Category: News (page 59 of 1505)

Arizona Cardinals

A new $370.6 million stadium is under construction. Cardinals are paying 25 percent of construction costs, plus $18.5 million for land. The state of Arizona, through the Tourism and Sports Authority, is paying 75 percent of construction costs. The state portion is to be provided by hotel and car rental taxes, not state general revenue.

The Cardinals get no state subsidy, pay $250,000 a year to use their current stadium, split concessions and merchandise sales with the stadium authority and get proceeds from parking. State officials rebate to the team any income taxes paid by team employees and players. The stadium gets hotel tax, advertising and stadium tour revenues.

Atlanta Falcons

The Georgia Dome was built in 1992 by the state for $214 million, funded with a hotel-motel tax, but no direct state funds. It’s part of the Georgia World Congress Center, which manages the stadium and adjacent facilities. Renovations in 2002 included $5 million in new giant TV screens and a message board, and in 2003, included $1.3 million for a turf field and $500,000 for sound-deadening acoustics.

The Falcons gets no state cash payments and pays a portion of the revenue it gets from ticket sales as rent on the building. A hotel tax is the major funding source for the dome, which also gets revenue from luxury boxes, concessions, parking, advertising and tours.

Baltimore Ravens

The state of Maryland dropped down $200 million in cash and tax exempt bonds, to be paid for through lottery proceeds, for the construction of the $223 million MT Bank Stadium in Baltimore, which opened in 1998 right next door to Camden Yards, home of the Baltimore Orioles.

The Ravens contributed only $5 million through the sale of Personal Seat Licenses. In May 2003, the MT Bank purchased the naming rights for $5 million annually over 15 years for a total of $75 million. The stadium came in under budget — a rarity in the business — by last-minute cost cutting, including cheaper ceilings and lights in some of the lounges.

Buffalo Bills

Ralph Wilson Stadium, originally built for $22 million in 1973 with bonds issued by Erie County, New York, underwent a $63 million upgrade in 1999 with 76 skyboxes, 6,900 club seats with seat warmers and more leg room provided for all seating. Capacity was increased to 75,300.

The Bills get no state subsidy but the team gets free use of the stadium and revenue from luxury box and concessions sales, parking and advertising. Erie County pays $2.1 million a year for game day expenses and stadium support.

Carolina Panthers

The expansion Panthers finished $298 million Ericsson Stadium in 1996 with only 20 percent, or $60 million, of the burden coming from the city of Charlotte, N.C. The team raised $120 million by becoming one of the first teams to sell the Permanent Seat Licenses.

For the 11,000 club seats, the Panthers charged $5,800 per season ticket excluding the ticket price of $65.

The club also helped its cause by raising other private funds through the sale of the stadium’s naming rights to the Ericsson Corporation.

Chicago Bears

Soldier Field was built in 1924 at a cost of $4.5 million. It was closed in 2002 for a massive $365 million renovation that left only concrete pillars from the original structure. It reopened for the 2003 season. Soldier Field is the property of the city of Chicago and is managed by the Chicago Park District.

The team gets no state subsidy and pays $5 million to Chicago Park District for use of the stadium. Team revenues include sale or lease of luxury boxes, sale of concessions and merchandise and stadium advertising. Soldier Field gets hotel tax revenue and money from stadium tours.

Cincinnati Bengals

Paul Brown Stadium opened in 2000, built at a cost of $453 million. Voter-approved financing of 100 percent of the cost is backed by a sales tax. Unlike other teams, the Bengals decided not to sell naming rights, but to name the stadium in honor of its founder.

Cleveland Browns

The city that lost an NFL team because it would not build a new stadium managed to build a new $283 million stadium just a few years later in 1999 and called it Cleveland Browns Stadium. The state of Ohio provided $38 million, while the other $245 million came from a complicated financial breakdown involving the city, utility and transportation authorities, Cuyahoga County and the NFL.

The Browns received a very nice lease agreement. The team pays no rent, but it collects all game-day revenue such as ticket sales, advertising, concessions, luxury suites and club seats. The team pays operating and maintenance expenses, while the city pays stadium property taxes.

Dallas Cowboys

After more than 30 years at Texas Stadium, the Cowboys are getting a new stadium, estimated to cost $653 million, with some $400 million coming from public financing. In November, Arlington voters approved a half-cent sales tax, a 2 percent hotel-motel tax increase, 5 percent car rental tax, authorized up to a 10 percent ticket tax and up to $3 parking tax at the stadium.

The development includes Legends Square, a tourism attraction that includes community activities space, restaurants, shops and entertainment venues.

The Cowboys will be exempt from property taxes since the city will own the stadium, and the team will have naming rights to the stadium, although any geographic name must include “Arlington.”

The city of Arlington gets $2 million in rent annually for 30 years beginning in 2009, five percent of any stadium naming rights deal up to $500,000 per year, $500,000 annually from Cowboys charities beginning in 2006 for youth sports up to $16.5 million.

Denver Broncos

Invesco Field at Mile High was completed in 1999 at a cost of $362 million; 75 percent of the costs are publicly subsidized through a multi-county sales tax.

Detroit Lions

Ford Field, opened in 2002, was built at a cost of $430 million. Voters approved a bond issue that paid 51 percent of the costs, with the team paying the other 49 percent. The bond issue is backed by a local hotel and car rental tax and the state’s general fund.

The Lions moved into the $430 million Ford Field complex in downtown Detroit in 2002. The facility was financed with 49 percent private money and 51 percent public funds. The stadium is owned by the Detroit/Wayne County Stadium Authority. New taxes of 1 percent on hotels and 2 percent on rental cars were approved by voters to help finance the deal and the Lions are bound by a 35-year lease.

Green Bay Packers

City-owned Lambeau Field, which opened in 1957, underwent a dramatic renovation in 2003 at a cost of $295 million with $169 million of that, or 57 percent, coming from a voter-approved sales tax and another one-time $9 million sum from the state of Wisconsin for infrastructure. The state did not give up the $9 million easily because it had just paid $20 million toward the Milwaukee Brewers’ Miller Park.

The Packers paid for the rest and received $13 million from the NFL’s G-3 loan available for new stadium construction or renovation. The Packers were 20th in the NFL in gross revenue in 2001 and rose to 10th in 2003 because of the new Lambeau and its luxury suites and boxes.

The Packers, who reside in easily the smallest city and media market in the NFL, have opened their books unlike other NFL teams because of its unique ownership. The team is owned by 110,000 shareholders and operated by a 45-member board and seven directors.

The Packers try to make money on their own by operating their stadium 364 days a year with a restaurant, museum, tours, other entertainment, corporate dates and special events. The historic stadium itself is also used to attract free-agent signings.

Houston Texans

The third-year club functions virtually independently. To finance the $402 million Reliant Stadium that opened in 2002 with a retractable roof, a local hotel and rental car tax was used along with parking and sales taxes at the stadium to finance $287 million, or 71.4 percent, of the price tag.

“We’re totally independent,” said Tony Wyllie, who is the Texans’ vice president of communications.

Indianapolis Colts

The club just announced plans for a new $500 million, 63,000-seat stadium to open in 2008 and a new 30-year lease. The Colts have pledged $100 million toward the stadium with the help of the G-3 NFL loan. Luke Kenley, the Senate tax and financing policy chairman for Indiana, will lump the new stadium in with an $800 million package that includes a major expansion to the Indiana Convention Center. There is a plan to raise $400 million through taxes on pull-tab machines, which are similar to slot machines. City officials are also seeking state funds. Kenley plans to pressure Colts’ officials to make as many as 6,000 tickets a game available at $25 or less for “Joe Sixpack” and to win legislative support.

Under the Colts’ old agreement, the city of Indianapolis had the option to subsidize the Colts by however much money it missed the median point of the NFL teams for net revenue. The Colts missed by $12.6 million in 2003, but the city never planned to make that payment even though such a forfeiture could mean the team could move. This drove the recent talks that climaxed with a deal earlier this month.

“The new contract does not call for such a payment,” said Pete Ward, the Colts’ executive vice president.

The Colts currently play in the 20-year-old RCA Dome and pay the city $25,000 a year in rent and receive a small division of parking, concessions and other gameday sales.

Jacksonville Jaguars

Alltel Stadium became the first installment of the new-stadium craze when the expansion Jacksonville Jaguars opened in 1995 as the first of nearly 20 NFL teams to play in a new home in the 1990s. It’s not really a new stadium, though. It was a $140 million renovation of the 50-year-old Gator Bowl, 90 percent of which was demolished. The city paid $122 million, or 90 percent, through hotel and rental car and gate and concession taxes and from the general fund. The Jaguars pledged $20 million through supplemental rent over the terms of the lease through 2020.

The state is reimbursing the city for the initial construction through yearly $2 million payments through 2025 by way of a sales tax rebate. A $63 million renovation was recently completed with the team paying $38 million and the city $25 million. The improvements helped pave the way for the NFL hold the 2005 Super Bowl in Jacksonville.

