Adam Townsend – EVP-Corporate Finance & Investor Relations Leslie Moonves – Chairman & Chief Executive Officer Joe Ianniello – Chief Operating Officer, CBS Corp.

Ben Swinburne – Morgan Stanley Alexia Quadrani – JPMorgan Michael Morris – Guggenheim Securities Jessica Reif Cohen – Bank of America Tim Nollen – Macquarie John Janedis – Jefferies Bryan Kraft – Deutsche Bank Barton Crockett – FBR Capital Markets Marci Ryvicker – Wells Fargo Steven Cahall – RBC Laura Martin – Needham

Good day, everyone, and welcome to the CBS Corporation Second Quarter 2016 Earnings Release Teleconference. Today's call is being recorded. At this time, I would like to turn the call over to the Executive Vice President of Corporate Finance and Investor Relations, Mr. Adam Townsend. Please go ahead.

Good afternoon, everyone, and welcome to our second quarter of 2016 earnings call. Joining us with today's remarks are Leslie Moonves, our Chairman and CEO; and Joe Ianniello, our Chief Operating Officer. Following Les and Joe's discussion of the company's performance, we will open the call up to questions. Please note that during today's conference call, the second quarter 2016 results are compared to adjusted second quarter 2015 results and year-to-date results will be discussed on an adjusted basis unless otherwise specified. Reconciliations for non-GAAP financial information related to this call can be found on our earnings release or on our website. Also, statements on this call relating to matters which are not historical fact are forward-looking statements which involve risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation's SEC filings. A webcast of this call and the earnings release related to today's presentation can be found on the Investors section of our website at cbscorporation.com. 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 today. As you've seen in our earnings announcement, CBS turned in another outstanding quarter. Revenue came in at $3.3 billion, up 2% from a year ago and considerably better than that on an underlying basis. Operating income was up 14% to $733 million and EPS was up 26% to $0.93, the highest EPS we've ever had for a second quarter and our 26th consecutive quarter of EPS growth. Clearly, CBS continues to fire on all cylinders and we have a number of catalysts for future growth that we're confident will drive earnings in the quarters and years to come. Just in the last few months, we have made many significant strides to achieve the long-term financial goals we laid out at our Investor Day in March, and we've also taken a number of additional steps to set us up for even more success. Let me just touch on a few of them. One, we led the upfront marketplace with double-digit price increases and healthy gains in volume. Next, our CBS All Access and Showtime OTT streaming services have surpassed 2 million subscribers, about evenly split and well ahead of where we thought we'd be this early in the game. We've licensed our Star Trek franchise in the international marketplace, guaranteeing our new series will be profitable even before it launches and begins driving subs here in the U.S. and on CBS All Access. We greatly expanded our SVOD revenue for The CW ensuring its profitability for years to come. We just licensed our Carpool Karaoke series to Apple. This represents a significant new buyer in the SVOD marketplace. We filed an S-1 to move ahead with our strategy to split up our Radio business through an IPO or other alternatives, and we issued $700 million of debt with the best rate in the history of our company and one of the best rates ever in our industry. In addition to all of this, we announced this morning that we will be raising our dividend by 20% and we've expanded our share buyback program to a new authorization totaling $6 billion. Returning cash to shareholders in a prudent manner remains a priority for us. We first invest in our business and then return the excess cash, something we have consistently done year in and year out. At the same time, we are laser focused on investing in our core competency which is creating and distributing premium content across platforms all around the world. As our second quarter demonstrates, we continue to have tremendous success in this regard and there is lots more to come. It all starts with the CBS Television Network where we are looking forward to launching our new primetime lineup this fall. We have an enviable mix of strong freshman series, growing young franchises and established hits. Very importantly, we will own more than 80% of our schedule including ownership in every single one of our six new series. Each show represents another opportunity to license our content for many, many years. Plus, these shows will have the best chance of success by virtue of launching with the promotional power of the number one network in the world as well as THURSDAY NIGHT FOOTBALL. When it comes to recognizing the strength and stability of our primetime schedule, the advertisers have spoken. We just concluded the strongest upfront we've seen in many years. As was widely reported, significant dollars flowed back to broadcast television. Marketers realized what we've been saying for a long time, that digital buys are more powerful when they complement television buys, not when they replace them. So broadcast TV had a banner up front and CBS was at the front of the pack. Not only did we lead the market in pricing with double digit increases, but we saw very healthy gains in volume as well. We also had an extremely strong upfront across other dayparts. In late night, pricing increases were even more than primetime. As we've seen during the conventions, Stephen Colbert continues to gain attention for his wit and political commentary. And in 12:30, James Corden has become a phenomenon. He hosted the highest-rating Tony Awards in 15 years and his show just received four Emmy nominations. In addition, we are now licensing both of our late night shows internationally for substantial revenue. Once again, our new ownership position in both of these franchises is allowing us to monetize these shows in ways we never could before. Late night television has now become considerably more profitable with Colbert and Corden. We also continued to solidify our future in big event television. Last month, we announced that the GRAMMYs will remain on CBS through 2026. When you add this extension to our current deal, it means we'll have had the GRAMMYs for 54 consecutive years, the longest continuous partnership between an award show and a broadcaster in television history. Taken together with our agreement to broadcast the NCAA Men's Basketball