even stronger free cash flow. Thanks, now let’s open the phone lines for questions.

(Operator Instructions) We will go first to Jessica Reif-Cohen with Banc of America Merrill Lynch.

Thank you. I have a couple of questions -- first, I was wondering if you could address what you think the [inaudible] mix will look like over the next few years? I know Joe just said that you don’t see acquisitions in the near-term but there’s been constant speculation that you may divest or separate some of the businesses, so I was just wondering if you could talk about that. Second -- do you want the questions now or one at a time?

You can give the questions now.

Okay. Second, I was wondering if you could discuss what you think the upside is in late night, given the change in ratings between the competitors? So this is really kind of an ’09 2010 season question. And then finally, given the weakness in TV station advertising we have seen over the last year or so, can you talk about what you are seeing in first run -- in license fees from first run TV syndication and what kind of margins do you see in that business?

All right. Let me start out -- in terms of the asset mix, the only thing we have stated definitively is we are looking to trim some radio stations, which we expressed before. The good news is we do not have to do it. We don’t need the cash but we are out there looking and when the right deals become available, we will do that. Once again, as we stated before, we are a content business. We are not looking to go out and make any acquisition of any sizable amount yet. If there’s some tuck-ins that work with our Internet group that are profitable, as our group is, we will do that. As you know, we’ve recently begun a new feature film business so once again, another content business and that’s where we are directing our efforts right now. But other than that, there are no major plans. I don’t think now is the right time to buy or to sell, so we are playing the hand we are dealing. In terms of late night, clearly as I said, Letterman is doing really, really well. We were losing for 10 years in a row and suddenly, we are winning four weeks in a row plus the gap in 18 to 49 has decreased by about 80% over that period of time. As well as the 12:30 time slot, that also has changed. That game has changed considerably. How that will affect revenue is hard to say. Clearly we expect to take in more money in that time period. Less of late night is sold on the up-front. It’s more scatter oriented so these good results should result for better results for us in the fourth and first quarter right away. We expect to see it fairly quickly and we think it’s great to have been given an opportunity to get back in first place, and we are doing it. Fred.

Jessica, you kind of know what NBC did at the Tonight Show kind of range and that’s up for grabs, as Leslie just said. And so instead of being a distant second, it’s not trivial, the amount of revenue there and largely it’s high margin revenue.

Right, and in terms of -- just briefly on the first-run business, you know obviously with a couple of bankruptcies there have been a couple of changing of the deals with Tribune -- nothing that is major or that would affect our bottom line at all. Across the board, we’re not seeing much change. Remember, most of these deals are long-term. Wheel, Jeopardy, Oprah, -- they’re at the end of the contract, you know, Dr. Phil, end of the contract so nothing is going to change because of the economy or what’s happening. Obviously in the case of the bankruptcy, there is some slight adjustment but they’ve been relatively minimal and we think as the economy begins to come back, we are going to be just fine.

Thank you.

Our next question will be from Benjamin Swinburne with Morgan Stanley.

If I could ask two -- one on the free cash flow side. I think in the first half of the year you converted about a little less than 90% of your EBITDA to free cash flow. And in the back half, you’ve got a nice EBITDA ramp but I think you’ve got the Super Bowl payment and maybe syndication revenues, which have some negative working cap implications. I’m just trying to get a sense for what the free cash flow might look like in the back half since you converted so much over in the first half. And then just on the network pacings, which sound like they’ve gotten better in the third quarter, Les, do you think things are strong enough that the network primetime could be up in a positive in 3Q, given your ratings strength? Or is it too early to tell?

I’ll take the free cash flow -- obviously we don’t give free cash flow guidance for the full year. Obviously an 87% flow-through is very high. Clearly when we recognized the revenue for the strong syndication, the revenue gets recognized in the quarter and then the cash flow will come in in the following months. So we’ve given you kind of cash taxes, you kind of -- our debt is fixed so you know the interest. We’ve given you our capital expenditures and we’ve given you kind of OIBDA guidance range so the only piece is really working capital and again, I think if you just look historically how we manage the balance sheet, you can see how effective [we are].

That’s helpful. Thank you.

