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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, everyone, and welcome to the CBS Corporation Fourth Quarter 2017 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.
Thank you. Good afternoon, everyone, and welcome to our fourth quarter and full year 2017 earnings call. Joining us for 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'll be -- we'll open the call up to your questions.
Please note that during today's conference call, the fourth quarter and full year 2017 results for EPS and prior period comparisons 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 note that statements on this conference call relating to matters, which are not historical facts, are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation's SEC filings. A webcast of this call and the earnings release related to today's presentation can also be found on the Investor section of our website at cbscorporation.com. Finally, as you know, we put out a statement about 2 weeks ago announcing the establishment of a special committee of independent directors to evaluate a potential combination with Viacom. On this call today, we will not be responding to any questions or comments about that process.
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. I'm extremely pleased to tell you that the CBS Corporation capped off 2017 with a terrific fourth quarter.
Revenue was up 11% to $3.9 billion, and EPS was up 8% to $1.20, marking our 32nd consecutive quarter of EPS growth. We had very strong numbers for the year as well. Revenue is up 4% to $13.7 billion, and EPS was up 7% to $4.40, which, again, is our eighth straight year of EPS growth. These results represent all-time highs in revenue and EPS for both the quarter and for the year. And what's even more impressive is that we posted these records comping against 2016 when we had the Super Bowl and the most political spending we've ever seen.
As we head into 2018, our momentum is only accelerating. And we are poised to deliver results that will be, by far, the greatest financial performance in our company's history. This is because we have better visibility into our future than ever before.
Our radio transaction is in the rearview mirror. Our newer, fast-growing sources of revenue continue to grow at a rapid clip, including our direct-to-consumer streaming services, which doubled year-over-year.
At the same time, we expect solid growth across the board in our base business in 2018. Joe will tell you how the remarkable progress we continue to make will translate into our future results. Trust me, you will not be disappointed.
All of this success is the result of our long-term strategy, which is to produce must-have content and monetize it in more and more lucrative ways. We are uniquely positioned to do this because we have the biggest hits and many of the most valuable programming franchises in the business.
The strength of our premium content gives us a clear path ahead, no matter how consumer habits change. One of the key developments in that regard is the rapid growth of the direct-to-consumer services, I just mentioned. In a very short period of time, CBS All Access and Showtime OTT are now at nearly 5 million subs combined. That's far beyond where we expected to be at this point, and it gives us great confidence than -- that we will more than exceed our goal of 8 million subs combined by 2020.
These services give us our highest subscriber rates and a direct relationship with our consumers, as we collect increasingly valuable data about our audience. Delivering these services over-the-top also allows us to attract the next generation of viewers with an average age that's approximately 20 years younger than those who watch broadcast and cable television. This is the case with our entertainment content on CBS All Access and it's the case with our news content at CBSN, our direct-to-consumer digital news network, where nearly 80% of the audiences between the ages of 18 and 49 and the average age is 38. Our CBSN model has been so successful that we are now using it to launch 2 more of our most popular brands into their very own direct-to-consumer services this year, including CBS Sports and one of the most popular brands in entertainment news, Entertainment Tonight. CBS Sports HQ will debut later this month right before March Madness and the Masters and will provide 24/7 news highlights and analysis in a unique way.
We believe we can build a significant audience by launching an ad-supported free service with full mobile and on-demand capabilities. More importantly, we're setting ourselves up to the direct-to-consumer future with another vertical that is right in our wheelhouse. That is also the case with our Entertainment Tonight streaming service, which will debut in the fall. There is a tremendous appetite in the marketplace for entertainment news. And here again, we'll be taking advantage of one of our marquee brands and launching it on a new platform, where we can take advantage of better economics and bring in new viewers. Plus, we can use CBSN, CBS Sports HQ and ET to cross-promote all of our direct-to-consumer services, converting viewers on our ad-supported platforms into paying subscribers. There will be more news along these lines in the quarters ahead, as we continue to invest in our portfolio of streaming services, as direct-to-consumer becomes a bigger part of our strategy. This includes the tremendous potential of launching all of these OTT services around the world beginning in June, when we expand All Access into Canada, followed by Australia and then Europe and beyond as well.
At the same time, there are a number of new programming bundles that are catching on quickly as well, and we're there, too. We have deals with Hulu, YouTube TV, DIRECTV NOW and Sony PlayStation Vue, among others, with more to come. These streaming services pay us more than we get from traditional bundles, and they're having a bigger impact on our affiliate and subscription revenue all the time.
