Adam Townsend - Executive Vice President-Investor Relations Leslie Moonves - President, Chief Executive Officer & Director Joseph R. Ianniello - Chief Operating Officer.

Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC Jessica Jean Reif Cohen - Bank of America Merrill Lynch David Bank - RBC Capital Markets LLC Alexia S. Quadrani - JPMorgan Securities LLC Michael C. Morris - Guggenheim Securities LLC Anthony DiClemente - Nomura Securities International, Inc. John Janedis - Jefferies LLC David W.

Miller - Topeka Capital Markets Doug Mitchelson - UBS Securities LLC Laura A. Martin - Needham & Co. LLC Omar F. Sheikh - Credit Suisse Securities (Europe) Ltd. Vijay Jayant - Evercore ISI.

Good day, everyone, and welcome to the CBS Corporation Third Quarter 2015 Earnings Release Teleconference. Today's call is being recorded. At this time, I'd like to turn the conference over to the executive Vice President of Investor Relations, Mr. Adam Townsend. Please go ahead, sir..

Good afternoon, everyone, and welcome to our third quarter 2015 earnings call. Listening on the phone is Sumner Redstone, our Executive Chairman; and joining us with today's remarks are Leslie Moonves, President and CEO; and Joe Ianniello, Chief Operating Officer.

Les and Joe will discuss the strategic and financial results of the company and then we'll open the call up to questions. Please note that during today's conference call, the third quarter 2015 results are compared to adjusted third quarter 2014 results. And year-to-date results will be compared on an adjusted basis, unless otherwise specified.

Reconciliations for non-GAAP financial information related to this call can be found in our earnings release or on our website. Also, statements in this conference call related 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 Corporations' security filings. A webcast of this call and earnings release related to today's presentation can be found in the Investor section of our website at cbscorporation.com. And with that, it's my pleasure to turn the call over to Les..

Thank you, Adam, and good afternoon, everyone, and thanks for joining us once again. As you've seen, CBS has turned in a very strong third quarter, building momentum toward a great finish to the year. Operating income was up 1% to $753 million, and EPS was up 19% to $0.88, marking the twenty-third consecutive quarter we've grown our EPS.

We are growing our profits and expanding our margins, at the same time that we're investing in new premium content and direct-to-consumer platforms. So as we grow in the short-term, we're setting ourselves up to live long and prosper in the long term. Yes, we can achieve both.

I want to start today by discussing some key developments going on right now. First, advertising is coming back in a big way at CBS. Underlying network advertising was up 8% in the third quarter with strong growth in primetime, double-digit growth in sports and daytime and huge growth in late night, which was up 42%.

Here in the fourth quarter, the marketplace is looking very strong as well, and we are in a unique position to take advantage of that, thanks to the strength and stability of our number one lineup and the fact that we sold a bit less inventory during the Upfront.

So we now have more to sell in a very robust scatter marketplace, which is a very good thing. The next development has to do with the future of the bundle.

I think we're all seeing that the dire predictions of cord-cutting are overblown, but the good news for CBS is, no matter where distribution goes, no matter how or where you want your content, we are in a perfect position.

Within the current ecosystem of the traditional bundle, we're on track to grow our retrans and reverse comp to north of $2 billion in annual revenue by 2020. At the same time, as distributors roll out their skinny bundles of far fewer channels, we will always be part of these packages as well because of the strength of our content.

And as we've already proven in the deals we've done, we will get paid even more per subscriber in a skinny bundle than we will in a traditional bundle. In addition, there will be more and more viewers who want the freedom to choose individual channels à la carte.

In these cases, we're ready with CBS All Access and Showtime Over-the-Top, where consumers pay $5.99 and $10.99 a month respectively at better economics to us. By the way, both of these services benefited significantly with the launch of new shows this fall.

CBS Access had its larger subscriber growth yet in September and just debuted on Apple TV two weeks ago. Plus, as most of you know by now, just yesterday we announced that we're producing a new Star Trek television series that will be available exclusively on All Access in the United States and licensed across other platforms around the world.

We will debut a special premiere episode on the CBS Television Network with all subsequent episodes only available to All Access subscribers here in the U.S. Star Trek is an unstoppable franchise and its auspices are tremendous and bona fide. We signed Alex Kurtzman as the series Executive Producer.

Most notably, Alex wrote two of the most recent Star Trek movies, including the rebooted Star Trek and Star Trek Into Darkness. He has also been responsible for the success of dozens of movies and TV series, including The Transformers, Amazing Spider-Man, Scorpion and Limitless.

There will be more announcements in the coming months about the terrific creative people behind this series, both in front and behind the camera. So I'm confident this is going to be a world-class effort that will make all Star Trek fans very proud.

These are some of the most passionate fans in the world, and we can see millions of them joining All Access, where they can watch these new episodes wherever they want and whatever they want and on whatever device they want to use, which is increasingly consistent with how younger viewers are watching our shows.

By the way, All Access already has this on-demand functionality for every single episode of all five Star Trek television series that have been on the air to this point. So, super fans can begin watching these shows today and be caught up just in time for the new world premiere.

Our Star Trek initiative speaks to the fact that All Access is a major priority for us and we will look for additional opportunities to expand our programming on this platform going forward.

So, however viewers choose to consume their content, from the traditional bundle to the skinny bundle to individual ones chosen à la carte like All Access and Showtime OTT, CBS is positioned to succeed. Of course, this success is dependent on one thing which happens to be the thing we do best, delivering the premium content that viewers have to have.

