Paramount Global
Q3 2010 Earnings Call Transcript

Published: 5 Nov 2010

[Operator:]

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

[Adam Townsend:]

Thank you. Good afternoon, everyone, and welcome to our third 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, and we'll turn the call over to Les and Joe, who will discuss the strategic and financial results. We will then open the call up to questions. Please note that during today's conference call, financial results and comparisons, with the exception of revenue, 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. In addition, statements in 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 website at cbscorporation.com. With that, it's now my pleasure to turn the call over to Sumner.

[Sumner Redstone:]

Thank you, Adam. Good afternoon, everyone. I really thank you for being with us today. Another quarter, another tremendous showing by CBS, all driven by our industry-leading content. In every area where we compete, CBS is thriving. From the number one network to our production and syndication businesses to our critically acclaimed original programming on cable to our best-selling printed books to our diverse websites, the strength of our content is driving our results. I know I don't need to tell you that I believe that content is king. And CBS content is at the top of its game. We have a powerful distribution platform, the right major-market local assets to get our leading content to every audience, all the places on this earth that matter most. Yes, CBS is firing on all cylinders, and it will continue to do so, not only today, not only tomorrow, but well into the future. And of course, I have great confidence in the marvelous management team that is making this all happen. Beginning, of course, with my very close friend, CBS' President and CEO, Leslie Moonves. So I'll turn this over to him now. Les, the ball is in your court.

[Leslie Moonves:]

