Paramount Global
Q2 2010 Earnings Call Transcript

Published: 4 Aug 2010

[Operator:]

Good day, everyone, and welcome to the CBS Corporation Second Quarter 2010 Earnings Release Teleconference. [Operator Instructions] At this time, I would like to turn the call over to Executive Vice President of Investor Relations, Mr. Adam Townsend. Please go ahead.

[Adam Townsend:]

Good afternoon, everyone, and welcome to our Second Quarter 2010 Earnings Call. Joining me for today's discussion are Sumner Redstone, our Executive Chairman; Leslie Moonves, President and CEO; and Joe Ianniello, Executive Vice President and CFO. Sumner will have opening remarks. Then we'll turn the call over to Les and Joe, who will discuss the strategic and financial results. We'll 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 section of our Web site at cbscorporation.com. Reconciliations for non-GAAP financial information related to this call can be found in our earnings releases on our Web site. With that, it’s now my pleasure to turn the call over to Sumner.

[Sumner Redstone:]

Thanks, Adam. Good afternoon, everyone. I thank all of you for being with us today. I’m certain it will come as no surprise to you that I am more than pleased to be reporting another quarter of super, excellent results for CBS, results that clearly demonstrate our momentous momentum. As you know, I've been in this industry for a long, long time. I'm thrilled by how CBS is executing right now. We're not only capitalizing on the economic recovery in every one of our businesses, we’re operating more efficiently, we're using our industry-leading content to expand and to grow in new markets. Some of you may remember that many decades ago, I coined the phrase, "Content is king. And content will always be king". As for our content, it continues to dominate on the air, it dominates on the Web, it dominates here, it dominates abroad, whether it’s the first place CBS Television Network, our major market and local access, our leading global syndication business, our growing premium cable operation, our top-brand Internet properties, our investment in premium content, each delivering for CBS. At the same time, we see strategically constructed. We’ve cut costs throughout every part of our company. And we've done so, though, without compromising on our industry-leading content or our investments in the areas that represent the best long-term growth. And as Les and Joe will tell you, we've taken really key steps to reduce our debt, to strengthen our already solid financial position, and these steps will play a key part in success for many years to come. Today, CBS is positioned for tremendous long-term success. But not just for today, not just for tomorrow, but for many years to come well into the future. And I, for one, am proud to be working side-by-side with the many talented executives that are making all of this happen. Leading [ph], of course, is my very close good friend and colleague, CBS' President, Les Moonves. I'm going to turn the call over to him now. Les, the ball is in your court.

[Leslie Moonves:]