tournament until 2032, we have locked up big event programming for a long, long time. At CBS News, we continue to see growth in all of our key broadcasts, leading to a very strong upfront in this daypart as well. CBS Evening News has added 1.5 million viewers since Scott Pelley became anchor five years ago, that's double the growth of ABC and NBC combined, and CBS This Morning has been growing its viewers month after month, and during the quarter had its highest numbers in nearly three decades. And our weekend news broadcasts, 48 Hours, CBS Sunday Morning, Face the Nation, and 60 Minutes continue to be number one in their respective categories. The quality of these shows was demonstrated last week when CBS News was nominated for 37 Emmy awards, more than any other news organization or cable network. In addition, we are also growing CBSN, our online news network. Big breaking news events and our political coverage are driving viewership, including another month of record views in June and new record high of more than 7 million streams just last week during the Republican convention. We've also recently broadened the reach of CBSN with a new Apple TV partnership and a deal with Twitter to stream the Republican and Democratic conventions. So, from news to sports to entertainment, our base advertising business remains strong, and it's important to note that in addition to higher upfront pricing, we see continued strength in advertising right through the second half of the year. At the same time, our non-advertising revenues, which are all the ways we monetize our programming through retrans and reverse comp, international syndication, SVOD, and over-the-top, continue to drive our results as well. One of the areas this is especially true is at The CW where as I mentioned, we announced a new multi-year licensing agreement with Netflix that allows for full-season streaming of every show eight days after its current season finale. This deal allows us to maximize the value of our content while also building for our broadcast affiliates, thecw.com, our MVPD partners, and potential OTT partners as well. We also struck a significant international deal with Netflix for Star Trek, licensing our new series, Star Trek: Discovery, to 188 Netflix countries around the world, virtually everywhere but North America. In addition, we also licensed all 727 previous episodes of our Star Trek library. Plus, we struck a similar deal with Bell Media for Canada. As a result, Star Trek: Discovery, our new series, is profitable and we haven't even begun production, and we still have additional windows to sell the show in second and third cycles down the road. It's also safe to say that Star Trek will lead to a significant bump in subscribers for CBS All Access here in the U.S. And in addition to Star Trek, we have the upcoming Good Wife spinoff coming to All Access, along with other original programming that we will be announcing soon. So, we're just getting started and we're already well on our way. We're also very pleased with the progress of our Showtime over-the-top streaming product as well. As you recall, we set a goal of 8 million subscribers between All Access and Showtime OTT by 2020, representing $800 million in new revenue. With more than 2 million subs between them already, we are confident that this will be easily achieved. One of the ways we're growing our Showtime subs is by staggering the launch dates of our original series. The season four premiere of Ray Donovan led to a significant lift in streaming subscribers here in July, and looking ahead we will have Shameless, The Affair and Homeland all premiering in different months between now and January. And of course, we have the highly anticipated return of Twin Peaks coming in early 2017 as well. David Lynch and Mark Frost, the creators of this franchise, have just finished shooting the new series which includes many actors from the original cast and some terrific guest stars. Like Star Trek, Twin Peaks has an extremely loyal and avid fan base, so we could expect to see another surge in subs to Showtime OTT when this show premieres next year. Turning to Publishing, we have two big titles coming up that will drive our second half. Born to Run, the highly anticipated memoir by Bruce Springsteen, and the latest from comedian Amy Schumer called The Girl with the Lower Back Tattoo. In addition, Simon & Schuster continues to generate content that spawns new projects across our company. The latest is a movie from CBS Films that is based on American Assassin, from the best-selling series of action thrillers by Vince Flynn. It stars Michael Keaton and will begin filming next month. At our TV stations, we are still in the early stages of what we are very confident will be a record presidential election year. Second quarter political sales came in higher than expected, thanks in part to primary spending in California, and right now we're seeing big activity in many of our major market O&Os. As always, spending will peak in the fourth quarter, not only at the top of the ticket but at the gubernatorial, senatorial and congressional races as well, where tickets are not quite as unified as they have been in past elections. In Radio, we have taken a major step forward in terms of separating this business from CBS with the filing of our S-1. We are also continuing to talk about other potential alternatives. Just like we did with Outdoor, our strategy is to maximize the value of this asset, while centering our company around the premium content that can best drive our results. So across our company, we are executing the strategy that we have laid out for our investors and we are building on that strategy all the time. As we look ahead, every single opportunity that we evaluate has to fit the same criteria. Does it benefit CBS shareholders? From the investment of capital to the return of capital, to any potential M&A, CBS shareholders are always our priority. The good news is that we already have the assets and the strategy to deliver on all of our financial objectives. The even better news is that there are new catalysts for growth being hatched all the time. The ways we can marry together our premium content with new technologies are growing every day, and we will continue to take advantage of every one of them. So, it was a terrific quarter. Our business is thriving and we see growth opportunities ahead that are more exciting than ever. As those opportunities unfold, we will continue to deliver on the commitments that we have laid out for you just as we always do. We are already looking forward to updating you on our next call. And with that, I'll turn it over to Joe.

