Q2 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to today's CBS Corporation second quarter 2019 earnings call.
Today's conference is being recorded and at this time I'd like to turn things over to executive Vice President of Investor Relations Mr. Anthony Diclemente.
Good afternoon, everyone and welcome to our second quarter 2019 earnings call joining us for today's remarks are Joe I know, our president and acting CEO .
Joanne Ross, our chief advertising revenue officer, and Chris speed, our Chief Financial Officer.
Following Joe Joe and Chris his remarks, we will open the call up to questions.
Please note that during today's conference call results will be discussed on an adjusted basis, unless otherwise specified reconciliations for non-GAAP financial information related to this call can be found in our earnings release or on our website.
Also 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 FCC filings.
A webcast of this call and the earnings release related to today's presentation can also be found on the Investor Relations section of our website at CBS Corporation Dotcom before we begin I want to note that the purpose of today's call is discuss our second quarter operational and financial results and we will not be commenting on speculation regarding M&A.
And with that I will turn the call over to Joe.
Thank you Anthony and good afternoon, everyone.
Today I'm going to give you an overview of our strong quarterly performance and touch on the key highlights across our operations.
Then as Anthony just mentioned, you'll hear from Joanne Ross, our chief advertising revenue officer.
Joanne will talk about the state of the advertising marketplace and give you some color about our most recent upfront.
And then Chris will give you more details about our financial results.
As you saw in our release CBS delivered double digit revenue growth during the second quarter with solid increases across all three key revenue types.
Advertising was up 7% with strong underlying network performance.
Content licensing was up 12% driven by sales from our domestic library.
And affiliate and subscription fees were up 13% fueled by growth in Retrans and reverse comp as well as increases in our direct to consumer streaming services CBS , all access and Showtime.
And on a year to date basis, our growth story is just as strong.
These revenue increases are driven by our investment in premium content, which we continue to accelerate.
Every decision we make is designed to build upon our position as a global multi platform premium content company.
CBS is now producing 89 shows up from 70 shows just a year ago, that's a 27% increase as we create more and more content. We are monetizing its value using a two pronged approach.
The first approach is to produce more shows for our own platforms, particularly our direct to consumer services.
This investment helped drive a 75% increase in total OTG subs from last year's second quarter, representing an acceleration over the sub growth we posted in Q1.
And the second approach, we are using to monetize the value of our content is to take advantage of an increasingly lucrative licensing marketplace.
CBS has become one of the most prolific content producers in the business.
With series like debt to me one of the top shows on Netflix the much buzzed about BH now I know Q1 O, which just premiered on Fox last night.
And a new version of kids say, the Darndest things, which we are producing for APC.
So by increasing the amount of programming, we are creating for our own content brand. While also selling our shows to third parties. We are operating at a sweet spot in the industry and setting ourselves up for continued long term growth.
Now let me tell you have that content is fueling our success across our businesses starting with the biggest platform in media. The CBS television network, which last month received 44 Emmy nominations 10 more than a year ago.
And as you'll hear from Joanne CBS has a long track record as the most watched network in America.
We have 16 strong and establish catch returning this fall and we will use this stability to launch five new series that we will be premiering on just tonight.
This means we can be very efficient in our marketing approach.
In addition, we will have ownership in more than 85% of our fall lineup, which is more than we owned last year.
And our studio is already developing promising new shows for CBS is 2020 broadcast season as well.
Turning to sports, we're just a month away from the return of the NFL.
As usual, Sean Mcmanus and his team have worked closely with the league to construct the schedule that we feel very good about including a rematch of last year's overtime NFC Championship game between the New England Patriots and the Kansas City Chiefs.
And we are already planning for our next Super Bowl, which will be airing on CBS again in just 18 months.
Meanwhile, Susan is a risky has welcomed a new day at CBS news.
Quality broadcast journalism is the surest way to success and we feel very good about the road ahead as Susan and her team continue to make that happen on a daily basis.
Just as importantly, Susan and CBS interactive continue to collaborate to grow CBSN, which is now averaging more than 1 million streams per day.
And where our average viewers median age is just 37 years old.
Speaking of digital CBS , all access continues to grow quickly by becoming a very compelling consumer proposition.
It offers all our premium content in news sports and entertainment and expanding slate of original series live local television catch up viewing in a broad 12000, our library of content streaming on virtually all devices.
The vast majority majority of our all access viewers are in the 18 to 49 demo.
So it's all access consumption increases we are reaching younger consumers all the time.
Another good data point, we have seen is time spent on all access which is up over 60% and growing even faster than total screens and it's mostly as a result of adding more original series.
And we're giving our subscribers more high profile originals.
