Paramount Global
Q3 2018 Earnings Call Transcript

Published: 2 Nov 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to today's CBS Corporation Third Quarter 2018 Earnings Release Teleconference. I'd like to remind everyone this call being recorded. And at this time, I'd like to turn the call over to Senior Vice President-Investor Relations, David Bank.

[David Bank:]

Good afternoon, everyone, and welcome to our third quarter 2018 earnings call. Joining us with today's remarks are Joe Ianniello, our President and Acting CEO; David Nevins, our Chief Creative Officer; and Chris Spade, our Chief Financial Officer. Following Joe, David, and Chris' 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. The third quarter and year-to-date 2018 results are adjusted to exclude costs related to certain corporate matters and certain benefits associated with tax law changes. 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 SEC 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 cbscorporation.com. And with that, I'll turn the call over to Joe.

[Joseph R. Ianniello:]

Thank you, David, and welcome to our call. And good afternoon, everyone, and thanks for joining us. I want to take a minute and thank Adam Townsend for his outstanding years leading CBS Investor Relations. Showtime is in great hands with Adam as the CFO. As David Bank mentioned, with me here today is David Nevins, our Chief Creative Officer. In his new expanded role, David oversees all of the entertainment programming across the company. So, I thought it would be helpful for you to hear from him today. He obviously brings a wealth of experience to this position as well as a clear track record of success at Showtime. I'd like to also welcome Chris Spade, our new Chief Financial Officer. While Chris is new to this position, she joins us having been an outstanding CFO for Showtime, and she's been a key member of that business for more than two decades. I've worked with both David and Chris for many years, and I look forward to their contributions today and in the future. Now, let me tell you about our third quarter results. Revenue was up 3% to $3.3 billion, and EPS was up 12% to $1.24. This was our best third quarter ever in revenue and EPS. I am also pleased to tell you that we are reaffirming our outlook for 2018 with revenue growth in the high-single digits and EPS growth in the high-teens. Our success continues to be fueled by all the ways we are executing on our long-term strategy. We are driving new incremental and recurring revenue from a number of significant growth areas

[David Nevins:]

Thank you, Joe, and hello, everyone. I am excited to take on this new role at the Corporation and to have the opportunity here to talk about the outstanding content we are creating across our company. Taken together, the CBS Television Network, CBS All Access and Showtime form a powerful programming powerhouse, one that not only fuels the financial engine that drives this company, but it also makes the CBS corporation one of the most attractive places for Hollywood creatives to bring their best work. As you heard, we are significantly ramping up our investment in programming. The 76 series that Joe mentioned are up from 65 a year ago, and more than double what we did just five years ago. By producing more shows, we have more content to license, particularly in the international marketplace. And we also have more content to roll out on our owned platforms, which in turn is accelerating the growth of new subscribers to Showtime and All Access, and increases retention of our existing subs. The bulk of our production comes from our CBS Television Studios, where our strategy is to look at individual shows as global brands. And our philosophy has been to sell a project wherever it has the best chance to thrive. As a result, we have ramped up our output, so much so that we have expanded our production capabilities with a new state-of-the-art facility in Toronto. Just to give you a sense of some recent highlights, CBS Studios has four series at Netflix

[Christina Spade:]