The Jaguars pay $250,000 a year in rent to the city and keeps all of the revenues from their games, while the city pays for the facility operation and upkeep.

“There is only limited participation by the state and no direct subsidies,” said Bill Prescott, the Jaguars’ senior vice president of stadium operations.

Kansas City Chiefs

Arrowhead Stadium, built for $43 million, opened in 1972 and has undergone numerous improvements. A proposal to spend some $444 million in public financing from the city and Missouri state government to renovate both Arrowhead and Kauffman Stadium, home to the Kansas City Royals, collapsed. The funding would have been paid for by a bistate sales tax.

Miami Dolphins

Pro Player Stadium opened in 1987, the estimated $115 million cost paid for by the Dolphins after voters continually rejected tax increases for a new stadium. The facility was paid for by the selling of luxury suites, club seats, private funds and long-term agreements with season tickets owners.

Minnesota Vikings

Minnesota has unveiled plans for a new retractable roof stadium to be built on the campus of the University of Minnesota and also served as home field for the college football team.

The Vikings moved into the Metrodome in downtown Minneapolis in 1982. The stadium was funded through public and private funds, including the sale of 30-year bonds, and the facility’s debt was retired 14 years ahead of schedule. Construction cost was $55 million. The 115 private suites are owned and operated by the Vikings.

New England Patriots

After threatening to move the team to Connecticut and signing a $1 billion deal with Hartford, team owner Robert Kraft decided to build his own $225 million stadium in Foxboro, a Boston suburb. He secured NFL financing for half the construction. The state of Massachusetts made $70 million in road, sidewalk, lighting and other infrastructure improvements. The team pays $1 million a year to repay for those infrastructure improvements.

The stadium opened in September 2002. Gillette owns sponsorship and promotional rights both in and around the stadium complex, and within the Patriots’ larger marketing and advertising properties spanning regional, national and international media. Pepsi paid $15 million to the Patriots for concession guarantees.

New Orleans Saints

The Superdome was built in 1975 for $162 million, paid for by the state of Louisiana. In 1996, it underwent $22.8 million of renovations including a new entrance lobby and ticket offices, an additional concourse serving the upper level seats, refurbished ballrooms, additional accommodations for the disabled, and upgraded safety and security equipment. After the 2002 season, more luxury boxes were added and the Astroturf playing field was replaced with Fieldturf. Anticipated renovations would cost $168 million.

The Saints are the only team to get a state cash payment. The state has to pay if hotel-motel tax doesn’t yield $15 million in 2004-06, $20 million in 2007-08 and $23.5 million 2009-11. The state borrowed $7 million in 2003 and is anticipating another hotel tax deficit this year that will have to be covered.

The team gets free use of stadium. It is technically charged $800,000 a year rent but it is waived as part of an incentive package approved in 2002. Revenues also include sale or lease of luxury boxes ($4.5 million), a portion of concessions and merchandise ($2.37 million), parking, hotel tax, stadium advertising, stadium tours, club dues/membership fees, income tax on visiting players (a major share of $1.5 million), $1.1 million from Superdome Marketing Fund.

New York Giants, Jets

Both New York teams play in New Jersey, at Giants Field at the Meadowlands, just across the Hudson River. Giants Stadium was built at a cost of $78 million. The Jets are hopeful of having their own stadium, to be built on a deck over Manhattan’s West Side rail yards if New York is successful in obtaining the 2012 Olympics. The proposal is for a $3.7 billion investment that would include the stadium, with financing coming from city taxes and rentals on proposed office space. The plan would involve all taxes generated from businesses and sales within the area to be used to pay for the stadium.

If the new Jets stadium is approved, current plans call for the team to put up $800 million, New York City $300 million and the state of New York $300 million. If the New York Legislature balks, New York City would put up the additional $300 million. Of the $800 million the Jets are responsible for, $400 million would come from tax-exempt bonds, with the Jets making the payments in lieu of paying taxes, the NFL would put up $150 million and private financing would generate the remaining $250 million.

Oakland Raiders

What happens when things do not go as planned after a major stadium renovation? Debt. The city of Oakland and Alameda County are currently sharing a $20 million annual debt after a $225 million renovation in 1995 to the former Oakland Coliseum, which is now called Network Associates Coliseum.

The plan in the early 1990s to return the Raiders to Oakland from Los Angeles, their home from 1982 through 1995, was to install the lucrative luxury suites, make other improvements and increase the capacity by 22,000 to 63,132 through Personal Seat Licenses. These sold for $250 to $4,000 for the right to buy season tickets. The club seats went for $10,000 to $16,000. No PSL, no season ticket. After the first 10-year PSL agreements, the city planned to sell the PSLs again for the final six years of the contract.

Not enough PSLs sold and only $56 million was made — $28 million less than what was needed to pay off an $84 million loan, according to a recent story by the San Francisco Chronicle. Season tickets through PSLs are selling less now because tickets are easily available at almost every game. New plans are in the works, and lawsuits are active. The Raiders refused comment for this special report because of the litigation.

“You always have a relocation and stadium issue with the Oakland Raiders,” said NFL stadium financing expert Dan Barrett.

Philadelphia Eagles

Total cost of the Lincoln Financial Field, completed in August 2003, was $512 million. About two-thirds of the funding for the stadium was private with one-third coming from public funds. The Eagles raised their share through the sale of seat licenses. The state of Pennsylvania contributed $85 million to the construction. The Eagles get all revenue from luxury boxes, concessions and merchandise sales, stadium advertising and a portion of the parking proceeds. The team also receives $96 million over 30 years from the city of Philadelphia. That money comes from a variety of sources including a car rental tax. The city owns the stadium, but the Eagles have free use of it.

Pittsburgh Steelers

Heinz Field, built at a cost of $244 million with partial public financing, opened in 2001. The city and state governments put up $177 million, or 72.5 percent of the cost, financed through a local sales tax and the state general fund.

San Diego Chargers

Qualcomm Stadium opened in 1967 as San Diego Stadium built by the city at a cost of $27 million. It’s undergone several renovations and names. The most recent renovation in 1997 added 11,000 seats and numerous luxury boxes, as well as air-conditioned lounges for ticket holders. Negotiations for a new stadium this year eliminated a guarantee that the city would purchase all unsold tickets. The team pays $2.5 million per year, gets revenue from the sale or lease of luxury boxes, stadium advertising revenue, parking and a portion of the sale of concessions and merchandise. Hotel tax revenue goes to the state.

San Francisco 49ers

Monster Park, formerly known as Candlestick Park, was originally built for the San Francisco Giants major league baseball team and opened in 1961. It was renovated in 1971 at a cost of $16.1 million to make it into a multipurpose stadium to accommodate the 49ers. Total cost: $24 million. No state money goes into the stadium. The city of San Francisco has pledged a $100 million bond issue if a new stadium is built, to be supported by a hotel-motel tax. The team and the San Francisco Recreation and Parks District split parking and concessions, but the team gets the sale of luxury box suites and preferred seating.

Seattle Seahawks

The Seahawks moved into Qwest Field in 2002, a new $450 million stadium seating 68,000 fans. The state paid $300 million from lottery proceeds and Seahawks owner Paul Allen paid the rest. Qwest Communications International Inc. purchased naming rights this year for $75 million over a 15-year period. The state’s Public Stadium Authority, owner of Qwest Field, dedicated $2.1 million of the naming rights this year to stadium upkeep and the maintenance fund will increase 2.8 percent each year.

The Seahawks get no cash guarantee from the state or city, and the team pays for the use of the stadium. Revenues include the sale of luxury boxes, concessions and merchandise, stadium advertising and tours.

The state gets advertising revenue and hotel tax money that goes to paying off the stadium.

St. Louis Rams

Edward Jones Dome, a multipurpose facility, was completed in 1995 at a cost of $300 million. The stadium was 100 percent paid for by the city, county and state government from a hotel-motel tax and general fund tax dollars. In addition, the St. Louis county and state governments put up $29 million to cover the Rams’ moving costs from Anaheim, Calif., with the money covered by the sale of Personal Seat Licenses.

The Regional Convention and Sports Authority issued $120.7 million in bonds in 2003, backed by a 3.75 percent hotel-motel tax in St. Louis city and county. The Rams pay $250,00 per year in rent, plus 50 percent of game-day operating expenses. The team gets 75 percent of the stadium’s advertising revenue and 100 percent of revenues from concessions and parking.

Tampa Bay Buccaneers

Raymond James Stadium was constructed in 1998 at a cost of $168.5 million when the state of Florida agreed to rebate $10 million of locally paid state sales taxes, and the Tampa Bay area surrendered a portion of a local sales tax that was dedicated to pay off bonds sold to finance the stadium. Within two years, the team — which pays $3.5 million a year in a 30-year lease — made $8 million worth of improvements to the community-owned stadium. The improvements added $5 million worth of luxury suites and the most unusual feature of any NFL stadium — Buccaneer Cove, which features a huge concrete pirate ship.

