Adam Townsend - EVP, Corporate Finance and IR Leslie Moonves - Chairman, President and CEO Joe Ianniello - COO

Ben Swinburne - Morgan Stanley Jessica Reif Cohen - Bank of America/Merrill Lynch Alexia Quadrani - JPMorgan Michael Morris - Guggenheim Securities Anthony DiClemente - Nomura Securities John Janedis - Jefferies Bryan Kraft - Deutsche Bank Doug Mitchelson - UBS Laura Martin - Needham & Company Tim Nollen - Macquarie Research Vijay Jayant - Evercore ISI David Miller - Topeka Capital Markets

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

Thank you, Gwen. Good afternoon, everyone, and welcome to our fourth-quarter and full-year 2015 earnings call. Listening on the phone is our Chairman Emeritus, Sumner Redstone. And joining us with today's remarks are our recently elected Chairman, Leslie Moonves, who also remains CEO; and our Chief Operating Officer, Joe Ianniello. Les and Joe will discuss the strategic and financial results of the Company, and we will then open the call up to questions. Please note that during today's conference call, the full-year and fourth-quarter results are 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 Web site. 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 Corporation's news releases and securities filings. A webcast of this call and the earnings release related to today's presentation can be found on the investor section of our Web site at cbscorporation.com. And with that, it's my pleasure to turn the call over to Les.