The even better news is, while all of this is happening, our revenue from traditional MVPDs is strong with a lot of room to grow. When you look at the viewers we bring to the table, we continue to provide the best value to our MVPD partners. As a result, each new deal we do is better than the last. So we have no doubt that we will surpass our goal of $2.5 billion in retrans and reverse comp revenue by 2020.
Given the rapid change in media distribution, recently, last quarter, we introduced a new fact that may come as a surprise to you, but not to us. And it offers a new way to help evaluate our success. We told you that when you combine direct-to-consumer, skinny bundles and traditional MVPDs, our subs are growing at both CBS and at Showtime. This quarter, our total subscriber base grew even faster. So as the world continues to change, here at the CBS Corporation, our sub growth is accelerating, thanks to our strategy to maximize our subscription revenue across platforms. In a nutshell, changing viewer habits are resulting in more subs for us and at higher rates.
This momentum is taking place at the time when 2 other key positive developments are happening as well. First, we're just beginning to benefit from our strategy to dramatically increase the output at our in-house studios. During the year, we produced 64 shows for 12 different buyers from the worlds of broadcast, cable and streaming. This expanded slate of programming is being monetized across platforms and around the globe, resulting in growing content license fees. Just yesterday, we announced a multiyear deal with Amazon to license The Good Fight in Europe, Asia and Latin America, representing a whole new opportunity to take content we launched on All Access here in the U.S. and license it internationally.
And the second positive development is that we're seeing extremely strong growth in scatter pricing across all dayparts, up nearly 40% in primetime, daytime and late night. Plus, as more and more viewing happens on digital platforms, we're just beginning to benefit from better CPMs, as a result of more targeted digital advertising.
So whether it's launching new direct-to-consumer services, negotiating with distributors, licensing our content around the world or selling it to advertisers across platforms, we are operating from a position of great strength, thanks to the size of our audience and the demand for our content.
This starts with our biggest ticket programming, like the AFC championship game last month, with 44 million viewers, it was the most watched television event of the year outside of the Super Bowl. We followed that up next weekend with more than 20 million viewers for the GRAMMYs, which, very importantly, drove CBS All Access to its second-highest single day for sign-ups since its creation. Only Star Trek: Discovery had more.
And at the CBS Television Network, we have more hits than anywhere. We have the #1 show on television, Big Bang Theory; the #1 new show, Young Sheldon; and the #1 news program in 60 Minutes as well as 6 of the top 10 and 10 of the top 20 shows overall. When you take it into account live and delayed viewing over 35 days and across platform, CBS attracted an average of nearly 11 million viewers each night during the fourth quarter, more than any other network. And we swept fourth quarter in primetime, daytime and late night for the first time in 8 years.
Just to give you some more perspective on how many viewers are watching our shows on their own time. The series premiere of Young Sheldon launched last fall with an impressive 17 million viewers in live, plus same-day ratings, that audience grew to more than 21 million viewers when you measure viewing over 3 days, more than 22 million viewers over 7 days and more than 26 million viewers over 35 days, making Young Sheldon our most-watched comedy since the advent of people meters more than 30 years ago.
Broadcast television viewership is doing just fine, thank you. And going forward, we will get full value for that viewing from advertisers. Whether it's CBS, CW, Showtime, All Access or platforms outside of our company, we're creating more and more content for the future. As part of those 12 platforms that I mentioned earlier, we're now creating 3 series for Netflix, including 2 new shows called Unbelievable and Insatiable and the second season of American Vandal, which was just renewed.
In addition, Apple recently picked up a second season of Carpool Karaoke and TBS renewed Drop the Mic. Both Carpool and Drop the Mic were inspired by the hugely popular segments on The Late Late Show with James Corden. And now Stephen Colbert is helping us produce new shows outside of the network as well, including the animated satire called Our Cartoon President, which just had a strong debut on Showtime this weekend.
The expansion of our late-night franchises is a direct result of their growing popularity on broadcast television. The Late Late Show with James Corden just had its most-watched quarter ever. And The Late Show with Stephen Colbert had CBS' biggest audience in that time slot in 8 years. Just 1 year ago, Stephen was trailing The Tonight Show by nearly 300,000 viewers. Now he is ahead by more than 1 million viewers on average each night.