Regarding network third quarter, you know, the scatter has been truly phenomenal. We’ve been so pleasantly surprised. I literally got a call from our finance guy, can we make some more room because we have too much inventory. I swear, and on some of the reality shows, we actually can make that happen. You know, you can sort of trim a little bit out and stick an ad or two in. So literally when I said we did 30% better, that’s about $30 million in scatter more third quarter this year than third quarter last year. So it’s a sizable amount of money and we are very bullish on our schedule. As you know, we only put on four new shows, one of which is a spin-off on a hugely successful show, so not high risk. There’s very little risk in our schedule. The schedule kicks off September 21st, which obviously is the end of the third quarter but we think the third quarter could turn out positive, yes.

Thanks a lot.

Our next question will be from Michael Morris with UBS.

Thank you. A couple on the cost side and the sustainability of where you got to -- first on radio, it looks like you’ve taken over $50 million in costs out already this year, adjusting for the write-downs or the restructuring last year. I guess my question is I thought you were targeting about 75 for the year. You are clearly well ahead of that pace. How should we be thinking about the cost side in the back half of the year for radio? And then second, Joe, you mentioned visibility as being one of the things that you were more confident in at this point as you look to the back half of the year. Can you put some more color around that, perhaps in terms of how far into the future you are seeing bookings and what the change is then from the second quarter into the third quarter? Thanks.

I’ll take the first one on radio and then flip it to Joe on the visibility. Radio, we’re kind of averaging about $10 million a month and that’s been the run-rate and actually both at radio and TV, so I think we’ll be well north of the 75. That’s our expectation. So on an annualized basis, probably going to be in the $100 million range in TV stations and about the same as far as we can see and again, costs remain very, very [tight].

On the visibility front, again as Les said actually, we are seeing at this point in the third quarter relative to the second quarter our local businesses in TV, radio, and outdoor, are four to eight pace points ahead of where they were and the second quarter was similar gain on the first quarter. So we are just really kind of just projecting that out. If that trend continues, where will it end up and again, it’s going to be noticeably better than this quarter.

Thanks and just back on that first question on the cost reductions, in an environment where you perhaps do get more volume coming through, can you sustain that level of cost or is there some variable element that we should be looking at bringing back in if the top line were to grow?

I think the only variable really is commission, so that’s why our flow through on an incremental sales dollar is about $0.85 on the dollar of profit, so that would obviously vary. We’ll pay more commission as the incremental sales dollars go up but we like the ratio.

Thank you.

Our next question will be from Doug Mitchelson with Deutsche Bank.

Thanks. Just a couple -- Les, sort of a weird question, but your ad sales down 6% at CBS, you had great ratings this summer, ABC’s ratings were pretty challenged. Their ad sales were down 5%. Are you able to sort of square those numbers? Of course all of us are using ratings in our forward estimates to try to figure out what you can do and I’m just wondering why those numbers aren’t a little bit more different. And then separately, Joe talked about the strong TV syndication sales coming in the second half. Can you talk a little bit about what’s coming in 2010 so we can eyeball the year-over-year comparisons? There’s been some discussion of another CSI cycle -- is that something that could happen? Thanks.

The 6% down sales versus the 5% at ABC, I wasn’t aware of the ABC number, it’s really -- you know what, it is not a ratings situation; it’s because of the economy and the cost of sales and as I said, the good news for us is we have zero make goods. We had during the year no make goods and we have none now, so a lot of times networks may enter into a fall season where they have to give back some. We are anticipating -- and also as we head to the third quarter, I think you can see those results considerably better because of how strong the scatter market is, which wasn’t quite as strong in the second quarter. So we are quite pleased -- yeah, ratings were strong and as a result, the up-fronts are going to end up being very, very strong for us and so is the fall season.

On the TV syndication front, Doug, obviously we are not going to have five shows that we have this year going into 2010 again. Obviously 2010 is a political year, we have the Super Bowl, but we do have Showtime, Showtime original series that will be available going forward from 2011 on. So the good news is if you produce great content, it makes its way into syndication and the cash flows follow.

Plus Doug, may I add, you can also see some second cycles of some very big titles that will amount to a considerable amount of money.