Thank you, Adam, and good afternoon, everyone, and thank you for joining us once again. First, last week, as you heard, I was elected Chairman of this great Company. I want to start today by thanking Sumner by thanking our Vice Chair, Shari Redstone, and our Board of Directors for this great vote of confidence. It is indeed an honor to be the Chairman of CBS. I also want to say, right up front that I couldn't be more pleased and encouraged about the continued strength of the CBS Corporation. Our assets are performing extremely well, and they are set up for a terrific future. I know you've been sorting through a lot of earnings analysis this week, and when you look at CBS you'll see that we have a unique and compelling story. So, now let's get to the results. I'm extremely pleased to tell you that we delivered a terrific fourth quarter. We posted our best results of 2015 and built on the momentum that we began to see in Q3. Fourth-quarter revenue was up 6% to $3.9 billion, the highest quarter in the history of CBS. Operating income was also up 6% to $747 million and was a fourth-quarter record. And EPS was up 19% to $0.92, again the best EPS we've ever achieved. The good news is these strong fourth-quarter results are serving as a springboard for what is going to be an outstanding 2016. In the year ahead, we are set for broad-based strength across all of our revenue sources. First, advertising is as robust as we've seen in a long time. Scatter pricing is way up over last year's upfront, a fact that will be fresh in the mind of buyers as they approach this year's upfront in just a few months. This bodes very well for us, and we expect significant increases. On top of that, as you know, we just had the Super Bowl here in the first quarter, the third highest-rated broadcast in the history of television. And we have an extraordinarily Grammy show coming up this Monday. And we will obviously benefit greatly from the presidential election, which will be extremely competitive for quite a while. This will give us a huge lift of political advertising to the third and especially the fourth quarters. Next, 2016 will be a landmark year in terms of re-trans and reverse comp. Pricing has increased even faster than we anticipated meaning we will pass $1 billion in revenue this year, well ahead of our previous outlook. And we are confident we will exceed $2 billion in re-trans and reverse comp by 2020. 2016 will also be the year that our Over-The-Top subscription services began to make a positive impact on our financial performance. Both CBS All Access and Showtime OTT continued to pace ahead of our expectations, including the most All Access sign-ups we've ever had this past Sunday with many more to come next week, thanks to the Grammys. These new subs are bringing in younger audiences at economics that are much better for us. In addition, the response to our upcoming highly anticipated new Star Trek series, which will be seen only on All Access, except for the first episode, has been tremendous. And we are now looking at the possibility of utilizing CBS Studios to create additional exclusive programming for All Access. So stay tuned for more on that and for updates about Showtime OTT as well. Next, 2016 will be a game-changing year for us internationally. Most significantly, our strategy of licensing the entire Showtime brand overseas has taken off. What started with a groundbreaking deal with Bell Media in Canada a year ago has expanded to the UK, Ireland, Germany, Austria, Italy through a huge deal with Sky and to Australia through a lucrative deal with Stan and there are more of these to come. In addition to Showtime demand for our CBS content has never been stronger around the world. For the first time, we now have a financially substantial deal in China to license our CBS and Showtime programming. So from advertising to retrans and reverse comp, to Over-The-Top, to international licensing, 2016 is poised to be a banner year for the CBS Corporation. As you know, what makes us so successful is the strength of our content. And it all starts with the CBS Television Network, where we are number-one this season in all key demographics. Yes, 18 to 49, 25 to 54, viewers and households -- CBS is number-one across the board, with a little help from the Super Bowl. Across the entire multi-platform media landscape, CBS has the most watched content in the business. This includes the number-one comedy, Big Bang Theory, and the number-one drama, NCIS. Both of these shows are watched by an average of more than 20 million people, week after week. No other network has two series that reach anywhere near that kind of audience. The breadth of our programming is also key to our success. We are number-one every single night of the week this season, with five of the top 10 shows on television. And when you count all of our viewers across platforms, CBS is up 6% from where it was 15 years ago. So, we have steady, broad-based success at the network, and there's no one better at aggregating a mass audience. As we told you, and as you know, CBS just aired the biggest television event of them all, Super Bowl 50. As expected, the game drew a massive audience. On average, throughout the night, we had 112 million viewers with millions more watching online, and we monetized them all. As a result, we significantly exceeded our financial targets, which once again will be a big boost to our first quarter. In fact, taken together with the Mayweather-Pacquiao fight last May, we're now pretty certain that CBS has had the two biggest revenue days in the history of media. This past Sunday was also very special for us, because CBS aired the very first Super Bowl on January 15, 1967. Clearly the game has come a long way since then. In fact, a 60-second spot during that first game went for $85,000. This year, that same 60 seconds costs $10 million. Back in 1967, the number-one scripted show on television was The Andy Griffith Show on CBS. And, today, the number-one scripted show on television is NCIS, also on CBS. Some things, I guess, never change. In addition, we announced last week that we have retained the rights to Thursday Night Football for the next two years, with five games per year in the first half of the season. We think this is the right amount of games at the right value, at the right time of the year, to kick off our schedule this fall. Meanwhile, the Super Bowl was also a terrific lead-in for Sunday night special broadcasts of The Late Show with Stephen Colbert, and The Late Late Show with James Corden, each of which had by far the biggest audiences they've ever had that night. Both of these shows continue to post big gains in ad revenues, up double digits year-over-year. The Late Show with Stephen Colbert is the only late-night shown in its time period to grow in viewers and key demos from a year ago. And as the election nears, there is no one on late night that stands to capitalize on the opportunities from the race more than Stephen. In addition, The Late Late Show with James Corden has become a social media sensation. At this point, every Carpool Karaoke segment he posts is a viral hit. The one he did last month with Adele is now approaching 70 million streams, the most watched YouTube clip ever by a late-night host. And since we now own both of these late-night shows, we can monetize all of this online viewing as well, a number that keeps getting bigger and bigger every week. Another area where we are seeing growth across platforms is at CBS News. Our flagship newscasts are growing viewers faster than any other network. CBS This Morning is attracting the biggest morning audience we've had in 28 years. The show is averaging 1 million more viewers than it did when we launched our new format four years ago, making it more profitable every single year, with lots of upside in this lucrative time period. The CBS Evening News is also on a roll. During the quarter, the show delivered its largest audience in nine years. Plus, on the weekends, we have the number-one morning news program, with CBS Sunday Morning; the number-one public affairs show, with Face the Nation; and of course, 60 Minutes, the number-one news program in all of television and of all time, and a top 10 program nearly every single week. This includes last month's episode, where Charlie Rose interviewed Sean Penn and brought in well more than 20 million viewers, leading to the largest non-sports audience for a single broadcast this season. As we grow our news viewers on air, we're also growing them online. CBSN, our digital news network, has attracted more viewers every single quarter since we launched in November of 2014. During the fourth quarter, we had nearly twice as many streams as we had in the third. And engagement levels are very high, which is important to advertisers, with the average viewing session now exceeding 40 minutes. Plus, these new viewers are 20 years younger than the ones on broadcast or cable news. Clearly, this is where the future of news is going to be, and we are going to be there. Turning to cable, Showtime is doing spectacularly well, both creatively and in sub growth too. Our new series, Billions, is off to a terrific start and I'm guessing many of you are contributing to that success. The premier of Billions was the best-ever launch for a freshman Showtime series and ratings have gone up dramatically each week since then. This is a genuine hit. And because of that we've already announced that the show has been picked up for a second season. Once again, we own 100% of Billions, which has a very nice ring to it. Billions is the latest in an incredibly strong line-up of Showtime hits, with more to come, including the highly anticipated return of Twin Peaks, which will debut next year. So from Homeland, to The Affair, to Ray Donovan, to Masters of Sex, to Shameless, to Billions, to Twin Peaks, we have a murderer's row of original programming on Showtime. And each hit we launch is bringing a lift to Showtime's OTT service, which is growing in subscribers, month after month. For example, when we premiered the most recent seasons of The Affair and Homeland in the fall, digital subs more than doubled. And now Billions is providing yet another surge. Growing OTT subs remains a top priority at Showtime, and represents a tremendous financial opportunity for us. At Simon & Schuster, we turned in an extremely strong quarter, also thanks to the strength of our premium content. For the year, we had 249 New York Times bestsellers with 32 reaching number one. And in 2016, we will be putting out new titles by some of the biggest names in publishing and entertainment, including Stephen King and Amy Schumer. And as we announced today, we are very excited to have the new Born to Run book by Bruce Springsteen, which we think will be the biggest title of the year. It's good to have The Boss at CBS. Our big-ticket content is also the key to our success at our local TV stations. Ad rates on the Super Bowl Sunday were up 45% from when we last had the game three years ago. And local sales for the Grammys on Monday are pacing to be up in the teens compared to last year. And, of course, we are preparing what looks to be a record year in terms of political advertising. The crowd of candidates remains large and there's a lot of uncertainty, which is just the way we like it. Once again based on Iowa and New Hampshire, this race is going on for a long, long time. And in addition to our TV stations, we also look forward to a lift from political dollars in radio this fall as well. As others in the industry have done, we have adjusted the book value of our radio business. This is an accounting move that doesn't limit our belief in the business as a high-margin vehicle that throws off a lot of cash for our shareholders. Also in our local broadcasting segment, we have filed to have some of our television stations participate in the upcoming spectrum auction. It's a compelling option to have and could serve as a lucrative source of added cash for us down the road. So, our fourth-quarter and 2015 results were terrific but what we're really excited about is the future. What others see as challenges, we see as opportunities. This is because CBS is unique in its standing as a media company that is poised to succeed no matter how the world changes. For eight years running now we have had more top 20 shows than any other media outlet, regardless of platforms. Add to that our major sports packages. Also live events, like this Monday's Grammys, and the millions and millions of viewers we have across our other day parts, it becomes clear that CBS has to be part of any viable distribution package. In the 180-channel traditional bundle, we will be there. In the skinny bundle of 15 channels, we will be there too and for broadband-only homes we will be there with All Access and Showtime OTT. So we have vast headroom to grow in the current ecosystem and we have even bigger growth opportunities in an unbundled universe as well. Once again, I'm extremely pleased that we had an outstanding fourth quarter and across the corporation and I'm even more excited that we are poised to have a phenomenal 2016. As always, we appreciate your support. And with that, I'll turn it over to Joe.