From the debut of next week's comedic drama why women killed two the second New Star Trek series Star Trek the car to two big name projects. We recently picked up the Stan which is based on a book from the best selling Simon and Schuster also author Stephen King and the man, who fell to Earth from Alex person, who oversees the star Trek franchise for us.
And today.
Im pleased to announce that we are broadening our reach to add kids programming to all access.
Later this year all access will begin rolling out 1000 episodes of library programming and new original seat seasons of danger mouse and cloudy with a chance of meatballs.
So now our subscribers children will have premium content to watch too.
At Showtime, we're also accelerating our investment in content this year with about 40% more original programming than we had in 2018.
Much of that programming is coming here in the back half of 2019.
This includes the premiere of two dark comedies back to life and on becoming a God in Central Florida, which is executive produced by George Clooney.
And we have several of our fan freight favorites coming up to including the affair Shameless Kitting and Ray Donovan as well as the highly anticipated return of the groundbreaking series the L. word.
Like all access our programming investment is driving significant growth on our Showtime OTG platform. In fact, this year Showtime's second largest source of distribution revenue is pacing to be broadband, surpassing telco and satellite and only behind cable.
Showtime OTT GT is proving to be attractive to the growing number of broadband only households, which are often younger viewers as well and like all access.
Joe time subscribers are also viewing more and more content over the top.
With time spent approximately 30% this year.
Turning to publishing Simon and Schuster continues to grow on the strength of its content and there's more to come later this year.
With new titles from some of our best selling authors, including Stephen King and Vince Flynn as well as the father son team of Nelson and Alex The mill and the mother, daughter duo Hillary and Chelsea Clinton.
In local media, we are ramping up our investment in direct to consumer by launching new local versions of our digital news network CBSN.
We have already successfully launched in New York and Los Angeles and by early next year. We plan to have local versions of CBS and in all 13 major markets, where we have news operations.
This will enable us to have a more robust multi platform approach by the time. The next election cycle really gets going so we can fully capitalize on what we expect will be a record year for political spending.
Now before I turn the call over to Joanne I want to touch on an important announcement likely heard about this morning.
And that is our new carriage agreement deal with ATM.
We are very pleased to have achieved an agreement that recognises what CBS brings to the table. We have now successfully completed three very significant carriage deals one with 81 with all Tees and one with nexstar in the span of less than two weeks.
As a result, we remain solidly on track to achieve the Retrans and reverse comp targets, we laid out for you previously.
So we had a strong first half of 2019, and we have many clear proof points that our strategy is working.
We are growing our retrans and reverse comp we were accelerating the growth of our direct to consumer businesses, we are pursuing new opportunities in audience monetization.
And we are expanding in the international marketplace, where we see our biggest opportunity over time, particularly in direct to consumer.
And all this is driven by our investment in must have premium content.
So now as advertised you guys see what I did there I'd like to turn the call over to the Dean of advertising Joanne Ross take it away Joanne. Thank you Joe Hello, everyone I'm happy to be here to discuss the power of our advertising business.
We are in a great run in 2019 and that reflects the strength of our AD sales team, which is the best in the business, we have integrated digital and network into every negotiation, which was a big transformation and now we're reaping the benefits going into each sales fully align has enabled us to bring the full power of our multi platform company to the marketplace and youre seeing the results of that today.
Our team drove impressive results both in the quarter, and then the upfront, which bodes well for the new season.
Thanks to the power of our number one primetime schedule. The CBS television networks are robust scatter market in the second quarter with healthy premiums above upfront rate.
This helped to drive underlying network advertising revenue up 3% during the quarter an acceleration from Q1 when it grew 1%.
The momentum continued as we gear up to launch our new fall schedule, we had remarkable client interest excitement about our new lineup, resulting in a very strong upfront sales performance to the 1920 television season CPM increases across the network beds over substantial it was the strongest upfront with in the recent years, most notably in Primetime and late night. We are really pleased with the results and believe that our solid performance was driven by several key factors.
The first was our loyal viewership CBS finished the 18 19 season as the ratings leader for the 11th consecutive year, we anticipate Tvs being number one again in the upcoming season.
The second was our strong schedule.
Marketers and agencies understand the value of our premium brand safe content and as I mentioned earlier, they are bullish on the direction of our new dramas and comedies and the returning favorites that we've presented.
Strong daypart growth with another significant contributor and our upfront performance.
Brian silently I led the way in CPM rate of change boosted by our long winning streak in prime time, and the rise of Stephen Ko bear to its number one position in late night.
Stevens dominant which included winning the key 18 to 49 demo drove new advertisers and categories to that day part.
Sports news and daytime so solid growth as well.
Healthy category growth is also a factor we saw year over year increases in almost every category. During this upfront CBS remains an important thats been for pharma financial insurance and Telco company in late night retailer QSR and auto are especially strong.