Thank you, Sumner, and good afternoon, everybody. Thank you very much for joining us. As you see from the results we're reporting today, we had another terrific quarter, and our momentum continues to build. Each quarter in 2010 has been better than the one before. Advertising revenues are growing. Profits are higher, and margins are expanding. A great deal of our success comes from how well our content has performed and how well we are monetizing that performance. The things that we told you would happen over the last several quarters are, in fact, happening. We are benefiting greatly from a return of advertising to historical levels. We are diversifying and derisking our business model by growing our secondary revenue streams. Our major-market local assets are experiencing excellent growth, and once again, most importantly, our content is thriving across the company, also across the country, on a variety of platforms. At the same time, we're managing our businesses more efficiently, holding down costs and strengthening our financial position as the markets improve. We have taken a number of steps to greatly improve our balance sheet by paying down debt. All of this is coming through in our results, with double-digit growth in profits in EPS and even better growth in free cash flow. These healthy levels of free cash have enabled us to announce today a $1.5 billion share repurchase program beginning January 1. Returning value to shareholders through dividends and share buybacks has been one of our highest priorities all along, and we are pleased to deliver on that objective. All of these factors that I just mentioned have brought about a structural change that will cause our strong performance to continue into 2011 and beyond. In addition, the two new long-term deals we added with Comcast and the NCAA will only help us that much more. So between the performance of our content, the improving operating environment and our very strong balance sheet, you can forgive me for being even a little bit more bullish than usual today. It's a real good time to be a shareholder of CBS. I'm going to give some additional comments, then I'll turn it over to our, CFO, Joe Ianniello, and then as always, we'll take your questions. I'll begin with our very strong third quarter financial results. EPS for the quarter of $0.35 was up 40% versus last year's third quarter. OIBDA of $667 million was up 17% as profitability continues to improve significantly, and OIBDA margins are expanding as well. We are now approaching pre-recession levels. This is a trend that should continue into next year as our new and better deals kick in. We grow our secondary revenue streams, and we make sure that the costs we cut a couple of years ago will never return. Total company advertising revenues were up 10%, and affiliate and subscription fees were up 15%. So healthy underlying growth continues. These increases are even more encouraging, given that last year's third quarter was when the economy began to pick up. We also generated $260 million in free cash flow, a significant improvement over last year's quarter, bringing our year-to-date total to $1.4 billion, up 165% over the same time period last year. Again, it's because of this healthy free cash flow that we were able to announce the $1.5 billion share buyback I mentioned earlier. Let's take a look at each of our businesses and some third quarter highlights. Beginning with our Content Group and its largest segment, Entertainment, where we produced revenue of $1.6 billion and OIBDA of $278 million in the quarter. Underlying advertising growth in the Entertainment segment was very strong, led by a 7% increase at the CBS Television Network. As you know, we've had a phenomenal start to the new season, winning the first five weeks of the season in all key measures, viewers 25 to 54 and 18 to 49. This is the first time any network has done this since 1997, and it only happened twice since people meters were introduced in 1987. Our schedule is incredibly stable, and we expect it to continue to shine for the rest of the season. Our returning shows remain very strong, and the five new shows we launched are the top five new shows of the fall, led by the number one new show, Hawaii Five-0. All five of our new shows have been picked up for the entire season. We not only outperformed the field in this year's upfront marketplace, but we're now reaping the greatest benefits of the increase in scatter pricing as well. Because of the strength of our prime time schedule, scatter is up more than 35% over the upfront, which bodes very well for the fourth quarter and the first quarter of '11 as well. In addition, NFL ratings are up 12% year-over-year this season. We have extremely high demand for our AFC package, and our sales are phenomenally strong. We expect this to continue right through the AFC Championship Game in January. As you know, advertising is just one way we capitalize on our content. Very positive trends in non-advertising-dependent revenues, including global syndication, retransmission consent and license fees from emerging platforms continue to strengthen the evolving broadcast model. Including the three new CBS-produced dramas on our schedule this season, our studio now owns 27 shows that are currently in production, meaning that ratings success represents just the first length in our increasingly valuable monetary content chain. Let me point out just a few of the incremental ways we're getting paid for our content now. First, syndication. Domestically, we're selling our new hit shows earlier and at record prices. And international syndication is becoming a bigger piece of the pie as well, representing an important long-term growth opportunity for us. This season, we sold all three of our new dramas internationally for north of $2 million an episode each, meaning that all three were profitable before a single episode air. Within weeks of announcing Hawaii Five-0 was on our schedule, we sold it in more than 100 markets, and now it's in nearly all 200 of our overseas markets . And of course, on this show, domestic syndication is still to come. We're also expanding internationally by gaining equity in new overseas channels. As you know, last year, we partnered with Liberty to rebrand six local U.K. channels as CBS channels and expand our programming there. During the quarter, we entered into two new similar joint ventures. One, with Reliance in India for three channels in India, and another with Network Ten in Australia, the people who own the Ten Network, for