Thank you, David, and good afternoon, everyone. It is an honor and a privilege to take on my new role as the Chief Financial Officer for CBS Corporation. I am pleased to be on the call with you today. As you heard, our creative success continues to lead to financial success. We turned in record revenue and record EPS, and we grew EPS for the 35th consecutive quarter, even as we invested an additional $100 million in content in Q3. We believe that in the case of our company's trajectory, past is prologue and our passive investment and innovation will continue to yield growth and strong return on investments. Now, let me give you some more details about our third quarter results. Revenue for the quarter was up 3% to $3.26 billion. Affiliate and subscription fees came in at $1 billion compared with $1.15 billion last year, when Showtime had the Mayweather/McGregor pay-per-view boxing event. Our ongoing affiliate and subscription fee business increased 14% led by our direct-to-consumer streaming services and virtual MVPD, which together grew 79%. And we continued to see strong gains in retrans and reverse comps as well. Content licensing and distribution revenue was up 8% to $933 million for the third quarter. On a year-to-date basis, content licensing grew 10% to $3 billion, as our higher content investment gives us more programming to license across platforms and around the world. We also had a solid quarter in advertising, which grew 14%, driven by our Network 10 acquisition. Here in the U.S., advertising grew 4%. And at the CBS Television Network, advertising was comparable on an underlying basis for the quarter and year-to-date. And we remain on track to achieve about $4 billion in network advertising for 2018, which is consistent with prior years. Also, during the quarter, operating income came in at $736 million compared with $729 million a year ago, reflecting our higher investment in programming and technology for our new direct-to-consumer platforms. And as Joe said, EPS was up 12% to a record $1.24. On a year-to-date basis, we delivered record revenue and record EPS. Revenue for the first nine months of the year was up 7% to $10.5 billion, driven by retrans and reverse comp, which is up 22% year-to-date, and EPS was up 15% to $3.70. Now, let's turn to our operating segments. Entertainment revenue for the third quarter came in at $2.2 billion, up 19% with strong growth across our key sources of revenue. Advertising and content licensing revenue were each up 16%, and affiliate and subscription fee revenue rose 32% driven by growth in reverse comp, CBS All Access and virtual MVPD. Entertainment operating income for the third quarter was up 8% to $377 million even as we ramped up our programming investment. Year-to-date we have produced 12% more hours of programming for both our own platforms and for other networks. Third quarter Cable Networks revenue came in at $569 million compared with $840 million last year when we had the big pay-per-view event. As you heard, we now have more than 26 million subs at Showtime. And we continue to benefit from the growth of Showtime OTT as we expand with new distributors such as Spotify, which targets the college market. Cable Network's operating income came in at $248 million compared with $296 million last year due to the timing of licensing revenue and our higher investment in programming. This includes the production and marketing of two new and successful owned shows, Sacha Baron Cohen's Who Is America?, and Jim Carrey's Kidding. Switching to Publishing, revenue reached $240 million in Q3, a 5% increase as Simon & Schuster delivered higher print and digital sales. In particular, digital audio continued to grow strongly and was up 17% during the quarter. In addition to Fear by Bob Woodward, other third quarter bestsellers included Whiskey in a TeaCup from Reese Witherspoon; and Bread War by Vince Flynn. Publishing operating income of $51 million grew 9% in the third quarter, driven by higher sales. And our Publishing operating income margin was a solid 21%. Third quarter local media revenue rose 9% to $434 million fueled by both strong growth in retrans revenue and by an increasingly heated market for political advertising as the midterm elections approach. Other particularly strong categories during the quarter were entertainment and health care. Local Media operating income increased 17% to $124 million, and our Local Media operating income margins expanded 2 points to 29%. Turning to cash flow and our balance sheet, free cash flow for the first nine months of 2018 was up 31% to $1.1 billion. We are using our cash to invest in content and much of the increase in free cash flow is driven by growth in affiliate and subscription fees and lower tax payments. During the quarter, we repurchased 1.8 million shares of our stock for $100 million and we remain on track to repurchase approximately $800 million of our stock for the year. Now, let me tell you what we see ahead. In Advertising, we expect a strong finish to the year, thanks to the midterm elections. Local Media revenue is pacing to be up in the high teens. At the Network, scatter is about 20% to 30% across day parts, and we're seeing a lot of excitement surrounding World's Best which as you heard will air right after the Super Bowl. In content licensing, we currently have nearly 800 episodes of hit shows that we can bring to the domestic marketplace, which we will be monetizing this year and in years to come. And all of the new series we just launched at CBS, Showtime, CBS All Access and The CW will continue to add to our content pipeline. In affiliate subscription fees, we expect retrans and reverse comp revenues to surpass $1.6 billion for 2018. And next year, we will have more than 30% of our footprint in both retrans and reverse comps coming up for renewal. In over-the-top, as Joe said, we expect to reach 8 million subscribers combined at CBS All Access and Showtime OTT next year, and that does not even include subscribers from international expansion. So in summary, as 2019 approaches, CBS stands in an enviable position. We are set to achieve our 2018 outlook of revenue growth in the high-single digits and EPS growth in the high teens. Our unique asset portfolio, the number one network on television, a leading television studio, a rapidly growing premium cable network, and our deep library and scalable platforms provide a strong foundation for more growth long-term. And we are excited about the significant growth opportunities we see before us from our direct-to-consumer streaming services, retrans and reverse comp, skinny bundles, global content licensing, and our expanded audience monetization efforts. So, we remain confident in our future, and as we execute on our long-term growth strategy, we will continue to deliver for our shareholders. With that, Greg, we can now open the line for questions.