Brands in emerging categories, such as direct to consumer companies like Chile, Dotcom Palatine Wayfair over eight and others are turning to television advertising more than ever using the unparalleled reach of broadcast to drive awareness and sales.
The immediate and significant sales lift these brands have seen from their growing scatter investments with Cvs has led to more robust planning and spending in the upfront.
And another driver for our digital digital sales in this year's upfront showed significant pricing increases from 2018 level.
Thanks to our leadership position OTI today, we are seeing a greater share of premium digital video budgets than ever before.
Our direct to consumer offerings, including CBS , all access CBS dot com CBS and and many of our other sides are giving brands extended unduplicated reach as well as the safe and transparent option in their media planning.
So we are combining the power of the number one network unbeatable scale with their reach engagement and targeting of our leading digital properties to give advertisers a one stop option to build awareness night interest and drive sales.
In a rapidly changing media landscape the success of the CBS AD sales team is built on the strength and stability fueled by innovation and creativity by capitalizing on our deep in establishing relationships and taking a personalized and integrated approach with all our clients not only are we growing revenue. We are also finding new and impactful ways to deliver value to brands in every category across our linear and digital properties.
CBS has the biggest platform in media it provides brands with unmatched ability to reach millions of current and perspective customers companies like Amazon Facebook, Google and Netflix are spending big Big dollars on network television when they launch a new product where do they advertise on network television.
In addition, our lineup of popular digital and cable properties, given Cvs the unique opportunity to offer our advertising clients the scale targeting and outcomes they require in their media plan.
CBS interactive is made up of more than two dozen digital media properties, including CBS Dot com seeing that Gamespot Max prep and scout as well as our growing stable of Avon platforms, which includes CBS all access CBSN CVSR local CBS sports HQ and Eli.
And if we bring all of these properties collectively to market with great success.
So as Cvs clearly offers advertisers the value quickly powerfully and safely reaching large audiences. We are also poised to capitalize on the opportunities emerging across the advanced advertising landscape to further monetize our audiences and deliver even better ROI to our clients.
Data driven linear was the starting point to move beyond demos to audiences looking at what's next CBS is moving fast towards addressable TV set top boxes and smart Tvs.
This has the power to revolutionize advertising to get us closer to that not so distant future of delivering a brands message to the right consumer at the right moment and to drive their business. This is already happening on our Odisi platform.
And as always Cvs is committed to providing brands and agencies with less precise insightful measurement, reflecting the impact of their advertising universal goal in the industry is to get took place for every single viewer is measured and monetized no matter, where and when they are watching and we are making great strides towards achieving that.
So as you can see we've had a strong first half of the year and advertising, we had a fantastic upfront and we can't wait for the NFL FCC football season kickoff.
And our highly anticipated new lineup to premiere. This fall we are energized by the great potential ahead to monetize audiences in new and exciting ways.
We have our eye on the future and immense pride and the strength stability and consistency our company delivered year in and year out.
Speaking of delivering care to tell you more about our financial results Chris fade.
Thank you Joanne and good afternoon, everyone.
As you heard the premium content, we offer across our company driving our results in advertising jumped as a ceiling increases in our other key revenue sources.
As a result, we delivered second quarter record revenue operating income and earnings per share.
Clearly our must have content is the cornerstone of our success today.
And as we continue to execute on our long term strategy by investing in our programming in direct to consumer streaming services. It will continue to drive our growth in the future.
Let me tell you about our second quarter results.
Revenue was up 10% to $3.8 billion.
Advertising overall increased 7% driven by the broadcast of the semifinal and championship game of the empty doubling men's basketball tournament.
As you heard from Joanne underlying network advertising was up 3% and acceleration from Q1.
Content licensing and distribution was up 12% the increase reflected higher domestic licensing sales of our library programming, which will continue to generate revenue for us for years to come.
Affiliate and subscription fees grew 13% led by a 43% increase in revenue from our direct to consumer platforms CBS , all access and Showtime.
Retrans and reverse comp continue to grow and 17%, including strong increases in virtual NBP revenue.
In terms of subscribers, our overall sub from CBS and Showtime continues to grow year over year with the strongest increases coming from both CBS , all access and Showtime BT.
Operating income grew 1% to $702 million in the second quarter as we continue to invest in our content and our direct to consumer services.
And earnings per share for the second quarter grew 4% to $1.16.
We also delivered strong growth for the first half of the year on a year to date basis revenue of $8 billion increased 10%, which is consistent with the second quarter and again, we delivered growth across our three key revenue.
Advertising was up 13% content licensing was up 5% and affiliate and subscription fees were up 13%.
Operating income grew 1% in the first half the $1.5 billion and again includes our higher investment in our growth initiatives.
And as for the first half of the year was up 2% $2.53.