As I mentioned, 2017 was also a breakout year for CBS All Access. We doubled our subs year-over-year, and we kicked off 2018 with our best month ever in January. We're driving this growth, first and foremost, with our content. This includes our big events, like the NFL and the GRAMMYs, more than 10,000 episodes of current and library programming and our original series led by Star Trek: Discovery, which was obviously a runaway success.
And we continue to reload. Coming up in March, we'll have the return of The Good Fight, followed by 2 new exciting series, Strange Angel from famed director and producer, Ridley Scott; and a new mystery thriller called $1. We will also begin production of season 2 of Star Trek: Discovery in April. And we're in pre-production on the highly anticipated return of The Twilight Zone with triple Academy Award nominee Jordan Peele as executive producer. Jordan redefined the horror genre with his highly acclaimed movie Get Out, and we can't wait to see what he will do with the franchise like Twilight Zone.
At the same time, we're expanding our content. We're also making All Access easier to purchase than ever before, including recent deals to bring the service to some of the most widely available platforms, like Amazon Prime and Samsung Smart TVs.
The 1-2 punch of premium content and the direct-to-consumer distribution also led to a huge year at Showtime. Once again, over the top subs are proving to be additive to our overall total. And so in 2017, we surpassed 25 million subscribers for the first time in Showtime's history. As a result, this was Showtime's best year ever in terms of revenue from subscription growth. None of this would have been possible, obviously, without our murder's row of hit series. Showtime has the #1 scripted series in premium cable for 3 out of 4 quarters in 2017. In the first quarter, it was Homeland. In the second, it was Billions. In the fourth, it was Shameless. And in the third, it was some show on another network that had a bunch of dragons in it. Our strategy of premiering a new show each month is driving consistent and steady growth, and that's continuing here in the first quarter. Last month, we launched the new hit drama called The Chi, which had our most-watched series premiere since the debut of Billions 2 years ago and has gained terrific momentum since. We followed that up with the return of Homeland, Showtime's #1 series, which just had an even bigger season premiere than last year. And next month, we'll have season 3 of Billions. So Showtime is off to a terrific start in 2018.
Our creative success is also driving our financial success in publishing with Simon & Schuster into 2017 with 195 bestsellers, including 30 that reached #1. We had 20 of the top 100 best selling titles. So we did disproportionately well where it mattered most. Coming up in 2018, we have several key books from our line of best selling authors, including Nelson DeMille, Stephen King and Ruth Ware.
In local media with midterm elections coming this fall, 2018 is shaping up to be a great year. In addition, having The GRAMMYs in New York helped our biggest station, WCBS, set a new revenue record during the first quarter, bringing in more dollars for any award show in history.
I also want to point out that we are extremely pleased to welcome Network Ten from Australia into the CBS family. The transition with their superb management team has been seamless. This is a tremendous asset that plays right into our core strength of broadcasting. At the same time, Network Ten provides a number of compelling digital opportunities, including the launch of All Access, as I mentioned. And it helps to continue to grow our international portfolio as well.
So across our company, we are delivering outstanding results today. And we're setting ourselves up for growth well into the future. We're using our expertise to invest in the best possible content and to secure the best possible return. We are 2 years into the 5-year strategic plan we've laid out to you at our investor day in 2016, and we are exceeding our commitment to you. This includes a 2018 that will be another record with the back half that will be even stronger than the first.
In just a few short years, we have led CBS through strategic and operational transformation. We have doubled the number of shows we are producing. We have dramatically increased the number of platforms we're selling to. We will soon have 5 direct-to-consumer services, including All Access, Showtime, CBSN, CBS Sports HQ and Entertainment Tonight. And now we are gearing up to expand them into the international marketplace.
On top of all this, our base business is performing very well with compelling new opportunities in advertising, thanks to more and more data that we have to sell. And we have a growing number of reliable and steady revenue sources, including retrans and reverse comp, and domestic and international multiplatform content licensing.
So you can see why we feel extremely confident in our ability to drive earnings for years to come and why we look forward to continuing to update you on our progress.
With that, I'll turn the call over to Joe.
Thanks, Les, and good afternoon, everyone. CBS finished 2017 with a great quarter and another solid year. In a changing media landscape, our company stands out. Our base business is strong. And we're growing our sub base and getting paid higher rates per subscriber, thanks to the growing demand from consumers for our new distribution platforms. Plus, we are well ahead of where we expected to be in achieving our strategic and financial goals that we laid out for you from our 4 growth pillars. As a result, we are headed for a terrific 2018. And I'm going to quantify what that means for investors at the end of my remarks. But first, let me give you some more details about our fourth quarter results.