[Operator:]

Thank you very much. And first, from JPMorgan, we have Alexia Quadrani.

[Alexia S. Quadrani:]

Hi. Thank you very much. My question is on the content production of third-party content. A few years ago, I think, when you gave guidance at your Investor Day for content sales, I think production of third-party content wasn't that big of a deal back then. Today, it seems like a huge opportunity for you as one of the most successful TV studios. I guess how incremental could this opportunity be to your targets or just in general? And my follow-up will be on Showtime. We saw HBO go dark today on one of the distributors. Any update on how Showtime is positioned in general distribution?

[Joseph R. Ianniello:]

Okay, Alexia. It's Joe. I'll take the first part and David will take the second part. Look, I mean, you're seeing us double our content production output over five years, and that's what gives us the confidence when we put in the content licensing as one of our growth pillars a few years ago, monetizing that content as we sell that content in windows, that really comes back and really affords us the ability to sell it over and over and over again. And so, we keep producing quality content that third-parties want, because their consumers are telling them they want it, and so that's a really good thing. So, we produce for ourselves, but as you point out, we're producing for others. So, we have been ramping that steadily, and we have capacity to do a lot more. David, do you want to take the second part?

[David Nevins:]

Yeah, I mean, we have good relationships with our distributors, our MVPD distributors, and we have great confidence in the quality and the desirability of our programming. So, we take that into every negotiation.

[David Bank:]

Okay. Thanks, Alexia. Can we take the next question?

[Alexia S. Quadrani:]

Thank you.

[Operator:]

Yeah. Next, from Bank of America Merrill Lynch, we have Jessica Reif (sic) [Jessica Reif-Cohen] (35

[Jessica Jean Reif-Cohen:]

Thank you. The first question, I mean you guys have found it incredibly stable. I'm just wondering, given the changes that you've had within the organization, are your priorities changing in any way, whether they're operating or capital structure? Will there be further management changes throughout the organization? And then, a second topic, since David's on, on Showtime specifically, you're now at 26 million subs, which – I mean, you've had amazing growth over the last few years, but relative to other SVOD services at this point, it still seems like there's a lot of upside. Can you give us color on how you see the next few years shaping up for Showtime subscriptions?

[Joseph R. Ianniello:]

Okay. Jessica, I'll take the first part, and again, David will take the second. Look, we've certainly made some changes here at the company, but I think Chris and David have been with the company for several years, and any other changes, these are seasoned veterans, very talented and deep bench, and I think we're demonstrating that. As far as our priorities are going, our priority is always to first and foremost reinvest in our business, and what that is that's content creation, because the success we're having is driven by the content pipeline that we were just highlighting. And so, I don't see any focus change in that philosophy. It's always been that way. So again, down the road, I mean, I don't see any other significant changes. Like I said, I'm pretty proud of the team we have assembled here. And I want to give them exposure to Wall Street, so you all can see how deep and talented they are. David?

[David Nevins:]

So, Jessica, is your – your question about what is the ceiling for Showtime. I – look, here's how I look at it. We're in 26 million households; 115 million, 120 million households in the U.S. That's 20% – that's 22% penetration. I see a lot of desire and upside from where we sit. The good news for us is we've gone from being a – you had to pay the $120. We're now accessible at multiple price points. So, I think we become much more accessible to a broader range of consumer. And that's just talking about the domestic piece. Internationally, I think there is also great demand for what Showtime is. And the brand is getting stronger and stronger around the world. So, I'm optimistic.

[David Bank:]

Okay. Thanks, Jessica. Can we take the next question?

[Operator:]

Next, we have Mike Morris with Guggenheim Securities.