The team gets no outright subsidy from the state, county or city, but gets to keep revenues from sale or lease of box suites, concessions (which it buys), parking and stadium membership dues. The team also gets the first $1.5 million of profits from all other events held in the stadium each year, provided at least $2 million in profits is produced.

Hotel tax revenues help pay for the stadium, as well as sales tax revenues and a ticket tax.

Tennessee Titans

The Coliseum opened in 1999, the $292 million cost paid for with $153 million borrowed by the Metro Nashville government, $71 million raised from the sale of rights to buy seats, $56.5 million in Tennessee state funds and $10.5 million from private sources. The Titans pay $366,000 a year in rent.

The Titans and Metro Nashville government split concession revenue with the Titans for the CMA Music Festival concerts.

Under discussion is a proposed ticket tax to finance future improvements, including replacing seats, upgrading scoreboards and refurbishing luxury suites.

Washington Redskins

FedEx Field was mainly paid for by the team. Located in Prince George County, it was completed in 1997 at an estimated cost of $251 million, with another $55 million in improvements in 1999 and 2000. The state of Maryland put up $71 million, or 28 percent of the original construction costs, from the state’s general fund.

— Compiled by Glenn Guilbeau, Mike Hasten, John Hill and Jimmy Watson

Sources: USA Today, San Francisco Chronicle, St. Louis Post-Dispatch, The New York Sun, The Boston Globe, The New York Times, StadiumsoftheNFL.com, sports consultant Dan Barrett, www.leagueoffans.org, fieldsofschemes.com, Business Wire Inc., Nashville Tennessean, the proposed master agreement between the Cowboys and Arlington, Ohio Arts Sports Facilities Commission, Dallas Morning News and Sports Venue Technology and individual NFL teams

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Viacom (VIA.B) Q2 2011 Earnings Call April 28, 2011 8:30 am ET

Operator

Good day, everyone. And welcome to this Viacom’s Second Quarter Earnings Release Teleconference for the Quarter Ended March 31, 2011. Today’s call is being recorded. Now for opening remarks and introductions, I will turn the call over to the Senior Vice President of Investor Relations, Mr. Jim Bombassei. Please go ahead, sir.

James Bombassei

Good morning, everyone, and thank you for taking the time to join us for our earnings call for the quarter ended March 31, which is the second quarter of our fiscal year. Joining me for today’s discussion are Sumner Redstone, our Chairman; Philippe Dauman, our President and CEO; Tom Dooley, our Chief Operating Officer; and Jimmy Barge, our Chief Financial Officer.

Please note that in addition to our press release, we have slides and trending schedules containing supplemental information available on our website. Let me refer you to Page #2 in the web presentation and remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the SEC. Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website.

And now, I’ll turn the call over to Sumner.

Sumner Redstone

Thank you, Jim. And good morning, everyone. It is my pleasure to be with you this morning, and I am more than pleased to be joining my Viacom colleagues to report another quarter of truly outstanding results for the company.

In the second quarter, Viacom continued to deliver strong, strong growth on all fronts. By every measure, it was an extraordinary performance. Viacom once again set the standard for developing the world’s most sought-after creative content by complementing already highly successful brands and continually introducing the most popular new television program and film titles. Now, make no mistake about it. Building this positive momentum in this still challenging economy is not an easy feat. However, Philippe and the Viacom team have taken exactly the right steps to prepare for and recover from the downturn with our laser focus on enhancing efficiency, on building financial strength and on continuing to invest in programs and content development. Thanks to their skill and their dedication, our creative outfit and our operational oversight has never been better. And the beneficiary of all this creativity, this superior institution, this exceptional management are of course Viacom’s shareholders. We’re seeing the value of their investments grow as the market recognizes and rewards our progress.

Today, Viacom is exactly where it needs to be making some of the most talked about television programming and bringing the most anticipated movies ever screened. The quality of our brands, the creativity of our employees, the expertise of our management are second to none, and I could not be more optimistic about where we are today, more excited about where we will be tomorrow.

So now I will turn this call over to my very good friend, one of the wisest men I have ever known, Philippe Dauman, our CEO.

Philippe Dauman

Thank you very much, Sumner. And good morning, everyone. I’m pleased you could join us today. This morning, Viacom reported outstanding results from every part of our company. Our momentum, which continues to build, has been fueled by our disciplined focus, our creative resurgence and our consistently strong execution, operationally and financially. The investments we’ve made in research and programming over the past several years are paying off in the form of strengthened brands and hit programming that are attracting growing audiences in the U.S. and around the globe. This entertainment content is also finding fresh audiences on a growing number of new platforms that carry our content, audiences that our advertising partners find increasingly difficult to reach. As we look ahead to the advertising upfront, we are very well positioned to capitalize on the tremendous ratings growth and compelling programming slates we have to offer, particularly on our major networks.

Paramount Pictures delivered markedly improved results in the quarter, helped in part by the strong film releases across several windows, and our summer blockbusters begin to premiere next weekend.

Innovation is a key ingredient to making all of our operations more efficient. New technologies and new ways of thinking about how best to operate in this highly dynamic media environment are changing our approach on everything from customer relationships to marketing campaigns, to content creation for different platforms. Some changes are small, others are substantial, but all are shaping Viacom into a more nimble, more connected and more responsive media company.

Today, I will review our financial results and cover the highlights from our divisions. Tom and Jimmy will provide more detail on our performance, and then we’ll be happy to take your questions. We will speak to the adjusted numbers during our discussion this morning.

Viacom’s consolidated revenues were $3.27 billion in the second quarter, up 20% driven by strong double-digit growth in both Media Networks and Film Entertainment. Media Networks’ revenues increased 11% on solid growth in advertising, affiliate and ancillary revenues. Our Filmed Entertainment segment generated a 38% rise in revenues with double-digit increases in theatrical, home entertainment, TV licensing and ancillary revenues.

Viacom’s adjusted net earnings from continuing operations grew 69% to $430 million in the March quarter on higher operating and equity income. And our adjusted diluted earnings per share were $0.72, up 71% from the $0.42 earned in the prior year. The strength of these results enabled us to accelerate our stock repurchase program, so we could return even greater value to our shareholders. During our second fiscal quarter, we repurchased $500 million in stock, which was $100 million more than we had previously planned. During the current quarter, we are on track to buy back $700 million of stock, and we now expect to complete the majority of our $4 billion buyback program by the end of fiscal 2011 and the remainder, no later than the end of the June quarter in 2012.

Next month, we will review the current quarterly dividend with our board, and we intend to ask for an increase, which assuming it is approved, would commence with the dividends to be paid on July 1. Viacom has never been stronger financially, and we are generating ample free cash flow to support both an accelerated buyback program and a more generous dividend, while continuing to invest in our business. We believe this is the right step for our shareholders.

Now let’s move on to the performance of our divisions in the quarter. The results generated by our Media Networks segment improved across nearly every metric. We remain focused on nurturing and fine-tuning our core brands and developing programming that reflects those brand attributes. As a result, our hit ratio is up and our pipeline of development projects is full and still expanding. This work is never complete. Audiences change and we must evolve with them. Driven by our proprietary research, we’ve done this successfully many times with several of our brands, and we will do so again. Our track record of success makes our network some of the most highly valued brands by distributors and marketers alike across all platforms. And we are firmly committed to getting our content, under appropriate terms and conditions, into the hands of our audiences whenever they want it and wherever they happen to be.

So in addition to our long-term partnerships with traditional distributors, we have our own branded websites and apps, and we work with the innovative platforms and tools created by others. With these devices and partnerships, we are engaging our audience on their own terms and forging deeper connections between them and our content. At the same time, we are monetizing our content on these new distribution platforms in ways that provide us with incremental growth. For example, fans love our new relationship with Hulu, and we’ve made more library content available on Netflix from Nickelodeon, TV Land, MTV, and Comedy Central.

We are continuing to expand our portfolio of apps, which allow our audience to experience our content in new ways. One of our most recent offerings is BET’s launch of its new 106 PARK app. This is the first app to fully integrate a realtime mobile user audience with a live TV show, which happens to be the #1 music variety show on cable.

In addition, our affiliate group continues to expand the availability of next-day, video-on-demand to partners who disabled fast-forward. Last quarter, Verizon FiOS launched MTV’s and Nickelodeon’s authenticated sites, providing filed subscribers with access to a selection of the channel’s most popular current programs, as well as library content. The program offerings will soon be expanded to include content from Comedy Central.

Our advertising revenues continue to grow with our worldwide revenues up 12% in the quarter and domestic apps sales rising 11%. Domestic growth was driven by strong upfront volume, as well as strong double-digit scatter premiums. Spending in the Movie category was up significantly, and we continue to be pleased with the growing interest from non-endemic advertisers. For example, we had solid growth in spending from the automotive companies, as well as the insurance and candy categories.