When do we go from sort of may to knowing whether or not they are coming?

We are in the process of negotiating some of those deals right now. Some of them may be announced by the end of the next quarter but there’s some big titles that are out there and as you know, with second cycles, they could happen at any point. In other words, there’s renegotiation that goes on and when you have the amount of syndicated product that we do with the three CSIs and the numbers and the mediums and Criminal Minds and all those shows, there’s a lot of activity in the continues. The pipeline continues to be [fat], so we’re not terribly worried. This year happens to be a very fruitful year because of five new titles going in there but the beat will continue on.

To give you some comfort, some of those big titles Leslie talked about kind of expire at the end of ’11 or in ’11 and in early ’12, so it wouldn’t be unusual to renew them in ’10 or with someone else, so it’s -- it could be very lucrative for us to do that.

All right, that’s helpful. Thank you.

Our next question will be from Michael Mills with J.P. Morgan.

Thank you. Les, back to your comment about the up-front -- I understand what you are saying about what you seeing in the scatter market right now. What percent of inventory have you actually sold or do you expect to sell?

We expect to sell probably around 10 points less than a year ago and last year between 75 and 80, so I’m guessing 65-ish, maybe a little higher than that which, once again with our schedule, that’s just fine. That’s just fine. We’ll wait. We anticipate scatter to be stronger than the up-front, fairly certain of that and fairly certain of good ratings, so we are very confident.

Okay. One follow-up question -- I don’t know if this is Fred or someone else, can you give us a rough sense of the tax basis of the outdoor group, please?

We don’t give that information out. Obviously that would be pretty useful information for people to try to sole our tax situation, so we don’t -- obviously we bought the outdoor business, if you track back to the outdoor systems, at a pretty high multiple, so that’s all we’ll say about that.

Thanks.

Our next question will be from Michael Nathanson with Sanford Bernstein.

I have a couple -- let me start with Les. You know, Les, I just have a question -- what’s puzzling is if third quarter scatter is really so strong, why wouldn’t the up-front volumes for the industry be stronger at this point? You would think people would want to lock in the market given how strong it sounds right now.

Michael, it’s a very good question. But the truth of the matter is people aren’t buying -- you know, the up-front goes out for about 15 months, when you think about it. People aren’t buying that far in advance. Their budgets are more -- what we are seeing in scatter and we are seeing overall in the market, people are buying a lot closer to air time. You’re right -- the fact that we are up 30% scatter from a year ago is a pretty phenomenal number and that’s why we’re holding back inventory. We are aware that the budgets are less from these big companies, that they are holding back, that they are not -- they want to see what happens with the economy. In addition, my guess is six months from now the automobile companies will have a lot more money than they have allotted to spend today. So that’s why you’re not seeing that.

I was going to ask you -- of the volume that’s down, let’s say for you guys, 10 points lower, how much of that is coming from big auto? Is that a big percentage of what’s --

I can't give you an exact percent because I don’t have it right now but it is some, clearly. By the way, there was a real shot in the arm with the cash for clunkers. It was a real shot in the arm for national as well as local. It really helped. And so you see an initiative like that helping, it gives you great encouragement that when they see some light at the end of the tunnel, which they are beginning to do, the money is going to start coming in. It’s just they are not able to plan a year in advance.

Okay, and let me ask one for Fred -- in the past, I know you’ve not answered this with a number so I am going to try a different way -- so basically over the past couple of days or weeks, we’ve heard both Disney and News Corp. say their stations are pacing down in the mid 20s, or were down in the mid 20s in the second quarter. Would CBS be above or below that trend for the second quarter?

For the second quarter, I will answer that question -- we’d be right where our competitors are, yes.

Okay, and the last one would be -- thanks -- the last one would be when does political compare start coming in on the local level for radio and TV? At what point last year did it start building for you guys?