It starts with the CBS Television Network where we have begun the new television season in excellent shape. Supergirl was the best premiere of any new show on television in viewers and key demos and Life in Pieces is the number one new comedy. Along with Limitless, we now have launched three new successes this year on CBS.

This is in addition to the four new hits we launched on the network last year, so we have a growing roster of successful new shows to build around for years to come.

We also still have television's number one comedy in The Big Bang Theory, number one drama in NCIS, which has led us to winning Premiere Week once again, while doubling our margin of victory over a year ago. We have won every single week since except this past week where there were five World Series games on in the same week.

And I will reiterate today that we will win the 2015-2016 television season as well. Comprehensive measurement of our shows is very important to our success.

This is why we're encouraged that Nielsen has just launched its new platform total audience measurement program and why we have joined the industry in support of a combined Rentrak and comScore, which will help expedite full measurement of our programming both nationally and locally.

Delayed viewing beyond the first day represents a significant opportunity that is just beginning to be monetized. Our new series Limitless is a good example.

This show drew a very nice audience of nearly 10 million viewers when it premiered in September, but that number grew to more than 17.5 million viewers when delayed viewing was counted over the next few weeks, and that number continues to rise as we speak. This phenomenon is happening across our schedule.

When you look at delayed viewing over 7 days, CBS has 10 shows that gained more than 3 million viewers each, and the truth is that when all viewing is taken into account, CBS actually has a bigger audience today than it did 10 years ago.

We are currently monetizing many of these viewers, but there is a lot more upside as measurement catches up with how people are watching our shows. And by the way, the viewers we're getting from these additional platforms are younger as well.

Also during the third quarter we began a new chapter in late night with the extraordinary debut of The Late Show with Stephen Colbert, as well as the continued success of The Late Late Show with James Corden.

We are extremely pleased with the early returns from both of these shows including the significant addition of younger viewers who are watching across platforms throughout the day. Full episode streams of Colbert are up 2230% over a year ago and Corden continues to build his online audience as well. He's now surpassed 0.25 billion views on YouTube.

And once again, because we own both of our late night franchises, we're monetizing all of this online viewing. At CBS News, we're up across the board led by the strength of our flagship broadcast. Year-over-year CBS News is up 6%, CBS This Morning is up 9% and 60 MINUTES is up 15%.

Taken as a whole, more people have watched CBS News this season than any other network news division. CBS News is capitalizing on this momentum by building our new online platform CBSN. As we do this, we're attracting a whole new set of younger viewers.

The average CBSN viewer is under 40-years-old, so not only are we bypassing the cost of cable news by going digital, but we're also bypassing the demos as well. And our CPMs at CBSN are twice what they are on air.

At CBS Sports, ratings for Thursday Night Football are up 5% from a year ago and our Sunday package is up 9%, bringing the biggest audience we've seen in 29 years. We're also looking forward to the Super Bowl, which will be broadcast on CBS just as it was for the very first time 50 years ago. Super Bowl sales are going extremely well.

Not only are we getting record pricing that we're looking for, but there are just a few units left to sell. You can imagine what these last few spots will go for. As I said, we feel pretty good about our ad sales across the CBS Television Network as well.

This is because marketers are realizing there's no better medium to sell their products than broadcast television. Yes, digital is growing and we are benefiting from that through our CBS Interactive division, but the growth is not coming at the expense of broadcast. It's coming from print advertising and basic cable.

Broadcast has proven to have the best quality of impressions and level of engagement. As advertisers continue to learn this, our content will stand out even more as the best choice in a fragmented media landscape. We were extremely pleased today with results of the major auto companies who advertise a huge amount with us.

Turning to Showtime, we launched our new over-the-top service during the quarter, and we're extremely excited about where it'll lead us as well. Since the launch, we've rolled the platform out across Apple, Roku, to Amazon Fire, Google Chromecast and Android devices, and we're already getting significant traction.

In particular and no surprise, we saw a surge in sign-ups around last month's premiere of Homeland and The Affair. And among our new subscribers, we observed significant past season catch-up viewing in advance of the premiere of these two shows.

As we've said, by bringing Showtime direct to the consumer, we now have the ability to reach tens of millions of potential new subscribers in a way that we never could before.

And just like All Access now has Star Trek, Showtime is set to welcome an extremely fervent fan base of its own when it premieres the new installment of Twin Peaks also in 2017. In addition, we are just beginning to license the entire Showtime brand internationally rather than show-by-show as we have done before.

Earlier this year, we did this in Canada through a partnership with Bell Media. We're now having conversations with other overseas distributors about using a similar model as we continue to grow Showtime's international licensing revenue. We look forward to updating you on this in the quarters to come.

In Publishing, Simon & Schuster grew its revenues and profits during the quarter, thanks to our ongoing strategy of signing the biggest authors in the business. Just today, we're releasing titles from Stephen King, John Irving, Isabel Allende, and yes, the one and only Donald Trump.

So just like we do in television, we continue to fill the pipeline in Publishing as well. In Local Broadcasting, premium content is also driving sales at our TV stations, which are benefiting from our number one schedule in primetime and our growth in late night.

Looking ahead, both of our TV and radio stations are gearing up for the huge 2016 political season, where the only thing is certain is that it will be another great year for advertising. We are encouraging all 19 candidates from both parties to hang in there as long as they can.

In addition, we are very aware of the lucrative valuations that are out there in terms of spectrum auction. We are evaluating how we could best participate with some of our 13 non-CBS television stations, while still providing our signal through other outlets. It's clearly a terrific option to have.