Thanks, Les. Good afternoon, everyone. As you heard, we turned in another terrific quarter that once again reaffirms our overall strategy. We are investing in owning more of our content, which is leading to more revenue opportunities. We are growing our recurring revenue from places like retrans and reverse comp, SVOD, international content licensing and our over-the-top subscription services. As a result, we delivered healthy double-digit growth in our key profit measures, even as we continued to invest in our future success. On the top line, we had a very strong quarter as well. Total revenue was up 2% to $3.3 billion, although that doesn't tell the entire story. During the second quarter, we were comping against two significant events from last year. First, we had the Mayweather/Pacquiao fight, which was the highest grossing sporting event of all time, and second, last year we had the NCAA men's college basketball championship game on CBS, which as you know rotates to us every other year. Taken together, these two events would have added six percentage points of growth to us in the second quarter. So therefore, underlying revenue was extremely healthy for the quarter. Now, let me give you some more details about our second quarter results. As I just mentioned, we had the NCAA men's championship game last year. As a result, advertising revenue for the second quarter came in at $1.55 billion compared with $1.59 billion in 2015. However, underlying network advertising grew 2% during this year's second quarter, and as you heard we recently concluded our upfront with strong pricing across all dayparts. Affiliate and subscription fee revenue was $733 million for the quarter compared with $752 million last year. However, excluding the Mayweather fight, underlying affiliate and subscription fee revenue grew 18%. Retrans and reverse comp was up 44% and Showtime's affiliate fees were up a solid 5%. As you heard, our over-the-top subscription services are also contributing to our growth and continued to track nicely above our expectations. Content licensing was up 16% during the second quarter and we saw strength both domestically and internationally. As an example, the ways we are monetizing Star Trek demonstrate just how we can benefit from a single content franchise again and again, so the opportunities presented by owning premium content continue to be robust. Growth in our high-margin revenue streams led to a 14% increase in operating income, which came in at $733 million during the second quarter, and our operating income margin expanded by more than 200 basis points to 22%. In addition, net earnings were up 16% to $423 million for the second quarter, and EPS was up 26% to $0.93. Our results on a year-to-date basis were equally impressive. Revenue of $7.1 billion was up 6%, operating income of $1.5 billion was up 15%, and EPS of $1.95 was up 29%. Now, let's turn to our operating segments. Entertainment revenue in the second quarter came in at $1.95 billion, up 9% with strength across the board. As I mentioned, underlying network advertising grew 2%. Content licensing and distribution was up 19%, thanks in part to our Star Trek deals, and affiliate and subscription fees were up 59%, driven by higher retrans and reverse comp as well as growth ex CBS All Access. Entertainment operating income of $351 million for the second quarter was up 34% due to the strong gains in our high-margin revenue streams, and our Entertainment operating income margin expanded three points to 18%. At our Cable Networks segment, second quarter revenue came in at $536 million, down 13% from last year when we had the big pay-per-view fight which affected the revenue comparison by 24 points. Underlying cable network revenue grew 11%, primarily due to the licensing of our Showtime brand and original series as well as higher affiliate and subscription fees. Second quarter Cable operating income of $227 million was up 3% thanks to increases in our higher-margin revenue streams which drove operating income growth even as we continue to invest in original programming. And our Cable operating income margin expanded six points to 42% and we expect further margin expansion from here as we move into the back half of 2016. Turning to Publishing, second quarter revenue came in at $187 million compared with $199 million last year due to the timing of releases. Best-selling titles for the second quarter included End of Watch by Stephen King and Foreign Agent by Brad Thor. And as Les just mentioned, we have a strong release schedule ahead. Publishing operating income for the second quarter of $26 million was up 4% as a result of lower costs, and our Publishing operating income margin expanded more than 100 basis points to 14%. In Local Broadcasting, second quarter revenue came in at $647 million compared with $654 million in 2015, with the decline entirely driven by comping against last year's NCAA Men's Basketball Championship game. Underlying Local Broadcasting revenue was even with 2015 with TV stations up 1% and radio stations down 1%. Looking ahead, we expect political spending to kick in fully during the back half of 2016 with Q4 being the strongest. Local Broadcasting operating income for the second quarter was up 7% to $212 million, driven by the restructuring activities we put in place last year. Those actions also resulted in our operating income margin expanding three points to a solid 33%. Turning to cash flow and our balance sheet, free cash flow for the first half of the year was $1.2 billion compared with $835 million in 2015, up 41% due to the growth in underlying advertising revenue, higher affiliate and subscription fees, and our first quarter broadcast of the Super Bowl. Also during the first half of 2016, we bought back 19.5 million shares of our stock for $1 billion. As we've stated in the past, we expect to complete another $1 billion in share repurchases by year's end. That is consistent with the quarterly pace you saw during the first half of the year, or about $500 million per quarter. And as you probably saw, we've just issued $700 million of new 10-year bonds with a 2.9% coupon, a historic low for us, and we ended the second quarter with $176 million of cash on hand. Now, let me give you a brief update on the separation of our Radio business. As you heard, we filed our S-1 with the SEC a few weeks ago, which is in line with the timeline we laid out for you on our last call. While we move forward with an IPO, we also continue to evaluate all opportunities. No matter what avenue we pursue, we are confident we will unlock significant value just as we did when we split up Outdoor. We will keep you posted on the developments in the months ahead. In addition, in preparation for the plan to split off of Radio, we will begin to separate our operations of our local TV and radio businesses, so our Q3 financial statements will reflect those changes in our segment reporting and thus we will report local TV and radio separately. Now, let me tell you a little bit about what we see in the back half of the year. We expect a great year for advertising. Year-to-date, underlying network advertising was up 7% and we anticipate a strong finish to 2016 led by our new upfront pricing as well as a strong marketplace for sports advertising that really begins with the kickoff of the NFL season in September. For the third quarter, our TV stations are pacing to be up high single digits, driven by political advertising, and radio is pacing to be up as well. Affiliate and subscription fees continue on their path of steady growth. We are set to surpass $1 billion in retrans and reverse comp by the end of 2016, and next year we'll have 14% of our reverse comp and 24% of our retrans footprint coming up for renewal, giving us the opportunity to reset those deals to current fair market value. At the same time, our over-the-top subscription services are growing and becoming a bigger contributor to our results. In content licensing and distribution, we see big opportunities ahead from across the company. As you heard, at The CW, we've already concluded a new Netflix deal for in-season and out-of-season content that will take effect in Q3. At Showtime, we expect to announce new agreements in the near-term to license our entire brand, just as we've previously done in Canada, parts of Europe and Australia. In addition, our Star Trek deals will benefit us again next year by both internationally and on CBS All Access. And at the CBS television network, we are launching six new shows in the fall and we have ownership in all of them, leading to even more future content licensing revenue. So in summary, our second quarter was very strong, and with the Presidential election, healthy gains in the upfront pricing markets and a number of new ways to grow our high-margin revenue, the momentum is continuing into the back half of 2016. We continue to execute in the short-term, while focusing on our long-term growth strategy. With all the opportunities ahead of us, we are as confident as ever about our future, and above all we are fully committed to delivering for our shareholders year in and year out. And with that, Noah, let's open the line for questions.