Revenue was up 11% to $3.9 billion. Content licensing and distribution had a terrific quarter and grew 33% with strength, both domestically and internationally. On the domestic side, we got a lift from our distribution deals for NCIS: New Orleans and Madam Secretary. And internationally, we are benefiting from having more content to license as a result of our increased programming investment. Affiliate and subscription fee revenue was up 20% during the quarter. Retrans and reverse comp led the way and was up 31%. And for both the quarter and the year, we doubled our revenue from skinny bundles and our direct-to-consumer services. Going forward, we expect the incremental revenue increases from these 2 growth initiatives to be even stronger in 2018.
Total company advertising was down 3% from 2016 when we had record political spending at our local media segment. At the network level, advertising was up 4% from Q4 of 2016 helped by Network Ten in Australia, which we acquired midway through the quarter. And we also saw a strong advertising growth on our digital platforms.
As Les said, EPS for the fourth quarter was up 8% to $1.20. And on a full year basis, we achieved EPS of $4.40, which was up 7% from the prior year.
Also during the quarter, we had a few unusual items I want to point out to you. As we told you on our last call, we took 2 steps to significantly reduce our pension exposure going forward. First, we made a $500 million discretionary contribution to our pension plan to increase the funding status to over 90%, taking full advantage of the tax deduction prior to the new tax laws going into effect. And second, we then transferred 20% of that pension liability to an insurance company, permanently defeasance that risk.
Also during the quarter, as a result of the new federal corporate tax law, we reported a one-time charge on our international earnings, and we lowered our deferred tax liability to the new corporate tax rate. We'll give you some more color on the impact of the corporate tax reform plan in a bit.
In addition, we completed the split-off of our radio business in November, so our radio results are included in discontinued operations for only half the quarter.
Lastly, we cut cost across the company during the fourth quarter, and these actions represent annualized savings of more than $50 million starting in 2018.
Now let's turn to our operating segments. Entertainment revenue for the fourth quarter was up a robust 18% to $2.8 billion with solid growth across the board. Content licensing and distribution was up a strong 38%, driven by domestic -- the domestic sale of NCIS: New Orleans. Affiliate and subscription fee revenue was up 40%, thanks to healthy gains in reverse compensation. And advertising was up 4%, which, as I said earlier, included Network Ten.
At the CBS Television Network, advertising was even with Q4 of 2016. And for all of 2017, CBS network advertising came in over $4 billion, which is in line with what we said on our last call and consistent with what we achieved in each of the last 5 years, demonstrating once again the continued strength of network advertising.
Entertainment operating income for the quarter was up 25% to $465 million. And the operating income margin expanded by 1 point, even as we continue to increase our investment in All Access, CBSN and CBS All -- CBS Sports HQ, all of which represent new ways to drive earnings in the years ahead.
Fourth quarter Cable Networks revenue was up a solid 9% to $547 million. This increase was driven by growth at Showtime OTT, which had a terrific quarter, as well as the international licensing of our Showtime original series. Our Cable Networks operating income for the fourth quarter came in at $201 million compared with $219 million in Q4 of 2016. This reflects the timing of our release schedule as well as a higher level of investment in our programming.
Looking on a full year basis. Cable operating income grew 4% to $996 million with an operating income margin of 40%.
In Publishing, fourth quarter revenue was up 12% to $235 million, reflecting higher print book sales. In addition, digital audio continues to grow strongly, driven by younger consumers. We also had a strong slate of best selling titles in the fourth quarter, including Leonardo da Vinci by Walter Isaacson and Principles by Ray Dalio. Publishing operating income for the quarter was up 22% to $44 million. And the publishing operating income margin grew 2 points to 19%.
Turning to local media. Revenue for the fourth quarter came in at $450 million compared with $526 million in Q4 of 2016 when we had that record political spending. Nonpolitical revenue was up 7% in the quarter, which is higher than our expectations from our last call. And we saw particular strength in the retail sector during the holiday season. Our local media operating income for the fourth quarter was $137 million compared with $216 million in Q4 of 2016. And our operating income margin was a solid 30%.
Turning to cash flow and the balance sheet. For the full year 2017, free cash flow came in at $989 million, which includes a significant investment in our own content, higher investment in our own content as well as higher cash taxes compared with $1.26 billion in 2016 when we had the Super Bowl.