So the biggest news in the quarter is that network advertising has swung back in a big way, the way it always does, and is now looking strong going forward as well. In addition, we're monetizing more and more delayed viewing of our shows with lots more upside as measurement advances.

And we have set ourselves up to grow subscription revenue no matter how viewers want to consume our content. In short, we're growing profits today, while we're setting ourselves up for a very, very bright future. Looking ahead, the future begins with a very healthy 2016. Advertising will clearly be very strong, we know that.

Anchored by Super Bowl 50 in the first quarter and political in the fourth, retrans and reverse comp will exceed $1 billion next year, which is a year ahead of the target we had previously given you, and we will exceed our target of $2 billion by 2020.

Plus, there is a very good chance that one or more major media or tech companies will launch a new skinny bundle next year, leading to significant incremental subscription revenue for us. And this is in addition to the continued growth of All Access and Showtime OTT.

We also have a growing roster of young hits across CBS, Showtime and The CW to license into the syndication in SVOD marketplace. This includes six new owned hits from 2014 and more on the way from this year. Plus, we feel very good about the January premiere of Showtime's Billions, which we also own.

Our programming continues to be highly desirable in the SVOD world, and so we are having discussions all the time about new ways to grow our streaming revenue.

In international, the marketplace continues to explode, so all of these shows are great global opportunities for us, including Star Trek, which has a massive fan base all around the world and beyond. Across the company, premium content will always be the center of our strategy.

No matter how rapidly the world continues to change, we have positioned ourselves to benefit. So we're confident that 2016 will be a terrific year for CBS and look forward to longer-term success as well. 9 With that, I'll turn the call over to Joe..

Thanks, Les. Good afternoon, everyone. As you just heard, we are very pleased with our third quarter results. The strength of our must-have content is ensuring our success and leading to new opportunities.

As distribution platforms evolve and viewer habits continue to change, we are positioned to benefit like no one else in our peer group from existing MVPD platforms to straight à la carte services like CBS All Access and Showtime Over-The-Top or anything in between, no other content company has such a concentrated value in its offerings.

Plus, as we invest in our future with new content and distribution initiatives, we are posting EPS growth year after year, quarter after quarter. At the time, we continue to steadily return our excess cash to our investors through share buyback and dividends.

So we're delivering strong results for our shareholders today and we're setting ourselves up for even stronger results in the future. Now let me give you some details about our third quarter results. Revenue for the quarter came in at $3.3 billion compared with $3.4 billion last year.

Reported advertising was down 4% due to fewer sporting events broadcast on the CBS Television Network and comping against the 2014 midterm elections, which benefited our local businesses last year. However, underlying network advertising was up 8% for the quarter and if you want to look at it on a year-to-date basis, it's up 3%.

And we see continued strength in scatter going into the fourth quarter. Given the growth we've seen so far this year and the ongoing tailwinds into Q4 network advertising is poised for solid growth in 2015. Content licensing and distribution was down 8% compared with 2014 when we benefited from the sales of Hawaii Five-0, Dexter and Californication.

As you know, the timing of licensing sales varies from quarter to quarter. We obviously derive a lot of benefit from owning more of our programming on CBS and Showtime and we have added to our pipeline in a meaningful way over the last two years, which will drive growth in the future.

Affiliate and subscription fees were up 9% during the quarter, driven by growth in retrans and reverse comp, which were up 50%.

Year-to- date, affiliate and subscription fees were up 16%, and this revenue source will continue to be a strong growth driver as we reset our retrans and reverse comp yields to current fair market value as well as scale our new OTT initiatives.

Third quarter operating income of $753 million was up 1%, driven by healthy gains in our high-margin affiliate and subscription fees and underlying network advertising revenue.

As a result, our third quarter operating income margin expanded 100 basis points to 23%, the highest it's been in two years even as we invested in more original programming and expanded our own distribution initiatives.

Net earnings from continuing operations grew 7% in Q3 to $426 million, and as Les said, EPS for the quarter came in at $0.88, up 19%. And on a year-to-date basis, EPS is up 7% to $2.39. Now let's turn to our operating segments. In Entertainment, revenue for the third quarter grew 1% to $1.9 billion.

Network advertising revenues also grew 1%, despite the timing of sporting events, including two fewer NFL games and no U.S. Open compared with last year's third quarter. And to reiterate, our underlying network advertising grew 8%.

Entertainment operating income of $339 million was up 12% in the third quarter and our operating income margin here expanded 200 basis points, thanks to a greater share of high-margin revenue sources, including strong growth in retrans. Again, we did this as we increased our investment in original programming hours, which were up 20% from Q3 of 2014.

In Cable, revenue came in at $526 million compared with $624 million last year when we had significant content licensing sales for Dexter and Californication, as well as larger pay-per-view events.

As we continue to own more of our programming on Showtime, the timing of syndication sales will fluctuate from quarter-to-quarter, just as it does with our Entertainment segment. However, content licensing will continue to be a growing source of revenue as our Showtime offerings expand on a global basis.

In addition, underlying Cable affiliate fees were up 2% in Q3, driven by growth in both rates and subs and we ended the quarter with nearly 23.5 million Showtime subscribers. Cable operating income for the third quarter came in at $246 million and our operating margin expanded 4 points to 47%.