Thank you, Sumner, and good afternoon to everyone. Thank you for joining us today. We are very pleased to report that CBS' strong momentum is continuing with second quarter results that were outstanding in every single business unit. Revenues were up by double digits. Profits were up dramatically. And we added four points through our OIBDA margin versus last year's second quarter. In addition, we have more than doubled our free cash flow so far this year. These outstanding results are due in part to the economy, of course. We have said that the recovery would benefit CBS as much or more than any media company. And in fact, it is continuing to do so. But we're not just benefiting from a rising tide. We've taken steps throughout the company to run our businesses more efficiently, and as a result, we have lowered expenses and created a cost structure that allows more revenue dollars to fall to the bottom line. We've also strengthened our financial position by reducing our debt and our interest expense. And most importantly, we're constantly finding new ways to use this strength of our leading content to capitalize on emerging growth areas like retransmission consent and international distribution, and position CBS as a long-term leader in the evolving media marketplace. This progress will continue through this year and 2011 and beyond. We've taken a number of actions to ensure this. For example, just yesterday, we announced our most significant deal on record for the carriage of our content. It's a milestone agreement with Comcast that includes CBS, Showtime and our other Cable Networks. Plus, it gives us another significant way to monetize our content across Comcast’s new media platforms. As previously stated, we are now well on our way to delivering on our goal of north of $250 million in annual revenue from retrans in 2012. Also the recent extension of our NCAA March Madness deal sets us up very well for the future. It allows us to keep a very high profile sports property on CBS with economics that make this franchise profitable from year one through the life of the contract, representing a huge improvement from the previous deal we had in place. We're also realizing more revenue from our network programming all the time. We just completed a terrific upfront, once again leading the way in total volume and price increases. And in syndication, we continue to strike new deals to sell our network programming for more money after fewer episodes and to broader markets. And on the balance sheet, we've reduced our debt significantly, which Joe will tell you about later. Now I'm going to briefly review our results and some operating highlights for the second quarter, as well as discuss what we're seeing in the second half of 2010. Then I'll turn it over to Joe to offer some more details on our financial results and balance sheet. Then, as always, we'll be happy to take your questions. Beginning with our very strong second quarter results, revenues of $3.3 billion were up 11% from the same quarter last year. This is our second consecutive quarter of double-digit year-over-year revenue growth, and as I said, it was driven by top-line gains in every one of our businesses. Our adjusted OIBDA of $580 million was up 46% year-over-year and our adjusted operating income of $437 million was up 74%. Thanks to our lower cost structure, margins were up seven percentage points from the first quarter, and as I said, four points from last year's second quarter. We have no intention of letting costs creep back into our operations, so you should expect to see continued margin expansion over the long-term. At the same time, we generated $492 million in free cash flow during the second quarter, up 40% from the same period last year. That brings our year-to-date free cash flow to $1.15 billion. Again, more than double the total for last year's first half and more than many had predicted, we produced for the entire year. Overall, I'm extremely pleased with our financial position, year-to-date results and prospects for the remainder of 2010 and beyond. Each one of our content and local businesses had significant successes in the quarter. And let's take a look at some of them now. Beginning with our Content Group and its largest segment, Entertainment, the CBS Television Network continues to play an integral role in our success. The network finished another Television season in first place, which helped revenues grow during the quarter, and also put us in a very strong position in the recent upfront marketplace. As you recall, last year, we held back about 35% of our inventory with the expectation that pricing would improve along with the economy. This year, demand and pricing were so strong we ended up selling about 80%, and we feel very good about our ability to improve our ratings in the year ahead and continue growing network revenues and profits. Our Entertainment segment advertising revenue were also helped up by the Final Four of the NCAA men's basketball tournament, which took place in the second quarter of this year. As I mentioned going forward, we'll realize vastly improved economics on this franchise as a result of our recently extended deal that will keep the tournament on CBS through 2024. Having the best sports and entertainment programming is a critical component in our long-term strategy to be the leading beneficiary of the growing dual revenue stream in broadcast television. We've been saying for years that are broadcast content needs to receive its proper value from distributors. Over time, we've made tremendous progress, reaching more than 60 retransmission consent agreements with cable operators, satellite companies and telcos at increasingly better terms for us. The deal we announced yesterday with Comcast epitomizes our momentum in this area and it does a lot more than just recognize the value of CBS entertainment, news and sports programming on Comcast’s cable television platform. It also includes online and VOD distribution and it enhances the long-term growth of Showtime Networks and improves the economics of CBS College Sports and the Smithsonian Channel. This is a great deal for both parties and we're extremely pleased to be in business with Comcast for a long, long time. Domestic and international syndication is another growing part of our business. Revenues from licensing and distribution of TV programming were up 12% thanks to international syndication sales of our CSI franchise and our new hit shows NCIS

[Joseph Ianniello:]

Thanks, Les, and good afternoon, everyone. Today, I will provide additional color on the results for the quarter, discuss our recent financing activities and lastly, add to Les's comments on what we’re seeing in the back half of the year. Starting with our results, the 11% company-wide revenue growth that Les mentioned can be broken down as follows

[Operator:]

[Operator Instructions] And we'll first hear from Ben Swinburne with Morgan Stanley.

[Benjamin Swinburne:]

Les, I have to ask on the Comcast announcement since it’s such a big agreement for both companies. And I know you’re limited in terms of numbers that you can speak about, but what was strategically the big win here for CBS? And I want to ask about both CBS and Showtime because you mentioned Showtime in your prepared remarks. What were you able to obtain here that gives people gives you more confidence in this sort of long-term growth? And I'm also thinking on CBS about how you are now able, or restricted at all, to monetize that content outside of traditional TV platforms. So I'd love to just get your thoughts on those two businesses as it relates to your content.