[Michael Morris:]

Thanks, guys. Good afternoon. A couple questions about your digital services. Wondering if you can share how most of your customers are accessing your services from a device perspective? Is it connected TVs, mobile devices, et cetera? And how are they using it? Are they watching an increasing amount of live content? Is it mostly on demand? And does it matter to you either how they come on board or what they watch with respect to your ability to monetize from an advertising perspective? And then, I have another one on distribution.

[Joseph R. Ianniello:]

Okay. Mike, I'll take it. It's Joe. Look, I mean, we're finding they're definitely accessing it differently. I think mobile is showing certainly the biggest growth that we're seeing. I think live is certainly growing as part of that, but also the original series. And so, they're watching – an All Access subscriber watches twice as much content as those who watch it on cbs.com. So, that tells us again that they like it when they're in the environment. We're also – we have direct-to-consumer offerings, but we also do it through other partners. Showtime is distributed on Amazon and Hulu. And so, we're seeing the subscribers use those other types of bundles as well. And so, what David just mentioned just on the previous point, right, the buy-through is very different that $100-some-odd cable buy-through is now lower, if they're buying a Hulu or an Amazon Prime subscription. So, we have nice diversity in terms of the consumption of the content, but they're watching it more. And that's why we're putting more originals on both of these services because it's really driving again the intent to subscribe and it's reducing churn. And those are the two things we're really toggling back and forth as we make these investments. What's your second question, Mike?

[Michael Morris:]

Yeah, just on that, is the targeting – it seems like it's easier to target and perhaps you can get the higher CPM in like a VOD viewer versus trying to target on a live stream. Is it – I guess the question is, what's the balance of that like now? And have you been able to push the CPMs up through specific targeting?

[Joseph R. Ianniello:]

Yes. Obviously, you're referring to CBS All Access, because Showtime obviously isn't – there's no...

[David Nevins:]

Showtime is agnostic about when people watch.

[Joseph R. Ianniello:]

But I think also to point out, CBS All Access subscribers, a third of them are now ad-free as well. So, just as we're seeing that kind of growth. But your point on the one where there are ads, yes, we're seeing CPMs significantly higher than comparable broadcast networks. And obviously, you have more attractive demos, but you have with it, as you call it, specific targeting. So we're rolling that out. And that's why I said more and more as we're using this data to be smarter and be more effective for our advertisers, it's a really big opportunity. But I would say we're really still in the early innings of that. But we're laser focused on capitalizing on it.

[David Nevins:]

That's the concept of the DnA platform that – the advertising platform that Joe described is you can target in VOD and linear.

[Michael Morris:]

Thanks. And just if I could on the aggregators and Amazon channels in particular, there's a little bit of concern that you're pushing back on the economic relationship with the channels they're displaying. Is that something that you have experienced with them? And sort of what is your view on the importance of those aggregators and what those relationships look like going forward economically?

[David Nevins:]

We just renewed with Amazon on very comparable terms. So, we have not found that. The value they're finding out at Showtime where there is – they're making money off of Showtime. So, it's been a win-win.

[David Bank:]

Okay. Thanks, Mike. We'll take the next question.

[Operator:]

Next is Doug Mitchelson with Credit Suisse. Douglas Mitchelson - Credit Suisse Securities (USA) LLC Thanks so much. Look, I think 2018 is probably 10-plus-percent EPS growth ex-tax reform. And investors I think generally think of CBS as being capable of putting up that kind of growth going forward. And, Joe, I'm wondering – you talked a lot about investing in content and investing in digital. How are you balancing driving earnings growth versus investing in content for digital and Showtime and third-parties? And then, my unrelated follow-up, since we have a lot of Showtime experts on the call, there's been a lot of questions at Showtime, but I want to get to the heart of it, which is you've had a lot of content success and you've been investing in content. I think profitability has been relatively stable the last few years, not a ton of revenue growth at Showtime. So, you've solidified your position in an increasingly competitive environment, but is there a story behind driving sort of margins or profitability at Showtime next year or the next few years? I'd love to hear it. Thanks.