Now, let's turn to the quarterly performance of our operating segments.
Entertainment revenue increased 14% $2.7 billion in the second quarter with growth across all of our revenue sources.
Advertising was up 9% driven by the final four and NC double a championship game.
Content licensing and distribution was up 18%, thanks to our domestic licensing sale as well as the increase in programming, we're we're creating for third party.
An affiliate and subscription fees grew 22% driven by reverse comp and subscriber growth at CBS , all access and virtual MPPD.
Entertainment operating income was up 16% to $426 million, even with our higher investment in content, particularly at CBS , all access which added the Twilight zone during the second quarter.
Cable networks revenue increased 2% to $562 million in the second quarter driven by growth in our Showtime direct to consumer service as well as the inclusion of pop, which we fully acquired in March.
Cable networks operating income for the second quarter decreased to $185 million, reflecting our higher programming investment as well as the timing of licensing our original series.
And as Joe mentioned for the full year, we are adding about 40% more original programming on Showtime than we did last year.
In publishing revenue increased 5% to $218 million with growth in print and digital audio sales.
Best selling titles during the quarter included new books from Howard Stern and David Mccoll It.
And publishing operating income increased 6% to $33 million.
Local media revenue increased 1% to $423 million compared to last year, when we had strong political spending.
The increase was driven by higher Retrans, along with the final four.
And local media operating income increased 2% to $130 million.
Turning to free cash flow for the second quarter, we had an outflow of $157 million compared with an inflow of $296 million in the prior year.
The decrease was largely driven by two things.
Higher programming investments.
And tax payments.
First let's talk about the taxes.
During the quarter, we made a onetime cash tax payment of $260 million.
This payment was driven by tax regulations that were finalized in 2019 and affected the timing and calculation of taxes that we owed on the repatriation of foreign earnings.
With regard to our content investment, we invested 20% more in programming during the second quarter than we did in Q2 of 2018.
Because of the proof points that we're seeing in our growth strategy. We believe the highest and best use of our cash is to continue to invest in our premium content and our direct to consumer services.
And as our business model continues to transform we're creating additional financial flexibility that allows us to be opportunistic in how we prioritize the use of our cash.
Now let me tell you what we see ahead in our three key revenue sources.
From our strong start in 2000 and keen with the Super Bowl through the NC double a men's basketball tournament and key Diego to our healthy upfront pricing that will take effect in Q4, we expect 2019 will be a record year in advertising.
In content licensing, we continue to ramp up our investment in programming and are creating more confident than ever before with 89 series across 15 broadcast cable and streaming outlet.
So we are uniquely positioned to license more shows to outside parties.
Build upon our content library and drive long term growth on our direct to consumer platform by adding more original theory.
In addition, as others pull back from the licensing market. We continue to believe the upcoming scarcity will create opportunity for us.
So we feel very good about the strength and flexibility afforded to us as creators of premium content.
In affiliate and subscription fee. We are confident we will reach our goal of $2.5 billion in revenue from Retrans and reverse comp in 2020, and we are growing revenue and subscribers on our direct to consumer services by adding more original programming. So we feel very good about achieving our target 25 million subscribers combined by the end of 2022.
So in summary, as we continue to execute on our long term strategy of investing in premium content to accelerate the growth of our direct to consumer streaming services.
We are delivering robust growth and no kiki subscribers and in revenue with increases across our key revenue sources for both the second quarter and the first half of the year.
With these solid results.
We feel very strongly about our ability to achieve our three year guidance of revenue CAGR in the high single digits and EPS CAGR in the double digits.
With that Greg we can open the line for questions.
Thank you very much and ladies and gentlemen for any questions. Please.
By pressing star one on your telephone keypad.
And if you just make sure that your mute function is turned off close to receive that signal.
Once again for any questions at this time Thats Star one.
And first from Morgan Stanley , we have Ben Swinburne.
Thank you good afternoon.
Joanne Thank you for all that color on the AD market. So one of the big themes. This quarter across earnings has been the role of digital inventory and driving upfront sales in the business and you talked about that a bit but wondering if you could give us a little bit more on on maybe sizing how much of your upfront gains came from your digital inventory.
And if you do want to size the digital AD business for CBS . I think you guys will do about $6 billion of AD revenue for the year this year maybe more.
Could you give us any sense of how big the digital business is inside of that and where are the biggest sources of inventory for you across the CBS .
Digital properties and I'll, just ask my follow up maybe for Joe.
Ill say TNT TEGNA Nexstar, you guys have been quite busy on the.
Renegotiation front.
Should we expect to see affiliates subscription revenues in your entertainment segment that growth rate to accelerate.
In the back half of you able to put all these deals get them all signed thank you guys.