[Leslie Moonves:]

Obviously, we are thrilled and I think the Comcast deal was a big win for both companies. And it was global in nature and what was very unusual about it also was that it was a year and a half early before we started. The reason is that there a lot of big wins, and as I said, for both companies. Number one, we've established that CBS will be paid for retrans, something that I've been talking about for years and is a significant part of the future of our company. And that revenue stream that will continue, we now have a dual revenue stream base for CBS going forward. It establishes a growing revenue stream for Showtime. And for those who had any question about the ability of Showtime to continue to increase and thrive in the marketplace, Showtime is now secure and financially in great shape. But once again, from Comcast's point of view, they recognize the value of the content on CBS and Showtime. Plus, for those of you who've been following, Comcast is one of the most advanced companies in talking about online media and how to best use content online in a variety of different ways, whether it be video-on-demand or all sorts of other new methods of doing it. The key for us with this partnership is the flexibility. We're going to be trying lots of things with Comcast to put our media online and our content online. By the same token, it doesn't limit us to do other deals outside of it. So across the board, CBS Showtime new media, it’s a big win for us going forward. And as I said, it ensures a continuing and growing revenue stream year after year over the long length of this contract.

[Benjamin Swinburne:]

So to be clear, it doesn't sound like there's any restrictions on your ability to go to new online distributors with CBS content over the life of the contract?

[Leslie Moonves:]

That's correct.

[Benjamin Swinburne:]

Then Joe, just on the balance sheet, you've been working on that over the last six or nine months quite a bit, or going back further. We're in an interest environment, which is obviously very attractive. What are the rating agencies telling you in terms of what they want to see? And at what point do you and the agencies feel good enough about being more aggressive there, whether it's hindering from more debt, looking to roll some debt over, if you have the opportunity, or maybe even looking at some kind of return of capital down the road?

[Joseph Ianniello:]

I think, look, we have ongoing conversations with the rating agencies. I think where we sit today, Ben, obviously anything we do is opportunistic. We feel really good about the position we’re in, the rates that I'm hearing in the marketplace are very attractive. So look, we'll continue to evaluate our opportunity. But clearly we paid down the debt. We're in a much stronger financial position today than we probably ever have been in. So I think we’ll have a lot of opportunities.

[Operator:]

And we'll next hear from Jessica Reif-Cohen with Bank of America Merrill Lynch.

[Jessica Cohen:]

Les, on Comcast, it is such a big deal. When does it kick in? Were you getting cash before? And can you comment at all on reverse comps, how those talks are going? And it sort of begs the question of what are you guys going to do in all this cash? And then for Joe, on the cost side, could you walk us through some of the big swings that you should be seeing in 2011 on the film side and NCAA? Is there anything from London Underground, and obviously, you've highlighted the expense reduction?

[Leslie Moonves:]

Regarding Comcast, were we getting cash before? We were part, the last deal we did, we were part of Viacom, where there were numerous Cable Networks, as well as CBS, was part of that deal. So it was a year and a half for us remaining on that deal. Was the corporation getting paid something? Yes, they were. And were we getting some advantage for? Yes, we were. But this was a new deal because it's the first time we’ve negotiated with Comcast as a freestanding network, not part of any other large cable group. So regarding discussions, yes, we are having discussions with our affiliates and certain deals have been struck where we are sharing and we are getting paid money from our affiliates as bigger deals come up. That is part of the new way of doing business and everybody acknowledges, one again, we are providing premium content and that should be paid for, both by the MSOs, as well as our affiliates. And that's what’s happening here. When we talk about what are we going to do with our cash, obviously, we are in very solid shape, as Joe said, with having paid down the debt. We're examining that as we speak before the end of the year. We're going to determine what to do with our cash, whether it involves paying down further debt, whether it involves retraining money to our shareholders in the form of increased dividends or share repurchase. We have historically returned money to our shareholders, and that's always been an important piece to us. So stay tuned and we'll have a decision on that before the end of the year.