Thanks, Les, and good afternoon, everyone. As you heard, CBS capped off 2015 with a record fourth quarter, and we're building off that strength here in 2016. We are clearly firing on all cylinders. Advertising continues to benefit from a strong scatter marketplace. Re-trans and reverse comp are set to hit $1 billion in revenue. International licensing has surpassed $1.5 billion, and continues to grow. And our Over-The-Top services are expanding rapidly. We continue to set ourselves up for the future by investing in premium content and in our own distribution services. So as Les said, we are poised to succeed no matter how viewers choose to consume their content. Now let me give you some more details about our fourth quarter results. Revenue for the quarter was up 6% to an all-time high of $3.9 billion and all three of our major revenue sources grew nicely. During the quarter, advertising was up 1%, despite comping against strong local political advertising from 2014. Network advertising led the way and grew 8% during the quarter, and gained momentum from the third quarter. And on a full-year basis, underlying network advertising was up 4%. Affiliate and subscription fee revenue was up 13% for the fourth quarter, as retrans and reverse comp continues to grow with each new deal that we do. And content licensing and distribution was up 16%, driven by our new deals to license our Showtime programming internationally, which once again underscores the strength of our strategy to own more of our content across our networks and monetize it globally. We also turned in operating income that grew 6% to $747 million, a fourth-quarter record. And we achieved that increase even as we produced 14% more original programming hours at CBS, Showtime, and The CW. Once again, this investment in content sets us up for bigger monetization opportunities in the future. In addition, net earnings from continuing operations of $436 million was up 8% in the fourth quarter. And EPS was up 19% to $0.92, another all-time high, marking our 24th consecutive quarter of EPS growth. In terms of our results for the quarter, our EPS was adjusted to exclude three items to better reflect the performance of our business. They include an after-tax restructuring charge of $16 million, which will have a short 12-month payback to it; a non-cash impairment charge of $297 million, net of tax, to reduce the book value of our local radio group; and an after-tax gain of $128 million on the sale of an interactive business in China. Now let's turn to our operating segments. In entertainment, fourth-quarter revenue of $2.5 billion was up 9%? And just like our total Company results, we posted strong growth across our key revenue sources here, as well. As I mentioned, network advertising grew 8%. Retrans and reverse comp was up a strong 44%, and content licensing increased 7%. Entertainment operating income for the fourth quarter came in at $347 million, up 37% due to strong growth in our high-margin revenue streams. As a result, our operating income margin expanded 300 basis points. At our cable network segment, fourth-quarter revenue grew 13% to $562 million, driven by Showtime's new international licensing deal, which covers five countries across Europe. As we continue to do more of these deals, we are creating guaranteed revenue streams that will benefit Showtime for years to come. In addition, we are also growing in the U.S., where our Showtime subs reached an all-time high at the end of 2015 of just under 24 million. Our fourth-quarter cable operating income came in at $228 million compared with $241 million in Q4 of 2014, primarily due to the mix of titles sold and the benefit of the Bell Media deal from a year ago. As we have said consistently, margins should be looked at on a full-year basis. For 2015, our margin here came in at 42%. And looking ahead to 2016, we expect our operating margins to expand at our cable network segment. In publishing, fourth-quarter revenue of $233 million was up 8% as a result of our strong titles, demonstrating that this segment too, is driven by good content. In addition, as more consumers are listening to audio books on their mobile devices, we are seeing strong sales in digital audio, which was up 35% during the quarter. Publishing operating income for the fourth quarter grew 36% to $34 million, and the operating income margin expanded 3 points to 15%. Looking ahead to 2016, we expect to grow our operating margin here by strong title releases, led by the Bruce Springsteen book Les just mentioned. In local broadcasting, fourth-quarter revenue came in at $719 million compared with $785 million in the prior period when we had the mid-term elections. However, non-political revenue grew 1%, which is in line with what we told you on our last call. Telecom, food and beverage, and entertainment were the best-performing categories during the quarter. Local broadcasting operating income for the fourth quarter was $232 million compared with $292 million a year ago. Our local broadcasting margin came in at 32%. And we expect our margin to expand in 2016 as a result of the cost savings initiatives we have been implementing, as well as political advertising. Turning to cash flow and our balance sheet. For all of 2015, free cash flow was $1.2 billion, up from $1 billion in 2014. We ended 2015 with $323 million of cash on hand, and gross debt of $8.4 billion, which yields a prudent 2.7 times leverage ratio. Also for the year, we repurchased nearly 52 million shares of our stock for $2.8 billion. We have $2 billion remaining on our share buyback program, which we expect to complete in 2016. Returning value to our shareholders remains a key priority for us. Now let me give you a few observations of what we see ahead. For advertising, the momentum that started in Q3 of 2015 continues to build here in Q1 of 2016. At the network, we expect a very strong first quarter driven by an extra NFL playoff game, Super Bowl 50, and the Grammys, as well as growth in the scatter marketplace, which continues to benefit us because of the inventory we held back from last year's up fronts. Local broadcasting will also get a lift from the Super Bowl, and is pacing to be up high-single-digits in the first quarter. In content licensing, we continue to replenish the pipeline. We have lots of young series across our networks that we have not yet monetized domestically, including NCIS: New Orleans, Scorpion, and Limitless from CBS as well as Ray Donovan, The Affair, and Billions from Showtime. So with so much choice out there, only the best content will stand out, and we have the content that will deliver that. Also as you've heard, we expect to surpass $1 billion in re-trans and reverse comp this year. Up until this point, much of our growth in this category has been driven from re-trans. But reverse comp is now playing a very big role in this growth story as we make our way towards exceeding $2 billion in re-trans and reverse comp by 2020. So in summary, we just completed a very strong quarter, and we are poised for a record-setting 2016. Looking beyond that, investing in our future as a content company remains of the best thing we can do for our shareholders. Our ability to offer a concentrated value proposition with the best in news, sports, and entertainment is what makes CBS stand out from the rest. It's the reason we can thrive in a traditional bundled universe, and why we are positioned to succeed in an unbundled, a la carte world as well. And the global opportunities are huge. So we feel very good about where we're headed, and we look forward to discussing our results with you on our next call in early May. With that, operator, we can open the line for questions?