Looking at it on a year-to-date basis, Cable operating income was $717 million and the margin was a solid 43%. Turning to Publishing, revenue in the third quarter grew 2% to $203 million, driven by higher print book sales. In addition, digital sales represented 25% of total Publishing revenue for the quarter.

Publishing operating income in the quarter also grew 2% to $43 million, and the operating income margin remained a healthy 21%. In Local Broadcasting, third quarter revenue came in at $638 million compared with $680 million last year.

TV and radio stations were down 7% and 6% respectively on a reported basis because of several non-comparable items, including fewer sporting events and last year's midterm elections, which collectively accounted for the entire decline in local. As far as advertising categories go, tech and telecom posted the biggest gains in the quarter.

Local Broadcasting operating income was $174 million during the third quarter and the operating income margin came in at a solid 27%, thanks to the benefits of our cost-savings initiatives from last year, which resulted in a 5% decline in operating expenses for Q3.

Turning to cash flow on our balance sheet; for the first 9 months of the year free cash flow of $546 million was up more than fourfold from 2014, driven by premiums paid on for last year's debt refinancing and the timing of syndication collections. Also, through September year-to-date, we repurchased 41 million shares of our stock for $2.3 billion.

As of September 30, we had $2.5 billion remaining on our share buyback program, which is more than 10% of our current market cap. Going forward, we will remain consistent in our approach to returning capital to shareholders and as we have previously said, we expect to complete this program in 2015 as we continue to optimize our capital structure.

In addition, the company issued $800 million of 4% senior notes in July and the proceeds were used for share buybacks and general corporate purposes. Now let me give you a few observations of what we see ahead. As Les said, we are seeing a solid scatter marketplace and continued growth in underlying network advertising.

Q4 is typically our biggest advertising quarter, so we expect a strong finish to 2015. In Local, this year's fourth quarter will be up against last year's midterm elections. However, non-political revenue in Local Broadcasting is accelerating from Q3 and pacing to be up low-single digits.

Looking ahead to 2016, in addition to the Super Bowl and political revenue, advertising will also benefit from an additional NFL playoff game in Q1. So the next 12 months of advertising revenue for us should be strong.

Retrans and reverse comp will continue to climb, with particular strength on the reverse comp side, where we have 16% of our footprint coming due next year and 46% due over the next three years. For retrans, we'll have 36% of our footprint coming up for renewal through the end of 2018.

So there's still a lot more growth to come as we make our way towards exceeding $1 billion next year and topping $2 billion in 2020. In terms of content licensing, we own about three quarters of our primetime schedule on CBS and about 80% of the original series on Showtime, not to mention all the content we produce for The CW and other networks.

So as we sit here today, we have more than 500 episodes of current hit shows such as Scorpion, Jane the Virgin and Ray Donovan just to name a few, that we have not yet monetized, creating a strong pipeline of revenue for years to come. And as Les said, we are set up to grow no matter how the bundle changes.

In fact, any move towards a skinny bundle or à la carte service will only reset the monetization of our content higher, and as a result, we will make more money sooner. In addition, as we continue to grow our direct-to-consumer initiatives, we expect CBS All Access and Showtime Over-The-Top to be contributors to our operating income growth next year.

And on the cost side, we will continue to invest rationally and take out expenses where appropriate. So in summary, first and foremost, we are growing our business by investing in must-have content, which we will continue to monetize in all sorts of ways.

Next, we're also investing in evolving the distribution landscape with our broadband services, so our content will be broadly distributed in all the ways consumers want it, no matter what platform they choose. At the same time, we remain vigilant on containing our costs and all this positions us to continue to return capital to shareholders.

So we're building strong momentum as we finish 2015, and we have great confidence in our ability to grow our earnings in 2016 and beyond. With that, Tom, let's open the line for questions..

And thank you, sir. We'll take our first question today from Ben Swinburne from Morgan Stanley..

Thank you. Les, I want to come back to All Access. I'm wondering if you could share with us how many subscribers you have. I'm guessing no, but I thought I'd ask.

Second, if there's any update on getting the NFL content on All Access? And then lastly, maybe most interestingly, can you talk about how you think about trading off licensing content to third parties, Netflix, Hulu, et cetera, to maybe moving more product onto All Access and making it exclusive on that platform, because the Star Trek move is a bold one and makes that product much more interesting I think to the consumers.

So are you thinking about maybe changing how you – where you move content over time as you move stuff off the network? Thanks..

Yes. You're right. Your guess is right; I will not divulge our subs, but I will be happy to answer the other two questions. Regarding the NFL, obviously conversations are going on all the time.

Some of it involves Thursday Night; what goes forward, obviously they put a game on Yahoo! last week, which they were very pleased with the results, so once again streaming becomes part of the equation now and part of the conversation and any conversations involving with streaming of our product would obviously involve streaming our product on our own site.

So, there are conversations going on. They are positive. Nothing much new to report, but I think we're hopeful that something will happen there. Obviously, with Star Trek, a lot of conversations went into what we're going to do. All Access is very important.

Once again, we remain a good partner for Netflix and Hulu and Star Trek is sort of the family jewels. It's a very important piece of business for us. As we go forward, we're looking to do original content on All Access and building up that platform. But once again as we say, Netflix is our friend and they're also our competitor.

They compete with Showtime and All Access will begin to put some original content and knowing the loyalty of the fan base of the Star Trek people we think this will boost it. As one reporter said yesterday, there's about a billion channels out there, because of Star Trek people will know what All Access is all about.

So we find that to be significant and important, but at the same time, we value continuing our partnerships..