In addition, during the fourth quarter, we issued a total of $900 million worth of senior notes, and we used some of those proceeds to refinance 5.75% notes maturing in 2020 at significantly lower interest rates.
Now let me spend a minute discussing the new corporate tax law. We see 2 major benefits for us. The first is that our book tax rate is going to be lowered to approximately 24%. And the second is that our cash taxes are going to be significantly reduced by hundreds of millions of dollars as a result of the lower tax rate. These savings will allow us to accelerate investments in our key growth initiatives, such as expanding All Access and CBSN internationally, launching CBS Sports HQ and our Entertainment Tonight streaming services and, most importantly, producing more premium content. Plus, in addition to investing in this growth initiatives, I just mentioned, we also expect to buy back between $801 billion of our stock in 2018.
Now let me tell you what we see ahead. Here in the first quarter, local media revenue is pacing to be up low single digits. And as you heard from our peers, network advertising has been robust in Q1. And our scatter pricing in daytime, primetime and late-night is up nearly 40% from the upfront, demonstrating broad-based health in the marketplace.
And for the full year of 2018, as we discussed on our last call, we see 4 different areas that will drive top line incremental growth well in excess of $100 million each. The first driver is from advertising, which will benefit -- which we will benefit from what we expect to be a solid midterm election cycle in the back half of the year. The second is from our direct-to-consumer offerings led by sub growth at CBS All Access and Showtime OTT. The third is from retrans and reverse comp, which continues to grow strongly. And the last driver is from international content licensing fueled by our increased ownership of content.
With these key growth drivers and the separation of our advertising-based radio business behind us, we now have more confidence and visibility into our future earnings than we've ever had before. And as a result, we can now comfortably say that in 2018, we expect revenue growth in the high single digits and EPS growth in the high-teens. And we expect to achieve all of these even as we continue to ramp up our investment in our organic growth initiatives.
So 2018 will be another record year for CBS, and we are set up for continued strong growth beyond that as well.
With that, Ann, we can open the line for questions.
[Operator Instructions] We'll take our first question from Ben Swinburne with Morgan Stanley.
I have one for Les and then a follow-up for Joe. Les, obviously, you've been a big fan, so to speak, of the NFL over the years. But Thursday Night Football went another direction this year. How do you think about that process? What do you do with the savings you're going to generate from not retaining that Thursday Night right? And there's certainly some concern in the market that, that could impact your retransmission feeds, I think your prepared remarks tell us your view on that. Maybe if you could just spend a minute on why you're so confident that it's not a factor?
Yes, first of all, we love football. We like better on Sundays than on Thursday. Economically, it's considerably better for us to do that. Very frankly, Ben, Sunday affects the retrans and the reverse comp. Thursday doesn't since we only had single year availability. So it literally that was -- it didn't have anything to do with that negotiation. As I said, we love it. We know the economics. We carried Thursday Night for 4 years. We have exclusively for 2. The reason it didn't affect the retrans, it was not exclusive on Thursday Night. So it didn't help any stations, our own or otherwise, because you can get it on the NFL Network or on Amazon. So we know the economics really well of doing that. In addition, may I add them our Thursday Night wins with our regular programming. We have Big Bang, Young Sheldon, which sort of kill it. So we are looking forward to taking that money and reinvesting it in regular programming and moving on from there.
Great. And then, Joe, I think if you look at the full year, licensing and distribution was up almost 8%. I think it's the highest growth rate since maybe 2013. I think another concern in the market is the syndication business is sort of dead. If you can just talk about the drivers of licensing and distribution for the year. How did international do, domestic, digital? What's making that business start to grow faster than expected?
Yes, sure. Look, as we said, we're producing 65 shows when just a few years ago, we were producing about half of that. And so we certainly expect -- our pipeline is growing for shows we have not licensed yet. So the expectation certainly for us is a healthy marketplace is going to bear fruit for us. And so both domestic and international for us in 2017 had healthy years. Obviously, we sold Madam Secretary as well as NCIS: New Orleans. We have not sold Scorpion yet. So we have some real beachfront property still yet to come. And our international team sells obviously some CW product as well as All Access product. So those 65 shows have a lot of value in Rest of World. And they need those -- that content for their business models. So obviously, we made in that our growth pillar. Our international content licensing. We are ahead of plan on that. So we said we were going to have a good year in content licensing, and we delivered.
We'll go next to Jessica Reif with Bank of America Merrill Lynch.