Ben It's Joe I'll take the first the second part and then Joanne will go look.
Those deals have those expiration dates so they are factored into our.
The financial targets, we laid out for you previously so it's just when they come up.
So our team has been busy at work I mean will you are seeing the results in that affiliate and subscription line I think you're going to continue that and like Chris said, we feel very comfortable with the $2.5 billion, we laid out in.
If you remember from a.
Two investor day days ago, we were in 2011, which is almost a decade ago.
That number was hundreds of millions of dollars and so we're pretty proud of the track record of success. We have in that track record is built on the premium content that our team is able to stand behind so we feel really good about that but the timings or whenever the timings expiring we flow that in but Joanna hi. Thank you. So yes, I think I'd start with how we went to market as the combined sales team.
With network and interactive working hand in glove and working with the agencies that are set up as video investors. They don't separate what's going on in digital from what's going on broadcast on our digital sales I think were very very strong and the CPM increases were basically in line with the CPM increases in prime that we start linear and.
Their top categories in digital going through we're pharma.
Which is interesting because that's also a top category for us in broadcast.
Telecom and consumer products.
And I think the important proof point here is that there is no question that our suggests our success with digital was driven by the fact that we have all the key brands that people want to buy in complement to the CBS brands and as the leader in Argentina, we are seeing a greater share of premium video budgets than ever before whether it's on the two vessel access our CBS dot com or several of our other platforms.
Obviously, the cpms they are important because they are giving us reach and targeting and we have new clients that are coming to digital as I mentioned, we see the clients like Google and Netflix and the digital natives coming back to CBS .
We're positioned really really well going forward and don't forget we also have CBS sports HQ that Eli.
Five years ago, we went all in on a T.K. and then we have gone into CBSN CBS and local and people are looking for premium digital content that premium video content and Thats what were getting them. So yes, a big success for us in the upfront related to our digital properties.
Thanks, Ben Greg We will take our next question. Please.
Sure thing next we have Jessica Reif Cohen with Bank of America Merrill Lynch.
Thank you.
Great the Joanne.
The call.
So.
I think it can be a little question few Joanne.
To continue along this is the best up front in recent memory.
I would love to get your take on.
What's going on in the overall market.
Dollars coming from is it coming from digital or somebody losing share and how his CBS a share.
Okay advertising dollars changed over the last few years.
Do you see as your biggest competitor in the market is it I mean.
Your mouth and then.
So far you've been really good at that avoiding any specifics on cpms.
CPM growth overall in volume.
If you could give us any color on that and you kind of have to targeting if you could just maybe talk about where you are in targeting on linear.
So just was that a question.
Yes, hi, thanks.
Hi, there just going back to our benefit as the upfront and in general I think you may have heard that.
Some of the early this fall is the strongest in the best upfront I have seen in years and I've been doing this.
For a long time, but I want to talk about why we are seeing the influx of money because the way. We are positioned after you remember we have the biggest broadcast that work on CBS reached over 240 million viewers. This past season across all Dayparts were stable people love our programming on linear they know what theyre buying they know we deliver they trust us and we have the biggest reach so we have that going for us and then we marry it with what's going on with technology and consumption patterns and we were I'll say it again, we were the first mover in the Otcs space and as Joe and Chris spoke about we keep pouring money into the original content and clients are out there that want this original premium video that to the safe and well lit environment and we're offering that we're not playing catch up.
CBS all access has been a huge success with programming that's coming there.
Ideally in the Cvs is a leader in the market. So the competition as everybody that's behind me, but again in this space that we're in we have been first globers.
In terms of technology, and Addressability that will be the Holy Grail, and we're working with MVP days, we're working with Nielsen.
We have a lot of conversations going on addressable is not there yet and it probably will take a while to scale, but we're looking at something maybe towards the back half of 2020 or earlier 2020, but the NVS Cds and the Oems have to get their act together, but we are having conversations with all of them and if clients want to test and learn with us on data driven linear whether it's in scatter or during the upfront we're able to do that as well I think I covered everything okay. Okay. Thank you Jessica Greg lets move onto the next question. Please.
Absolutely and next we have Alexia Quadrani with JP Morgan.
Hi, Thank you very much is sort of staying on the digital advertising topic. When we look at CBS . All access can you give us a sense of what the revenue mix is and all access between advertising and revenue and.
Revenue stream you more excited about it and maybe how big of a step up are you seeing this year given the strong demand in advertising and then just a follow up I think on your announcement on moving it to the kids programming and all access.
Miss It did you say when that was going to be introduced and will they see a step up in marketing spend around that attracted you demo.
Yes, Alexia it's Joe.
The all it just all access subs two thirds of the all access access subs are taking the limited commercial option.
So obviously you know the vast majority of that Thats, a 999 price point, obviously, there is still advertising in the live linear portion of that.