[Joseph R. Ianniello:]

Okay. Doug, I'll take the first part, and Chris will take the Showtime piece. Doug, look, we're constantly balancing the investment and looking at the profitability. But we're building asset value here for sure. So, we're not managing the company for margin. I think what you're seeing in our results, right, we're maintaining our margin because some of these initiatives of very high margin dollars offset by incremental investment into more content and the OTT platforms. So, I think you're seeing us able to do that consistently, and obviously, with tax reform, we have a lower – forget about the P&L for a second, book tax rate but a lower cash tax rate. And so, we're reinvesting those back into the business, and that again is the highest return on investment for shareholders and it continues to be the case. So, we are not betting the company. We're seeing proof points before we took up our All Access and Showtime sub count. We put originals on it. We saw it was working. We saw the consumers wanted more. So, we're putting more on it. We've raised the targets. We've accelerated them. So, we're going internationally. So, I think we've been good stewards of capital as we've been allocating this and growing our business steadily for the future. If we would have done that a few years ago, we wouldn't have been ready to capitalize on it, because we didn't have the infrastructure or the capabilities of doing that. And so, I think it's been a really win-win for investors really as we reallocate that capital. But first and foremost, always a priority, build asset value. Chris, do you want to take the second part?

[Christina Spade:]

Sure. Hi, Doug. It's Chris. So, that's a great question about Showtime. I just want to make sure first for the quarter that it's clear to everyone that, for the quarterly revenue, we did have the non-comparable item of the Mayweather event that skews the results when you look at last year. So, when you take that out, the results for Cable Networks is relatively flat, but there's two things going on. There's the underlying affiliate subscription fee revenue did grow, but that's being offset by the timing of content licensing. So, for Showtime in terms of looking ahead at our affiliate and subscription fee growth, it's a strong business and it's going to just continue to get stronger. In terms of looking at how we manage the profitability for Showtime, I mean, the world of OTT now has opened up so many options with what we can do with data analytics and really unlock and target our marketing. So, two years into it, we have a lot of great uses of the data, but even as we get further educated and learn even more about our consumer, the scale of the business is huge. So, really the important thing right now is that we have to manage our expense investment and make sure that we're not leaving revenue on the table, and I don't think we're doing that right now. So, it is a balance, but I think we have a lot of intelligence in our favor.

[David Bank:]

Okay. Thanks, Doug. We'll take the next question.

[Operator:]

Next is Michael Nathanson with MoffettNathanson.

[Michael Brian Nathanson:]

Thanks. I have one for David and one for Joe. David, let me start with you first. How do you think longer term about international? I know in some markets like Europe and maybe in India, you've decided to license your content to other third-party networks versus go it alone. So, as those deals come up, how are you thinking about taking the Showtime brand globally in maybe some markets that already are proving positive that there's demand for OTT content?

[David Nevins:]

Well, we are building the brand. The brand of Showtime is starting to mean something outside the U.S. It certainly does in Canada, particularly the English-speaking world in the UK, Australia, even in France, where I spent a couple weeks this summer, people are starting to know what a Showtime show is. And as these deals come up, we're always going to be evaluating what is the maximum monetization possibility? Do we – we're going to be looking – going forward, we're going to be looking at more of a mix of licensing and subscription revenue. And we're not going to say here, which markets we might go first in launching a subscription business. But there will be a lot of finesse required to figure out. We don't want to turn off the licensing pipeline. It's been very effective for us. But we feel like there's a lot of potential in the global subscription business, so we're making those decisions tactically as deals come up.

[Michael Brian Nathanson:]

Okay. And then, Joe, along the same lines for you with All Access, how do you decide or think about licensing off-network CBS shows to maybe SVOD companies that don't show advertising versus moving that same content to All Access? So, how are you thinking about that decision you have to make?

[Joseph R. Ianniello:]

Yeah, sure, Michael. Look, I think we think about them individually as individual assets or franchises. So, for instance, we're going to have Twilight Zone here, and we can keep it on All Access or – domestically, which is – that's going to happen. Internationally, we can use it to grow our OTT business internationally, or we can license it. And so, we're going to do an analysis. It's going to be really simple. What are the offers in the marketplace for licensing, and how many subs do we think we can get in these countries? And we're going to look at that and we're going to see what's in the best interest. Because some of these things, again, as David was really alluding to, if we're not ready to capitalize on the subscription business, we might as well take the money to reinvest it and do more with it. And so, we don't have a one-size-fits-all like some of our other competitors. I think we look at it by each piece of content on what it's going to do individually. And so, we know at the end of the day, there will be more content in the CBS Showtime offerings, no question about it, but it's okay to sell our content to third parties as well.