Two questions, one on OTC. Obviously, 5 billion subs is incredibly impressive. What's the biggest driver? Is it Amazon driven? And can you talk about churn? And what are the pros and cons of Amazon distributing for you? Do you lose the direct-to-consumer? Do you lose that information? And then on the content -- sorry?
No, go ahead, Jessica. Ask your second and then we'll answer.
And then the increase in content has been the biggest driver of value for the company over the many years since Les comes to CBS. You said you doubled production. Are there any limitations from here in how much more you can scale up without losing quality and focus?
Let me ask -- I'll answer the second one. First of all, I've been at CBS almost 24 years. So it's been going on a while. And the answer to your question...
Definitely, I remember when you came.
Right, I know, I was a young man. The amount of content, the sky is the limit. As more and more people come into the marketplace, the Netflix, the Amazons, the Hulus, the Apples, we're supplying to all of them. We have the capability. We have the producers. We have the executive team. The fact that we've doubled in just a few short years, we're ready to go. And we get it -- that what excites us, doing more and more premium content.
And Jessica, on your -- in the OTT question. Obviously, we're ahead of plan with the 5 million. So we're very pleased with that. It's broken out almost evenly between the 2 services. And CBS All Access really just launched on Amazon in January. So it's not that big part their base yet. It's much more significant at Showtime. They are fantastic marketers and show they are able to drive sub growth, which is terrific. We see lower churn with those sort of services because of the consumers are used to that proposition. So that's really good. And we do get the data on all of our shows and stuff. So we feel -- and the economics are obviously favorable. So we really -- it's really just a win-win for this new distribution model, but it's really being driven by the consumer.
We'll go next to Michael Morris with Guggenheim Partners.
Two questions. First, can you help us size the Network Ten contribution and how to think of it for the coming year? Is it -- is a straightforward just kind of doubling the 4% advertising lift in the quarter in entertainment? And assuming that carries forward, are there other revenue streams to think about and is it profitable? And then, second, the investors have been focused on digital platforms ramping up their show production. But lately, there's been a lot of press around executives and show-running talent moving or making commitments to some of these platforms. And Les, could you comment on how important these individuals are to your process, whether this is a shift in the competitive dynamic and how that impacts your business?
Mike, I'll take the first part. Network Ten. Look, we grew 11% in the quarter. Without Network Ten, we would have still grown double digits. So I think it's -- all the advertising right now is coming from advertising for Network Ten. So as we look forward into '18, what I would say it's dilutive to our margin because again, obviously, we are investing in there and there is a ramp that's coming in the profitability. So stay tuned for that. So again, it's not a significant deal, obviously, on a $13.7 billion revenue base, we're talking hundreds of millions of dollars in that magnitude. So that will give you some -- that will size it for you.
Regarding the creators. As I said, I've been doing this a long time. And previously, there was very little competition. And then it would expand to cable and people will start going to HBO. Look, Ryan Murphy is an extraordinary talent, one of the greatest creators out there. They offered him hundreds of millions of dollars. He had to take it. But then you look at Chuck Lorre. Chuck Lorre has 3 shows on CBS and he also has a couple of shows over on Netflix. So we have a lot of the talent. There's a lot of room. The landscape does change. But we find new talent and we also continue to be in business with the best talent. So Netflix is another competitor and as well as a supplier. So it doesn't concern me.
We'll go next to Alexia Quadrani with JPMorgan.
Just a couple of questions. You mentioned earlier licensing of The Good Fight, I think, through Amazon to some global markets. I guess, how do you balance licensing your content like this outside United States versus maybe your plans to eventually move to CBS All Access into those markets directly? And then my second question, just sort of on the same train of thought. Kind of any thoughts of possibly sort of preselling The Twilight Zone internationally and help continue to fund the show?
Let me start and Joe jump in later. Obviously, let's go back to Star Trek, which was, as expensive of production as we have ever done, we were just launching All Access, we got a huge amount of money from Netflix for the international rights. And it made it very viable for All Access and continue to do that. As we look out into the marketplace and as we expand CBS All Access internationally, there is the possibility you would sell it to Netflix or Amazon with carve-outs or where CBS has their own over-the-top service. When you look at Twilight Zone, once again, another huge, huge property with incredible creative auspices there. We haven't yet decided on what to do. Needless to say, Netflix is calling. Amazon is calling, and we get a little closer. We will look at it. My guess is, we will make a huge international sale because by that time Twilight Zone goes on the air, we won't be in that many territories, but we will leave room open to do it later on. So in each case, we look at what the marketplace is, what's available and how we're playing. But more and more of it will come to us and less and less will go to them. But right now, economically, it's very good to be selling to Netflix and Amazon.