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

I have two questions, unrelated: I wanted to ask about the outlook for licensing. Joe, you mentioned some of the younger shows on the network. And as you guys know, there's a lot of question in the marketplace about the demand in traditional off-net and more broadly around licensing. So, can you give us a sense of your expectation around timing of monetization for those big CBS shows? And I don't know if you'd be willing to talk about it, but would you be able to say you think you can grow licensing in 2016, particularly when you think about the deals you have done on Showtime in Europe, for example? And then unrelated, Les, we've gotten this question a lot, and maybe you can touch on it. Having the Chairman and CEO role together now, do you think investors and shareholders should be thinking that there will be anything different coming out of CBS, in terms of strategy or capital allocation, now that you've taken on both roles? Thank you.

All right, Ben, let me tackle the first one. Look, you know we don't give guidance, so here's what I will tell you. I will tell you that there are more buyers in the marketplace for hit content than there have ever been in the past. So the way we look at that is certainly from a price point perspective, it's going to, price is going to go up. So we're feeling really good about it. And again, I will also tell you that whenever we budget a revenue type, we've never in our professional career budgeted anything to go down. So I think we have high expectations for that, and it's because of the content pipeline. We have hundreds of episodes yet to be monetized. And as Les said, we have more top 20 shows that anybody else. So if anybody is buying anything, they're going to start with us.

Ben, on the other question, look, Sumner is for many years giving me a free rein, so I don't view being the Chairman as changing our strategy or performance. The team is still together. I'm excited about the opportunity. It's an honor to be doing this. But I think it's going to be business as usual. We're in great shape. And I think our team is very satisfied in knowing that there is stability here and there's going to be for many years to come.

We'll take our next question from Jessica Reif Cohen with Bank of America Merrill Lynch.

I have a couple of questions. First on the newer international deals, they are different than some of the previous deals. Could you talk about how long these deals generally are? Are they in dollars or local currency, and what kind of escalators you have?