[Joseph Ianniello:]

And Jessica, on the cost side for 2011, here's what we know without getting to specific numbers. Program costs at the network are going to be down. The NCAA contract is going to make sports certainly more profitable. We're going to benefit from large restructured Outdoor contracts. We didn't have New York. We restructured Washington, as two examples. We're going to continue to benefit from the recent restructuring activities that we just went through, $59 million in the first two quarters of this year. And obviously, the lower debt’s going to have lower interest costs. So those kind of six things off the top of my head are kind of going to benefit '11.

[Operator:]

And we'll now go to Anthony DiClemente with Barclays Capital.

[Anthony DiClemente:]

So my Comcast question is pretty simple, which is the duration of the deal, which is why 10 years and why not three or five? I guess it’s for Les or Joe. The idea being that retrans here is an acceleration phase and the question would be, it seems like you’re locking in ceiling price on the deal over a 10-year period, and if the value of CBS signal is truly appreciating over that time period, then why do that?

[Leslie Moonves:]

Anthony, obviously, the discussions began with Comcast a number of months ago and we talk about traditional deals of three years and five years. And then as we talked about our future together, we said okay, this is where retrans is today. This is where we think it's going to be growing to. And why is there automatically an assumption that we haven't realized a full value? When you make a long-term assumption, obviously, escalators are built-in to our best knowledge. There's a great deal of flexibility with our new media prospects and there's a certain amount of knowledge about where these deals are going. So yes, could it fluctuate, could Comcast in the end of 10 years be paying us more than some of their other deals or less than some of their other deals? I guess that's possible. But overall, we see an increase, a growth over the course of time for Showtime and CBS, and incremental pricing is built in to what we both felt was fair. So it was an opportunity to have sustained growth, sustained revenue, which I know it's important to you guys as you look at as an advertising company, and just assume for a second that we may have been able to sort of get a fair deal on what this would be worth in 10 years.

[Anthony DiClemente:]

On the international syndication sales that you talk about in the release in the quarter, it seems like over the past few quarters, you've been able to book these international syndication sales a little bit sooner than maybe historically. And I could be wrong about that. But, I mean, The Good Wife is in its second season. And so I just wonder is there something that’s changed structurally in the way that you do business and the way that you do that abroad? And does it actually -- if your booking those syndication sells sooner, I'm wondering, does that put more pressure on the current season TV releases to actually be more successful, because not only do you have the network ad sales banking on the current releases, but you also have the following year's syndication sales.

[Joseph Ianniello:]

Anthony, it’s Joe. The answer to your question is no. We’re not changing the way we're booking international syndication. I think what you may be confusing is we sold domestically NCIS

[Leslie Moonves:]

Anthony, the system always is, you do the upfront, then you come back and show it to the international buyers, and then there comes a bidding war for the best product. As Joe said, our numbers internationally were pretty phenomenal this year with Hawaii Five-0, quite frankly, breaking international records on what it was getting. What was significant last year is NCIS sold after six episodes, which in previous years, that's domestically, you would've needed to wait until there were already at least three years to shop. Now because the demand was so high for that show on and The Mentalist over at Warner Bros., that people are bidding for shows right out of the box, which is a great thing for us.

[Anthony DiClemente:]

And why is that? And then I'll stop. But what's driving that demand? It seems like the demand is changing?

[Leslie Moonves:]

It's called competition. When Turner and USA both wants NCIS

[Joseph Ianniello:]

And just add to that, Anthony, it’s obviously why they are doing that, is they need that content to go to their MSOs to drive their affiliate fees. So like we've been saying all along, best content gets the highest fees.

[Leslie Moonves:]

So USA Network, which is doing very well with original content, the highest-rated show on that network is the original NCIS, not any of the shows that they are originating. And they expect that NCIS

[Operator:]

Michael Morris with Davenport has our next question.