We'll go next to Bryan Kraft with Deutsche Bank.
I wanted to ask you a question on measurement and ratings. I know you've made some real progress this year using TCR and measuring out the 35 days. Can you talk about where you think Nielsen's ability to measure on all screens is at this point? And do you think TCR is the answer to closing that gap? And then lastly, how much upside you think there is next season, the GRPs you have available to sell as a result of the expanded measurement currency with TCR and also out-of-home?
Yes, Bryan, it's Joe. Look, we took a stab at quantifying this for you guys in 2016 in an Investor Day with that consumption that's occurring outside our monetization window. So it started in a live rating, went to a C3 rating and now C7. And as Les just give you an example from the Young Sheldon case, there's still significant consumption coming outside of that. And so we're reliant on a third-party measurement system. We're hearing Nielsen is making certainly investments in their technology to capture all of this. But obviously, we're anxious in making sure we're able to do that because it's a lost opportunity. So the good news is the consumption is there and there is real upside. I mean, you can do it by percentages, but it's double-digit percentages are now kind of watching it on their own time. And that's an opportunity. And we have to make sure we deliver that for advertisers and we have to measure that and get paid for that. But we're delivering that today. So that's why we made it a pillar and that's why we reorganize the sales, our sales team. And so we are laser-focused on that.
If I can just ask one follow-up, and I don't know if you know this off the top of your head. But what would the ratings look like if all of the consumption were actually being measured right now? I mean, how different would those primetime ratings look?
Yes, Bryan, we actually said that also in our day. We took the top 15 shows now and looked back 15 years, and the ratings are actually up. So a lot is said. CPMs, you guys look at CPMs and you look at the ratings. We're delivering more than the overnight rating states. Advertisers know that. We know that. Everybody knows that. And so our internal data, we try to -- we publish that. And we said we didn't want to look at one show. We said let's look at the top 15 shows and aggregate that audience and compare that. And it make sense, right, because there's so many different ways to watch it on different time schedules. Before, it was in that one-hour window, you either watch it or didn't watch it. Now it's always available to you. So it shouldn't be that foreign of a concept to say consumption is actually up. You have to have the right content, obviously. And being at the CBS network, #1 in 14 of the last 15 years, that certainly, gives us a premier advantage.
We'll go next to Doug Creutz with Cowen and Company.
You talked about how happy you are with how CBS, the news direct-to-consumer product is doing. I wonder if you can talk a little bit about the economics there, how meaningful a contributor that can that be and your plans for the new DTC products you're offering? And then, secondarily, just a quick one. The high-teens EPS growth you mentioned, is that off the fully adjusted $4.40 number or is that off the continuing ops $4.19 number?
Yes, Doug, it's Joe. Yes, it's off the $4.40 number. So just to be clear on that. And on CBSN, look, it's contributing. I would put it in tens of millions right now in terms of profitability, Doug. But we're focused on really growing that. And we want to take that internationally. We want to make the content offering more robust. We're really building that, getting the loyalty to the audience and then what we're seeing is it's now available inside of All Access. We want the people to convert up to our paying service in All Access. That's why we're doing it with a sports and entertainment news as well based on the success we've seen with CBSN.
We'll go next to David Miller with Loop Capital.
Les, a couple for you. Thanks for the breakout or actually, thanks for the aggregate sub number on the OTT products, 5 million subs. Could you size that up between Showtime and All Access? My guess is that maybe 55% to 60% of that 5 million is All Access. But if you're willing to provide any granularity, that would be great. And then also, I think, correct me if I'm wrong, I think 33 out of 100 Senate seats are up for election this year. There's been some news reports are out suggesting that political spending this year could actually outpace 2016. Do you agree with that? And any other commentary surrounding that will be helpful.
Number one, the OTT services, they're sort of neck and neck. It's really -- it's pretty 50-50 right now. So we're really pleased about. And they've gone their own ways and they offer different things and the fact that they -- they're both doing exceptionally well is a big boon for us. Look, we're anticipating a very big political year. Yes, there's obviously -- and there's a lot of the seats that are up, there's a lot of issues on the table. There's a lot of rancor in the marketplace and we expect that there will be a lot of money spent. So whether it beats 2016, we're optimistic that it will.
We'll go next to Laura Martin with Needham & Company.