Thank you..

Thank you, Ben. Let's take the next question..

Jessica Reif Cohen with Bank of America..

Thank you. A couple of questions. Les, you talked about advertising like in a lot of different ways. I'm just wondering, first of all, what do you think the impact is from all the agency reviews? You mentioned some money coming back from print.

Do you think money will come back from digital? And what's driving scatter? So that's the advertising question.

You also talked about measurement separately, but do you think advertisers will accept or are they accepting the kind of the Nielsen Rentrak, comScore currency? How far are they willing – how far out are they willing to pay for it? Is that an acceptable currency? And then the final question is, you also brought up the spectrum auctions.

What do you think the realistic timing is on that?.

On what? I'm sorry?.

On the auctions..

Got it. All right, you know what, I'll answer the first and I'll let Joe answer the other two.

Obviously, the second quarter came and the Upfront came and there was like questioning; gee, the Upfront, there isn't as much volume, and we had said look, we've been through this a lot, and I think a lot of the reason there wasn't as much volume was a lot of agency reviews going on with major, major clients.

And I think as normally happens when the Upfront may be down, suddenly they got located with the appropriate agency and suddenly that helped to increase the scatter market. The scatter market is remarkably strong.

It's the strongest we've seen it in many, many years to the point where our sales guys are beating down the door to remove promo and put sales spots in there. As we said, football is going extremely well. Late night's going well. Primetime is well. Every part of our company is doing well.

And I think, clearly, the agency reviews had something to do with that. And clearly the sky was not falling. In other words, it wasn't moving to digital. Obviously, a lot's there, but broadcast is stronger than ever..

And Jessica, it's Joe, on the measurement stuff, look, I mean, the chair we sit in, we focus on producing the best content. All we want is, all we're asking for in measurement companies, we want to measure all the eyeballs. And so we're very confident when you do that, we're going to be the number one company. So we're encouraging that.

So hopefully Nielsen does that with this total audience Rentrak and comScore, as well. So again, as long as there's third parties doing that, I think, again, the position we're in is we produce the best content, so we're going to worry about that.

And then I do think though there is, obviously, there is consumption outside of that that hopefully we'll be able to capture. As far as the spectrum auction goes, obviously they laid out a timetable of the rules. Our best guess is kind of the middle of 2016 we'll really kind of know a little bit more what we have.

I think people will be going in and discussing some values, but we won't know anything really until the middle of 2016..

Great. Thank you..

Thank you, Jessica. Let's take the next question..

Next question comes from David Bank with RBC Capital Markets..

Okay. Thanks, guys. Les and Joe, we from the outside have far less information than you guys do. And we get these headlines on Live+7 Ratings or C+3 ratings if we can get them. And it sort of feels like the monetization of your inventory is exceeding what we could sort of logically track from these rating trends.

So I guess my question is can you give us a sense of the magnitude to which you are monetizing non-linear, non-C3 ratings today.

How much is like the online streaming business contributing to network advertising? And ultimately, do you think that you are better off having that inventory count in the C3 ratings? Or do you like what you can do with it, monetizing them in other ways where spot loads don't have to be identical and those kinds of things? Thanks..

Yes, David. It's Joe. Look, here's what I would say. Certainly on the network side, we sell C7, we sell C3. So we are monetizing that. Obviously, online we monetize that as well. The opportunity, really the way see it, is what is not being monetized. So, I think, we are monetizing more than what you're reading about in the live rating.

And that's why Les has always said consistently is, we don't make programming decisions looking at that data. And nor – if you looked at ratings, it doesn't correlate to revenue. And I think that's a big misnomer. You just heard us today, we posted underlying up 8%.

And I think, again, if you would look at that and you say well, underlying ratings aren't up 8%, and so it's all coming from price. And then we say, no. I said you got to look at it holistic. So that's the good news. But the better news is that there's still more to come. We are not fully monetizing all of the consumption.

And I think again, as these measurement systems evolve because the consumer habits have changed so rapidly, that will correct itself, and there's more to come..

Okay. Thank you..

Great. Thank you, David. Next question, please..

Our next question comes from Alexia Quadrani with JPMorgan..

Thank you. Just drilling down a bit further on the network advertising comments that you'd made earlier. I believe you have one more Thursday Night NFL game in the fourth quarter this year. You've obviously talked about a very healthy scatter market tight inventory.

I guess this all just set up for an acceleration in advertising revenue growth from the 8% that you highlighted in Q3. And then my follow question, just on the NFL Thursday Night, much better ratings this year.

Any color on the profitability of that franchise and your interest in sort of keeping that Thursday Night going forward?.

Yes, I'll talk about the Thursday Night and Joe can comment on the advertising. It's true. We're done except for one game that we have in December, which has the Packers and the Lions, which should be a good draw for us and should help the fourth quarter. Obviously, we talk to the NFL lots about a lot of things; Sunday, streaming, Thursday Night.

We're very pleased with our ratings this year. We got much better match ups. They gave us a much better schedule, and fortunately, the games were a lot closer than they were last year. And that's why the ratings are up significantly and advertising is up significantly. So, we will continue to talk to them about extending the franchise.

Obviously, streaming will have a lot to do with it as well..

Alexia, it's Joe.

In the fourth quarter, obviously we don't give guidance but again, and it's early in the fourth quarter, but we said that the scatter marketplace and advertising is continuing, so we're definitely seeing the price and it's coming – the demand is broad-based, which is really good news, but obviously we have two more months in the quarter, so we'll see how everything plays out, but we're feeling pretty good finishing the year.