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

Thank you. I wanted to ask about the upfront and also the over-the-top numbers you guys gave out. Les, what was the strategy this year that you and Joe had put in place when you thought about how much inventory to sell? The pricing was really strong but you must have taken some view on your ratings outlook and how you think scatter is going to play out, as you have tougher comps in the back half. Maybe just talk about how you thought about pricing versus volume. And then I'll just ask my follow-up on over-the-top. The Showtime numbers implied by your disclosure show some pretty healthy growth. I think you're pacing along with HBO NOW, which is better than you would have thought given your distribution on traditional TV. Any color on what's driving the success, any sort of distribution deals, any of the Hulu partnerships? And, Joe, should we see the revenue growth accelerate at Cable on the subscription side as a result of all this success? Thank you, guys.

All right, Ben. I'll do the first question and Joe will do the second one. The upfront sort of played out exactly like we would've planned, exactly as we drew up the playbook. All the blocking and tackling worked. If you recall, before the upfront began, a few weeks before or a month before, I said we were looking for double-digit pricing, and if that was the case we would attempt to sell in the high 70s percentage of our inventory, which is exactly what we did. We like holding back about 20%, a little over 20% for scatter because the scatter marketplaces increases to be strong. We saw an incredible scatter through first quarter, second quarter, third quarter, fourth quarter of last year and we continue to do this. So as I said, we got double digits, we got the volume we wanted, and as I said, we couldn't have drawn it out any better. We were extremely pleased. It closed quickly, cleanly and in a very positive manner, so let the games begin.

And, Ben, on your second question regarding OTT, really what's driving the growth, again, is the original series we're seeing that. I think, again, as we just debuted the new season of Ray Donovan, we saw a surge in subs, so clearly that's the driver. The service is doing fantastic on both Hulu and Amazon. So that continues to plug away. And yes, look, I think we gave you the math on the revenue. So there's a direct correlation to subs and revenue in the OTT space and it is our highest margin revenue for obvious reasons. We take the largest share as opposed to our distributors getting a pretty fair take in that. So, again, you should expect to see that impact revenue.

And the only thing I would like to add to that is in the comparison to HBO, I would say when you look at our programming, one would say our programming, we have more major hits than they do across the board, therefore it's not at all surprising to us that we're sort of doing what they're doing and maybe a little bit better. I don't know.

Thank you, both.

Thank you, Ben. Noah, let's take the next question.

We'll take our next question from Alexia Quadrani with JPMorgan.