Maybe a couple. Strategically, Les, do you see your position in OTT as a complement to your linear channels over OTT, which is sort of how Disney is positioning their new sports service? Or do see them as sort of substituted from a consumer point of view, which is how I think of All Access? And then Sambas and scatter, what I -- I am fascinated by the 40% higher rates. And one of the things we're seeing in Priceline and Expedia, which do $5 billion each a year in search engine marketing. As they're pulling money out of that Google search engine and they're putting it on TV and I'm wondering if you guys are already seeing that in your marketplace that's helping that scatter number?
Laura, let me deal with the first. I do view this complementary. Obviously, the things that are driving our OTT products right now are catch-up on our network shows, on the main network shows. And then, obviously, as we add more and more original content, that becomes a bigger driver. obviously, Star Trek had a great effect as will The Good Fight. When Twilight Zone comes on, it's that. But I think the good news it also has a lot of the library. So I do view them as working together as we go forward. More and more people are going to be watching the shows in different ways and as we always said, you can get your CBS on a traditional MVPDs and get it on the skinny bundle. Or you can get it now on All Access and each one of them pays us more. So we look at it all working together.
And Laura, on your scatter pricing, I mean, we're seeing broad-based strength. So we are seeing dollars come back from -- if they're circulating in digital. I think it'll always -- there will always be some digital components. But we're also seeing it in tech and telecom and other areas where we're seeing big budgets coming to television advertising. So that's positive. Maybe tax reform has something to do that as well. But we're positioned nicely.
We'll go next to Jim Goss with Barrington Research.
I would like to dig in a little bit more in the introduction of direct-to-consumer international. I was wondering if you could discuss of the process and pacing of that. And maybe frame out any of the economic expectations and subscriber expectations. And I'm also wondering somewhat, to what Les was talking about earlier, if there's any conflict with your international series syndication sales that makes that a little trickier to pull off.
Yes, Jim, it's Joe. Look, I mean, we're going through the process and just how we did that in the United States. So that's why we're going kind of Canada first, close to us, English language. We know what rights they have and stuff like that. So we built the tech stack to really scale that infrastructure. So we're going to be cautious to make sure we learn our lessons along the way. We look at where Netflix is and see their sub growth. And so we have some envy there. And so that's going to be -- we're going to set our sights there and what those will be our expectations. Obviously, we're spending money to do that. So we're pre revenue right now. But we think it's the best ROI because we've seen that -- the success CBS All Access has, Showtime OTT as well as CBSN here domestically. So we know we're on to something. So we're going to be deliberate in the approach. And as far as the conflict, each country, the rights are sold differently. So we'll obviously -- we'll never violate any of those contracts. But we're going to be strategic in the rollout in how we do this. So each country's offering maybe a little bit differently. But long-term, the goal is to have a global direct-to-consumer offering with original product in there, live content, library. It's going to be a compelling offering for the consumer.
And one other thing, do you -- to the extent that you have these other opportunities bubbling up internationally as well as domestically, do you think that takes some of the pressure off of always needing the expensive sports programming and award show emphasis and things of that nature that have tended to pressure costs in the past?
We love our sports. We love our GRAMMY Awards. We love being full service network. You probably should talk to Fox. They're going in a different way.
That question will come from Marci Ryvicker with Wells Fargo.
Two questions. Joe, local's pacing up low-single-digits. I assume that includes political. So can you talk about maybe the pace excluding political. And then related to that, are you feeling any impact from the Olympics so perhaps the pace would be even higher in a more normalized environment? And then, secondly, on the cost-cutting side, you talked about a $50 million run rate benefit. What segment will that be in? And is there anything else to cut where maybe that $50 million moves higher over time?
Marci, we always look for efficiencies throughout the organization. So I think we've demonstrated that we're pretty cost disciplined. The $50 million is really split amongst the 4 segments we have, the largest being the entertainment segment. So I would spread that and again, disproportionally on the entertainment segment. As far as local. The local -- political in Q1 is very small. As you know, this is all back half Q3, mostly actually Q4. Over 50% of the dollars are spent in the month of October. So it's not really driving that low single-digit growth that we talked about. And obviously, the Olympics take some money out of the marketplace for 2 weeks in February. But we had a very strong January. And again, we expect to hit our guidance.
Great. Thank you, Marci, and thanks, everyone, for joining us. This concludes today's call. Thanks a lot.
And again, this does conclude today's conference. We thank you for your participation, you may now disconnect.