Yes, Jessica, it's Joe. Yes, the Showtime deals you are referring to, they are different because it's basically they're taking the Showtime brand and all future episodes. So they are buying the library the backlist as well as all new shows, going forward. So I think that's the exciting part, because what we're building is obviously a global brand. Each deal is different. Obviously if they are in local currency, we are going to hedge that foreign currency risk. We try to get them denominated in dollars. They are usually 5 to 7 years in duration depending upon the partner. So we're set up very nicely for a long period of time.

Great. And then just switching gears completely -- but in advertising, I just wanted to follow up on some of the comments you both, Joe and Les, made. Joe, you gave guidance for local for -- this is about Q1. For local, I think you said high single digits.

Right.

In terms of percent change. But I didn't hear any commentary on the network. And, Les, you said you expect significant increases in the upfronts. I was wondering if you could give us any kind of range on that. And then one last question for you, Les. As you are looking towards the upfront presentations, is there any change in the way you are approaching the development season or the development process?

Alright, let me deal first of all, the reason we are so encouraged. There was concern at the last upfront that the numbered, even though CPMs were up mid-single digits, volume was down, there was a little bit of nervousness. Oh, gee, is the digital revolution taking over? And as we saw, beginning in the third quarter when scatter went up in terms of -- high teens, we're talking about -- and that continued into the fourth quarter, and continuing to the first quarter. So, once again, we always like to say that a guy who bought ads from CBS in October paid nearly 20% more than he would have if he would've bought from us in July. As this momentum continues -- and, once again, tightened by the great sporting events we have, the Grammy awards, political advertising locally -- but at the network, the scatter is getting better every month. So as we head into the upfront, we are fairly certain -- and once again, Jo Ann Ross will kill me, so I don't give numbers. But I think it's going to be substantially higher than it has been before, than it has been in the past year. And I think it generally follows that when scatter is this strong, the upfront continues to be strong, and we're anticipating that now. In terms of development, there's really nothing uniquely different now. Obviously we have a new President of Entertainment who has slightly different tastes than Nina, and Glenn is great. We are ordering around the same number of pilots as we have in previous years. I would say we own a lot more than we ever have before. There are only a couple that we are not -- that we don't own at least half, and an awful lot of them we own 100% of that. Because, as you see, the back end becomes as important, if not more, than the front end. And the kind of shows that we're developing, once again, at this point, they are across the board, from procedurals that have worked very well with us to more soapy, serialized shows, which now with the SVOD players, buying them and paying more for them. So it really is too early to tell. I can tell you I am very pleased with the development. We don't need that much, because we have a great stability in our number-one schedule. So I've read all the scripts, and we're casting, and we will start production shortly.

Thank you.

Yes, I don't want to forget about your last question. I know you won't let us forget about it. But we didn't give you the network advertising because it's so big, we don't want to scare you. But all I will tell you is that the underlying, I think, again is really key, because obviously we have the Super Bowl and the extra playoff game. So it's a big number. But underlying, the key takeaway you should take away, the underlying strength continues. We haven't seen a market like this in quite some time.

Fantastic. Thank you.

Thank you, Jessica. Gwen, next question.

And we'll go next to Alexia Quadrani with JPMorgan.

Just two questions. First, you seem to be making a very big push around CBS All Access, with promotions in the Super Bowl; and content investments you mentioned -- additional, inclusive programming on CBS All Access. Can you talk about how you are thinking about balancing growing this great new service with balancing potential disruption to your existing business, which still drives so much of your earnings? And then a second, totally unrelated question, just on your comments earlier about possibly participating in the broadcast incentive spectrum auction. Any thoughts there on the potential use of proceeds?

Alright. I'll try to deal with the first one. Yes, All Access, yes -- it is very important to us. But as we said, no matter how you get your CBS content, we are going to be there. So if you want to stay more traditional, we're going to be there. But as more and more people are watching our content digitally, we also want to make that offering there. So, you take an opportunity like we had with Star Trek -- and when you talked about original content -- and obviously we could have put that anywhere. We could have put it on Netflix; we could have put it on Amazon and sold it for a lot of money. We said the investment is much more important to put it on All Access. You are right and you are observant; we did put a spot for All Access on the Super Bowl, as well as a spot for Showtime Over-The-Top, and we say that's part of our future. It's going to be a growing part. And as we said in our earlier comments, next year it's going to be a substantial financial benefit to us to have those sub numbers with us. So it's part of the future. And as I said, any way you want to get your CBS, we're going to be there.

And for your second question, Alexia, the broadcast spectrum: obviously because we're participating in it, we can't really say too much about that. But what we will say is, A, any proceeds realized we, first and foremost, always look to reinvest in our business, in more content. And any excess capital, we return to shareholders.

Thank you very much.

Thanks, Alexia. Gwen, next question.

We'll go next to Michael Morris with Guggenheim Securities.