a partnership to provide content to the new cable channel 11. Next, in addition to syndication, retrans is now a very significant and continuing part of our content value chain as well. Our retransmission consent revenue was up more than 40% year-to-date versus the same time period last year and will easily meet our full year target of $100 million. This important revenue stream will keep growing for us, and the economics of our groundbreaking new 10-year deal with Comcast will benefit our bottom line for a long, long time. We are pleased that without a fuss, the largest cable operator recognized the value of our content in a way that benefited both sides of the negotiations. Retrans, as well as broadcast affiliate compensation to us, will continue to grow every single year. And finally, it's becoming increasingly clear that every new online distribution platform needs premium content to successfully launch their service. We continue to talk to all of these companies, companies you all know very well, about ways we can get the proper value for our programming. We have and we'll continue to pick and choose the best deal for our shareholders as we grow this additional revenue stream. Meanwhile, our in-house websites led CBS Interactive to a very strong third quarter, with display advertising revenue up 17% year-over-year. Our ad sales, site traffic and audience engagement all continue to grow and to outpace the industry. Clearly, when you have the most successful shows on air, it crosses over to online as well, and not just CBS.com and TV.com, but also social communities like Facebook, where we have nearly 50 million fans for our prime time shows. The cross-platform presence is appealing to our advertisers who are increasingly making both on-air and digital buys with us. Our Cable Network segment also had a terrific quarter. revenue was up 12%, and OIBDA was up 33% from the same period last year. Year-over-year, we've added more than 4 million subscriptions at Showtime Networks and nearly 5 million at CBS College Sports, and rates have increased as well. We are confident that all of our Cable Networks will continue to add more subscribers and value to our portfolio going forward. And Cable is another business where the strength of our content is driving our performance. During the quarter, we debuted yet another critically acclaimed Showtime original series, The Big C. The show's launch drew our highest ratings for an original series premier in eight years, and it's staying strong. Our returning series, Weeds and Dexter, also premiered new seasons during the quarter. Both shows had their highest premiers ever. And Dexter was Showtime's best overall original series season premiere in 15 years. At Publishing, revenue was $218 million in the third quarter, and OIBDA was $31 million, up 10%, as our expense rationalization efforts keep paying off. Just as with our TV programming, where digital continues to be a growing part of the business, digital competition between Apple, Barnes & Noble, Google, Amazon and the rest has us well-positioned in the e-book space, giving our leading content. We had more New York Times bestsellers in this year's third quarter than we did last year. And our newest releases by authors Vince Flynn and Bob Woodward are outperforming their previous titles. Turning to Local Broadcasting. We had another outstanding performance as the local ad market recovery continued into the third quarter. Revenue was up 15%, with TV station advertising revenue up 25%, and Radio ad revenue up 9%. At the same time, Local Broadcasting OIBDA increased 49% year-over-year, and our OIBDA margin was 29%. Strong pacing is continuing into the fourth quarter. Radio is pacing up double-digits, and our TV station group is trending to be up more than 20% over last year. Political advertising will contribute significantly to our fourth quarter results. We saw a very strong political spending right up through the mid-term elections this week, and the demand for political time pushed non-political dollars past the election into the rest of the fourth quarter. The momentum in local TV advertising continues well beyond the fourth quarter. Momentum also continues at Outdoor as well. Third quarter revenue was up 10% in constant dollars as the advertising marketplace continued to improve. OIBDA more than doubled year-over-year in the quarter as a result of both the top line growth and this business' new streamlined cost structure. We continue to renegotiate and enter into new contracts at better terms, which will be reflected in our results going forward as well. One final note on our Local Group. I mentioned to you last quarter that we were launching a single website in New York called cbsnewyork.com. This site combines the resources of WCBS channel 2, 1010 WINS, WCBS 880 and WFAN The Fan to become the premier local information destination in the market. We have since launched six more similar local sites in major markets where we own TV and radio stations, including Los Angeles, Chicago, Philadelphia, San Francisco, Dallas and Boston. We are very encouraged by the early results. And going forward, we expect to be generating hundreds of millions of dollars from our local websites within the next few years. Across the board during the quarter, we were able to once again deliver on our promises and produce results that speak to our ongoing growth and success. Beyond the strong finish we expect this year, there are a number of developments that will drive our continued momentum into '11 and '12. These include the best start any television network has had in 13 years with successful new shows that are already profitable and will generate revenue for years to come. The increasing value of our content in a dual revenue stream universe including retrans, affiliate compensation and emerging online services, dramatically improve contracts like the new Comcast and NCAA deals, which truly kick in beginning next year, the broad-based recovery at the local ad market where there's still lots of room for more growth. Our lower cost structure, which allows more revenue to translate into profits. Interest expense alone will be down $90 million annually following all of our debt actions this year. And as you saw with our announcement today, a share repurchase program that returns additional value to shareholders as our businesses continue to throw off lots of cash. So yes, we had a terrific quarter. But as you see, the best is yet to come. Thank you. And with that, I'll turn it over to Joe.