All of this was achieved without the benefit of the Kids’ Choice Awards. The event and the ad dollars that go with it took place in our fiscal third quarter this year, so we will see the impact of that spending in the June quarter results when we expect to deliver another quarter of sequential improvement in our domestic ad revenue growth rate.

Also, our international advertising revenues bounced back this past quarter with a double-digit increase driven primarily by our businesses in the U.K. and Latin America.

Let me provide a few observations about the upfront season. First, the kids’ upfront. It’s under way and the market is robust. Categories such as toys, movies, games and even autos are showing strong interest and actively buy. We expect to build on the progress we made last year in growing our business from adult categories at the kids’ upfront.

Season to date, Nickelodeon has grown its ratings among adults between 18 to 49 by 3% and its tentpole events such as the Kids’ Choice Awards and iCarly and SpongeBob movie events have delivered both broadcast and top tier cable networks in terms of ratings. At this point, we have already sold substantially more volume than we had at the same time in last year’s kids’ upfront.

Second, the adult upfront. We are looking forward to significant year-over-year gains in both volume and pricing. At this time last year, we had solid ratings, but we were not in a position to monetize the phenomenal ratings we garnered in recent months, particularly the broadcast size audiences we’ve delivered for several of our top-rated programs. And now we can. And we intend to do so for future seasons of those shows.

Now a few programming highlights from our networks. MTV is hotter than ever. It just closed out its highest-rated quarter in 5 years, growing its audience by 25%. The network’s ratings improved in every daypart with the biggest gains in the valuable 10:00-hour where ratings were up 91%. Jersey Shore, MTV’s highest-rated series ever, was the #1 series across all television, cable and broadcast with 12- to 34-year-olds. And it ranked #7 among series across all television among adults 18 to 49. Next month, Snooki, The Situation and the rest of the gang head to Florence, Italy to begin filming Season 4.

MTV’s success extends beyond the shore. The network had 2 additional top 10 original cable series with Teen Mom 2 and Real World: Las Vegas. Teen Mom 2’s ratings were up 57% over the show’s first season. These top 10 hits were joined by the second seasons of My Life As Liz and Hard Times of RJ Berger, both of which are outperforming their first seasons.

The audience for Comedy Central continues to grow and Tosh.0 has firmly established itself as another ratings juggernaut for the network. In its third season, Tosh.0’s ratings climbed more than 50% among adults and it was the most-watched show during its time slot on all of television among Comedy’s key male demos. And Tosh’s stand-up special, Daniel Tosh-Happy Thoughts was the highest-rated stand-up premier in Comedy Central history among its core demos.

But Tosh wasn’t doing all the work. The Comedy Central Roast that Donald Trump was its most-watched comedy roast ever among young men. Both The Daily Show with Jon Stewart and The Colbert Report delivered ratings growth with Jon firmly positioned as the #1 late-night talk show host with young viewers on all of television. And the network’s newest tentpole, The Comedy Awards, reached an unduplicated audience of nearly 17 million viewers, not a bad start.

Story for Nickelodeon just keeps getting better and better. This network continues to turn out hit after hit, nurturing the existing ones, while developing new entrants. Its newest preschool show Bubble Guppies debuted last quarter and is already the #1 preschool series on TV. Nick boasts 4 of the top 5 preschool series on all of television. Nickelodeon’s major live-action shows, iCarly, Big Time Rush and Victorious all delivered strong performances.

We just greenlit a fifth season of iCarly, which will roll out in 2012. iCarly’s recent episode premiere, iOMG, drew 7.4 million viewers, which made it the top telecast with all kid and tween demos on all television and basic cable’s top kids’ telecast with 12 total viewers.

Five of Nick’s newest imports, House of Anubis, ranked as the #1 show on TV with kids and tweens in its time period and now fans can look forward to a second season. The network has also enjoyed a strong start with Power Rangers, which is the top-rated show with kids, boys and total viewers in its Sunday time period, as well as a new Supah Ninjas, which launched a couple of weeks ago. And on Nick at Nite, we’re looking forward to the launch of Friends, one of the most popular series of all time, which will begin to air in September.

BET celebrates its best quarter ever, that means the best in more than 30 years. Record-breaking hits, THE GAME and Let’s Stay Together joined perennial favorites, CELEBRATION OF GOSPEL, BET Honors and Rip the Runway to grow the BET audience by another 5% in the quarter. In its recent upfront presentation, BET announced plans for another original sitcom, Reed Between the Lines starring Malcolm-Jamal Warner of the Cosby Show fam and Tracee Ellis Ross, formerly of Girlfriends, as well as new seasons for THE GAME and Let’s Stay Together. BET will also introduce a new music docu-series called, The Message, which will explore the world of hip-hop music. The network also unveiled plans for several new scripted web originals that will run across all BET digital platforms.

Finally, we’re continuing our work to reinvigorate VH1 and Spike. At VH1, we are developing several new shows to cultivate a stronger female audience. For example, Mob Wives debuted 2 weeks ago, and is delivering solid ratings. Later next month, we will also launch Single Ladies, a comedy series from Queen Latifah’s production company.

SPIKE’s second season of Blue Mountain State is finding its audience with the ratings up 30% over its first season. New shows Auction Hunters and Cool are both performing well. Importantly, we have several new projects in development that will better reflect our key target demos.

Our international operations are continuing to make solid progress. Two recent strategic moves have helped to boost our ratings in the key markets of the U.K. and Germany. In the U.K., we were able to move MTV to a more widely distributed tier on Sky, which resulted in an 85% lift to the network’s ratings. We also reconfigured our channel portfolio in Germany. As a result, the Viva delivered its strongest quarter in more than a year with ratings up 19%. Both Nick and Comedy Central turned in their highest ratings ever in the territory.

Looking at the rest of the world, MTV’s overall ratings were strong with notable gains in Spain, Canada and Australia. Nickelodeon continues to gain share in several territories and expand into new ones. And ratings for Trefis continues to grow, up double digits for the quarter opening up both short and long-term Latino-oriented advertising sales for us.

As I’ve said in the past, we expect our international operations to grow at a faster rate than our domestic businesses and we remain focused on continuing to expand our International operating margins.

Now let’s move on to Filmed Entertainment. Paramount Pictures delivered strong results across the board in our second quarter. Four months into the calendar year, Paramount is #1 at the domestic box office. The studio’s Theatrical results reflected strong performance in a film that opened in the previous quarter as well as our Q2 titles: No Strings Attached, MTV Films’ Justin Bieber: Never Say Never and Nickelodeon Movies, Rango. All of these films did well at the box office. And in the case of Justin Bieber: Never Say Never, it now ranks as the #1 concert teen movie of all-time in the U.S. This is supported by a brilliant marketing campaign, and Paramount took a unique step of releasing a second version of the film, the Director’s Fan Cut for a 1 week limited release just 2 weeks after the film had opened wide. The Director’s Fan Cut included 40 minutes of additional footage. And as expected, the fans turned out for more Bieber.

The studio also had a strong slate of home entertainment releases in the quarter, 9 in all, which increased our revenues by 38% over the prior year. Next weekend, we premier the first of our many summer blockbusters, Marvel’s Thor. We have an incredibly robust slate of films coming out over the next few months. Following Thor will be DreamWorks Animation sequel, Kung Fu Panda 2, J.J. Abrams’ Super 8, our threquel spectacular Transformers: Dark of the Moon in 3D and Captain America: The First Avenger, another Marvel film.

To conclude, every part of Viacom is in great shape. Creatively, we’ve never been stronger. We will continue to invest in our future by feeding our development pipeline and by continuing to enhance our brands and franchise properties. Operating efficiently is now our modus operandi and it’s another area that requires tremendous vigilance but the benefits are recognized by all. We will continue to return significant capital to our shareholders. We have a tremendously talented team working hard throughout this company and their collective contributions will help us to maximize the opportunities ahead for Viacom.

And now I’ll turn it over to Jimmy.

James Barge

Thanks, Philippe, and good morning, everyone. I hope you’ve all had a chance to review our earnings release and web presentation summarizing the results for our March quarter, which is the second quarter of our fiscal year. Our 10-Q will be filed shortly. This morning, I’m going to take you through our operating results in more detail. My remarks will focus on adjusted results from continuing operations. Adjusted results exclude from this year’s March quarter, the charge associated with the tender offer of our 6.25% senior notes, which was $87 million on a pretax basis and $54 million after tax.

Now let’s take a look at our segment results. Media Networks’ revenues increased 11% to $2.1 billion in the quarter. Domestic revenue increased 10% and International revenues increased 11% in the quarter. Foreign exchange had a 2 percentage point favorable impact on International revenues. Page 9 of our web deck provides a breakdown of our Media Networks’ revenue performance. As Philippe mentioned, domestic advertising revenues grew 11% in the quarter. International advertising increased 19% with foreign exchange improving the growth rate by 2 percentage points. International ad sales in the quarter benefited from strong ad markets in both Europe and Latin America and from new program launches, as well as improved channel positions in the U.K..