Thank you, good afternoon guys. Two questions, first on All Access, can you share what you're seeing in terms of the viewing habits on that product right now? What are your customers using it for in terms of catch-up viewing, etcetera? And I'm particularly interested in whether sports viewing is important and proportional on that service compared to on the traditional service. And then second of all, maybe a more theoretical question, but how would you think about possibly -- in the primetime lineup, instead of programming three hours, do two hours, maybe pull the local news forward an hour, and bring some of your highly rated late-night programs earlier and then perhaps being able to reallocate that programming budget. Thanks.

Joe, do you want to take the All Access [Multiple speakers]?

Yes, I'll take the All Access, Mike. Look, I think what we are seeing -- obviously, the demographic, we're seeing a younger audience. Obviously we're seeing a lot of Millennials consume there. The biggest where they're spending the most amount of time is those catch-up viewing, it's past episodes of current seasons. And so that's, again, a really good promotional vehicle for they catch up, and then they start watching back at the network, so that's where we're seeing probably 60%-plus of the viewership. Sports is actually small, and live is smaller as well. So I think the value proposition is its deep library, its catch-up ability. It's anywhere, anytime. And that's where we think where the value -- where we're delivering.

And Mike, regarding primetime, these shows -- our primetime lineup is very profitable, especially with the aftermarket. And you may recall a move that I think may have been the greatest mistake in the history of broadcasting, which was to put Jay Leno at 10 o'clock, which clearly was a big failure, and frankly benefited us a great deal with our 10 o'clock programming because it was able to increase our numbers at that point. And as I said, these 10 o'clock shows, most of what we own or throughout our schedule have a very lucrative aftermarket, which frankly the late-night shows don't have. The late-night shows do have a market online and they are very lucrative, but nothing compared to an NCIS or a CSI.

We will take our next question from Anthony DiClemente with Nomura.

I wanted to ask about your thoughts on the pricing of streaming services. Hulu charges an extra $4 to be ad-free, which we think is priced below what those networks get in terms of ad revenue per user. And I think you guys have said you generate roughly $4 a subscriber in CBS ad revenue. So, as it relates to CBS All Access -- first off, are you considering an ad-free version of it and if you are, do you think you would price it at $9.99? Or would you do something below $9.99 to entice better adoption of it, as Hulu does? And then, Joe, just want to ask about the sale of the interactive business in China. Can you just talk about that? Are there any other digital assets or hidden assets that you've got there under the hood at CBS that might be divestiture candidates for us? Thanks.

Yes. Anthony, on the All Access, we priced it at 5.99 and we're exploring it. And you have the right numbers. At $4, that's what we're getting approximately from a CBS viewer for non-advertising. And we've contemplated doing a 9.99 service. We're not there yet. And once again, remember, All Access is new. We're experimenting with pricing. We think we're at the right place. The same kind of thing with Showtime OTT and we think if we do offer an ad-free service, which is a great possibility, that's the sort of pricing we are looking at, so it will be -- it won't matter to us whether they are doing an ad-free or with ads. May I add, at Hulu, it hasn't worked that well yet for the ad-free service. People still prefer it to be without ads, but we will look at that.

And on the sale, we sold an interactive business, an auto business called Xcar in China. Again, it was fantastic, again, a great accretive multiple for us. China's volatility just made sense for us to exit that. So we're constantly looking for underutilized assets where we could maximize it and sell it really in a tax-advantaged way. And we were able to do that on this one. So we're constantly doing that, Anthony.

Thanks a lot.

We will go next to John Janedis with Jefferies.

Les, you reiterated your confidence in retrans. But the market has gotten incrementally nervous that the slowing affiliate fee growth at the cable networks, more broadly, is going to impact retrans growth at some point. And so, I wanted to ask, has the tone of the discussion with the MVPDs changed at all? And will there be any impact related to consolidation? That's my first question. Thanks.

Yes, the answer is no. I think everybody knows what the ballgame is with retrans. And, frankly, with the consolidation, we are looking forward to doing it. Our last big deal that was up was Cablevision, which we -- there was no muss, no fuss; everybody knew what the game was. Retrans is stronger than ever. It's growing greatly, every deal that we've done is bigger than the one before, both with retrans or reverse comp. And, by the way, we see it with our affiliates. They are all successfully making deals, and those deals are being passed along to us. So the tone really hasn't changed at all. As a matter fact, if anything, it's changed more positively. Because people get that this is part of the world that we're now living in, and we're very pleased about that.

Great, thanks. And then maybe separately, you've been active on the Showtime licensing front. I assume there was a fair amount of marketing of new programming along with the Bell Media deal during the quarter. But can you talk about when the impact from the deals that you just announced will have a more visible impact on maybe EBITDA margins? And will that be lumpy, or more of a straight line from a revenue perspective? Thanks.

Yes, John, it's Joe. Yes, I think, look. As we just said in our prepared remarks, we expect the cable networks margin to expand in 2016. So as we are doing more and more of these, as we look at the accounting side, they call it the ultimate, we're trying to smooth that margin so we don't have the volatility that it goes up for every new deal. Again, the good news is these deals have been all accretive, and you're seeing a pretty healthy margin in that business. And so I'd say there's more to come.