[Joseph Ianniello:]

Thanks, Les, and good afternoon, everyone. Today, I'll provide some more detail on our results for the quarter, highlight our recent financing activities and new share buyback program and update you on what we're seeing in Q4 and the things we know about 2011. Starting with our total company results for the quarter. Total revenue of $3.3 billion compares to $3.35 billion for the same quarter last year when we benefited from the sale of five major television series that went into first cycle syndication. To give you a sense of the size of these titles, we're talking about over $300 million in revenue at about a 35% OIBDA margin, which is not included in this year's third quarter. Meanwhile, as Les said, total advertising revenue was up 10% and affiliate and subscription revenues were up 15%, illustrating the ongoing strength in our underlying businesses. The 10% advertising growth accelerated from Q2's 9% despite tougher comps this quarter. Reported OIBDA was up 33% for the quarter to $750 million. Reported operating income increased 46%, and reported diluted EPS increased 53% to $0.46. We are adjusting our reported results for four items in 2010

[Operator:]

[Operator Instructions] We'll take our first question today from Ben Swinburne with Morgan Stanley.

[Benjamin Swinburne:]

I guess the only thing I'd add is just that, given the 2.5x, I think, gross leverage target range, any comment on how much cash CBS needs to keep on its balance sheet at a given time from a flexibility perspective? And then also your revenue breakout, at least the strength versus where we were came in on the affiliate and subscription fees, which the growth was 15% this quarter, an acceleration from the first half. Is that retrans from Comcast kicking in already or CBS Sports Network or Showtime or all of the above? Just want to get a little bit of understanding of what drove that acceleration. And then one last one for Les. NBC is making a big move all of a sudden, but about looking at alpha boomers and the older demo, and you guys always get knocked for being the older network. What's going on here? Is this something you think is a significant shift in the broadcast industry in terms of advertising?

[Joseph Ianniello:]

Ben, it's Joe. I'll start first. I'll answer your first two. And as far as how much cash do we have, we don't need a lot of cash on hand to run the company. I mean, the working capital as you see we manage very, very well. So cash on hand at the end of the quarter, just under $1.1 billion. Obviously, we'll use some of that cash to call the debt I said for May of '11. So we don't really need a lot of cash and as you know, the first six months of the year is our stronger cash flow part of the year. So again, we're going to buy the stock right into our strength and generating more cash flow. As far as the affiliate and subscription, a little bit does have to do with timing. It's when agreements kick in and stuff, so there is a little bit of timing. But if you look at it on a year-to-date basis, those fluctuations tend to even out.

[Leslie Moonves:]

Ben, we've sort of find it a little bit ironic that NBC is now talking about older demos. It's something we've, obviously, been talking about for a while. And we've been quoted, I've been quoted about a thousand times saying for my money, a 50-year-old is more valuable than a 19-year-old in terms of purchasing power. I was sort of booed down by the other networks when they were doing a bit better, that 18 to 49 is the only thing that mattered. Now that we're winning the 18 to 49, suddenly, there's a shift. Now by the way, we still agree with the fact that a 50-year-old is more valuable than a 19-year-old, and we've always welcomed them into the tent. And to us, a viewer is a viewer is a viewer. We like winning them all. We like 18-year-olds and we like 80-year-olds, and the good thing is they're watching CBS.

[Operator:]

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

[Anthony DiClemente:]

I have two. One for Joe and one for Les. Joe, if you could just get back to the fourth quarter network math. You mentioned some points. It seems like the network ad revenue being up 7% in the quarter, up sequentially, that should really accelerate in the 4Q because you've got the upfront CPM increases in the high single-digits. It seems like scatter should be way up, and then it seems like you've seen a ratings reversal from 3Q to 4Q. So should that network ad revenue growth double or more than double in the fourth quarter?

[Joseph Ianniello:]

Yes, Anthony, I don't think we said what fourth quarter network ad revenue, I think we gave you the scatter market. The scatter market, as you know, is pacing, as we said, 35-plus percent over this year's upfront. So yes, I think, again, any way you look at it, it's going to be a strong fourth quarter on the national advertising front.

[Leslie Moonves:]

The only caution I want to give you there, Anthony, is this year, we sold a lot more at the upfront than we did a year ago. So there is a little bit less inventory, however, the scatter demand keeps going up and up and up. And being as we're stronger, there should be enough inventory to take care of that.