In terms of affiliate revenues, our domestic revenues increased 9%, while international revenues increased 6%. Foreign exchange favorably impacted the international growth rate by 2 percentage points. Approximately 80% of the growth in domestic affiliate revenues was from rate increases with the remainder driven by an increase in subscribers. Internationally, growth for the quarter was driven by a combination of rate increases, new channel launches, as well as increased subscribers.

Now moving to ancillary revenues. Worldwide ancillary revenues increased 10% in the quarter, principally reflecting higher TV syndication and consumer product revenues. Media Networks’ adjusted operating income of $806 million in the quarter was 13% higher than last year. The operating margin of 39% improved 70 basis points over the prior year. The improvement in the margin was driven by strong top line growth, partially offset by a 9% growth in total expenses. Within expenses, programming expenses grew 8%, while SGA expense grew 12%.

The growth in SGA expense was primarily due to higher advertising and promotion expenses and, to a lesser degree, increased accrued compensation expenses. The increase in advertising and promotion expense, related to the launch of new and returning series, which contributed to our strong ratings success in the quarter, as well as to the marketing of new channel positions and certain international territories. The increase in accrued compensation expenses related to higher operating profit and ad sales.

Now turning to Filmed Entertainment. Revenues in the quarter increased 38% to $1.2 billion. Page 11 of the web presentation provides a breakdown of Filmed Entertainment revenues. Worldwide, Theatrical revenues increased 50% to just over $400 million in the quarter. The Theatrical results benefited from strong carryover revenues from our December quarter releases as well as the performance of the current quarter’s slate of Rango, Justin Bieber’s Never Say Never and No Strings Attached.

Worldwide Home Entertainment revenues increased 38% to $410 million. The increase reflects a greater number of Home Entertainment releases in the current quarter as we released 9 titles compared to 1 title in the March quarter of last year. TV license fees increased 30% to $336 million. The increase in TV license fees in the quarter was principally due to higher network TV and syndication revenues. Overall, Filmed Entertainment generated adjusted operating income of $39 million in the quarter as compared to a loss of $83 million last year. This $122 million improvement in operating income principally reflects the performance of our Home Entertainment releases in the quarter as well as the growth of TV license fees.

During the quarter, certain Paramount releases were made available to our EPIX pay-TV joint venture. Accordingly, Filmed Entertainment recognized $20 million of revenues and $2 million of operating income in the quarter related to these releases.

Now moving below operating income. Total company equity income from investments was $15 million in the quarter. The income principally relates to our investment in EPIX. Our adjusted effective tax rate in the quarter was 35%, reflecting 170 basis point improvement over the prior year rate. Reduction in the effective tax rate was primarily driven by an improved international versus domestic mix of taxable income from our operations.

With that, I’d like to turn the call over to Tom.

Thomas Dooley

Thanks, Jimmy, and good morning, everybody. I’m going to focus my comments on our cash flow, our debt profile and the return of capital to our shareholders. I’m also going to talk about the seasonal factors impacting the remainder of our 2011 fiscal year.

For the quarter, we generated $812 million in operating free cash flow compared to $351 million last year. Page 5 of the web deck presentation provides the components of free cash flow. The increase in operating free cash flow was principally due to higher operating income, a favorable working capital variance and lower cash taxes. The favorable working capital variance was impacted by the timing of annual incentive compensation payments related to the change in our fiscal year end. And these payments were made in the December quarter of this year whereas last year, they were made in the March quarter.

As for our debt, for the most part, it is fixed rate with an average cost of 5.8%. To the extent we have incremental borrowings, we are funding this in the commercial paper marketplace at an annual rate of approximately 35 basis points. We had no variable rate borrowings outstanding at the end of the quarter.

During the quarter, we took advantage of attractive rates in the public markets to improve our debt maturity profile, as well as the issue incremental debt. We successfully tendered for $582 million of our 6.25% senior notes that are due in 2016. That leaves $918 million of that series of notes outstanding. In conjunction with the tender, we issued $500 million of 4.5% senior notes due 2021. By doing this, we pushed out a portion of the debt that was coming due in 2016, improving our maturity profile at attractive rates. In addition, given the current level of rates in our earnings growth, we issued an incremental $500 million of 3.5% senior notes that are due in 2017.

In terms of leverage, we ended the quarter with $7.2 billion of debt and capital leases outstanding, and we had $1.6 billion of cash and cash equivalents, which reflects excess operating cash and the proceeds from our recent bond issuance. Our leverage ratio at the end of the quarter was 1.96x, which is below our target level. The only financial covenant in our bank revolver requires that interest coverage for the most recent 4 fiscal quarters be at least 3x. At the end of our quarter, our interest coverage ratio was 9x. In terms of returning capital to shareholders, between our buyback and dividend programs, for the first 6 months of our fiscal year, we have returned a total of $1.1 billion of capital back to our shareholders. Looking ahead, we are on pace to purchase approximately $700 million of our stock in the June quarter. So for the first 9 months of the year, we will have returned a total of approximately $1.9 billion to our shareholders.

Now I’d like to talk about some of the factors impacting the remainder of fiscal 2011. In terms of advertising, the scatter market remains strong and we have had ratings success at a number of our core channels. In addition, in the June quarter, we will have a couple of timing benefits, the Kids’ Choice Awards on April 2 of this year whereas it aired in March of last year. Also, Easter fell later in April of this year. Accordingly, as Philippe mentioned, in the June quarter, we anticipate that we will have sequential improvement in our domestic ad sales growth rate. We also anticipate that international ad sales will grow double digits as we continue to see strength in Europe and Latin America.

At Media Networks, at this point in the year, we have a fair amount of clarity on our programming expense growth, and we expect it to grow in the range of 7.5% to 8% for the full year. As we look from now to the end of the year, we continue to see opportunities to grow our margins.

Given our current estimate of our domestic versus international profitability mix, we are forecasting a book tax rate of 35% for the fiscal year 2011. We are in great shape as we head into the back half of the year. At Media Networks, we’ve had breakout ratings performance for several new and returning series that we have launched. We are seeing stronger volumes in several key advertising categories, including strength in studio spending with a number of summer films releases targeting kids and young adults. We have also made progress in growing several non-endemic categories.

At Paramount, we are looking forward to our summer slate with the June 10 release of the J.J. Abrams directed Super 8 and the July 1 release of Transformers 3 in 3D. In addition, we are distributing Marvel’s Thor and Captain America, as well as DreamWorks Animation, Kung Fu Panda 2.

Looking ahead at the studio releases, we are looking forward to sequels to Mission: Impossible, Star Trek, G.I. Joe and Paranormal franchises, as well as Madagascar 3 and Steven Spielberg and Peter Jackson’s Adventures of Tintin, a remake of the movie, Footloose, under the MTV Films label and Hansel and Gretel: Witch Hunters, which will star Jeremy Renner.

In terms of free cash flow, in the back half of the year, we anticipate generating higher operating free cash flow than the comparable period in the prior year, with cash flow being weighted largely to the September quarter. The timing of PA cash spend and participation payments will impact the June quarter, while the September quarter will benefit from theatrical receipts on our summer releases, including Transformers 3. Given the growth in earnings that we see as we progress throughout the year, we now anticipate purchasing an excess of $2 billion of our stock in fiscal 2011.

In summary, the strategic initiatives that we have put in place over the past couple of years and the capital allocation decisions we have made are paying off and putting Viacom on a path towards strong top and bottom line growth. At Media Networks, our focus on research and understanding our audiences as well as our investment in original programming is translating into improved ratings and advertising growth. And our cost discipline has enabled us to improve our core margins for the last 8 quarters.

At the studio, we continue to develop and grow our slate of franchise film, and Paramount is a leader when it comes to developing innovative marketing campaigns. We are managing the business with financial discipline, reducing our overhead and improving return on invested capital. We are focused on growing our businesses organically and using our free cash flow and the incremental capacity generated from our balance sheet to return capital to our shareholders.

I want to thank you for listening, and now we’ll turn the call over to your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of James Mitchell with Goldman Sachs.

James Mitchell – Goldman Sachs

You mentioned that paid lead growth was 56% year-on-year in 2010 and continues at a fast rate in first quarter 2011. Is the growth in paid lead some of the growth enquiries or has the ratio of paid lead queries increased? And then maybe it is related to that but the 110% growth in the bandwidth cost year-on-year, was that an unusually fast increase because of very fast query growth or is bandwidth use for query increasing because of the box computing results in the queries?

Haoyu Shen

Let me answer the first question about passive versus the number of clicks. In 2010, our paid products grew by 56% versus 2009, and that leads the growth of traffic growth in 2010. We are seeing that trend continuing into Q1, and this really shows the power of our new internet auction system.

James Mitchell – Goldman Sachs

If the traffic growth is less than 56%, my bandwidth cost is up 110%. Is that because of richer results?

Jennifer Li

The bandwidth cost itself also includes server hosting expenses. As you have noticed, we have stepped up our investment in servers, acquisitions of network infrastructure equipment. So as part of the bandwidth cost, with more servers, there is more hosting cost related to that.