Hi, thank you very much. My first question is really sort of a follow up to Ben's on the health or the strength of the advertising market, not just for CBS where you guys obviously have great content, which is one of the major drivers of it, but just industry-wide. Do you think it's just a lot of the money moving from scatter into the upfront, or do you think there's still digital money, maybe [indiscernible]? I guess any color you could provide on really what is driving this impressive growth in TV advertising, and then I have a quick follow-up.

The only thing I would say is when you see scatter pricing, which we saw in the fourth quarter, the first quarter and the second quarter north of 30% beyond the upfront, we were licking our chops going into the upfront knowing how healthy the marketplace would be. In addition, once again, a lot more of the statistics came out about digital advertising and its effectiveness and as I said in my remarks, during the earnings call, digital advertising works better along with broadcast, and broadcast, when you have a show like NCIS, which has 20 million viewers a week, and Big Bang, which has 20 million a week, it is hard to duplicate that. So when you see scatter pricing like that, I think advertising agencies say, you know what, even though there's double-digit pricing at the upfront marketplace, I better get on in the game here or else I'm going to have to pay a lot more later on. And because of those two factors, as I said, this came out where we anticipated it, where we wanted it, and it all made sense to us.

And then just a quick follow up on your Star Trek sales and your deal with Netflix, your decision to go solely with Netflix outside of North America, I guess, any color ongoing with one provider versus multiple distributors there?

Well, Alexia, it's Joe. Clearly, we went to the marketplace and we looked at what would be the best deal for this franchise. Netflix obviously had the previous seasons before, so they knew it was working, so it worked for that demo, a streamer. It was one deal as opposed to executing 100 different deals in different countries, so that played – and by the way, it was a lot of money and in U.S. dollars. So when you looked at it and summed it all up, it just made sense.

All right. Thank you very much.

Thank you. Thanks, Alexia. Next question.

We'll take our next question from Michael Morris with Guggenheim Securities.

Thank you. Good afternoon, guys. Two topics. First, there's a fair amount of discussion in the investment community about the potential for CBS and Viacom to recombine. And Les, you I think alluded to it a bit, speaking about the need to have any action be to the benefit of shareholders. You also mentioned that you already have the assets and you've talked about that in the past. So my questions here are, first of all, is a combination with Viacom definitely something that you would not be interested in pursuing? And then secondarily, maybe a bit more generally, if you were to look at any cable network, what kind of things would you be looking for in order to be able to enhance it and make it accretive to your shareholders?

Mike, I'm not going to talk directly about Viacom. As I said, we feel very complete, we feel like we're competing. You can see by the results from this quarter, from last quarter, we have everything that we want. We're not going to conjecture about potential acquisitions or M&As. It's not something we're at all dealing with now. We look at every potential acquisition or every M&A opportunity. We looked at Starz before that deal was made with Lionsgate. We look at other opportunities that are out there, and we weigh them and we see what is going to be best for CBS. We feel like we're dealing from a position of strength and we're not going to do anything that's going to reduce that strength, and that's how we look at the world.

Okay. Thanks for that. And then just one other question. With the distributor consolidation, especially with Charter and TWC closing, there's been a couple disagreements out there in terms of what the rate should be post that consolidation. Are you seeing or do you anticipate similar pressure or struggle as a result of that consolidation? Is that already in your numbers with respect to any impact, or is that something that maybe we should anticipate coming up in the coming months or years?

Hey, Mike, it's Joe. Our deal with Charter expires next year, so I think the good news is, one way or the other, we get to reset it to current fair market value. So we look forward to that. So I wouldn't anticipate any big swings either way between any of those deals. But, again, the good news is next year I'm sure we'll be talking to them and, again, we like the hand we have with CBS and Showtime, and our strength in these negotiations is the content and the ratings we have to back it up, and that's again is fundamental to our revenue growth.

Great. Thanks a lot, guys.

Thank you.

Thanks, Mike. Next question?

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

Thank you. I have one question. Les, it's been such a long time since we heard you talk about some of the dayparts you mentioned today, news and also late night. Within the underlying trends, can you talk about what kind of incremental upside you see from those two areas?

Yes, I'm not going to give specifics, but as I said on late night, number one, we own the shows. The Colbert Show costs a lot less than Letterman did, and James Corden has become a national phenomenon with his Carpool Karaoke and his Drop The Mic. And ownership of these shows means we can distribute them internationally, and there's a lot of money coming in that way. So we see the prospects of our late night doing extremely well. Regarding the news, you know the majority of the money is in the morning, and as I said, we are having our best numbers in three decades. With Charlie, Gayle and Norah, we have a great product on the field, and once again the advertising numbers are going up considerably there. Daytime is up, all the other rest of news is up, so virtually every daypart has a really good story. Football is selling well. So I hate to sound Pollyanna-ish, but this is as good an upfront as I've seen in primetime in a long time and probably in every other daypart as well.

Great. Thank you.

Thanks, Jessica. Noah, let's take the next question.

We'll take our next question from Tim Nollen from Macquarie.