So we do have that two pronged approach, but we obviously operate.
With the subsidy of advertising for 599, and so like I said that the mix is there.
We're very cognizant of the pricing so we premium price the stuff on digital so that it doesn't lower the price points on linear. So we are sensitive to that so we're very we're indifferent if somebody signs up for 599, plus the advertising or the 999, I think again more and more just a consumer preferences are leading to the AD free.
You'd limit adds as as I said, the 99 product and as we rolled that out internationally, we will obviously be going again with the the commercial free option. So as we're sitting here today I think the subscription revenue is a huge opportunity, but again the advertising and the targeting capabilities is also big.
The Kids program will rollout later this year.
Like I said, it's a thousand hours there is going to be some library, but new original seasons of some some pretty big franchises and again because the average age of those subscribers have young children.
We just thought it was such a sweet spot really a natural way to expand our premium content. So we're really going to look for some proof points there to expand the sub base based on expanding the product offering so.
We feel pretty good about that yes, then alexia. This is Chris just to answer your marketing question, we will market more and we have been marketing more consistently this year with our added original series offering.
Perfect. Okay. Thanks.
Thanks, Alexia, Greg will take the next question. Please.
And next we have Michael Nathanson with Moffettnathanson.
Thanks, I have two I'm, sorry, no advertising questions Joanne.
I have two for Joe for Joe Joe can you help us just think through the profit picture of when you make to show for it as far as service or cable network. What types are right you are retaining.
And what's the payback versus maybe doing your own and say, yes is where you keep all rights and syndicated so any color on kind of the windowing and when do we expect to see the payback.
And then secondly on the kids question on kids content, what type of research to have about.
His kids opportunity if you add new subscribers is that something that Youre research binds to be.
Hole in service and we think that that could drive incremental subscribers as kids becomes a bigger programs slice there.
Sure Michael Yes, obviously, making this investment in King's program, we believe that and we also believe Michael it reduces what you know.
The word I guess.
The term is churn.
Again, I think we termed pausing. So we're trying to eliminate that I think again kids programming is critical to that.
Because again, it's just more things for more people because if this thing about a family of subscriber everybody has different.
Preferences. So we want to serve all those appetites and so we feel adding these kids programming is going to drive new subscribers and reduce churn.
The analysis, we go through about licensing Michael obviously is.
It's fulsome because when we make a show. The question is is we can license it to some some third party and we will receive licensing revenues obviously were protecting.
The underlying library value. So it certainly comes back to CBS , Some some point down the road.
As opposed to keeping it on our new service and so what we the analysis really is is how many new subs that we think we can drive with the infrastructure we have in place.
Compared to the licensing revenue we can receive from this other third party enough. This other third party happens to be larger than us.
They might be able to put it through a different.
Infrastructure to make more money and thus pay us more we will then take that money and do two more shows and build our own service that way and so again, because we haven't we've really not fully able to exploit these opportunities internationally yet.
We're really limited to the United States, which are again, great, but its only 325 million people.
So somebody could put it through an infrastructure that has billions of people.
Our thought is if they're willing to pay us that we were going to look at that very hard, but if they're not going to put it through our own infrastructure. So its a high class problem, but we literally do it Michael.
Franchise by franchise, because some some think.
Some gen brands entitled Little franchises are a great Star Trek is obviously you know.
In demand and so for us, it's about quality premium content and putting volume through our offerings that is our priority. That's why I said international is our largest opportunity thats alone.
Well, Joe, but most your deals.
Irritating your long term rights right. So that will revert back to you over time as yourself.
That's that's correct Michael.
All right. Thanks, Michael Greg will take the next question.
Next from Guggenheim, We have Michael Moore.
Thanks. Good afternoon, guys couple more programming questions. My first one is about the programming assets that you have been investing in and building and you talk about the ways to monetize it.
But my question I guess is how how much of this asset that you've built so far and continue build is fuel specifically as you grow these domestic OTG platforms.
Did you have laid out some goals for us and how much is monetizable being contemplated for monetization, whether it's through licensing or international and I guess, what I'm really trying to get at is the opportunity on the licensing side. I mean, you had a strong quarter this quarter and content licensing and how much of that maybe underappreciated relative today.
Domestic OTI trajectory that we kind of already know about and then I've a follow up as well.
Yes look I think thats, a very good point, Mike I think again.
Some of these assets were building again as you said that for our own services, So and Thats based on the research that we have from all of the data we're getting.
When when subscribers churn and so we know original series really drives intend to subscribe. We know key engagement metrics as we put more and more originals on the surface are really you know.
Significant again Thats why we time spent number of screens all of these things.
We're getting more and more data on that now that said.
Wood, we're doing things differently again, our user I use an example of.