[Unidentified Analyst:]

You talked about a lot of the positive things you have going on as you look forward into 2011. We also know that you do have some headwinds or some tough comps between the political you discussed, the Super Bowl, things like that. Can you help us understand the magnitude of these initiatives that you think are going to drive in 2011? Knowing what know right now, will they be able to offset the challenges that you have from those tough comparisons? So that's my first question. What's the potential for growth? And then second, Joe, just to go back to the balance sheet, you talked about maintaining your investment-grade rating and deleveraging has been part of your strategy. But at this point, how much more do you really need to deleverage? I mean, you're talking billions, hundreds of millions? What are you thinking there? And what's the gating factor between now and say, the end of the year, to start addressing return of capital to shareholders?

[Joseph Ianniello:]

On the balance sheet one, yes. Look again, like we said, was $840 million. So I don't think it's billions, what we’re talking about. I think we’re being very prudent and conservative. So we want to continue that. So it's going to be clearly a smaller number on the debt side. And I think, again, what we're doing is we're making sure we're being responsible as we come up with a holistic “things to do” with our cash. And I think we've been pretty prudent to date and we're going to continue to do so. But we have been proponents of returning capital to shareholders. We have done some share repurchase programs, some ASRs when we had that. And we have then maintained a dividend throughout our separation from Viacom. So you're going to continue to see us discuss all those things. As far as 2011 goes, I mean, look, I just sized political for you. The Super Bowl, I mean, you know the way the accounting works for that. So it may be interesting on top of revenue, but not in terms of profits. So I’m not sure what other headwinds you’re referring to. But I’m going to point to a strong upfront that starts the season, since we know that's good. We know we have accelerated growth in retrans. I just jotted a list of other cost items that are going to be a benefit. So we're confident we can have expanded margins in 2011 that's going to lead to additional profit dollars, like we said.

[Operator:]

We'll now have from Brian Shipman with Jefferies.

[Brian Shipman:]

Another question on the retrans deal, what, if any, are the potential costs associated with that deal? And is it safe to assume you’ve built in a big step-up in margins in association with that contract?

[Leslie Moonves:]

Number one, there are no costs associated with it. It is money that is paid from Comcast to us per se. In terms of the margins, Joe, what was the…

[Joseph Ianniello:]

Look, I think again, obviously, those are very incremental margin dollars and as we both said, I think you should assume the deal factors in attractive growth rates. So it’s a10-year deal and we look forward to the financial benefits to the company in each of the next 10 years.

[Operator:]

Our next question comes from Laura Martin with Needham & Company.

[Laura Martin:]

Could you talk about the film business next year, what you're expecting -- number of films, total budget and how that compared to this year? And we’ll all do own our ultimates here on Wall Street and you won't be happy with them, I’m sure. And then Joe, for you, I’d like to talk about return on invested capital. One of the things we’re seeing increasingly in these large entertainment conglomerates, specifically at Time Warner and even at Viacom, as were getting increasing compensation systems being tied to return on capital. And given that you guys just did a full year cash flow in six months, your returns on invested capital is actually exploding. Is there any thought that you guys might time or be talking more about return on invested capital and capital efficiency as we go forward here into 2011?

[Joseph Ianniello:]

Look, return on invested capital we measure all the time. We look at it. It’s certainly a financial metric, I think, that we look to. Clearly, again, our compensation, and we look at our stock price, we look at building enterprise value. So every decision we make is really for the enterprise value. So we're going to continue to do that, Laura. So I don't think you're going to see anything different. I think we've shown we've been disciplined throughout. So stay tuned, but I don't think anything really changes in the way we approach our business.

[Leslie Moonves:]

And Laura, on the films, we will have released three movies this year, our third one’s coming out Thanksgiving next year. We have Beastly scheduled, which cost all $17 million. We are looking at the next release after that probably to be a movie that we have acquired so the risk will be rather minimal. Then there’ll be a couple of movies that we will be producing, and as I said, we'll be announcing soon. Once again, we're keeping our discipline and we’re staying below the $40 million range in terms of our investment. Even Faster, which is coming out in November, cost $34 million, but it's a co-production with Sony. We have a domestic and we're only into that movie for $17 million. So although people like to talk about it because it's sexy, it’s still a very tiny part of our business.