[Anthony DiClemente:]

But you sold it at higher prices. Can you confirm? Did you sell it at, say, up 8%, up 9%? Is that in the ballpark?

[Joseph Ianniello:]

I think we said high single-digits. This year's upfront, we said high single-digits.

[Leslie Moonves:]

You're right there.

[Anthony DiClemente:]

And then one for Les, and then this is, I guess, a bigger question about digital distribution. You've moved forward this hyper syndication model and made a lot of your content available for free online with all your partners. It seems to buck the authentication strategy of putting the content behind a pay wall, doesn't seem to be hurting your ratings. I guess the question is what gives you the confidence that, that more liberal and open strategy with your content continues to be the right one going forward?

[Leslie Moonves:]

Well, actually, Anthony, we have been slightly more conservative about putting our content online than some of our peers because as you know, we are not a member of Hulu. And as a result of that, we do have cbs.com, but once again, we've been rather cautious about where to put it, when to put it because the mother load is still our network advertising and ratings on network and in syndication still bring in far more dollars than they do on digital. Having said that, we're, obviously, exploring all these various platforms and making a variety of deals when it makes sense. And when it make sense to us is getting paid appropriately for our content. But TV Everywhere, we're certainly believer in it. When Comcast or Time Warner gives us decent retrans dollars, which they have done, and treated us very fairly, which they have done, they deserve to have the content as part of their retrans fees. So we're very much in favor of TV Everywhere.

[Operator:]

And we'll take our next question from Michael Nathanson with Nomura.

[Michael Nathanson:]

First one would be why are we waiting for January to start buying back stock? Is there any timing-related issue on the buybacks?

[Joseph Ianniello:]

No, I think we're just going to go through it. I mean, nothing more, it's 60 days. We're going to, obviously, use the cash on hand to pay down to call the notes and stuff like that. So it's just getting everything in order.

[Michael Nathanson:]

Then a follow-up on the stations and Radio. I know people are going to say, "Look, October is great because of political being so strong." So can you share a little bit about November pacings? What you're seeing now that political is out of the way? You talked about a backlog, and how's that coming through in November for you in TV and Radio?

[Joseph Ianniello:]

Sure. Well, it obviously, impacts TV more, so let's just focus on TV. Our current pacing is holding at up 20% after the election. And our obviously, advertisers are booking early, and we're just making sure our sales guys are pricing it right because the demand of pricing is so strong. So that demand that people got pushed from October into November and December, that pricing is clearly holding. So the way we see it, Mike, is 2010's going to be a very strong year for local television with or without political.

[Leslie Moonves:]

Right. Michael, one of the misnomers out there is the x political dollars. Because yes, we took in a lot of political revenue. We're really pleased. It went across TV stations, the radio stations. And we all know how much money was spent in places like California and New York, hundreds and hundreds of millions of dollars, and we benefited by that. But all we did was in an already in-demand categories, we just pushed it further out. So it is remaining in demand, and what people don't realize, we would have sold those spots for very high prices. In some cases, we sold the political spots for less than we would have gotten had we just had it in the normal marketplace. So as we said, we pushed money into the rest of the fourth quarter and per Joe's comment, the demand remains very strong.

[Michael Nathanson:]

You're early on the retrans argument and now the next wave is the reverse retrans of getting paid by your affiliates. You talked a bit about what kind of deals you're getting done and how big it's going to be in the next couple of years, so a little bit update on that strategy, Joe.

[Joseph Ianniello:]

Yes, obviously, we've had a number of discussions with our affiliates. And when their deals come up with CBS, we know that they're getting retrans money, and we wish to share in them. A ton of those deals have not come up yet. There have been a number of them that have. We are getting paid. It's hard to quantify where we're going to be since the bulk of our deals aren't up until '13 and '14. But the affiliates are aware that they're getting paid retrans and a lot of the reason they're getting paid that retrans money is because of what the network is giving them, and our affiliates certainly appreciate what CBS Primetime is doing for them. When you look at 10

[Operator:]

We'll go next to Michael Morris with Davenport & Company.