And like we said in our prepared remarks, I think there was a lot of questions on advertising. As we sit here year-to-date, up 3%, again and it accelerating, I think all things being equal, you look at that and you say a pretty good year. So we're confident that we can build on that going into 2016..

It was only a few months ago that people said, oh my God, advertising is down and the second quarter was tougher, but the third quarter is extremely strong and as Joe said, we don't give guidance, but from everything we see the fourth quarter is going to be even stronger. So, we're very pleased with how it's trending..

Thank you very much..

Thanks, Alexia. Next question, please, Tom..

Our next question comes from Michael Morris with Guggenheim Securities..

Thanks. Good afternoon, guys. A couple of questions, back to All Access.

First, the decision to move forward with the Star Trek project, which is a pretty big project, how much of your confidence in the investment in that was supported by behavior that you've already seen on All Access? Existing subscribers viewing either Star Trek or any content like that? And along those lines, it is a big project.

It will take a little while to get ready. Are there any smaller projects that would be incremental that you would consider between now and then, specifically for All Access? And then finally, Hulu recently announced – recently launched an ad-free option. Would you guys consider an ad-free tier? How do you think about that? Thanks..

Regarding Star Trek, as I said earlier, it is the family jewels. We have known from our information that all the Star Trek series have done exceedingly well in streaming.

It doesn't come as a great surprise, but it's the hippest, it's the coolest, even the ones that were done 30 years, 40 years ago still resonate today, and all the series have done extremely well in terms of streaming. Added into that, as I said earlier, Star Trek is a huge international franchise, so our international distribution guy is going crazy.

He can't wait to get out to the marketplace and sell that. So right away we're going to be more than halfway home on the cost of the show just from international alone. So the risk is rather small and seeing the track record, we think it's going to be great and it's going to bring in a lot more subscribers, and so we're really excited about it.

Regarding ad-free, yes, that's absolutely something that we're thinking about. As we progress into it, we're charging $5.99 right now for with ads and we've had discussions about, how about if we do a $9.99 with no ads? And it's a very possible thing for the future.

And yes, we are talking about what future projects, what original development we might put on All Access, but it's still very early. Our main focus right now is Star Trek and we wanted to start with a bang, so to speak, and I think we have..

Thanks.

And anything with respect to the smaller projects, what about anything outside of sort of the traditional long-form or full-form television? Any short-form content investment that could potentially make sense on that platform?.

Nothing we're ready to talk about yet. We're experimenting a lot and we're figuring it out..

Great. Thanks, Les..

Thank you, Mike..

Thanks, Mike. Next question, please..

We'll take our next question from Anthony DiClemente with Nomura..

Thanks. Great. Good afternoon. One for Les and one for Joe. Les, I wanted to ask about the transition in leadership at CBS Entertainment from Nina to Glenn. I wonder if that portends any changes – any creative changes at the television network.

I ask because if you take a step back, you guys at CBS have more retrans and syndication money coming in than any of the Big Four networks. So, it would seem like you can afford to take more risks. So, wondering if now is the time for the CBS Network to take more creative risk. And then I'll have a follow-up for Joe. Thanks..

All right. Look, losing Nina was not a good thing. She and I have worked together for 25 years and she's a wonderful executive. This became a lot easier to take because I had Glenn Geller who was running current programming.

Now, current programming is probably the most underrated part of the company because they are the ones after the show is on the air, that sort of supervise all the existing episodes of all the shows, and Glenn is known to all of our producers. And he's known inside and outside of our group out in Los Angeles, and he's a great creative executive.

You know what? We take shots when it's appropriate. We put on Supergirl. I think that surprised a lot of people, which obviously skews a bit younger than we would normally skew, and things of that nature. Once again, our bread-and-butter, people say, gee, you have too many procedurals.

Well, at a $2 billion profit for both CSI and NCIS, I'll take boring any day of the week. There are a lot of sexy shows that are really cool. They get great reviews that fail. So we are taking some chances. We are experimenting a lot, but I don't mind being known as the bread-and-butter network. We win that way..

Okay. Thanks, Les. And then Joe, I'm sure you are aware of this, but another media company today this morning made a decision to significantly increase their leverage target, while remaining committed to investment-grade status with the ratings agency.

So I just wonder is that sort of move something that you would consider doing, going up from your 2.75 times targeted that you've stated. How high could your leverage ratio go, while keeping CBS at investment grade? Thanks..

Thanks for the question. Obviously, I know who you're referring to. I'm well aware of their announcement. We're very comfortable with our leverage ratio. We've had conversations as early as yesterday with our agency. They're comfortable with our strategy.

First and foremost, Anthony, I think we've been consistent in this; we are investing in our business, à la Star Trek and other franchises. So, the share buyback that we're going through is really optimizing our capital structure, reducing our cost of capital. And that has been our approach; that will continue to be our approach.

We see no reason to continue to push beyond that from a leverage standpoint, just to buy back our shares..

Great. Thank you..

Thanks, Anthony. Next question, please..

We'll go next to John Janedis with Jefferies..

Thanks. Les, you talked about taking chances.

Can you talk a little bit more – maybe hit on this again about how you see the future of accessing CBS content? Meaning, with All Access, Star Trek, and Showtime, are you really moving towards some sort of integrated CBS OTT platform offering outside the traditional ecosystem with much higher ARPU? And is funded through international sales so as not to be margin dilutive?.