I was going to tell you that, Michael, because in September and October of last year, we probably booked over $80 million -- this is gross, so net would be less than that but gross sales for political at the TV station level in the four to eight in November was probably another 10 or 15 [inaudible], so it was probably about $80 million-ish net sales that came in last year. Now we do have a gubernatorial race in New Jersey, as you know, and we have a very wealthy mayor in New York that wants to win, so that’s going to help us a little bit. And we are also seeing some of the healthcare initiatives that Leslie referred to. There’s big money being spent to influence congress and we think that’s going to heat up as they are back in their home states and as you know, we’re in the big market. So we have -- the TV stations have a mountain to climb over the next 10 weeks starting after Labor Day and then we’ll be through it.

Okay, thanks.

Our next question will be from Anthony DiClemente with Barclays Capital.

Thanks. I have two questions -- just on the automotive, trying to get into a little more detail there -- Les, you talked about cash for clunkers. I was wondering if you could differentiate between how much of that you think is temporary because of the cash for clunkers or is recurring or ongoing improvement in activity for automotive and differentiating both at the OEM level and then at the local station, and then I have a follow-up.

That’s a tough question to answer. Obviously when the program was announced, and it’s fairly recent, there was a shot in the arm and when it got renewed I think two days ago, it continues along. I think Ford is starting to grow more than the others because they seem to be healthier right now. It’s hard to quantify. Fred, do you want to add to that?

Let me just jump in, Anthony -- one, the first quarter was absolutely rock bottom for auto because you had two majors going into bankruptcy that didn’t spend. Second quarter was a lot better and the third quarter is a lot better than that. We have good visibility through certainly early September and again, don’t forget our major advertisers are the foreign manufacturers -- Toyota, BMW, Mercedes -- just recall where our local TV stations are in L.A. and --

We have big markets.

And so they are -- they don’t have a problem and they are starting to spend. I think the cash for clunkers got people off the couch and into looking in the market but believe me, you saw there was only 200,000 cars that could possibly have sold for it but they are selling a lot more than that. So we think it’s sustainable. Our guys were -- obviously Leslie, Joe and I get constant updates almost daily from our local sales guys. They are seeing more and more requests for Aveos because now we are running into the new fall launches for the 2010s. So a lot of new models, lots of new models that haven’t been out there before.

Thanks. I’m just also wondering if the resurgence at the network means that we are back to Tavern on the Green for next year’s up-front party.

I don’t know. We’ll see by January but if not, I’ll invite you for a cocktail myself.

Our next question will be from Mark Wienkes with Goldman Sachs.

Thank you. Just with respect to Showtime, clearly a lot of momentum from a content perspective. How much of the 10% -- I guess you call it affiliate retrans fee increase was driven by Showtime sub-growth versus retrans? Because today there was a pay TV provider talking about softness in premium channel take rates. Just wondering if you’ve seen any of that softness at Showtime. And then if you can just give us an update on where the progress is on the film production business.

Okay, number one, the word retrans does not apply to Showtime. It applies to CBS. In other words, Showtime’s growth is in affiliate feeds. We are growing in a lot of our MSOs and once again, there is a real strength for the service caused by original programming.

Right, understood. I just thought that 10% was lumped in together, was the net combination of subscription type payments.

It is but it relates to TV stations.

Right.

I think what you will see, Mark, is that we are getting two things at Showtime and College Sports. College Sports, as you know, is at 32 million homes now, quite a bit different than it was a year ago. It was at about 25 million homes. And so we are getting geographic expansion, subscriber expansion, we are also getting rate increases. Showtime is getting rate increases and it is also getting expansions. The telcos are very important to Showtime and it is a big driver of our expansion of the subscriber base. And College Sports is getting more subscribers and more fees, so that’s why we have the double-digit growth and that should be pretty sustainable.

Regarding film production, we’re in the process of shooting our third movie right now. Two of them are complete. A romantic comedy with J-Lo will be released January 22nd will be our first. Our second starring Harrison Ford will be in March or April and then the third one, which is Beastly, which is our teen movie, which will be out during the summer. All of these movies, all three of them are in below $40 million. As a matter of fact, one of them is below $25 million, so we are keeping to our game plan. We are very pleased with what we’ve seen so far and we are anticipating a very good year for our film company.

Great. Thank you.

Our next question will be from Rich Greenfield with Pali Capital.