The good fight that is premiered on CBS . All access is now on the CBS network.
I mean that is a high quality show that obviously would cost a lot of money to produce but we are you can see how we're utilizing that asset again thats internal but obviously, we could have licensed the good fight outside of that so so we're continuing to sleep building that library value, where we have newly a thousand episodes of premium content that we had not yet licensed and so again, we were strategically holding that to see how this marketplace moves, but yet we're still putting it through our own funnel again to drive engagement. So again, we are as we said in our remarks. We are we think we are operating in a sweet spot. We think we're have the ability to continue to produce for others again I look at it.
No I know two ueno for Fox.
Which premiered nicely solid into key demos great for Fox It was only behind in total viewers to two big brother.
But it was a great show, we're doing diary of a female president for Disney plus huge you know the shows on Netflix so were continuously be able to do that.
Yet, we're still creating library value in the future for things, we havent yet monetized. So thats why this machine is like.
Pushing a snowball downhill, it's getting bigger and bigger.
And Mike give us credit for that so that I'd also add that really important in and where we are now to own the show the rights to the show So as Joe said in our fall schedule, we own 85%, which system more than we've had so.
Once we own the rights, we can monetize it and we have a lot more flexibility, which is where we want to be.
Okay. Thanks, Mike.
I just.
Can you just.
Yes on the good fight that was the haunted house. So Joe you brought it up can you just.
Tell us.
What was the impetus to make the move I mean, I think it's very logical we talked about it before but Tom.
How did you evaluate the success of it and is it something that you would do with any of the other programs you have on all our accessory.
I think what we are doing is we are doing it in a case by case basis again, and I don't think it's anything.
Any policy that we're seeing.
Again, it was to basically introduce the good fight, which we think is a highly acclaimed show to a much broader audience. That's on the CBS television network.
Again that was just season one so if you like season, one day to now catch up during these coming months for seasons, two and three and in January we will have season for so we're going to be looking at the uptick like sometimes we licensed shows to syndication and it drives consumption of current seasons.
So again similar type of analysis is really what we're looking for to introduce.
Again content, while again were effect and we're selling advertising against the good fight, which rates well, it's a high quality show. So it makes sense is on the CBS network.
But again it does that its expanding and we can drive a CBS all access access subscriber thats going to be a good use of that of that property.
Okay. Thanks, Mike Gregg next question please.
Next we have Doug Mitchelson with credit Suisse.
Oh, thanks, so much I want to go back to the wallet Joanne, but first I want to say Anthony to the Bang up job without safe Harbor. So appreciate that.
[laughter] practice.
So Joe everyone says they love the market, so what and what was your strategy around inventory upfront pricing was strong, but you have to call big scatter pricing.
Increases the season sodium so a lot of inventory to strong upfront or you hold back the scatter market stays strong or in that your ratings are good and I got a follow up for Joe.
Thank you, yes, so I've been doing it for quite some time along with my team again, the most stable AD sales team in the business and our interactive team led by David Valenta.
The most experienced AD sales team in the business so.
If you evaluate every market differently, we did see signs early on as early as March.
That this was going to be a strong upfront based on conversations that we had with our clients and the agencies and that was before we announce our schedule coming out of May.
Yes. The schedule announcement, we also felt a lot of pressure to kind of move quickly.
From clients and agencies, because I believe that with the influx of new categories. So I know other people have talked about the digital natives.
We were also first mover in that space back probably 15 years ago with a little quiet.
That has a known as that.
Mascot anyway, we knew what was coming because we had seen strength in scatter and every quarter and we kind of like we're back into the numbers.
It's not an exact science, but we do see a whole landscape before we set out our first plan and we see the whole landscape usually through different ways.
Non interest that is banner, we go back to historically, but.
For cost of where the sellout is it's probably very similar to where we were a year ago and we're well positioned for the scatter market going forward, which has already started to percolate clients are still out there, but in their presentations together and presenting but since we finish the upfront.
We have written more money in NFL, and an FCC, which kind of separately it moved along with the up front this year, but we're already seeing.
That market pacing, along very nicely. So again, not an exact science the shift with the ratings into the equation, but.
Anybody that's been in this position and the other team that we work with across the company obviously, Ken look at historical information key data points and know where we're going to be going and then I have to present suggests that's always a lot of it and so.
So Doug I would just say no.
Our strategy always going into these appliances were always willing to bet on our schedule and that proves out year in and year out and so as you all know the scatter premium is significant above upfront. So I'm I'm very careful not to sell too much in the upfront because.
Certainly joined because it took more and more money, but again like I said is.
I think that the upfront is a hell of a deal for advertisers so.
I'd much rather sell in the scatter, where there's more scarcity now and based on our performance and so as Joe and it is art not science.