[Operator:]

Doug Mitchelson with Deutsche Bank has our next question.

[Douglas Mitchelson:]

So we’ll go back to the sort of “30,000-foot view” questions here. Les, I know you prefer operating from strength, not weakness. Your business is recovering, your balance sheet’s in good shape. Any further thoughts on streamlining your asset base at all, in things like U.K., Outdoor or Publishing, or even domestic Outdoor, all seem non-core. And I’m guessing you think your stock is cheap, so reallocating capital from non-core businesses to your stock might make some sense. And then separately, on the new Comcast deal, how does VOD work now? That’s something that’s always been difficult to monetize. As they put more of your shows on VOD, is that something you'd be able to monetize at a reasonable level?

[Leslie Moonves:]

Regarding the asset mix, we've always spoken about possibly divesting some of our tomorrow-market radio and television stations. In fact, we still intend to do that. But once again, there's no great hurry to do that. And unless we get the right pricing for that, we're not going to do that. However, there appears to be some nice activity now in some of the pricing, so I wouldn't be surprised if over the next six months to a year, we do divest some of our radio stations in a few markets and maybe one or two television stations. In terms of VOD, Doug, once again, it is not a big cash business yet. There will be some more content on VOD. It does work, but there is a profit-sharing on there. But it's not a major business. We've been doing this with Comcast, frankly, for five or six years. It really is not a great effect to the bottom line for either them or us.

[Douglas Mitchelson:]

Maybe if I can refine the question for you, Les. I mean, to the extent that viewership is moving online and/or to the VOD, do you feel pressure over time to try to get ad revenue from those distribution sources equivalent to your traditional TV viewing? Or do you feel the economics of the retrans more than makes up for viewership shifts?

[Leslie Moonves:]

Obviously, retrans makes up a lot for cents. It really does cover us quite a bit. Having that dual revenue stream is terrific for us. Obviously, content is going more and more online, which is why we're exploring that. It, obviously, right now doesn't come close to the amount of revenue we're generating over the air in our normal broadcast methods. As it grows, we are going to need to monetize it so that there are dollars replacing dollars and that is the game plan and the potential for things like TV Everywhere is something that is attractive for us. In other words, if Comcast is paying us for sub, then that sub should be paying the MSO their fee to be able to get our product online. So the great news about the new deal, a lot of it is experimentation. A lot of it is very flexible and you're going to be seeing all sorts of new things going on between us.

[Operator:]

Our next question comes from David Miller with Caris & Company.

[David Miller:]

Les, another question on the reverse compensation, if I may

[Leslie Moonves:]

We would never go so far as to say, okay, you're in Cincinnati. We're pulling the Bengals from your marketplace. Obviously, we are spending a lot of money, as you pointed out, David, on our content, NFL included, our programming, et cetera, et cetera, et cetera. And we feel it's appropriate as our contracts with our affiliated stations come up that they pay us some money for that in reverse comp. We also expect our affiliated stations to be getting money, getting paid, from the MSOs and satellite companies, et cetera, and they should be getting paid for having that content. But once again, we hopefully will, and so far we have done that, successfully negotiated with all of them as the contracts come up to be able to make a deal that’s satisfactory to both sides. And we’ve been successful without any threats of pulling the plug. And that's the way we prefer to negotiate.

[Operator:]

We'll now hear from James Mitchell with Goldman Sachs.

[James Mitchell:]

First of all, more operation, it looked like the Local Broadcast division costs were down a little bit in the second quarter year-on-year after being up a little bit year-on-year in the first quarter. How did you bring costs down in that division against the momentous momentum you saw in revenue? And then second question, which would probably be the 14th question regarding Comcast, why not update your guidance for over $250 million in retrans revenue in 2012, given the Comcast deal presumably energizes payments from the 11-million-odd subscribers?