[Michael Morris:]

Two questions for you. One, on local advertising in particular with respect to autos, it seems like autos have come back strong, kind of consistent with the return of purchases of autos. At this point, has the return of auto actually been consistent with that level? Is that what you're seeing? And have you seen any permanent differences, say, with the reduction of auto dealerships or a reduced amount of spending at the manufacturing level that has impacted you? That's the first question. And then the second, on the repurchase decision, this certainly isn't a criticism, I think a $1 billion annual repurchase is very strong, but can you talk a bit about the decision to do a repurchase instead of returning to a dividend? And what your appetite is in the future once you work through this plan to address the dividend or like an ongoing repurchase, where you want to be?

[Joseph Ianniello:]

Mike, it's Joe. On the local auto front again, the category -- and again, broadly other categories are following suit. But clearly, auto is up. I think, clearly, obviously, selling more cars helps. We're seeing auto companies, obviously, much better capitalized companies. The dealerships, maybe less dealerships but better capitalized, so the dollars are following. What I will tell you there's still much room to grow there. So we're not clearly back to '07 levels. But again, they're focused on it and clearly, they know they have to market to move product, and we have local assets well-positioned to capitalize on that.

[Leslie Moonves:]

And Michael, on the repurchase, obviously, there was a lot of discussion what's the proper way of returning money to our shareholders. We already have a dividend in place. We felt that to reduce our shares was the right way to go with this amount of cash. This does not preclude us, as we look forward, to do something further with the dividend and something that we talk about every week when we discuss it with our board and we came to the conclusion that the share repurchase was the right thing to do, being that our cash position was so strong. But once again, we will continue to look at it, and we will continue to see what's the best way to use our capital and increasing the dividend is certainly not out of the question.

[Michael Morris:]

And just to be clear on the auto side then, I mean, your sense that there hasn't been a permanent structural change or the changes that have taken place have been kind of mitigated by stronger capitalization and you feel like prior levels are achievable.

[Joseph Ianniello:]

That's correct.

[Operator:]

And we'll go now to Laura Martin with Needham & Company.

[Laura Martin:]

One on sports. We're hearing from some of your competitors that sports ratings are strong. I'm interested in whether CBS is also getting higher a sports rating. But more importantly, do think the economics flow through that? Or does it go back to where -- on Radio, it sounds like, Joe, you were pretty optimistic about the trend line in Radio going into 4Q. We have been hearing that national is up kind of double-digits, but local remains anemic at low single-digits. And I'm just wondering if you think that's a secular kind of rebuttal of the local merchants against a Radio business. So whether you see those two lines converging in the fourth quarter we're in now?

[Leslie Moonves:]

Laura, I'll deal with the first question, the sports. Sports has been extremely strong. Before the season even began, it was a great demand for NFL football. And I think it's followed the strong upfront that sports became -- the NFL became even stronger than that. Add to that, what we referenced as ratings that are up in the low-teens, and the demand for the NFL is extremely good. I know the NBC game is doing well. I know FOX is doing well. Football is extraordinarily strong, and the dollars are flowing in greatly for it. The economics of the rest of our sports, as mentioned, the NCAA deal changes our full profile in that event and that becomes a profitable event as does golf and even the U.S. Open tennis tournament, if it wouldn't rain so much. So we are very pleased with our sports portfolio, but the NFL is going through the roof.

[Joseph Ianniello:]

On your Radio question, Laura, the fourth quarter, yes, it is accelerating. That's impressive because, obviously, sequentially Q3 '09 to Q4 '09 grew a lot. So again, very impressive, yes, national is up, higher than local, and local is still growing. And what I just think is right now, the local advertisers are flocking to television because they like where the prices there. So as we continue to increase pricing on the local TV side, I think local Radio, as well as Outdoor will continue to benefit.