[David Nevins:]

I just want to point out one thing.

[Joseph R. Ianniello:]

Yeah.

[David Nevins:]

To add to what Joe was saying, what we've learned is that the more we build the tech of our own platforms and the strength and brand of our own platforms of All Access and Showtime, the more optionality we have as to where to monetize. So, to the extent that we can monetize on our own platforms, that's great, and that gives us optionality when we're making licensing decisions. And that's one of the reasons why we have been so focused these last couple years on building up our own platforms.

[David Bank:]

Okay. Thanks, Michael. We're going to take the next question now.

[Operator:]

Next question is from Bryan Kraft with Deutsche Bank.

[Bryan Kraft:]

Hi. Good afternoon. I'm hoping to better understand how the expansion of your OTT services to international markets will impact the trajectory of the financials. So, what are the key things that you need to do when you enter a market with All Access? What are the big challenges that you've found? And how significant are the costs to enter and operate in a new country? If you could maybe just talk about that at a high level to help us try to understand that, that would be great.

[Joseph R. Ianniello:]

Yeah. Sure, Bryan. Look, I think that's why we did Canada first. We wanted to see the incremental cost. I think, again, a lot of the costs are fixed. So, it will be scalable, that infrastructure. So, I think again incrementally, it doesn't make sense if all we were going to do is just to be in Canada. So, we are absorbing I would think about it in the tens of millions as opposed to the hundreds of millions for the infrastructure. And again – and then the content, I think we just talked about that from the last question on how we're obviously going to have to put enough content in the offerings to drive the sub count. And I think as we're doing more originals, as we have CBS library and Showtime library of product in there, I think we're making the value compelling to the consumer. This is driven by consumer demand. This isn't driven by because we think it's a nice way to distribute it. This is the way consumers want it via broadband, at the touch of a button, willing to pay a subscription fee, and it doesn't matter, it's borderless. We don't have to be confined to the United States. And so, really that's the way – and I think again I'd look at 2018, Bryan, as the example, right? We just – you're seeing us with a steady margin, enter into a couple of different countries, doing a lot more shows. And the reason we're able to do that like I just said is because the other revenue, the retrans and reverse comp, the licensing are very high margin. And that's being offset. You have two things, kind of, going on there, and we're pretty proud that we're able to do that and not reset the P&L in order to ramp up investment.

[David Bank:]

Okay. Thanks, Bryan.

[Bryan Kraft:]

Can I just have one follow-up?

[David Bank:]

You bet.

[Bryan Kraft:]

The EU requirement for 30% local content, is that going to in any way slow your plans in Europe? Or is that something that's fairly easy to...

[Joseph R. Ianniello:]

No. You see what we just did with obviously Network 10. We think having local content is actually valuable. I don't think we have to buy and do a strategic deal to do that. I think we can do a commercial deal, but we do like the offering of having live local content in the market plus premium CBS and Showtime, plus library. That seems compelling for under $10 a month. So, you should assume on some of these markets wherever there are local restrictions, we will partner with some of our local friends to make it again a compelling offering.

[David Bank:]

Okay. Thanks, Bryan. Next question, operator.

[Operator:]

Next is David Miller with Imperial Capital.

[David W. Miller:]

Yeah, hey, guys. Hey, Joe, just a couple questions. As you take over leadership of the company, do you see any change at the margin regarding how many series on the broadcast network you own, how many you sell to third-parties, and then how many series you, let's call it, rent from other production entities? Les used to say that it was all about having the best shows on the network regardless of source. I'm talking about the broadcast network, of course, but just curious if you see a change in that. And then, a separate question. How much of a priority is potentially acquiring additional stations, assuming the capital is ever relaxed? If memory serves, I think you would have at least three Republican votes on the docket, once the FCC hears the case formally. So, appreciate your thoughts there. Thank you.