[Joseph Ianniello:]

Okay, so let me start with a Local Broadcasting. Look, we, obviously, at the end of last year, James, we put TV stations and radio stations under common management. So we took a restructuring charge in the first quarter of 2010. So clearly in the second quarter, you're starting to see the benefits. Also in the second quarter of 2009, we did have a $14 million write-off, which we have in the press release. So those two factors, I think, contributed to, again, lower costs. But, I mean, the key for us is you're seeing significant flow-through from the revenue into profits and you see what happens to the margin and expansion. And just to point out, just to be clear with you, I mean, we don't give guidance on the 250. What we said was we were well on track for that. This deal kind of validates that, and obviously, it's 10-year deal. So obviously, we expect growth from there. So really that's what we...

[Leslie Moonves:]

And with our partners, we have agreed also not to get too specific about details. This is a very global deal that includes a lot of assets for us and Comcast, so it's better not to be too specific, James.

[Operator:]

Our next question comes from Michael Meltz with JP Morgan.

[Michael Meltz:]

On the free cash flow, Joe, can you talk a little bit about -- you did a little over $900 million of EBITDA in the first half. You did $1,001,000,000 plus of free cash flow. Obviously, you had some working capital benefits. But in the second half, what type of conversion should be expecting on free cash flow? And I think on the comp, whoever asked it earlier, I think you have the syndication comp in the third quarter. Can you just clarify what that is, please?

[Joseph Ianniello:]

On free cash flow, obviously, Michael, with long-term, you can’t convert more than 100% of EBITDA into cash flow. So clearly, that's the benefit, what you saw there in the first six months of

[Michael Meltz:]

And then just one clarification, I think you said scatter in the second quarter was up 25%, but the network was only up 5%. Can you just give a little bit more clarity on the disconnect there?

[Joseph Ianniello:]

Because last year’s upfront was down, and when you do the weighting, you only get up 5%.

[Michael Meltz:]

And going forward, that should probably reverse a little bit?

[Joseph Ianniello:]

Well, we just sold the new upfront, right? We said very high single digits. And what we said is scatter is accelerating. So what we're seeing is the new seasons early, so there’s only in the third, is only a week or so. But we're seeing 30 plus percent scattered pricing increases on top of this year's upfront. That's what gives it a lot of confidence about 2011.

[Operator:]

Then we'll hear from Marci Ryvicker with Wells Fargo.

[Marci Ryvicker:]

Can you talk about underlying trends, specifically for local revenue at your TV station, Radio station and Outdoor segments? I guess what I'm getting at is the difference between national and local growth in the second quarter and what this looks like in Q3.

[Joseph Ianniello:]

It's mostly local that' driving and I think the national, certainly, even if the network level weathered the recession much better than local. But the local advertising clearly is coming back at a faster pace. Still a ways to go, but what’s key to us is very broad. It's all categories across the board that's really driving this, so the depth of that gives us a lot of encouragement. And what I’d also like to add, their booking these dollars sooner. So that also means that they have some confidence in their business or they think pricing is going up.

[Leslie Moonves:]

And Marci, what’s significant, and we've noticed this and this is really special to point out

[Marci Ryvicker:]

Did you see any weakness in June and July like some of your peers did?

[Joseph Ianniello:]

By month, or whatever, I think you can just look at the second quarter. By month, I mean, again, you can have a month that's a little better than the other month. But I think when you look at the second quarter, the second quarter was actually better than the first quarter. And as Les said, we see that continuing into the third, Marci. So everything that we see, we're encouraged. So the future's bright.

[Marci Ryvicker:]

You said local was growing faster, but is there still a big gap between national and local, so local just has further to catch up?

[Joseph Ianniello:]

Yes. Firmly, I think that's fair. I think local has further to catch up and we still have a ways to go back to the historical levels. So like I said, there's a lot of dollars to still grow here. So the whole pie is growing and we expect, I should say, to take market share.

[Adam Townsend:]

Thank you, everyone, for joining us this evening. Have a good night.

[Operator:]

That does conclude our conference. We thank you for your participation.