So included in bandwidth cost is traffic-related, and I would say most of the increase is because we have more servers.

Robin Li

Also because we also offer a lot of non web search products, including the social search products. Traffic for the social search products grow much faster than web search product, and right now it’s under-monetized.

Operator

Your next question is from the line of Mr. Dick Wei with JPMorgan.

Dick Wei – JPMorgan

My question is on local advertising. I think with the popularity of goods purchase in China, it seems some more of the local SMEs started to think about advertising also on the Internet. I wonder how much of Baidu’s revenue currently coming from the local advertising or local advertisers, and what is the product plan in this area? Should we expect more acquisitions or should we expect more of the internal sales team to build up sales?

Haoyu Shen

Right now if you look at our customer portfolio, we don’t really have a whole lot of local service advertisers with us. So not many of them are buying our pay click products. And right now we are exploring different ways of capturing that market going forward, but we don’t have any major announcement at this point.

Robin Li

Local is very long tail; there are lots of very small ones and the ARPU for local is relatively lower than our typical customers. What we have seen is that some of the aggregators for local services, including those group buying sites, those classified ad sites, 58.com or (gienje.com), those are the pick for large advertisers of ours. Right now I think it’s probably still early for us to directly get in touch with the local merchant.

Operator

Your next question is from the line of Alicia Yap with Citigroup.

Alicia Yap – Citigroup

I was just wondering would you be able to share with us some of your thoughts regarding how Baidu will be playing a role in the emerging important space of the social media marketing. Any upcoming initiatives of your view regarding the industry trends would be appreciated.

Robin Li

Like I mentioned during the prepared remarks, our view on the social is that we need to integrate socialistic search, because these searches are core and they are fundamental to internet users’ everyday needs. Search just became the most popular application for Chinese internet users. There are still lots of growth for us to expect for many years down the road. We do realize that social is becoming more and more popular, that’s why we have been embracing a lot of social features into our products.

In fact since year 2003, we started to social features to our search services. Total search services represent a quarter of our total traffic and is growing faster than the web search. So our approach is to integrate social with search, not to really develop an intent social network per se.

Operator

Your next question is coming from the line of Yu Jin with CICC.

Yu Jin – CICC

You have a broad presence in mobile internet. So I am curious, and the behavior of mobile internet users, I am not sure whether the top-class applications will be a circular trend wherein the bandwidth is not a problem. Users will still go to the website to enjoy most of mobile services. So I’d like to learn the insight from Robin.

Robin Li

It’s not clear. Can you please repeat your question?

Yu Jin – CICC

My question is, I am curious on you view. I’m not sure whether APB Star Plus applications is set the trend for mobile internet users when the bandwidth is not a problem, so we can access mobile internet more easily, so people will still go to the website, go to the 3w to enjoy most internet services.

Robin Li

Yes, I think that would be a long term view for mobile internet. If you look at the PC internet, in the early days, a lot of people would like to download software and going to directories. Later on, when there are many different services on the internet available, people had to rely on search. Mobile internet is relatively in its infant stage. People are still very much into the app store model; they like to download apps and save it.

But going forward, when there are tens of millions of apps, hundreds of millions of apps, I think people would increasingly have to depend on search to find what they want. So longer term, I think be it mobile or landline, users will have a lot more choices than they do today and they will be increasingly dependent on software-based user interface or search in particular.

Operator

Your next question is from the line of Eddie Leung with Merrill Lynch.

Eddie Leung – Merrill Lynch

Could you share with us some update on your development from your new contextual Adsense system. And related to that have you seen the percentage of advertising revenues from contractual ads change in the past six months or so?

Robin Li

We mentioned I think in previous calls that we moved our contextual product to a new platform later part of last year. So since then we have been building upon that, improving our rhythm and really pushing the product to small advertisers and brand advertisers. So in Q1, we have seen a lot of progress, but we still have a long way to go.

Eddie Leung – Merrill Lynch

At the moment would you describe the key focus is to increase your reach of your partners, or is more about pushing it or selling it to advertisers?

Robin Li

It’s not so much of getting more publishers, because we have greater reach already in terms of publishers. It is really improving the product over on the site and also go out and educate different customers on how they can use contextual research.

Operator

Your next question is from the line of Gene Munster with Piper Jaffray.

Gene Munster – Piper Jaffray

Question regarding Phoenix Nest. I guess we’re just a little bit over a year anniversarying this and the revenue growth continued to be strong. If we get pay clicks of 56% year-over-year, if I am right CPCs were up in the mid-twenties, is there another leg to I guess the CPC (motivation) story post Phoenix Nest or is this kind of the new equilibrium netware adds?

Robin Li

Gene, I am not so sure if I get your question, but if you look at the number of clicks versus CPC, we apparently had tremendous growth of number of clicks last year due to Phoenix Nest. Now we still have the lapping effect; we’ve had our anniversary already, but in Q1, we are continuing to see great growth of the number of clicks.

And CPC as you saw, largely, I think we’re probably in the mid-teens instead of mid-20s in terms of growth rate. And the CPC then really were faster or slower pre and post Phoenix Nest. And I think going forward that will continue to be the case.

And the important thing to bear in mind is that search market in China is still in its early stage, both the CPC and number of clicks a lot of room for improvement. It is not really about Phoenix Nest; it’s about the stage we are at for the market.

Gene Munster – Piper Jaffray

Okay, and just to make sure I am on the same page here is that Q1 just reported quarter comp’ing against the full Phoenix Nest integrate quarter a year ago. Is that correct?

Robin Li

Yes.

Operator

Your next question is from the line of Ming Zhao with SIG.

Ming Zhao – SIG

I don’t know if you could give us the color on how much revenue you get from this navigation page, and do you think in the future you can still maintain the leadership in this area? And relating to that is, you just launched your Baidu browser. What’s your strategy there to grow the penetration of your Baidu browser?

Haoyu Shen

We don’t disclose the exact percentage revenue from (Hao), but it is the most popular home page in China set up by consumers, and we’ll continue to improve the product, differentiate the product to maintain a leadership position. And in terms of revenue, it really comes from two sources, one is search (Hao) center search is the default search, the search path is Baidu search. So we gain revenue from search.

And also because it’s such a very popular directory site, we get some ad revenue from that as well. In any case, we can’t discuss the number but it’s very meaningful.

Robin Li

For the Baidu browser, we haven’t really officially announced the browser yet, but we see opportunities there. I think in China, Internet Explorer is not very competitive. That created a lot of opportunities for the customized browsers. Having control of the browser that would certainly help us to drive traffic to Baidu search. We currently have partnership deals with some of the browsers, and we’d like to see if we can offer better user experiences to our own browser.

The key is that we can share revenue with people, so we have the distribution power when we want to distribute certain type of high impact software.

Operator

Your next question is coming from the line of Jiong Shao with Macquarie.

Jiong Shao – Macquarie

First to clarify what Robin said earlier in the prepared remarks, I think Robin you mentioned that 60% of your total queries come back with results with most of box computing sort of information embedded. I just want to make sure I heard that right.

My question is also on box computing. Could you please give us an update on like how many partners you now have, what’s your target for the number of partners by the end of the year, and the monetization time line etcetera?

Robin Li

Yes, you heard it right. Roughly 60% of the search with our pages now contains box computing results. Such results include both the open data platform and open application platform. We have about tens of partners right now. Some of the partners provide very popular services such as calendar services or weather reports, those kinds of services which would represent a very large number of queries.

So the 60% coverage is right and I think going forward the coverage could go up continuously. In terms of monetization it’s still too early. Although we have done certain tests with the box computing infrastructure, and advertisers are very happy with whom we’ve done a number of deals. But right now, monetization is not a focus for the box computing mission.

Operator

Your next question is from the line of Philip Wan with Morgan Stanley.

Philip Wan – Morgan Stanley

Could you please provide us more color about your mobile strategy? And there’s a news commenting that 80% of Android platforms will be in for Baidu as the (first) search engine. And I’m particularly interested in the economics behind that, for example with Baidu (inaudible) of their handsets of the revenue sharing in the form of traffic (inaudible)?

Haoyu Shen

Yes, I think that this cost is the LV android phones shipped in China. 80% of them have Baidu as default search engine. So these are affiliate agreements that we entered with device makers. So it’s a revenue sharing arrangement we built with the handset makers. So the search could either be, on those phones we have a system on the home screen or some of the other devices we preinstall Baidu translated software onto those devices.

For the overall mobile strategy, to put it in a single-term, it’s also box computing. I think in the future, the moment a user powers on the mobile phone, he or she will immediately see a box that can do everything. We are working very hard toward that mission.

Operator

Your next question is from the line of Alex Yao with Deutsche Bank.

Alex Yao – Deutsche Bank

Can you give us an update on the Baidu Union business and how should we think about the traffic acquisition cost in the rest of the year?