Thank you. I've got a question that's perhaps practical for the near-term, maybe a bit more theoretical for the longer term. It's about the radio separation. The timing is interesting with the political season upon us here and you're talking big numbers to look forward to. Normally you would say that you would get some spillover of ad dollars from TV into radio, like it could pick up some of the spillover when it's a really hot market. So my question in the near term is, what should we expect in the near-term as you go into the separation? Anything to be aware of in terms of what kind of numbers to look for, for TV versus radio? And then relatively over the longer-term, would this actually inflate pricing further on your TV assets?

Well, Tim, it's Joe. Here's what I'd say. Obviously the fourth quarter, really our local TV is the biggest driver. There is absolutely a spillover and we always think that each side of the aisle should use radio more, but it certainly will benefit, so I do think it will build into the fourth quarter for sure. But that does obviously take away just pure supply and demand. Other categories have to find a place. So if that they can't buy in this, what we do is we'll figure out a way to if they want local, maybe we can sell them network. If they want network, maybe we could piece together 10 national local spots. So we're basically working with all of our advertising clients' categories, but clearly there's going to be a lot less inventory on a local basis in Q4 particularly, but building from Q3.

Can I ask another way? Is there any possible disruptions in the near-term as you're going through the separation of the two? And then the argument the other way around, without owning a radio asset, who knows what happens to that business down the road, would demand for local advertising during the political season, would that be even tighter and have even more pricing power?

No. Look, again, we'd love to think there's more synergy than there probably is. Our guys are selling separately today. They compete against each other. We like it that way and that's it. So it's just everybody knows what they have to do. So I don't really see cannibalizing or deflating anywhere. I think again it's I think they use them because it's effective. They have the data. It's an industry. We have certain stations. We have 27 television stations, 118 radio stations. There are thousands of them. So it's not exactly this separation is going to change the marketplace.

Okay. Thanks very much.

Thank you, Tim. Next question, please.

We'll take our next question from John Janedis with Jefferies.

Thank you. Les, you're getting closer to the Star Trek launch followed by The Originals next year, and so can you talk about to what extent the size of the library changes on All Access? Meaning as you get more robust from here, will there be an ability to get expanded rights over time for the existing shows?

Well, we have all the rights to the existing shows. We own the 750, whatever...

27.

727 episodes in their entirety. And as Joe referred to earlier, the reason the Netflix buy was so healthy, they already have seen what Star Trek is doing on their service from day one. It performed extraordinarily well. That is one of the reasons why we decided to put it on All Access to obviously help build our own subs. But going forward, obviously we're doing 13 episodes initially with Star Trek. We are fairly certain, although we haven't done one day of production, this series is going to go on for a while and we have spinoffs of spinoffs. And it's a very, very valuable franchise that can turn into hundreds of millions of dollars in revenue for us.

Okay. Got it. Thanks. And then separately, you referenced this a little bit, but we're about four weeks away from the NFL preseason. So can you talk a little more about what kind of demand you're seeing for football after so many years of share and pricing gains? And does the Fantasy Sports comp create an air pocket or do you think you can backfill from other categories?

Number one, football is still the best game in town. I mean that literally and figuratively. The pricing has gone up, I could tell you for a fact. The CPM numbers have gone up once again. Ratings we expect to be up or even if they're the same, we're still going to do fine. We love our Thursday package in the beginning of the year, very cost-effective. There's nothing like it. There's nothing like it and we can't wait for the preseason to begin.

Thank you.

Thanks, John. Noah, next question.

We'll take our next question from Bryan Kraft with Deutsche Bank.

Hi. Good afternoon. I wanted to ask you how you would characterize the industry's progress towards better measurement of the nontraditional viewing and also leveraging the VOD advertising opportunity. And I guess specifically did Nielsen's cross-platform measurement that's I think been out for a few months now impact the upfront negotiations at all this year? If you could talk about that, that would be great. Thanks.

Yes, Brian, it's Joe. Look, I would tell you, I think everybody wants better measurements. We want eyeball counted. In this day and age, it feels like the technology should just be there and accepted. Obviously we have data. Cable systems have data. You have to be a third-party referee. I think Nielsen's kind of leading the way. There's obviously some competitors that they have. So we've always said is, if we deliver the eyeball, we just expect to count it towards what we delivered. And whatever screen it's on, so it's evolving. Obviously we don't have a whole lot of patience and stuff with it, but clearly we're doing that and we are starting to monetize VOD significantly.

Okay. Thanks. If I could ask just actually an unrelated follow up. I was curious on the decision to license Carpool Karaoke to Apple.

Yes.

What drove that decision as opposed to keeping it widely available for free to promote the show, or maybe put on All Access to build the subscription service of your own?

It's very interesting. Carpool Karaoke, number one, it's a music-related show. Apple offered us an extremely good deal. It also opens up Apple to being another buyer to us, and we're the first one in the marketplace there. And look, every piece of content, we evaluate what the short-term gain is and the long-term gain, and we think it fits really well with Apple Music. Clearly their music service has gone from zero to many millions of subs really quickly, and they're very excited about promoting it. And remember, Carpool Karaoke will revert back to our late night show, and there's cross-promotion for it. So it's good to have a lot of the suppliers in the marketplace, a lot of buyers, and we're happy to be in business with Apple.