Thanks for taking the question. When you look at the syndication marketplace, I think Fred, you mentioned that there was a write-down, which I sense is at the TV stations related to syndicated programming that the TV stations had bought that they are now writing down the realizable value, or given what’s going on in the syndication ratings world and I’m just wondering, given that write-down, how does it impact -- I know a lot of your syndication goes to cable but you obviously do syndicate to TV stations like Ion, et cetera, and just how do you think about the long-term marketplace for syndication, given what’s gone on with the syndicated ratings and the rational for why you are writing down the value of that content. And then a second follow-up question, DIRECTV, Comcast, Time Warner Cable, really all of the cable or multi-channel operators have talked about weakness in premium subscriptions, or pay TV subscriptions. And I’m just curious, Showtime has obviously had great ratings but just wondering, it seems like the consumer is starting to really start to give up on some of their pay TV subscriptions. I’m wondering how that plays out into Showtime profitability or do you have guaranteed numbers over the next couple of years that mitigate that risk? Thanks.

On the first one, let me answer it -- really [inaudible] TV stations was that some of our CW and independent station, it was third party programming, nothing related to anything that is part of our Paramount TV or CBS Productions. And these were shows that were in sort of the back-end of their life cycle. They expire kind of in 2010, 2011 and they just weren’t producing. They moved from their original time slot because we had pressure programs in there, and so they moved from a different day part probably to overnight, other area, so that’s what’s happened. So I don’t think that it’s all atypical of what you do when a program gets in the last part of its syndication. These were not ours and they were also on our smaller market independent stations for the most part.

Rich, to add to that also, our bigger titles are sold to the major cable channels, okay? So when I mentioned an Ion, that’s the secondary market. That’s after selling like NCIS, like I mentioned, the big sale was to USA. The Ion sale was an after sale for I would say 10% to 15% of that, so it’s a much lesser and once again, of these five new deals that we just were announcing, they were all the major cable guys. You know, the USAs, the A&Es, the TNTs, et cetera. So that remains a very strong marketplace for us and it will continue. In terms of Showtime, number one we are protected by the packages and by the deals, by and large. We are not at all -- as a matter of fact, we are seeing in certain ones of the -- as Fred mentioned earlier, the telcos, every new subscriber a telco gets, Showtime goes up. So we are rooting for their success. It’s great to have this many players in the marketplace and most of our deals are packaged accordingly that we are protected, so we do not anticipate the weakness in premium to affect us.

And then if I could just follow-up on the syndication line item, when you look at your year-to-date syndication, kind of how you think about the full year, what percentage of syndication revenues come from local TV stations versus from cable networks?

Local TV is rather small. It’s a rather -- it’s a small percentage. Guys, do you have the exact numbers? But the majority is -- the majority, the vast majority is cable.

Meaning over 75%?

I would say so, yes.

Thanks.

Kevin, we have time for one more question, please.

And we’ll take our last question from Marci Ryvicker with Wells Fargo.

I have two quick questions first -- Les, you said on your last call that the first quarter would be the bottom for CBS and that trends would improve throughout the year. It sounds from today’s call like trends are actually better than you expected, so is this the right take on your comments? And then secondly, [inaudible] has commented publicly about their interest in your outdoor assets. Have you had discussions with them and how do you think about your outdoor assets in terms of your overall strategy, which is really focused on content?

The first question, yes, indeed. We really did have the visibility and we said then second would be better than the first and the third would be better than the second, et cetera. And that is coming into play. Am I pleasantly surprised by the second quarter? I would say yes, mildly. You know, to see the pacing getting better in all these businesses is great. To see where we are going to be as a company, it is definitely heading in the right direction and we are definitely seeing light at the end of the tunnel. Mr. [Deceaux], as you know, is a very charming Frenchman. We see him a couple of times a year. We have lots of discussions about our business. You know, I know he would like to buy us. He said that. He said that -- if you notice, he said that every couple of years he says that but we like our outdoor business and we have no intention of doing anything with it right now but we always enjoy having dinner with Mr. Deceaux.

Thank you.

Thanks, Marci. Okay, this concludes today’s call. Thank you, everyone for joining us today.

And we do appreciate everyone’s participation. You may disconnect at this time.