Robin Li

So as we talked about many times before, we have two businesses within Baidu unit, one is search the other is contextual. And so a lot of the TAC cost decline also was due to our rationalization of the search business. And those initiatives by now are largely behind us. And the other business is contextual where we see tremendous growth potential going forward, but we have a long way to go. And if you look at these two businesses, contextual tends to have a higher payout ratio.

So if contextual revenue grows to a bigger percentage of total unit business, then you will see TAC ratio going up. But again, there will be a gradual profit. If you look at Q1, TAC as a percentage of total revenue is sluggish versus Q4. So looking out to the rest of the year we think TAC ratio will fluctuate, but it will be within a better to normal range.

But again, search business is all about competition; if someone gets more competitive we probably need to react. And if we do very well in contextual, then we have an occasional TAC as well.

Operator

Your next question is coming from the line of Aaron Kessler with ThinkEquity.

Aaron Kessler – ThinkEquity

If you can clarify what I’m hearing in the quarter that there was maybe some reduction in agency commission fees. If you can comment on that. And also just picking up that maybe you’re looking to clean up some of the advertiser base, maybe on a heels of the Alibaba issue in terms of some fraudulent advertisers. If you can comment on any of those issues, that would be helpful.

Robin Li

On the agency policy, so we update our policy every year. We look at different types of agencies and how they help us on different product lines, and every year we rationalize how much we pay out to them to encourage them to serve the customers better and see it’s a win-win situation with Baidu.

And our customer clean up, that’s really a continuous process. We monitor consumer complaints and customer complaints continuously. And once we find that some customers are using (13:02.51) we will clean up that factor or we will install stricter requirements for certain factors. So that’s a continuous process; there is nothing new in Q1.

Operator

Your next question is from the line of Steve Weinstein with Pacific Crest.

Steve Weinstein – Pacific Crest

When I look at the sequential growth implied in your guidance for Q2, it seems to be a little lower than what we’ve seen historically. And I am wondering if you could put that in context if it’s because there were factors in Q1 that made Q1 particularly strong, or if you’re doing something in Q2 that might make it a little bit weaker, or if this is just the business operating at this level, scale now, we are going to see more maturation and maybe the flattening out of this growth rate?

Robin Li

I think a few things. The seasonality in Q1 is a factor, at least it was last year. And as you said, we are at much bigger scale than the fourth. So that’s how we get our numbers.

We mentioned that Q2 last year was the first quarter for Phoenix Nest to show power. So from Q1 to Q2 in 2010, you would naturally see a higher sequential growth. But this year, I think its more of a normal sequential growth.

Operator

Your next question is from the line of Jake Li with Guotai Junan.

Jake Li – Guotai Junan

My question is still regarding our Hao123. So currently, could you give us some color about the traffic contribution from your Hao123? Why I ask this is, because 360 has roll out their business model, and it’s very similar with the Hao123. And they also get a lot of traffic, so I am wondering if you have plan to further expand the Hao123? For example, do you have plans to launch a vertical navigation page like the e-commerce? Also, do you have any plan to monetize this?

Robin Li

As I said, we don’t disclose the exact percentage of search traffic from Hao, but it’s quite meaningful. So as I said, we will continue to improve the product, differentiate the product going forward, and we will market (inaudible) ourselves and also through our different partners.

Haoyu Shen

As you know, that has very strong brand recognition among the vast of majority of Chinese internet users. So we enjoy an advantage when trying to distribute (Hao) to partners and to get new users to adopt this site. We also think that there is lot of room for improvement for a directory site. Like you mentioned, vertical is one direction. We are coming up with certain vertical directories such as group buying directories which has already been launched and very well received by both users and advertisers.

Another direction we’re moving into for hires, and it’s personalization. We will deliver different results, different user interfaces for different users. We think perhaps we can provide the best user experience with Hao (inaudible) recognition, we would be a winning site.

Jake Li – Guotai Junan

Do you have any other data about the Rakuten?

Haoyu Shen

Yes, Rakuten has been live for a few months now, and the team is still improvising the product to fit Chinese consumers’ needs better in terms of interface, in terms of the transaction process. And the work has been slowed down a little bit by what happened in Japan. But we are looking forward to see news of interface launch in a few months.

Operator

Your next question is from the line of Eric Wen with Mirae Asset.

Eric Wen – Mirae Asset.

I have two housekeeping questions and one follow up. First, Jennifer, the account receivable seems to go up a little bit from the first quarter. Can you update on why that’s the case? Is it because of the large advertisers taking more share? Second is that, can you give a brief color on the loss in the Japan subsidiary due to the earthquake during the quarter. How much did it reduce your profit during this quarter? And I have a follow up.

Jennifer Li

In terms of account receivable, as we have mentioned, our large customers continue to really benefit from our monetization platform, and their spending with us has been growing at a fast pace. So there is really nothing unusual going on with the accounts receivable in terms of like longer payment terms or law situation. So this basically represents the business of large customers that’s growing at a healthy rate.

Japan, we have said that we will not separately disclose the Japan financials because our business space is going much larger. It’s increasingly as an expense item, immaterial. This past quarter, while business has been somewhat affected by the Japan earthquake, but the expense item related to the Japanese operation is not out of line compared to historical patterns.

Eric Wen – Mirae Asset.

The follow up question is about the strategy on Android. I just wonder if company can give some color on whether it will be a platform or a content strategy for Baidu. Now I understand that Android is going to be a open platform, which opens the possibility for any company to build its own flavor and stay compatible.

What is Baidu’s thoughts on that? Would Baidu be pursuing a platform strategy based on Android or based on its own technology, or it will stay on the application side, mostly bundling your search box or any future applications? Any color on that would be very helpful.

Haoyu Shen

We work with all kinds of platforms to integrate our search box into the mobile phone or tablet. So we are probably more often than anyone now. But in our vision for the future of computing is box computing, so we would like to see a mobile device that has nothing but a box in the future. We would like all of the platform players to work towards this direction, and if necessary, we can come up with our own.

Operator

(Operator Instructions) The next question comes from the line of Wendy Huang with RBS.

Wendy Huang – RBS

My question is regarding the number of advertiser growth. In Q4, 2010 and Q1, 2011 your advertiser base has been stable and it shows no growth. I just wonder, what kind of advertiser growth implied by your sudden quarter guidance, which is currently implying about 33% to 35% sequential growth. Is it mainly from the ARPU growth still or shall we see any increase in the number of advertisers?

Robin Li

We don’t breakout the revenue growth guidance into number of customers in the ARPU, but Q1 versus Q4 number of customers are flattish. Comparison is normal if you look at historical numbers. And if the future is any indication, we will see growth of a number of customers in Q2 versus Q1.

Now we are starting our annual spring campaign, and again sort of 100 city tour, and that will help on our position. And seasonality, I wish that in Q4 we shall have very strong position.

Operator

The next question is from the line of Cynthia Meng with Jefferies.

Cynthia Meng – Jefferies

I have two questions; one is on Qiyi. One, will it start to have video advertisement just in terms of timing after one year of starting operations. The second one is on tax rates for Jennifer. Tax rate for the first quarter was 14.5% and how should we think about the full year tax rate?

Robin Li

For Qiyi, we already started to sell video ads for (te.com) website. Some of them are embedded in the (CDUs). But Qiyi is only one year old. As a media brand it takes some time for the revenue to catch up with the traffic.

Jennifer Li

And for tax rates, you will notice that for Q1 compared to last year, it’s a slight step-up. This is normal, as some sub-entities do enjoy favorable tax treatment. As time goes by, they migrate out of that tax status. We have guided in the early part of last call that this year’s tax rate, you should anticipate low to mid-teens, and the current level is very indicative for this year.

Operator

(Operator Instructions) The next question is from the line of Muzhi Li from Mizuho Securities.

Muzhi Li – Mizuho Securities

I would like to ask Robin, what do you think the challenge of social media is through Baidu’s search product?

Robin Li

Like I mentioned before, our strategy through social media is to integrate social with search, and we have been doing that for eight years. This is quite different from the U.S. case where for many, many years search was quite dominant and there were no threat from social. But in China if you look at the landscape, there are lots of players in the social ground, particularly Tencent, they being there for many, many years and they are very successful.

So we started to think about how to make search better and how to defend our position many, many years ago. And so far, it’s being very successful and users are very loyal to us and they help to create a lot of high quality content to the Baidu website.

When you talk about social media, that definition, “media” means advertising. Plus, you have high quality content. You can drive traffic and you can monetize that.

So I’m very happy that we did that many, many years ago, And we will continue to add more and more social features to our existing products, helping our users to create high quality content on the Baidu website. So that would be our answer to social media.

Operator

Your next question is from the line of Wendy Huang with RBS.

Wendy Huang – RBS

I just wonder what’s your current top five advertiser categories? And also, in particular has the e-commerce advertisers’ contribution exceeded 5% of your total revenues?