Okay. Thanks, Les.

Thanks, Bryan. Next question?

We'll take our next question from Barton Crockett with FBR Capital Markets. Bart E. Crockett: Okay. Thank you so much for taking the question. I wanted to find out a little bit more, if we could, about who the profile is of the subscribers to CBS All Access and Showtime. Are these Millennials, cord cutters, are they people who are Netflix subscribers, or are they traditional Showtime and CBS viewers who are getting it in this way?

Barton, it's Joe. Here's what I would say. Obviously younger, think about it as 40-something-ish in that kind of zip code. It skews slightly female but close, and they consume double the amount of content. So, again, I think when Les mentioned Star Trek, it was an informed decision by doing it because we had a lot of the data. So we have a lot more data when we're able to program for these services. So I would say again, it's what you'd expect it, but I would tell you this, it's coming from the broadband-only households and so it's that kind of 12 million folks, so we don't think people cut or switch, we think they add it. So out of our couple of million subscribers, they probably also have a Netflix subscription as well. And so again it's the convenience, it's the content on the go, it's ease-of-use, it's all of that stuff that's really driving and obviously again, the original series is really the anchor.

Yeah, one of the things we said was, remember Showtime is only at about 24 million households. There are about 80 million households do not get it. So now by doing this and obviously where we're over 1 million with Showtime, these are people who now have easier access to Showtime. And with Star Trek coming for All Access, we're going to even increase that, so we think they are additional viewers. And as Joe said, it's a broader demographic than we're used to, so we're pleased about it. Bart E. Crockett: Okay. That's great. Thank you.

Thank you.

Thanks, Barton. Next question?

We'll take our next question from David Miller with Loop Capital Markets. [ph]

David, are you on mute? We can't hear you.

Sorry about that. Sorry about that. I have one question for Joe, one question for Les. Joe, one of the themes so far in this media earnings rotation seems to be the lowering of corporate marginal taxes. You guys are at 32.2% right now, down I want to say 220 basis points year-over-year, so nothing to scoff at, outstanding all the way around. But what's the case for lowering it even further, and how long would that take? And then I have a follow up for Les. Thanks a lot.

Yeah, David [ph] look, we don't anticipate where our taxes are going to go down, I think this has been consistent effort in the low 30%s. We are a full taxpayer, most of our income is generated in the United States, so we're banking on producing great content and doing it as efficiently as possible. And that's really the focus.

Got it. Okay. And then Les, the show that everyone seems to be talking about, that media buyers seem to be talking about is Pure Genius going into the fall. Looks like it's going to be a hit. Obviously you guys believe it's going to be hit, otherwise you wouldn't have put in on Thursday nights. Curious about the decision to put that one on the network as opposed to Showtime. The production value of the series looks absolutely outstanding, it looks like it would play well on both networks, but just curious your decision as to why it's on the broadcast network as opposed to the pay network, and is the show already profitable going into the fall season? Thanks a lot.

Well, number one, Showtime and CBS develop separately. They have their own creative groups. They are led by two different guys, David Nevins over at Showtime and Glenn Geller at CBS, and they both report in to me, and the quality of the content is great. Pure Genius, we're very excited, it was sort of a sleeper hit. Is it profitable going into Thursday night? Just about. There's certainly a good sales on for it. Look, I've been doing this long enough not to predict what the hits are going to be versus what the misses are going to be and it's hard to tell. I often point back to CSI, it was the 9 o' clock show on Friday night, and we had a show that I thought was going to be a hit at 8 o' clock called The Fugitive. We were doing a remake of – with Tim Daly. That was going to be the big hit and by week two, we realized CSI was the big hit. So Pure Genius is a very unusual show, it's a real quality show, the production values are great and we're hoping for it. There are other shows I would actually place bigger bets on, but I'm not going to say what they are.

Fair enough. Thanks so much.

Thank you.

Thanks, David. Let's take another question.

We'll take our next question from Marci Ryvicker with Wells Fargo.

Thanks. The first question, can you just talk about your marketing efforts behind CBS All Access and Showtime? Are they expected to ramp, I think the 2 million subs were a positive surprise, so just curious what you're doing to advertise these?

Look, I'd say, Marci, it's a modest ramp. Again, we're going to do it into the growth because again as you saw, you saw margin expansion as we're launching these new services and stuff like that. So it's going to be more driven around the content, the timing of the release of that. And so there's definitely much more growth that we see in terms of the subs, and we will market it, we're obviously marketing within the CBS family because we reach 99% of households on a weekly basis. So I mean, that's the benefit we have of who we are and stuff. But they spend their own marketing dollars, their dedicated marketing dollars to them, and so that will continue like any business rollout.