[Joseph R. Ianniello:]

Yeah, sure. I got it, David. Look, I think from a network perspective, I think we're always looking for the best content. I think we're open for business for other studios. That said, as we sit here, more than 80% of the schedule we have ownership in. So, I don't really see it changing really dramatically from there. But again, the network has limited shelf space. The good news is for All Access, that really kind of changes the complexity, because if we have a good CBS show from our studio, we certainly can put it inside of CBS All Access. And if it's a great Warner Brothers show, we can certainly monetize it on the CBS network. So, the fact that we have different outlooks I think only increases the outputs, if you will. But we definitely are in the business of putting the best shows on the network. I think that's very important. As far as local stations and acquiring them, look, I think we certainly have room within the cap. If the cap gets lifted, we have more room. As you know, we look to be opportunistic there. And so, we'll always look at it, as you just point out, is it a political market, what's the size of the market, is it an NFL market. So, if we can find some stations at values that make sense, we're always in it, in the market. But if we're not, we still get our value. And so, that's why I say it's very opportunistic. It's not like we need to own that station because we're going to get our value vis-à-vis reverse comp. And so, from our vantage point, the content is what's driving the value, but if we can own the license and have local programming in that market, it's only additive. But we're going to always look at it through that lens.

[David Bank:]

Okay. Thanks, David. Greg, we're going to take one more question now.

[Operator:]

All right. In that case, our final question will be from Steven Cahall with RBC Capital Markets.

[Steven Cahall:]

Yeah. Thank you. Just a few on advertising. I was wondering if you could elaborate a little more on your D&A strategy. Do you have a targeted amount of inventory that you think you can capture on this? And relatedly, would you be willing to do something in live linear Dynamic Ad Insertion? I think Nielsen ratings have really been a challenge to networks converting to anything on live linear. And then, I have just a quick follow-up on local advertising.

[Joseph R. Ianniello:]

Yeah, look, we haven't set targets on what we're going to do. And, look, I don't think we're going to – the live linear really kind of do – because obviously we're monetizing C7, and we're selling that inclusively. And so, I think what we're doing is we're watching the data that we're getting on the consumption. So, like I said earlier, Steven, we're really in the early innings. So I think you're going to see us really target the VOD, the Video-on-Demand inventory. And we're going to certainly do it on our own platforms first. And we're going to be smarter about it. We're going to see it works for our advertisers, and then we'll expand from there. But it's going to be a slow and steady rollout. But like I said, the demographics and the capabilities are really encouraging, but I don't want to get ahead of ourselves on this.

[Steven Cahall:]

Great. And then...

[David Bank:]

Did you have a follow-up?

[Steven Cahall:]

Yeah, Chris, thanks for the pacing on local advertising in Q4 with political. I was wondering if you could just give us a sense of what local advertising is looking like ex-political. Thank you.

[Joseph R. Ianniello:]

Let me take that. Let me take that, because Chris is still getting the...

[Christina Spade:]

I'm still getting my feet wet. For me, I know it's all about the...

[Steven Cahall:]

I thought she might have felt left out.

[Christina Spade:]

...strength in the political, but I'll let Joe handle that, Steve.

[Joseph R. Ianniello:]

Look, Steven. As you know, it's very hard to do that because political is taking up all of the inventory. These next five days, I mean, I think we have a chance to have a record-setting year even in the presidential one which we set in 2016, and so a lot of the regular categories are really being pushed outside after November 6. And so it's a little bit distorted right now. What I think Chris' point is high teens, it's pacing up high teens. And obviously for the fourth quarter, we only have political really for one month out of it, because after November 6. So I think that's all factored into her guidance there. But it's really distorted, because it's the same number of units year in and year out. It's just a massive demand that's really pushing others around the edges and stuff. But it's going to be a hell of a year for local political advertising.

[Christina Spade:]

Yeah, also we did see strength in entertainment and health care. So, there was strength in those areas.

[Steven Cahall:]

Thank you.

[David Bank:]

Okay. Steve, thank you.

[David Bank:]

Thanks, Greg. This concludes today's call. Thank you, everyone, for joining us. Have a great evening.

[Operator:]

Once again, ladies and gentlemen, that does conclude our call for today. Thank you for your participation. You may now disconnect.