We'll go next to Bryan Kraft with Deutsche Bank.

Just had a few brief questions, one, I was wondering if you could talk about the cost structure improvements in local broadcasting, and the cadence for when you expect those to start to materialize over the course of the year. Also I wanted to see if you could comment on the, whether you see any improvement coming in radio, or you think these kind of declines will continue. And then the last one I had is just on cable. I don't know if this math is right, but it looks like cable subscription revenue growth was up low-single-digits year-over-year in the fourth quarter. Assuming that sounds about right, can you talk about what's going on under the surface with mix, and how it's impacting revenue, and how we should think about the underlying growth from here? Thank you.

All right, Bryan. On the cost side for local, I would say again, we probably got about $80 million of cost out of the local segment that we'll see build throughout the year, really probably more back half. And as far as the revenue goes, I think again you're going to see radio, I think, build sequentially. Obviously again political driving it, not to the degree as it's going to benefit local television stations, but there will certainly be a benefit in that. We obviously, in the middle of the year, last year, we changed our management team as well. So, again, we're expecting margin expansion and growth. It's also a very low-capital-intensive business, and so we do benefit a lot from significant cash flow that they generate. As far as the cable numbers, the sub growth there, as we said, ended the year at an all-time high. And so, if the benefit of owning shows obviously is high-margin. So when we sell those shows and make them available, and we sell a Dexter, a lot of that profit falls in that quarter. So they will have some lumpiness on the mix of those titles of what year was it sold? Was there eight seasons, six seasons two seasons? So I think that obviously does cause some volatility to the, numbers, but the high-class problem is, is how high is up? And so, it is in a much better position we are, and generating and take that and reinvesting it into the business to do more and more original series. So that's really gives us the ability to do that, so we like owning it, I know you guys would like a steady growth rate, and just plug it into your model and have it go every quarter. But that's why always say, look at it on a full-year basis and it usually evens out.

We'll go next to Doug Mitchelson with UBS.

A few questions, first, Joe, I don't mind being scared, so I'll take a shot at 1Q network advertising: Super Bowl, 45% that's 300 million. Playoff game 40 million plus add in [Multiple Speakers].

But you've got to give me the percentage, Doug. Say the percentage. What do you got, up network, up what?

70%, how's that?

Go ahead.

All right, no comment on that one?

No.

So, look, the advertising is pretty interesting. I'm curious, you guys have been in this game a long time, why is advertising getting better? And the reason I ask that question is Wall Street is being inundated with macro data points that are not favorable. The fourth quarter, third quarter weren't great quarters for the economy, yet TV advertising is killing it any thoughts as to why that's the case?

Number one, everybody was trying to break the model. We've been doing this a long time. There are up fronts that are spectacular; there are ones that aren't so spectacular. Their scatter was down then scatter was up. And I think there's no question that there's a bit of noise out there about digital advertising not having quite the same ROI as we do, as broadcast. And, by the way, we're in digital advertising in a big way. In addition, you see things from programmatic, and you hear noise that maybe not everybody recorded is really a person. It's a machine. And I think that the validity of the content, the shows that we're putting on, shows that viewers are engaged in, and the advertising works better. So, I don't think, it hasn't been surprising, with this is a pattern we've seen for many years. Network advertising, if you want to reach a mass audience, and we've said this before, not knocking YouTube, but 20 million people watch NCIS. That takes a lot of hits on YouTube, except for Adele and Corden to equal what we're able to do on an episode of NCIS, or Big Bang, or 60 minutes. So, I think it just comes down to it is still the best bang for your buck.

So the second question, Les, one thing I think I'll always remember is when Viacom and CBS were split, how you said that you enjoyed being considered the value, non-growth company. And I'm looking at CBS has a market cap of $20 billion, and Viacom with a market cap of $12 billion and change right now. And I'm wondering, when you think about developing online businesses, both HBO and Netflix have highlighted movies; Netflix has highlighted kids. If Paramount or if a major kids network became available, would you be interested in that for CBS, as you think about developing digital business models for the future?

You know what? We like our businesses right now. We build on our strength. We don't need to get into other businesses that -- we're hitting it out of the ballpark, as you just heard, in our strong suits. So, there's no reason for us to get into the kids business.

How about the movie business?

The movie business? We're in it a little way. We have a couple small movies. We do two or three of them per year. And we're very pleased with what we're doing. It's not something -- you're not going to see us invest in a $150 million movie, because there are no guarantees, and not every movie is Star Wars. So we're pretty happy with the assets we have now, and we'd like to build upon the strength of our television business.

We'll take our next question from Laura Martin, Needham.

Great numbers, congratulations. Joe, with political, my recollection is that your mid-term elections are typically smarter than your -- larger than your presidential elections. And my recollection is that, in 2014, you were about $220 million of political revenue. Can you -- do you think this is going to be a bigger year? Because Les talked about record political. So do you think, despite historical, we're going to get a better political number for you this year?