Okay. And then separately, how would you characterize your conversations with the affiliates on the skinny bundles? I think Sony PlayStation Vue may be the only one that has a contract with the affiliates, and we've heard from some of them that they're really in no rush to be on something like a Hulu, so I don't know if you have any comment on that.

Are you talking about the TV station affiliates?

Yes.

Yeah, look, I mean, they've struck deals on Sony Vue because we've done that with them, so I think our model might be a little different than others. We're bringing the affiliates along in the skinny bundle OTT and they participate in CBS All Access, they participate in Sony Vue, so we think it's a win-win for them. They bring the local content they have, we bring the national and we think that formula works. And I think again, demonstrated we've done 100 of these with our affiliates signed up for us, so I think again that seems to be the formula. So we're actually pretty excited about the relationships between network and affiliates going forward.

Yeah, we are virtually at 100% of the country on our All Access on their sign-up. Which, I don't think any other network and affiliate body has this close a relationship as we do and as Joe was saying, they appreciate it. They get a piece of the action on All Access, and so it's been very supportive. They signed up for Sony Vue and allowed us to act on behalf of them nationally, and we think that will continue with the other services.

Great. Thank you.

Thank you, Marci. The next question, please.

We'll take our next question from Steven Cahall with RBC.

Yeah, thank you. Just a first question on cash flow. I was just wondering, you did very well in the first half on free cash flow. Are there any Super Bowl accounts payable that are in there? And as we think about cash flow in the back half of the year with the new share authorization, is there anything we should be thinking out in terms of accelerated share repurchases versus the cadence you've been on? And then I've got a quick follow up.

Okay. Steven, the cash flow is real simple for the Super Bowl. It got counter paid within 30 days, so the Super Bowl aired in February, we got all of our money in Q1 so there's no any receivables we're waiting to get paid for the Super Bowl. Obviously, if you just look historically at us, Q4 is a big cash flow quarter for us. Political, it's COD, cash on delivery because in case candidates don't win, they lose, they don't pay, yeah, they don't want to pay so we get that money upfront, so if you want to look at our days sales outstanding, that will decrease in the fourth quarter so we expect to have a strong finish to cash flow.

Okay. Great. And then just to follow up on sports and streaming, we've seen a couple of deals with Internet companies getting some, maybe not core sports streaming rights, but a bit of a toehold on sports streaming. So I was wondering if you could comment at all on how that model differs from broadcast, if that's doing anything to cost? And then more importantly as we think about All Access, is that a potential avenue for sports streaming rights to go online at some point in the future?

I don't know what the model quite is for some of these streaming rights that these guys are getting. I know they're paying a lot of money, and clearly these sports leagues are – they want to expand how people are watching their shows. So it seems to be working out right. We are looking forward to – we have the NCAA basketball tournament in All Access. We don't have the NFL yet, but we hope to have that sometime in the future. And all the leads are very smart, they're very savvy about what's going on digitally and they were all part of it as are we. So we're looking at it together.

Thank you.

Thank you, Steven. And why don't we take one final question, please?

And we'll take our final question from Laura Martin with Needham.

Hey, there. Maybe a couple of follow ups. Thanks for the info on OTT.

Laura, could you speak up, please?

Yeah, sure. Is that better?

Yes. Thank you.

On OTT following up, how many of those subs are you now bundled where you're selling both All Access with Showtime? Interested in that. And then, Les, you're standing by this weekly delivery of new shows which has gotten some pushback from the press at least. I get that it makes more monthly subs, but is that working given that Netflix basically downloaded the whole season? And then, Joe, for you, I'm very curious, you guys are doing the most with like Twitter and Apple. Are you sort of the go-to premium program maker for the Internet space because everyone else is tied up in Hulu? Or doesn't have the quality programming you guys have?

Laura, in terms of the bundle we have zero subs that are sold together. There will eventually be a package where you can get Showtime OTT and CBS All Access together at a potential slight discount, but as of now these 2 million are not crossed whatsoever so they're not bundled. Regarding the weekly, I guess you're referring to that Star Trek is going to be put out one episode at a time. We think that's the right way to go in this, and we think that's the better way to go. The Showtime version is the monthly as opposed to launching in a quarter two shows at the same time, we have spread it out so that there's a new show, there's a new offering on Showtime once a month or thereabouts all the way. It's not only to help streaming. It's just to help viewership in general. I think people want more new stuff and they'd rather have one beginning in September, one beginning in October and then two beginning in September. So we're doing that. We think it's the right way to do it and we are different than Netflix in a lot of ways.

And the last part of your question, Laura, I'd like to think that we're the most innovative media company and I think the distributors, the tech companies come to us, a) because of the quality of the content, and as you point out, we're kind of a free-agent. We didn't put all of our content into a joint venture. We control it 100%, the intellectual property and we make decisions based on each individual franchise and don't have any corporate edicts that say we don't do this or that. I think we look at it holistic. I think they appreciate that and we're open to doing a lot of business with them.

Thank you.

Thank you, Laura.

Great. Thank you, Laura.

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

And this does conclude today's conference. Thank you for your participation. And you may now disconnect.