[Laura Martin:]

So you think the gap closes between national and local a little bit?

[Joseph Ianniello:]

Yes, I think it will converge again, but all on strong demand.

[Operator:]

We'll take our next question from Brian Shipman with Jefferies.

[Brian Shipman:]

Can we talk about Showtime for a second? Showtime showed some nice subscriber growth. Is any of that growth promotional in any way? Are you getting paid for all of it? And then what rights does Showtime have for digital distribution of its content?

[Leslie Moonves:]

The Showtime growth, you know what, it's hard to distinguish. Yes, we have some promotional things, and I know HBO addressed their loss of subs by some of the lack of promotional subs. That hasn't really affected the growth in Showtime. I think the thing that's affected the growth in Showtime is just Showtime's programming has gotten infinitely better over the last two or three years, and we're seeing a constant increase in the subscribers. And in terms of the digitalization of the content, it depends on the content. By and large, Showtime owns most of what they do, there are a couple of shows that they don't. But they have most of the rights for the content that's on Showtime. And once again, they are being exploited and will continue to be.

[Operator:]

Our next question comes from Michael Meltz with JPMorgan.

[Michael Meltz:]

You've said a few times how strong the sports programming ratings have been, especially NFL. Is there -- what is the contingency plan if NFL season doesn't happen in the second half of '11?

[Leslie Moonves:]

Well, Joe and I are going to get out on the field and start tossing the ball around. Look, obviously, it's something that would not be a good thing to have happened if there was a lockout. The reports I'm hearing are guardedly optimistic. There seems to be some progress being made. So we're obviously, hoping that there isn't a lockout. It's not something we would want, and it's not a programming you replace. It's not like, "Okay, if I take off this show for prime time, I'll have another show ready." The NFL is the NFL, and it's very valuable. But we are hoping that nothing bad happens here.

[Michael Meltz:]

And Joe, on Cable, is 40% now a good run rate for margins?

[Joseph Ianniello:]

Yes, I think, again, you got to look at that on an annualized basis, Michael. I think that's fair. Each quarter on whether there's some ad and promo for premieres, expenses kind of fluctuate. But on a kind of normalized run rate, 40-plus percent, I think, is a good indication.

[Operator:]

We'll take our next question from David Miller with Caris & Company.

[David Miller:]

First, related to the NFL, Joe, my understanding is that if there is a lockout, and it doesn't sound like there's going to be. But if there is, you do not have to pay the roughly, I think, it's $655 million in rights fees back to the NFL. And if you could confirm that number for me, that would be great. And then, Les, on the network piece, my understanding is that the ratings guarantee is dated back to the upfront in June. We're actually even more conservative for certain series than the previous year, which really makes the chances of a make-good situation basically nil. And if you could confirm that for me, that would be great.

[Leslie Moonves:]

Yes. Let me answer both of them. You know what? If there is a lockout there, we have certain arrangements with the NFL that I don't want to get into, where they would get some renumeration, not total, nothing that affects us greatly. But it's sort of a private contract. And it wouldn't affect our bottom line, let me put it that way. Regarding the ratings guarantee, we're in very good shape. The word make us good, the good news is it hasn't come up all year at CBS, nor do I expect it. So every dollar we're taking in at scatter is new money. The prices are going up considerably. We have renewed our entire schedule. It's a great luxury to have that. We actually have three mid-season shows, and our problem is where do we put them? So I've never seen anything like this. But we are beating our guarantees, and we're in very good shape, and it's a good position to be in.

[Operator:]

We'll go now to Doug Mitchelson with Deutsche Bank.

[Douglas Mitchelson:]

Joe, in case I missed it, can you give us a breakout between Radio and TV for political ad revenue this year? Percentages or dollars or something?

[Joseph Ianniello:]

We don't break it out. Again, most of the dollars in the third quarter is about $37 million. Again, most of that's falling to TV stations, Doug. I think that would give you a general sense.