Here's what I would say, Laura. It will be a record presidential election year for us.

Okay. So maybe still below the last number. Perfect. Les, you talked about the mix of subs for CBS News, and it was fascinating to hear you say they were 20 years younger. Because my recollection -- last time I looked -- is that Fox News is about a 72-year-old average age. Even rounding down across all news, let's say it's a 60-year-old average age, would that imply that your CBS News signup is around 40 years old? Which is way older than I would've expected for that kind of over-the-top service.

Well, number one, you're right. Cable news is over 70. Fox News, that's the right number, it's like 71 or 72. Broadcast television news -- the three networks that are doing broadcast -- is around low 60s. And we are on our CBSN -- once again, it's not a subscription. It's an advertising-based business. It is about 20 years younger. But once again, you have to realize in the news business, a 40-year-old is a young person. So we are really happy to have them. And there are people that currently aren't watching either cable or network, so it is getting younger. I don't think there are a lot of 20-year-olds that are watching yet, but I think that will come.

Okay. That's very helpful. And then just the last, now on your All Access product, what percent of your affiliates are now signed up under contract to rev share with the CBS All Access?

85%.

And you should close that gap by the end of the year, do you think?

There's one group that's not in, and hopefully we get them done.

And we'll take our next question from Tim Nollen with Macquarie.

I have a couple things. I wanted to ask about the upfront market coming up here. You've talked about previously going for a majority of your deals on C7 this time. I wonder if you could comment on that. And then, in a similar vein, given whatever digital sales you may be doing on All Access or any other digital platforms, any other digital sales, will you be doing cross-platform guarantees? Or will you be handling those separately? And then a second unrelated question looking at just big-picture 2015 versus '14, margins being slightly down. You highlight that the two main reasons were programming costs going up, and investments in digital distribution. I would assume programming costs don't necessarily go down, because your per-episode cost probably goes up, and you probably have more stuff to sell. [But in digital] distribution, investments may go down -- correct me if I'm wrong. So I just wonder if I'm thinking about your margin progression correctly there, meaning you should be able to get back to margin expansion from here?

All right, Tim, I'll do the first question, and Joe will do the second. The upfront marketplace, last year we attempted to do more C7s. We did get more; we didn't get quite as many as we would've liked. I think, this year, more than 50% of the deals are going to be C7. You see people embracing that more. You see that terminology being used more for what is valuable. And I think the advertisers and the agencies are realizing that C7 is a better way of measurement. In terms of digital sales and cross-platform guarantees, as each day goes by we're doing a lot more cross-selling. And our digital group is working very closely with our network group. We saw an awful lot of it in the Super Bowl. And, yes, guarantees can be paid off in many ways by either one of them shifting. There are times we have used network guarantees digitally. And it depends on the client. But you are seeing a lot more, as I said, collaboration, and a lot more creativity on the part of the advertisers, as well as the various sales groups within CBS.

And, Tim, on your margin question, the short answer is yes. We expect margin expansion in '16. I'd just remind you, in 2015, we had the Mayweather-Pacquiao fight in the year, which was a lot of revenue, but low-margin for us. So we do expect our margins to expand.

We will take our next question from Vijay Jayant with Evercore ISI.

I just wanted to understand your international licensing strategy, which is obviously very accretive and good margins and obviously in the U.S., you've gone direct to consumer. Have you even considered looking at direct-to-consumer opportunities internationally? And is that, on an NPV basis, not as good, and that's why you are going licensing as a strategy?

Vijay, look, obviously each territory I mean what's rights are sold and what's available differs, so obviously that's not lost upon us as a future opportunity. I think, for now, what we were looking at we've looked at market by market and we thought, what was the best way to maximize value, but clearly leaving a door open for us.

Great. Thanks so much.

Thanks, Vijay. And why don't we take one final question, please?

And we will take our last question from David Miller with Topeka Capital Markets.

Hey guys. Congratulations on the result. Les, I have to say in the 16 years I've been an analyst, I've been through my share of recessions or head-fake markets pricing, and the possibility of a recession. And I've always seen that advertising seems to go down first. And yet that's not happening, neither with you guys or really anyone else who has reported so far in this earnings rotation. So, with that in mind, can you talk about how far in advance, right now, media buyers are buying network, ex-sports, if you might? Just how far in advance are you seeing media buyers take an interest in buying network and on local? And then I have a follow-up. Thanks.

Yes, you're absolutely right, David. And we were [indiscernible] back in '08, we saw it coming, we saw it coming. It was there in bright, shining lights. We're not seeing anything remotely resembling that now. And we have visibility through Q2 in terms of our advertising, which is sort of normal, if not even more aggressive than normal. So, that's why I'm so optimistic about the upfront because when I can see advertising up through the second quarter, that will be right smack in the middle of our upfront presentation, and we are very optimistic. So we have not even seen any sign of that at all.

Thank you, David. And this concludes today's call. Thank you all for joining us. Have a great evening.

Thank you, everyone, that does conclude today's conference. We thank you for your participation.