Look, I'll start by talking about our summer strategy a couple years ago where we figured out with SVOD and international, our shows were basically paid for before we even began, before we put them on the air. We were able to put higher-priced programming on during the summer.

As we look to what's happening with All Access and once again without giving numbers, we're very pleased with the results, and we feel like original programming is the next way to distinguish ourselves. We are going to roll that out fairly slowly.

Once again as you look towards Showtime OTT and CBS All Access, will be there be an offering of them together? Very likely in the not-too-distant future to do that. And we haven't determined yet how we would distinguish that by original programming.

At the moment, as I said, we took a very valuable piece of our own content and put it out there to sort of show what our future would be. But once again, CBS All Access and Showtime OTT are doing very well with their existing content. Showtime, obviously it's an easier way in.

On CBS and on Showtime OTT, they both give people opportunity for catch-up, which so far has been a major driver of that, and now we'll give them something extra..

Got it. And thanks for the comments on the delayed viewing and measurement.

Can you give us a timeline on when that rolls into and out of beta? And maybe at what point will there be a visible impact on network ad growth?.

Look, John, it's Joe. The sooner the better, really. We're pushing this and we hope the entire industry pushes it, but obviously the next really big wave is next year's Upfront. And we're going to have to keep pushing that with dynamic ad insertion as it continues to scale.

So, we wish it was sooner, but I think again it is a sizable opportunity for us..

All right. Thanks, guys..

Thank you..

Thanks, John. Next question, please..

We'll go next to David Miller with Topeka Capital Markets..

Yes. Hey, guys. Les and then Joe, if you want to chime in. Wouldn't it be fair to say that for the next five quarters, advertising is definitely going to grow year-over-year, at the very least low if not mid-single digits? I mean you're going to have that AFC Wild Card playoff game back in Q1.

You're going to have the Super Bowl, you will have the original programming that you just talked about, you get – correct me if I'm wrong, the extra Sunday football doubleheader game in Q3 of next year. Then of course, you will have the political angle.

So wouldn't one of the messages here be that no one really has to worry about advertising contracting over the next five quarters? It's going to grow for the next five quarters low-to-mid single-digits at the very least, correct?.

Well, David, as Joe said, we don't give projections, we don't do that, but we're feeling pretty good about your theory. I wouldn't dispute any of those facts that you gave, but we're sitting here looking forward and we're feeling pretty darn good about what we see.

We know what the Super Bowl's going to bring in already, we're fairly confident political's going to be huge, you're right about the extra AFC Championship games and the playoff games. In addition, we have more and more programming. We will have three – we will have Zoo plus two more originals in the summer.

So forward-thinking without forward-thinking is pretty good..

So David, thanks for writing our prepared remarks for next quarter. It's going to be very helpful, we'll go back to this..

Always happy to help. Thank you..

Thank you..

Thank you..

Thanks, David. Next question, please..

Next question comes from Doug Mitchelson with UBS..

Thanks so much, guys. A couple of questions. One; Les, you talked about differentiating your OTT services in a world heading towards à la carte or slim bundles.

When you consider where the world is going, would there be a benefit to greater scale? I know you are strategically complete, but a bigger library, more current production, greater breadth of genres? Does any of that have any appeal to you over time as you think about expanding these OTT services?.

You mean are we looking to acquire anybody? Look, we love – Doug, you know we love content. We really do and we have obviously, with Showtime, CBS, CW, Showtime OTT, CBS All Access, we have room for content. Having said that, it would have to be a great opportunity for us.

We've been cautious about doing that, we are a content company, we believe the world can have more content, we don't believe the guy who says oh, there's too much content. There never can be too much content and we want more of it. Right now we're fully equipped to produce a lot of shows.

We have north of 30 shows ourselves in production, but if there's a great opportunity we'd certainly jump on it..

And I just wanted to follow up something you said I think in your prepared remarks. One or more major media or tech companies will launch a skinny bundle next year and I think you were talking about over-the-top. Why do you think that hasn't happened so far? There was certainly a lot of buzz about it this year..

Well, you know what, number one, these things do take time to hatch. I know in the new world of technology everybody expects things to happen right away. Verizon has the service that's out there, Sony has the service that's out there, obviously DISH has the service that's out there.

Comcast is fooling around with ideas around the skinny bundle, so is Time Warner Cable. So I think, as time progresses, I think you'll see much more activity or they'll skip right to à la carte, in which case we'll do better either way.

But I think there's no question that there's going to be a change from the 180-channel universe, that people will want more specificity on what they're watching..

Thanks so much, gentlemen..

Thank you..

Thank you, Doug. Next question, please..

We'll go next to Laura Martin with Needham..

Hi, guys. Two questions. One on – one of the big surprises we've seen from both HBO Now and from WWE over-the-top is the huge percent of viewing of library. About 70% is coming from library and less from sort of live or new programming.

And I'm wondering if you could share some of the surprises from your over-the-top, two over-the-top channels and whether that's true of yours. And then the second thing, Les, I think you are arguably the best living programming executive for television.

And what we're getting is a new smartphone global platform that has shorter windows of time and also personalized, allows personalized content.

So I'm interested as you as a programmer, who has traditionally done long-form, how are you thinking about this sort of parallel ecosystem on the smartphone that's developing? And is CBS going to play in either shorter form or also more personalized content going forward?.

All right. Joe, why don't you answer the first and I'll do the second..