[Douglas Mitchelson:]

And then, I guess, either for both Joe and Les. Have you thought about or have you been making all of your TV affiliate deals coterminous? It'd be a lot easier to convert to a cable network at some point in the future if you so choose, not to mention you can imagine the improved bargaining position from your TV affiliates just knowing that you could have that option if you so chose, I mean.

[Leslie Moonves:]

The ratings of these deals, Doug, are so diverse. It's very hard to make them coterminous, and by and large, we have not done that. Yes, I'm sure it would give us leverage five years from now and potentially give us more leverage. But it's virtually impossible to imagine a world where that would happen.

[Joseph Ianniello:]

And we own, in the top major markets, the television stations.

[Leslie Moonves:]

We own 40% and once again, it is not our intention now or in the future to turn CBS into a cable network.

[Douglas Mitchelson:]

No, fair enough. And I guess just the thought is as we see continued retrans fights, if at some point -- even though it seems like the FCC is not interested in getting involved, if at some point the regulators did get involved, obviously that's an option you could always pursue just to sidestep the entire issue, just become a cable network. So just more sort of curious about...

[Leslie Moonves:]

Doug, well, one thing that should be pointed out, we all hear about the battles. We all hear about the signals being pulled. We've made hundreds of deals. There have been hundreds of deals that haven't made any noise whatsoever. So number one, we, obviously, really urge government to stay out of this. This is a company-to-company issue. And by and large, if we were able to conclude a 10-year deal with Comcast, a long-term deal with Time Warner, successful deals with 25 smaller cable companies, this dispute is the exception, not the rule.

[Douglas Mitchelson:]

And then let me just ask one follow-up on the reverse retrans from your affiliates. I think there's a general perception by some of the other networks that the value you're delivering is worth somewhere in the 70% to 80% of the total retrans fee range, even though it seems to be settling out at 50-50 initially. I mean, where do you come out in terms of if you had to divvy up the pie between the value of the local TV stations generates versus the value of the network programming generates, how much of it do you think you deserve in a theoretical world even if it's not practical today?

[Leslie Moonves:]

Yes, Doug, there's only one network that says they deserve 75% or 80%, and we know where that's coming from. We take them each, not all affiliates are created equal. Some are in stronger financial positions than others. Some are getting more retrans than others. So we take each group separately. But as I said, we've concluded a number of deals where we feel we're being compensated appropriately, and we want our affiliates to be strong. And as Joe said, we control, we own 40% of the country with our own stations, and that's the major part of our business.

[Operator:]

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

[Marci Ryvicker:]

Just a question on Outdoor. Growth was phenomenal in the Americas. What was U.S. alone? And you mentioned that occupancy was a driver of most of this growth. How was price?

[Leslie Moonves:]

Marci, the Americas is really primary the United States. I mean, we do have something, Canada, Mexico and South America, but mostly again, the 15% is coming from the U.S. So that's a good proxy in the mid- to high-teens. And what I would just tell you is occupancy, we increased kind of from the 75 percentage range on average to over 80%. So the rest is pricing.

[Marci Ryvicker:]

And in terms of your Europe. Europe was kind of weak. So what's happening there?

[Leslie Moonves:]

Yes, I think again, if you go country-by-country, I think that's certainly trailing the recovery we're seeing here. The good news is that the U.K., it looks like it's turning around and coming back, which is our largest market. So I think again, the other countries will follow. But you're right in terms of it is trailing the U.S.

[Marci Ryvicker:]

So what's the national/local split in Outdoor?

[Joseph Ianniello:]

The national/local split in terms of what, revenue mix? In dollars or growth rates?

[Marci Ryvicker:]

Percent of revenue.

[Joseph Ianniello:]

Percent of revenue, I'd say national is probably about 60% if I was just guessing.

[Leslie Moonves:]

And thank you, everyone, for joining us tonight, and have a great evening.

[Operator:]

And ladies and gentlemen, this does conclude our conference. We appreciate your participation.