And the proof points.
And the track record we have.
Our undeniable. So we are as bullish as we can be.
On advertising.
Well, it's because it feels like it feels like others have increased results.
Thats right now, but if I could ask a follow up for Joe I. Just wanted an update on international remained I mean, Joe you keep talking more and more about the experience in scaling of human services.
Is there a big opportunity overseas when you get the content back that you could actually go after that anything on international be helpful. Thanks, Yes, sure I mean, I would say, we said on our last call I think.
Latin America and.
Europe has kind of up next for our rollout and as you said what.
I'm trying to give our team some flexibility in timing because we want to get the offering right.
But there is a.
A strong demand in premium content delivered via broadband in the international marketplace and it's incumbent upon us to serve that appetite and so stay tuned for more on down the road, but.
Again, I just looked at the number of people and the consumption of.
Netflix is subs on so I'm very encouraged that this is single handedly the largest opportunity.
That we have in front of us.
Okay. Thank you all right. Thanks.
Gregg next question please.
Next is Laura Martin with Needham and company.
Hi, there may be to Onno T T.
So Joe.
One of your competitors is talking about putting together a bundle of three services. They own you guys also on a number of services could you talk about your thinking about the power of bundling Youre, both AD driven subscription driven services together as a marketing tool and then staying on the subject of marketing as you think about some of these new Apple plus Disney plus some new competitors coming to the marketplace. How does your marketing strategy have to change because the first loss on nobody that you've been in the market with all access for four years and now you're introducing kids right as Disney comes into the market. So it feels like you're reacting a little bit.
Two new entrance. So could you talk more generally about how your marketing plans to change with more competition sure.
Sure Laura.
You first part about OTG look we offer CBS , all access and Showtime together, it's in it's an opportunity we don't force consumers to do it they can buy it all apart if they want to buy them together, we obviously discount that.
We think the again those are different offerings and they're complementary so we like that so we have that available. So I can understand why others want to kind of do that together because people will subscribe for different reasons. So like I said is we've been doing this as you've said all access is actually almost.
Five years old.
So we've been at this.
The kids programming is really has nothing to do with Disney at all quite frankly, it has to do with the data and the research that we've done on the service based on the consumption patterns. The average age of the viewers.
So really it's that that's really led us to doing this and as you've said you've seen all along Laura.
All access first started is really serving the super fan, giving CBS , some kind of catch up viewing.
Abilities.
Deep library.
Then we added live linear programming to it then we really started producing originals and that is all based on data that we got back from our consumer consumers. So I think it's this is a natural progression for us.
So.
We will continue going to continue to roll it out, but we've been pretty measured with the.
The investment spend you see that come through the PNM now, but I think we've been pretty judicious about about managing that and again, it's all proof points along the way.
Thank you very helpful.
Thanks, Laura.
Greg we have time for one last question.
Okay in that case will take the final question from Dan Salmon with BMO capital markets.
And I'll take it back to have one last one for Joanne.
With us.
Joanne look obviously, CBS , probably known first and foremost to large advertisers for all the great content and.
Anchoring their big branding and awareness campaigns, but as the business gets a little bit more digital over time do you think CBS needs to be looking more at direct response style advertising, which makes up the vast majority of online spending.
And then similarly, you've also got a really strong local footprint as well.
Again as the business becomes a bit more digital do you think it makes sense for CBS to be looking at self service or the type of tools that can be used by more small and medium size businesses. Thanks.
Good question on the direct response piece of it.
I don't have a concern now that we would have to go that route.
Just based again on all the data that we have and the fact that we are America's most watched that worked for the last 11 season.
The demand to answer it in a different way the demand is still there and broadcast for the big advertisers and for some clients in some advertisers they are going to migrate to digital.
But I do not see the direct response, replacing what we're seeing now and our eco system.
They are always going to want that big big breach and then on digital those the clients that may be going more nish more targeted and we were doing that actually in LTC right now I don't recall the second part of your question.
Just whether you think.
We see a lot of the big digital platforms will build self service platforms.
Our self service tools to small and medium size businesses can use themselves is that something you think makes sense for CBS .
And you're targeting that as more of a local play.
Yes, usually not the type of thing the Procter and gamble's using on a daily basis, but more small and medium size businesses that might add to that I mean, if you look at some of the bigger services like Google and Facebook a lot of their revenue is driven by local.
I don't see our digital play going that way because were offering premium safe content premium video and the local place usually like on the message boards are the storyboards.
Whereas Facebook is creating content about the latest style. So I don't see that as a game changer or gameplay for CBF.
Alright, Thank you everyone for joining our call and this concludes today's call.
Once again, ladies and gentlemen, thank for joining US today you may now disconnect.
Thanks.
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Thanks.