Jennifer Li

Our top five sectors have remained largely the same. They are medical, healthcare, machinery, equipment, education and travel and online software services.

As we’ve mentioned, e-commerce, our script is growing at a fast pace. It’s not making up the top five sectors, and over time we’ll continue to see there is a lot of potential in the e-commerce space.

Wendy Huang – RBS

It’s being already meaningful with more than 5% of total revenue.

Jennifer Li

It’s really difficult to classify exactly how you define retail. E-commerce space is a very broad definition. So I think, we wouldn’t want to venture into exactly what the percent of that is. I think that the our retailing sector itself is growing very fast. It’s not one of the top five sectors.

Operator

Your next question is from the line of Wallace Cheung with Credit Suisse.

Wallace Cheung – Credit Suisse

Questions on the balance sheet; can you explain why the fixed assets, intangible assets and also the long-term investment seems to be jumping quite significantly on a Q-on-Q basis?

Jennifer Li

Fixed asset, well, it ties up with our CapEx investment. As we have noted that we have stepped up our investment in network infrastructure and fixed assets will reflect that.

In terms of intangible assets, what happened over Q1 is, we did acquire a piece of land in the Southern part of China, and we are expanding our office capacities in another parts of the country. So this intangible asset increase basically reflects land acquisitions.

And in terms of long-term investments, these are investments that we made in other companies; what’s included in here would be ventures like Rakuten and also other long-term investment that we made with other entities.

Wallace Cheung – Credit Suisse

Does it include the new investment fund that you have set up for the open platform?

Jennifer Li

Not this one, not in here. This one is basically MA activities.

Operator

Your next question is from the line of Andy Yeung with Oppenheimer.

Andy Yeung – Oppenheimer

My question is similar to the previous question, which is about your CapEx cycle and your division costs. Obviously, you are embarking on a very large CapEx cycle right now. Can you give us some insight in terms of the areas of making investment and how we should view your credit cycle going forward, and also with depreciation costs?

Jennifer Li

In terms of CapEx, you will have noticed that we have stepped up our CapEx spending. In Q4 the number was RMB$360 million and the number is about RMB$390 million this quarter, and this basically gives you an idea of the pace that we are going with. And I think this phase will continue on as the year goes along, and we anticipate to step up the CapEx spending on this front as well.

What’s included in this investment is basically infrastructure, network equipment, servers. And as I mentioned earlier, we also acquired land.

As the year goes deeper, we will also incur CapEx-related OpEx expansion cost. So basically our investment for the future, we see great potential in the market space and we need to expand both facilities as well as infrastructures.

Andy Yeung – Oppenheimer

Great, and just want to follow up with a question on values. Depreciation cycle, looking at the fixed assets, I mean what’s the lifecycle for depreciation there?

Jennifer Li

Most of the servers and infrastructure network equipment, around three years for land, and that’s much longer, and buildings that’s much longer. Most of the CapEx spending that you’re seeing now is server related.

Operator

The next question is from the line of Michelle Ma with Samsung Securities.

Michelle Ma – Samsung Securities

I have a question regarding your online video business, Qiyi. Just wondering how much percent of the traffic on Qiyi is actually coming from Baidu, and if you can share with us what’s the current market share of Qiyi in China online video business.

Robin Li

We drive a lot traffic to Qiyi, but we are not going to disclose the percentage. One thing for sure is that Baidu is largest onsite traffic source for (te.com). What we have seen very happily is that Qiyi, excluding its current name, is that increasingly users are going directly to (te.com).

Michelle Ma – Samsung Securities

And also the current market share of Qiyi?

Robin Li

I don’t have the numbers at hand, but Qiyi is obviously a leader in the long form license to video content. There are larger ones that host all kinds of video content including those user generated content. And Qiyi is at this time purely for long form license video content, and I believe that user experience, we are at number one and the growth rate there is number one.

I am not sure about the current position. I need to check.

Operator

We are now approaching the end of the conference call. I will now turn the call over to Baidu’s Chief Executive Officer, Robin Li, for his closing remarks.

Robin Li

Once again, thank you for joining us today. And please do not hesitate to contact us if you have any further questions.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.

April 28, 2011 ·
by

Scott Smigler

“Mobile” and “social” have received a lot of hype over the past few years. To a large extent that hype has been warranted. Sales of smart phones are setting records, and according to Alexa — the web-traffic-ranking firm — socially driven websites account for five of the ten most popular.

For online merchants, however, the hype from mobile and social has resulted in one big collective yawn. Many merchants who raced to build their mobile sites in 2010 generate a very small percentage of their revenue through that source. In addition, many merchants who have successfully collected thousands of Fans on Facebook and followers on Twitter generate only a very small percentage of their revenue from those sources.

Mobile Is Starting to Produce

Why, then, do online merchants continue to invest in mobile and social? Perhaps they believe there is a light at the end of the tunnel, and they want to get there before their competitors do. While social still needs some time to evolve before becoming a high return-on-investment channel for most online retailers, mobile is really starting to perform.

Looking at the Data

The following data from one traditional online retailer reflects trends that we’ve seen across the board with hundreds of retailers whose campaigns we manage.

In this case, the retailer saw a 910 percent increase in the percentage of clicks that come from mobile devices — versus traditional computers — in one year of advertising through Google AdWords. The retailer also saw a 661 percent increase in mobile’s share of pay-per-click conversions, and a 918 percent increase in mobile’s share of PPC revenue.

This online retailer is not unusual. We surveyed many of our clients — including “Internet Retailer 500” merchants — and mobile’s share of clicks, conversions, and revenue is rising across the board. The overall percentage of PPC that mobile accounts for is still relatively small, but it is growing quickly, and these shoppers are buying.

The graphs below show trends over the last year, as mobile’s share of PPC has increased.

As shown in the graph above, mobile received less than 0.5 percent of all PPC clicks in April 2010. By April 2011, the mobile market was garnering around 3.5 percent of all PPC clicks.

The graph above shows that mobile PPC conversions were around 0.5 percent in April 2010. That mobile figure grew to roughly 3.5 percent of all PPC conversions by April 2011.

The graph above shows that mobile PPC revenue increased from around 0.3 percent of total PPC revenue in April 2010, to around 2.8 percent by April 2011.

What Every Advertiser Should Know

By default, your PPC campaigns are already syndicated through mobile devices. You can understand the impact mobile is having on the profitability of your PPC campaigns by running reports in the “Campaigns” tab within AdWords. Look at your data over time, for each individual campaign, to try to spot long-term trends.

If your return on investment is low on ads that are served through mobile devices, consider disabling syndication to mobile temporarily. If your return on investment is high, however, try to scale those profits even further.

5 Ways to Improve Mobile Performance

Here are five things, below, you can do to improve your mobile PPC performance.

1. Build campaigns devoted specifically to mobile. Identify campaigns where the mobile segment is performing well, and use that data to build a new campaign that is completely focused on mobile. This will allow you to experiment with larger budgets, ad copy, landing pages, and bidding strategies catered specifically to mobile shoppers.

2. Utilize Google AdWords Click-to-call. Our clients have had tremendous success with “Click-to-call.” This setting in AdWords allows your ads to generate phone calls instead of clicks when your ad appears on a mobile device. This feature is especially useful if you do not have a mobile site, or if your shoppers would be more inclined to speak with a live sales person while they are mobile.

3. Customize your ad copy to specific devices. Google has a feature in beta that enables you to dynamically insert the name of the device being used by searches in your ad copy (similar to dynamic keyword insertion). This is a great way to tell an iPhone user, for example, that your site is iPhone friendly, to increase click-through rates.

4. Create a mobile site. If your site attracts an increasing number of mobile shoppers in general, and your mobile conversion rate significantly underperforms your main website, consider building a mobile version of your website.

   To be sure, not every online business should spend the time and dollars to build a mobile version of its site, at least not yet. Mobile commerce is young, and if a very small percentage of your shoppers come to your site through a mobile device, you may want to wait until mobile site technology becomes better or cheaper.

5. Turn off mobile-ad syndication on poorly performing campaigns. By default, your Google ads will be syndicated to mobile devices. As suggested above, generate reports through AdWords that allow you to assess the performance of your ads when they appear on mobile devices. On campaigns where performance is poor, change your mobile settings.

Conclusion

The data we’ve analyzed suggests that mobile users are starting to use their phones in similar ways to how they use their computers. They are shopping online, clicking on PPC ads, and making purchases from their mobile devices. While online retailers who ignore mobile may be wasting pay-per-click dollars on poorly converting traffic, those retailers who have embraced mobile by testing various PPC techniques and campaign settings to optimize its performance are starting to see results.

As mobile devices become more popular — and faster — more online shopping will be performed on mobile devices. There is no magic bullet for harnessing the profitability of mobile PPC, but this is a good time to begin allocating more of your PPC budget to that source.

Read Scott Smigler’s profile.

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• Mobile Commerce, PPC

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This article is filed under Mobile Commerce and has the following keyword tags: Mobile, Pay-per-click Advertising.

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