Yeah, here's what we're seeing, Laura. We're seeing they're absolutely catching up on the library stuff. So that has tremendous value. On the CBS side, it's definitely a lot of value in the current season, so that's catch-up, so that drove into the new season. And they're watching twice as much content.

So when they come in, they kind of like what they have so those are the super fans that we're really getting and we're feeling that there's an appetite out there – an on-demand world around their time. So we're giving them kind of choice and convenience and that really seems to be resonating as the early sign.

So as we continue to roll out more and more content, I think that will build. What we're going to look at now is we're going to watch the Star Trek fans and going to see the usage go up over the next several months as they kind of just re-acclimate themselves with the franchise, so we are definitely seeing that..

And regarding content for the smartphone, it's a very good question that we are wrestling with. Obviously with news and sports it's fairly easy to put together packages of smaller, shorter-length content. We can do excerpts from our football game and the headline news, which we are currently doing online as we speak.

In addition, our late night guys lend themselves to smaller content putting on the Colbert monologue and the Corden karaoke, Carpool Karaoke, which is very successful. And then you look at the Entertainment content; what can we do? Obviously, Disney made a big investment in Maker Studio.

We are doing that on a smaller scale internally, where we're exploring shorter forms of content where an entire series will be done in 60 minutes. In other words, 12 five-minute episodes and that right now is sort of in the early planning stages, and we've got to see how effective that is.

But it certainly is something we are looking at for the future, and it is becoming an important worldwide piece of content..

Very helpful. Thanks, guys..

Thanks..

Thank you, Laura.

Next question?.

We'll go next to Omar Sheikh with Credit Suisse..

Good afternoon, guys. Just a couple questions from me. First of all, Joe, I think earlier you mentioned that....

Hey, Omar, can you speak up a little bit? We can't hear you, buddy..

Sure, yes. Okay. Joe, earlier, I think you mentioned in your prepared remarks that you said that CBS All Access and Showtime would contribute to operating income in 2016. Just wonder whether you could confirm that's what you said and maybe if you could help us understand what sort of content we should think about next year..

Sure. I did say that and I can confirm that and the reason being, Omar, is the fixed cost space is now really laid. That was a 2015 investment that you saw this year, and so now as we drive subs, we anticipate that incremental revenue to fall to the bottom line. So that's the way we're anticipating it.

And when you think about things like Star Trek, we're able to do that even though that's a 2017 event because the international demand, as I said, is so big, the net investment to us is relatively small. So, we're feeling pretty good about that. So we are saying yes, it will help our operating income growth next year..

Okay, great. That's clear. And just a second question was on content and licensing. Just thinking about the bucket, the close to $3 billion bucket in Entertainment. Obviously, you don't have – you won't have the Elementary revenues next year in 2016, but you mentioned that there were – there's 500 episodes that you are not yet monetizing.

I just wonder whether you could help us understand how you're thinking about whether or not you are going to fill that $200 million gap next year with some of the content that you are monetizing. Or should we just assume that $3 billion bucket is going to be down year on year in 2016 versus 2015? Thanks..

We never assume anything is down Omar because again we have a deep library what it is, and as well as the international marketplace is growing. So yes, we won't have Elementary to sell, but we do have again all of those other episodes, so we can't sit here and say we're going to sell and force a sale.

The marketplace really dictates when we sell something based on the demand. What I can tell you is obviously I would tell you today we received a lot of calls about Star Trek and our sales guys said that was terrific. That's not until 2017 but we've got a lot of other stuff to talk about.

So there's always a conversation going on, so that's why we never budget anything to go down. And so we understand the comp and this year we had sold – last year we sold Hawaii Five-0, Dexter, and Californication. So okay, but that's a good thing for us to do and we're replenishing the pipeline each and every year.

So, I don't look at when it hits in a quarter. I just look at are we replenishing the pipeline and that's really the color we try to provide to you guys..

Great, that's clear.

And just to be clear, was all of Elementary booked in Q3? Or is there some to come in Q4?.

Yeah, look, most of it, I don't know that, Omar, the details. But most of it is in Q3..

Okay. That's kind. Thank you..

Thank you, Omar. Let's take one final question, please..

Yes, sir and that final question comes from Vijay Jayant with Evercore..

Thanks. I have two larger picture questions. First, I think the FCC voted to review retransmission negotiations between pay TV operators and broadcasters and sort of wants to get involved.

Can you give us what your thoughts are on how that sort of plays out? And second, now that you have your own platforms, can you just talk about changes in programming costs and supply of content for kind of projects you want to do going forward? Thank you..

Regarding the retrans, actually the FCC just came out with a very positive ruling in our favor, which basically said there had been some talk about being able to bring in signals from outside stations. Now, the head of the FCC said he's now removed that.

So there's a clear path now for all retrans and reverse comp deals to go through without any governmental interference. So that's definitely a positive for us.

Regarding the types of content that we do, look, between Showtime, CBS, The CW, first-run syndication, we do all sorts of different types of programming from The Price is Right to Judge Judy to The Good Wife to Homeland and Ray Donovan.

And as you look towards, obviously, what we're going to put over-the-top, we've announced Star Trek is our first venture there. During the summer on CBS, we've done some more science fiction. We will see what the public wants. But as you can see, we are experts at producing all sorts of content for all sorts of people and all sorts of demographics.

And we've succeeded on every single level. So we intend to continue doing that no matter what the platform is..

Great. Thank you so much..

Thank you, Vijay, and thank you, everyone, for joining us tonight. This concludes today's call. Have a good evening..

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation..