Investors are getting very excited about the current streaming wars. Pioneered by industry disruptor Netflix (NASDAQ:NFLX), on-demand, over-the-top streaming is set to enter a new stage. Disney (NYSE:DIS) just released Disney+, and next year AT&T (NYSE:T) will release HBO Max, while Comcast (NASDAQ:CMCSA) will release its own streaming service called Peacock. That's not to mention incoming tech giant Apple (NASDAQ:AAPL), which just released Apple TV+, and the ongoing competition from e-commerce giant Amazon (NASDAQ:AMZN), which groups its video service in with its one-day shipping Prime subscription.

But as excited as investors are about the big "streamers," they are just as pessimistic about certain "old media" companies, especially CBS (NYSE:CBS) and Viacom (NASDAQ:VIA) (NASDAQ:VIAB). These two companies, both controlled by the Redstone family, are set to merge in early December in a stock-for-stock deal.

As much as the streaming stocks have soared recently, CBS and Viacom have declined by just as much, having been sold off at value-stock levels even after the merger announcement. Not only are CBS and Viacom dirt cheap, but the merged company will be stronger and could perform much better than expectations under incoming CEO Bob Bakish. That's why the new ViacomCBS is the best buy in the media sector today.

IMAGE SOURCE: GETTY IMAGES.

The shocking numbers

Just how cheap is ViacomCBS? There are lots of moving pieces underneath each organization, but for simplicity's sake, Viacom just ended a fiscal year in which it earned a little less than $1.64 billion in adjusted (non-GAAP) EPS. Although that was lower than last year, much of the difference can be found in the company's higher tax rate, as well as some growth investments on the content side.

For the year that's about to end, analysts are projecting CBS will earn $4.91 per share, which equates to about $1.85 billion.

That comes to around $3.5 billion in earnings for the combined company, which has a combined market capitalization of just $24.6 billion, or about 7 times those net profits. That's exceptionally cheap, especially since Bakish firmly believes the companies will achieve $500 million in cost synergies alone. That bumps up the combined earnings power of the company to around $4 billion, bringing the prospective PE ratio down to just 6.2 times earnings.

With ViacomCBS at 6.2 times earnings, consider that Netflix is currently trading at seven times sales.

Of course, Viacom and CBS also have debt loads, but the combined $18.1 billion in debt should be very manageable for two companies of this size and profitability, and all of the company's media peers also have high levels of debt as well. Even then, however, the combined enterprise value of ViacomCBS is around $42 billion, just over 10 times post-synergy earnings.

That valuation is shockingly low when compared with the valuations of leaders such as the aforementioned Netflix, whose PE ratio is an astronomical 97 times trailing earnings, and Disney, which sports a PE ratio of 22.4. It's even less than half of more value-oriented media names, such as Comcast at 16.6 times earnings and AT&T at 17 times earnings.

And operationally underrated

It appears that investors don't believe CBS and Viacom can compete in a world of rampant cord-cutting and a shift to over-the-top streaming services. However, these concerns appear to be overblown. Though cord-cutting is definitely taking a toll on the linear subscriber numbers for both companies, both CBS and Viacom are growing over-the-top revenue and earnings to make up for it.

Between its CBS all-Access and Showtime direct-to-consumer offerings, CBS's direct-to-consumer revenue surged 39% last quarter. Management also said that total CBS subscribers, when counting both linear and direct-to-consumer offerings, grew 4% year-over-year.

As for Viacom, its recent acquisition of PlutoTV, which is a free, ad-supported OTT platform, has grown monthly active users by 70% just through the first nine months of this year, from 12 million to 20 million. The direct OTT offerings, along with Viacom's new advanced marketing solutions platform, have turned Viacom's fortunes around, as the company achieved its second straight quarter of advertising growth last quarter, reversing years of declines.

An arms dealer approach

Even if a handful of streaming companies take the lion's share of subscribers in the future, did you know that both CBS and Viacom produce a lot of your favorite content on Netflix, Disney, Amazon, and other streaming channels?

For instance, CBS produces the hit shows Insatiable and Dead to Me for Netflix, as well as Diary of a Female President for Disney+. Viacom's Paramount Studios produces even more shows for third parties, including The Haunting of Hill House and 13 Reasons Why on Netflix, Jack Ryan on Amazon, Shantaram on Apple, and The Alienist for TNT. Just recently, Viacom inked two massive deals with third parties: a multi-year distribution deal for Nickelodeon content on Netflix, and a licensed deal with HBO Max for the iconic South Park for over $500 million.

In a world where the large platforms are beginning to hoard all of their own content, ViacomCBS is doing the opposite, agreeing to be the arms dealer to the streaming wars. "Zigging" when all others are "zagging" could actually bring lots of advantages, as management will be able to pick and choose the right outlet for the right piece of content, thereby maximizing financial returns on its investments.

With so much demand for diverse content, both CBS and Viacom are investing heavily. Paramount TV has 26 series currently in production, up from 22 last quarter, and CBS is increasing content investment by 20% compared to last year.

A very cheap stock

Last quarter, Viacom's revenue was flat, but would have been positive if not for negative growth at the Paramount movie studio, which was lapping last year's Mission: Impossible movie. The company's main media networks segment actually grew 6%. CBS, on the other hand, grew its revenue only 1%, but that was despite lapping significant advertising revenue from last year's mid-term elections, and a 19-day blackout of CBS channels on AT&T's distribution platforms in the third quarter, which was eventually resolved.

Both companies seem to be in fairly stable places right now, and could outgrow these figures next year, when 2020 election political spending kicks in and the two companies seek even more in the way of bundled revenue synergies. At just over six times earnings, the new ViacomCBS is looking like the best bargain in a crowded media sector today.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Amazon, Apple, AT&T, CBS, Netflix, and Walt Disney. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, long January 2021 $60 calls on Walt Disney, and short January 2020 $130 calls on Walt Disney. The Motley Fool has a disclosure policy.

Last week, Netflix (NASDAQ:NFLX) announced a major partnership with Nickelodeon, owned by Viacom (NASDAQ:VIAB), as it continues its heavy content spending to try and win the streaming race. While the partnership should not be ignored by Netflix investors, the more important revelation could be to Viacom investors. Can you compete in the streaming war while simultaneously selling ammunition to your competitors?

IMAGE SOURCE: GETTY IMAGES.

The Nickelodeon-Netflix deal

Netflix has agreed to a multiyear deal to utilize Nickelodeon's cast of characters to create original animated feature films and TV shows for distribution through Netflix's streaming service. According to the New York Times, the deal is worth somewhere north of $200 million. While the creation of original features is a first for the partnership, it's not the first time the two companies have worked together. Shows and movies from the Nickelodeon library like Rocko's Modern Life, Hey Arnold!, and Sam & Cat are currently available for Netflix subscribers to watch.

The Viacom-CBS merger

In August of this year, Viacom announced a merger with CBS (NYSE:CBS) that's now expected to close on Dec. 4.The joint strategy, laid out in the merger press release and touched on during CBS' third quarter earnings report last week, brings up a muddy question: Are they planning to diversify effectively, or are they competing against themselves? The potential issues with this strategy became clearer with last week's Nickelodeon-Netflix deal. Let's look at the strategy.

In the merger press release, the two companies discuss pushing a direct-to-consumer strategy and a third-party licensing strategy as two of the three prongs of the overall growth strategy. In other words, they want to dedicate resources to competing with other streaming companies, but they also want to dedicate resources to selling and licensing content to "subscription and ad-supported streaming services."

When CBS released third-quarter earnings last week, Acting Chief Executive Officer Joe Ianniello said, "We delivered record third-quarter revenues as we continue to increase our investment in our premium content and direct-to-consumer streaming services, which is the cornerstone of our growth strategy." While there was no mention of sales to third parties, the company does discuss profits derived from content created for third parties briefly in the report and in the earnings call.

So what?

While diversification is usually a great strategy, it can sometimes be a cover for a lack of direction. If you're pushing your own streaming subscription services but creating content for your competition, are you diversifying or shooting yourself in the foot? CBS All Access, the company's paid streaming service, is a direct competitor of Netflix. Is it really a smart strategy to sell premium content to a direct competitor? Those invested or looking to invest need to take a hard look at whether this "diversified" approach is the right way forward for Viacom and CBS.

Jason Lee has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

With Disney (NYSE:DIS) pricing its streaming service at $7 per month and $70 per year, there's been plenty of interest about how this might affect Netflix's (NASDAQ:NFLX) value proposition.

Streaming won't be a winner-take-all space, and Netflix remains a top offering in the category, but new entrants are hitting the market each year -- and the influx of competition highlights some of the platform's shortcomings. Family and children's programming is an area where Disney+ has a big advantage, and it looks like Netflix is moving to address that.

The streaming giant is teaming up with Viacom's (NASDAQ:VIA)(NASDAQ:VIAB) Nickelodeon division for a multiyear production partnership that will see the children's entertainment network bring new content to Netflix. The specifics of the deal haven't been made public, but some reports suggest that it will be worth more than $200 million for Viacom and will see big Nickelodeon properties, including a SpongeBob SquarePants spinoff, join the Netflix lineup. This looks like a smart venture for both companies, and it wouldn't be surprising to see it evolve into a deeper, longer-term partnership.

IMAGE SOURCE: GETTY IMAGES.

Netflix is suddenly under pressure to justify its price

Disney+ has significantly shifted the dynamics of the streaming market, and the edge that it has in the family entertainment space over Netflix is hard to deny. Between its vault of classic films and television series created for networks including The Disney Channel, ABC Family, and ABC, The House of Mouse has a history and library of content in children's entertainment that's unmatched. That advantage looks even more significant in light of Disney's move to undercut Netflix's pricing with its new streaming service.

After a round of price hikes earlier this year, Netflix offers a single-stream, non-HD package that starts at $9 per month, a $13 per month offering that allows two simultaneous HD streams, and a premium subscription priced at $16 per month that lets users have four Ultra-HD streams. Meanwhile, Disney+ matches its biggest competitor's premium package in terms of resolution and concurrent-stream offerings -- but at a $7 monthly price point that has changed the game.

Netflix has a clear edge when it comes to breadth of content, but Disney+ can also be purchased in a bundle with ad-supported Hulu and ESPN+ at just $13 a month (or $19 a month for ad-free Hulu). For families on the hunt for the best value in streaming, there's a strong case to be made that Disney is leading the pack right now.

Family matters

Allowing Disney to have a significant edge when it comes to kids' entertainment would be a major misstep for Netflix, even if the costs needed to produce high-quality offerings in the category will add to the company's already sizable content budget. Nickelodeon is a business with proven success in youth-focused entertainment, capable of bringing both a library of celebrated franchises and proven production studios to the table. That's exactly the kind of partner that Netflix needs as the streaming wars heat up.

The streaming company had already licensed Nickelodeon content including animated movies for Rocko's Modern Life, Invader Zim, and Hey Arnold! and live-action shows from the network including Victorious and Sam & Cat. The company also announced it would feature new animated movies based on Nickelodeon's Loud House and Teenage Mutant Ninja Turtles prior to the latest news of their original content partnership.

It's not clear what exactly Nickelodeon has in the works for the streaming service outside of the SpongeBob spinoff. News that an upcoming Rugrats movie was taken off of Viacom's theatrical release slate was followed by the Netflix original-content partnership announcement, so that project appears to be a potential candidate for the platform -- although it could be part of a separate deal. What is clear is that Netflix needed to respond to Disney+'s big advantage in children's and family programming, and Viacom stood out as an ideal ally.

SPONGEBOB IS COMING TO NETFLIX! IMAGE SOURCE: VIACOM.

Viacom needs Netflix, too

The partnership between Netflix and Viacom isn't an entirely new development. The two companies announced that Viacom's Paramount Pictures division would be creating new original content for the streaming service last November, and there's a good chance that the two entertainment players will continue to strengthen their relationship despite some big organizational changes on the horizon.

Viacom is set to merge with CBS, and even though each party in the soon-to-be combined company has a range of streaming offerings that will be supported in the near term, they're still not well-positioned to take on Netflix, Disney, or AT&T's Time Warner in over-the-top distribution. Viacom and CBS compete with Disney and Warner at the box office, on television, and in the premium cable category.

The combined ViacomCBS will still look for the most favorable content deals with third parties and support some of its own streaming platforms, but Netflix stands out as one of the merged company's most natural partners.

With tougher competition, Netflix has to deliver quantity and quality

Netflix has sometimes been faulted for a focus on quantity over quality, greenlighting a large number of productions and acquiring completed works for distribution in order to build out its catalog and give subscribers a vast array of titles to choose from. That's a strategy that's been very successful, but it may prove better suited to a time when the company was one of the few big players in the streaming space and viewers had fewer options for their next binge-watch session.

The streaming pioneer has scored impressive hits with series including Stranger Things, House of Cards, and Orange Is the New Black, but it doesn't really have original properties for younger audiences that are category leaders or have much brand power. And even outside of the family entertainment space, if you asked Netflix subscribers to name really great original movies on the platform, how many names might spring to mind? The list almost certainly wouldn't compare favorably when stacked against its emerging competitors' best productions.

With Disney and AT&T's Time Warner unit making a big push into streaming, the market dynamics are shifting. These are companies that have been operating and producing content for nearly a century, and many of the films and shows that they've created across their storied runs were made with the intent of being high-profile releases at theaters or major television networks. That puts pressure on Netflix to both improve its original productions and expand its library of licensed shows and films, and that means investors have to count on content spending at the company continuing to climb rapidly.

Keith Noonan owns shares of AT&T and Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2020 $130 calls on Walt Disney. The Motley Fool has a disclosure policy.

IMAGE SOURCE: THE MOTLEY FOOL.

Viacom (NASDAQ:VIAB)Q4 2019 Earnings CallNov 14, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Viacom Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to senior vice president of investor relations and treasurer, Mr. Jim Bombassei.

Please go ahead, sir.

Jim Bombassei -- Senior Vice President of Investor Relations and Treasurer

Good morning, everyone. Thank you for taking the time to join us for our September quarter and full-year fiscal 2019 earnings call. Joining me for today's discussion are Bob Bakish, our president and CEO; and Wade Davis, our chief financial officer. Please note that in addition to our press release, we have trending schedules containing supplemental information available on our website.

We also have an accompanying slide presentation that you can follow along with our remarks. I want to refer you to the second slide in the 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. Today's remarks will focus on adjusted results.

Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website. Before we begin, I want to note that due to the pending merger with CBS, we will not be providing forward-looking guidance for Viacom on today's call. During the February 2020 call for ViacomCBS, which will be the first call for the combined company, we will provide full-year 2020 guidance. Now I'll turn the call over to Bob.

Bob Bakish -- President and Chief Executive Officer

Good morning, and thank you for joining us. Q4 was a strong quarter, capping off a strong and pivotal year, one where Viacom delivered on the ambitious plan we set out at the beginning of fiscal '19, strengthening and growing the business for today while accelerating the company's transformation for the future. Let me start off with a few of the headlines. As promised, we returned Paramount to full-year profitability.

We delivered full-year growth in domestic ad sales and affiliate sales. We grew International Media Networks revenue on a constant currency basis despite macroeconomic issues in the U.K. and Argentina. We used M&A as a transformational accelerant, including importantly, acquiring, integrating and scaling Pluto TV, the leading ad-supported streaming TV service.

These are significant achievements, particularly in this dynamic media environment. But what is perhaps most important is that all of this reflects the delivery of promises we made to you, our investor base. So let's break down the quarter and the year a little more. First, I want to highlight the success we've had at Paramount.

The studio was profitable for the first time in four years. NOI improved by over $500 million in the last three years. We did this by improving execution across the board, putting in place a new, balanced film slate strategy and by significantly ramping the TV business. Very importantly, it's again become a place where talent brings their best work, and we're just getting going.

While Gemini Man and Terminator: Dark Fate didn't perform as we hoped, our exposure was limited, and we remain optimistic and excited about what the studio has coming, including key franchises from our portfolio that we're bringing back for audiences. These include: A Quiet Place 2 coming in March, a new Spongebob movie expected in May and Top Gun: Maverick coming in June, which by the way, looks amazing. And on the TV side, our studio business continues to thrive. During the year, Paramount Television delivered hits the third season of 13 Reasons Why, the second season of Jack Ryan; as well as debuts like Catch-22, Looking for Alaska and more.

Moving to Domestic Media networks. Viacom maintained the No. 1 share of U.S. basic cable viewing among key demos.

And our portfolio grew market share in the quarter and for the full year with strong results at MTV, Comedy Central and Paramount Network. In fact, in the quarter, we had the No. 1 cable comedy telecast with South Park, the No. 1 drama series with Yellowstone, the No.

1 reality series with Love and Hip-hop: Hollywood and the No. 1 preschool series with Ryan's Mystery Playdate. And that is just the tip of the iceberg. We had nine of the top 30 cable networks, more than any other cable family.

More recently, in Q1 at BET, we launched Tyler Perry's The Oval. in fact, The Oval became the No. 1 new series for African-Americans 18 to 49 for cable and broadcast season to date. Looking beyond linear TV, in Q4, Viacom Digital Studios delivered its highest views ever on YouTube, Instagram and Twitter.

In fact, VDS drove year-over-year increases in Viacom's aggregate number of social video views and minutes by 38% and 75%, respectively, across all of our domestic social accounts, bringing our total social video views to 9.6 billion in the quarter. So no question about it. Our content continues to connect. Moving to domestic ad sales.

Thanks to the combination of our vibrant brands and strong ad sales execution, including our sophisticated suite of Advanced Marketing Solutions, we delivered 6% ad growth, marking the second consecutive quarter of positive performance. Perhaps more important, we also delivered full-year revenue growth for the first time in six years. This represents a significant milestone for Viacom and is evidence of our transformation. In particular, the success of our Advanced Marketing Solutions business, where revenue grew 83% in the quarter and 76% for the full year, shows how we have evolved the ad sales business to thrive even in the face of linear impression constraints.

Our ad sales strategy was built to enable sustainable growth in an evolving TV marketplace. In executing that strategy, we created and acquired a suite of products beyond the pay-TV ecosystem, and it's working, evidenced by our strong domestic ad sales growth in the fiscal fourth quarter and return to growth for the full year, where AMS was an important driver. Looking forward, we expect continued growth, given the demonstrated power of the model and our leadership position. Pluto TV is, of course, one of those strategic acquisitions and has quickly become an integral part of our AMS offering.

Pluto TV continues to grow, expanding its leadership in the free streaming TV space and its contribution to our ad sales growth. It now has approximately 20 million domestic monthly active users, a nearly 70% increase this calendar year to date. Our focus on and invest in Pluto is evident. In Q4 alone, Pluto launched 43 new channels.

And last month, Pluto Latino added 11 new channels, giving the platform a total of 22 channels with over 4,000 hours of Spanish and Portuguese language programming. We also continue to grow Pluto TV distribution both globally and on new platforms, which benefits both our audiences and our partners. And Pluto has not only been a driver of our return to overall ad sales growth, it has also been a platform to enable Viacom to widen our ad sales business and radically increase the number of clients we do business with, which is a very good thing. In short, in a crowded subscription universe, as consumers become increasingly more value-conscious, we strongly believe that having the leading free streaming TV service in country, and over time, the world, is a huge competitive advantage.

Turning to affiliate revenue. Our growth in the quarter and full year demonstrate our strong execution in a challenging environment. Over the past few years, we have renewed or extended almost all of Viacom's traditional subscriber base, gained inclusion on vMVPDs and announced mobile partnerships. Last quarter, we highlighted our distribution renewal with NCTC.

Today, I'm pleased to report that virtually all of the NCTC members opted into the agreement, further demonstrating the strength of our brands. Over the past several years, we have implemented a distribution strategy to serve the widest addressable market. Our business today delivers and monetizes IP and content across all price points, including MVPDs, vMVPDs, SVOD and free. Our dynamic affiliate strategy has led us to grow and demonstrated resilience despite the macro trends within the industry.

We believe persistent headwinds from subscriber trends and rates will continue to impact the business, which is why our multifaceted approach is the right strategy going forward. On the Media Networks studio side, including Nick Studios, Awesomeness, MTV Studios and more, we have 17 domestic series ordered to or in production for third parties, which is an impressive achievement for a business we created less than two years ago. Add the 26 we have at Paramount TV, and we have a total of 43 shows in the rapidly growing TV studio business in the U.S. alone.

And this business continues to show strong momentum. For example, we got two new deals with Netflix. Just this week, Nickelodeon Studios announced a new multiyear output deal to produce original animated films and series based on both Nick library and brand-new IP for kids and families around the world. I'm also pleased to announce that Paramount has licensed the rights to Beverly Hills Cop to Netflix, which will produce a new film based on an iconic IP, further expanding our relationship with this important original production client.

In October, Comedy Central Productions and Trevor Noah signed an agreement to develop a comedy series for Quibi. And we recently licensed South Park's domestic streaming rights to HBO Max, further demonstrating the appeal of our IP and our ability to maximize its value. We continue to broaden the business internationally as well. As an example, we now have almost 40 mobile deals live reaching 5 million subscribers.

This is important early progress, and we believe this segment will ramp significantly in the near term. Finally, we said we'd make more out of our foothold in live events, and we did just that, with total event attendance growing to more than 4 million people in 2019. VidCon is a great example of how we're expanding our event franchises. When we first acquired it in early 2018, it was purely an Anaheim-based experience.

But now we have VidCon events in Australia, London, Mexico, Singapore and the Middle East with more planned in the coming year. By leveraging Viacom's significant international operating footprint, VidCon is rapidly becoming a global brand. Now before I turn it over, I want to take a minute and thank Wade for his relentless hard work and dedication to Viacom. Over the past 15 years, he's been a critical strategist and operator, and over the last three years, played an integral role in helping develop and successfully execute our strategy to evolve Viacom for the future.

I'm grateful for his many contributions and look forward to watching his future endeavors. With that, I'll hand it over to Wade to provide some of the financial details.

Wade Davis -- Chief Financial Officer

Thanks, Bob. We've had a fantastic run together, and I really want to thank you for your friendship, your partnership and your support. You and the rest of Viacom couldn't be better positioned for success going forward. Now getting into the numbers, as Bob just discussed, we ended the year as a stand-alone company on a high note, delivering on our promise: Returning Viacom to long-term sustainable growth.

Paramount has had an amazing resurgence and delivered its first full year of profitability in four years. Worldwide Media Networks grew total revenue on a constant currency basis, with both domestic ad sales and domestic affiliate revenue growing in the quarter and on a full-year basis. The execution against our key growth initiatives and ad sales are driving the evolution of the company and are now at a scale that is fully offsetting headwinds in the linear business and will predictably deliver growth going forward. Over the course of the year, we invested in AMS to reinforce our leadership position in advanced advertising.

We acquired Pluto TV, establishing Viacom as the leader in free streaming TV in the U.S. And we expanded our suite of streaming offerings with the launch of BET+. We accomplished all of this while continuing our focus on deleveraging the company and strengthening our balance sheet. The progress we've made over the course of the year is remarkable and lays an extraordinary foundation for the growth of ViacomCBS going forward.

Now turning to the results on Slide 10 of our earnings presentation, where we have a summary of our consolidated performance. For the full year, on a constant currency basis, total revenue grew 1%, driven by growth at both Media Networks and Filmed Entertainment. Adjusted diluted EPS grew for the third consecutive year. In the quarter, on a constant currency basis, total revenue was flat as growth at Media Networks was offset by a decline at Filmed Entertainment.

Taking a closer look at the segments on Slide 11. I'll start with Filmed Entertainment. Paramount has delivered on its turnaround promise, returning to profitability on a full-year basis for the first time since fiscal 2015. Adjusted OI improved $117 million versus a year ago and has improved in excess of $500 million over the last three years.

Profitability for fiscal 2019 benefited from carryover profitability of the prior-year film slate, increased monetization of the library and growth in TV production. In the quarter, revenue for Paramount declined 14%. While we saw strong growth in licensing revenue of 26%, fueled by TV production, this was more than offset by a decline in theatrical revenue, reflecting the comparison to the release of Mission: Impossible � Fallout in the prior-year quarter. Filmed Entertainment profitability in the quarter was $54 million, benefiting from profitability of the current year's slate, growth in TV production, increased monetization of the library, as well as disciplined cost management.

Turning to Media Networks, which is on Slide 12. My comments on Media Networks will be in constant currency terms. For detail on our reported results, please see our earnings release. Worldwide Media Networks revenue finished up 1% for the year driven by 1% worldwide advertising growth and 2% worldwide affiliate growth.

For the quarter, Worldwide Media Networks revenue grew 6%, capping a strong finish to the year. Adjusted operating income for the segment was down 5% for the year and 13% in the quarter largely due to investments we're making in growth initiatives, including Pluto TV, the launch of BET+ and the scaling of our AMS infrastructure. Moving to domestic ad sales. Revenue finished up 1% for the year, benefiting from a return to growth in the back half, including a strong Q3 and Q4 with both quarters up 6%.

The September quarter marked the second consecutive quarter of year-over-year growth and the fourth quarter of sequential improvement, excluding the timing impact of Easter. Domestic ad sales benefited from strong AMS growth, which finished up 76% for the year and up 83% in the quarter. AMS is enabling us to decouple our ad revenue performance from broader industry declines in linear capacity, setting us apart from our peers and helping us now deliver industry-leading advertising revenue growth. AMS revenue accounted for 17% of full-year domestic ad sales and over 20% of our fiscal fourth quarter domestic ad sales.

The growth in AMS is being driven by Pluto, where both audience growth and engagement are contributing to a massive pool of premium digital video inventory. Beyond Pluto, the core components of AMS are seeing continued momentum as well, with Vantage, addressable media and brand solutions all setting new records in the quarter. Now digging into more detail on Pluto. We've worked quickly on the integration and we couldn't be more pleased with the performance.

Pluto is growing rapidly, fueled by expanding content offerings and distribution. Pluto launched 43 new channels in the quarter, including the NFL channel and its own James Bond channel, Pluto TV 007, as well as 24 Viacom-branded channels. And internationally, Pluto has expanded its content offering and device availability in the U.K., Germany, Austria and Switzerland and will soon be made available in Latin America. Importantly, advertisers are increasingly embracing Pluto TV, as evidenced by a very successful upfront, as well as having over 3,500 brands advertising on the platform during the September quarter.

In fact, in the month of September, Pluto registered its highest-ever revenue month, and total viewing minutes tripled over the prior year. We continue to see Pluto TV as a global opportunity, including over $1 billion of ad sales in the U.S. alone as we expand the content offering, grow audience and enhance monetization. Now moving to domestic affiliate revenue.

Revenue was up 1% for both the full year and the quarter. Performance was driven by contractual rate increases, as well as OTT and studio production revenues, which were partially offset by subscriber declines. On Slide 13 of the deck, we have an overview of International Media Networks. Total revenue finished the year up 2% with the quarter up 15%.

International ad sales finished the year flat with the fourth quarter down 2%, solid performance in light of the ongoing macro headwinds in the U.K. Outside of the U.K., advertising revenue grew high single digits for the year, including strong growth in Q4. Growth was driven by strength in Latin America, as well as event-driven spend. Looking at the ratings, Channel 5 achieved its fifth consecutive quarter of growth in viewership share, and Telefe remained the No.

1 network in ratings for 22 straight months. International affiliate revenue increased 8% for the year and 34% in the quarter, benefiting from strong SVOD and OTT deliveries, expanding studio production and growth in linear. Turning back to the consolidated results and looking at items below the line. Net interest expense was lower than a year ago by $7 million in the quarter and $71 million for the full year due to our deleveraging actions.

Our adjusted effective tax rate was 24% for the quarter and for the year. On Slide 14, there's a summary of our cash flow and debt. We delivered free cash flow of $1.4 billion for the year, which is down versus the prior year due to higher cash taxes and lower operating income. Moving to the balance sheet.

At quarter end, we had $8.7 billion of gross debt outstanding, a reduction of 13% versus the prior year. Our adjusted gross debt, reflecting the equity credit we received from S&P and Fitch on our hybrid securities, was $8.1 billion. During the year, we repaid $1.4 billion of senior notes and debentures, including $220 million that matured in September. Now before I turn it back to Bob for some closing remarks, I want to thank Shari and the rest of the Viacom board for their support, their leadership and their vision.

I also want to thank the investors and analysts on the call. It's been a privilege working with you all, and you will be well served by the amazing combined ViacomCBS team that will be taking you forward.

Bob Bakish -- President and Chief Executive Officer

Thanks, Wade. I'm extremely pleased with the performance we demonstrated during the quarter and for the year. 2019 caps off an intense three-year era of revitalization and transformation for Viacom. Our success reflects a combination of strategy and execution, of asset and people, of organic growth and M&A.

And now we're beginning the next leg of our journey, one that is transformational, the merger of Viacom and CBS. At the center of it all is content. ViacomCBS will be a truly global, multi-platform, premium content powerhouse with tremendous assets and scale. ViacomCBS will be positioned to serve consumers, the creative community, commercial partners, employees and other constituents while creating significant value for shareholders.

The strength and scale of ViacomCBS assets, which include one of the largest troves of IP in the world and production capabilities that are second to none, will enable us to pursue a growth strategy driven by one agenda: To maximize the value of the content we create for our own platforms and for others. These distinct strengths, supported by our culture of content, will make ViacomCBS one of just a handful of companies positioned to shape the future of the media industry. We will be well-positioned to meet the increasing demand for premium content across the global distribution ecosystem. We will be a leader in the U.S.

ad market. We will pursue expanded opportunities in distribution, including through streaming on a global basis. And we will extend the use of our IP into important adjacent spaces. We anticipate the ViacomCBS merger closing in early December, but we are already hard at work, including having announced the bulk of the senior leadership team of the combined company, which is deep into integration planning as we speak.

And this integration is not just about cost savings. At its core, it's also about extracting more value from our content assets. To that end, just this week, Pluto TV announced the launch of three new channels from CBS, giving customers free access to live local news streams from CBSN New York, CBSN Los Angeles, as well as a leading entertainment new streaming channel, ET Live. This is just a taste of what's to come once this deal closes in a few weeks.

Overall, know that we will hit the ground running, unlocking synergies and opportunities as a combined company in the near term. And with that, I'd like to open it up to questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Alexia Quadrani with J.P. Morgan. Please proceed with your question.

Alexia Quadrani -- J.P. Morgan -- Analyst

Thank you very much. Bob, understanding the deal hasn't closed quite yet, but can you please update us on your thinking of potential revenue synergies now that it's been several months since the plans to merge have gone through? And any -- I guess specifically, any potential positives to how we should think about potential benefits for affiliate revenues? Then I have a follow-up.

Bob Bakish -- President and Chief Executive Officer

Sure, Alexia. Look, we're now, as we said, deep into integration planning, building a detailed and actionable view of both revenue opportunities and cost synergies, by the way, associated with the combined company. That in turn is feeding into our action plan, our calendar 2020 budget, and in short order, will also lead to a multiyear LRP. Your specific question is on revenue synergies.

That is ultimately the reason we did this deal. We believe there are substantial revenue opportunities in the combination. There really are four areas to consider. First was the one you name-checked: Distribution.

Remember, on a combined basis, ViacomCBS delivers about 22% of U.S. prime time TV viewing with a range of highly sought-after content. Today, we only receive about 11% share of the fees. We believe that represents a significant going-forward opportunity.

And we will have a combined cross-company affiliate sales force going after that. We've already announced leadership. Second area of synergy, revenue synergy, is U.S. advertising.

As you know, we will have a market-leading position in linear across every demographic. We're the No. 1 share player overall. We'll be the No.

1 player on every single demographic. Combine that with the industry's leading Advanced Marketing Solutions platform, that will position us as the go-to solution and problem solver for agencies and their clients, and that in turn will allow us to grow share. The third area is content licensing. Here, we're uniting a Hollywood film slate with substantial TV production across multiple entities, whether that's CBS or Showtime or Viacom Media Networks or Paramount TV.

That will allow us to create -- have a single point of contact for a bundled offering, which in turn, will let us take a larger share of buyers' budgets globally. The last area, streaming. Again, slightly different kettle of fish, but bringing the complementary content and platform together to enhance our offerings and create this streaming ecosystem which crosses free and pay, we believe that's a tremendous opportunity. It will allow us to serve more consumers in free and also allow us to upsell an evolving set of SVOD services, starting with CBS All Access, Showtime OTT, BET+, Noggin and others.

It's worth noting on that point that the streaming sector is not only a revenue opportunity but also one where we see opportunity in content investment as we make going-forward decisions to improve ROI and free cash flow conversion in that key sector of the business. Across all these four areas, clearly, the domestic versus international mix will vary. But at least -- but all of them will have at least some global potential. Again, all of this will ultimately feed into our 2020 guidance, which as we indicated, will be provided on our first combined company earnings call in February 2020.

Alexia Quadrani -- J.P. Morgan -- Analyst

And just one follow-up. Bob, you highlighted many great examples of success you were having in selling content to third parties, I guess either new content, as well as library content. Can you walk us through how you evaluate what is best to be licensed or kept to support your growing portfolio of distribution channels?

Bob Bakish -- President and Chief Executive Officer

Sure. At Viacom, and soon-to-be ViacomCBS, we have a tremendous library of IP and very significant production capacity across genres and formats really on a global basis. And that means we have the ability to support our own platforms with compelling original content and supply third parties. And we can do both at scale.

Now let me give you a little more on how we think about IP and whether it flows in-house or third-party platforms. We really use a three-part framework to drive decision-making here at Viacom and going forward at ViacomCBS. First, clearly, you look at the direct financial consequences of a decision. We obviously think about the economic value of renting a piece of IP to a third party for some period of time in the current marketplace and how that value can feed into the delivery of our overall financial plan.

Simultaneously, we think about strategic considerations. We think about, in that regard, the potential for a piece of IP to be deployed in a manner to create other value. That might include the value of putting IP on an owned and operated platform to drive growth and value creation for that platform. It also could include the value of using the IP to drive other businesses.

For example, using awareness, increased awareness of a piece of IP, to drive businesses like consumer products, like recreation or potentially downstream feature film initiatives. And then the third thing we think about is partnership. And specifically how the decision to place a piece of IP could affect a broader relationship with a partner, those are typically in the distribution space, but in some cases, could be in other spaces, including the creative space as well. Importantly, this framework applies both to how we think about library usage, as well as new production.

Alexia Quadrani -- J.P. Morgan -- Analyst

Thank you very much.

Operator

Thank you. Our next question comes from the line of Rich Greenfield with LightShed Partners. Please proceed with your question.

Rich Greenfield -- LightShed Partners -- Analyst

Hi. Thanks for taking the question. First, I just want to say, Wade, it's been amazing watching what you've done. I know you're going to be missed at the new company.

I think when I think about the Paramount turnaround, I don't know if it ever would have started without you. And I think the AMS strategy has put Viacom in a pretty interesting position relative to its peers. And obviously, Jim, you've been through the trenches. I'm going to miss hearing your voices on these calls.

But I wanted to get to kind of a high-level question for Bob that's really a follow-up on Alexia's. Because I'm trying to understand the larger strategy of what you sell versus what you keep, and it seems like you sort of have to pick a lane. The No. 1 show on Disney+ within the first 48 hours is The Simpsons.

And so kind of catalog content like that, like South Park, obviously -- I think if South Park had been on CBS All Access, it probably would be CBS All Access' No. 1 show. And I don't have a problem with you selling South Park for big numbers or Nickelodeon content for big numbers to Netflix, I actually prefer that arms dealer strategy. But I'm just trying to figure out, why even bother with CBS All Access? Why bother with BET+? The Street's obviously panicking or upset with what CBS has disclosed in terms of the level of investment they're making in CBS All Access now relative to the ROI on that.

And so I'm just trying to understand from your standpoint, don't you have to pick a lane? Either arms dealer or your own SVOD strategy? Playing in both, isn't that going to kind of just make it -- make life harder for you as a company?

Bob Bakish -- President and Chief Executive Officer

Yeah. Thanks, Rich. Look, you're right. We have a multi-part strategy, one which we believe -- and this is at Viacom and this will be true for ViacomCBS, one which we believe allows us to unlock a range of opportunities in this shifting media landscape.

So as you know, we're playing in the linear TV and in the bundle because that's still a massive business. It may be declining somewhat, but the majority of homes in the U.S. continue to consume media this way. And with 20% of total day viewing on a combined company basis, No.

1 positions in every demo, must-watch content across a range of genres, including sports, we're an extremely important partner to video distributors. So of course, we don't want to pull away from that. We're going to continue to serve that market. We'd be crazy not to.

And as we do it, importantly, we see this is a segment where we can grow share and margins. And our strategy and operating plan is to do just that. At the same time, to your question on third parties, demand for content from third parties is incredible. And the combination of our assets and capabilities, with the fact that some of our competitors are pulling back, makes this sector an enormous opportunity for ViacomCBS.

As you know, we have deep libraries and extensive production capabilities. At the moment, we have 750 series ordered to or in production, not to mention a library of over 140,000 television episodes and over 3,600 films. I strongly believe this level of volume is sufficient to supply both our needs and third parties. So why not access the revenue, income and cash flow it yields? Your arms dealer point.

And the upcoming merger with CBS and associated sales consolidation, consolidation of global product licensing, will only enhance our position to extract value from that sector of the market. And then finally, streaming. At Viacom, we have a real head start in both the free and niche pace -- bases. Our ad-supported free TV streaming product is on an incredible growth trajectory.

As you've heard, monthly active users up 70% to 20 million calendar year to date, total consumption growing faster than that, monetization already in the hundreds of millions of dollars. Combine that with a partnership-driven rev share-based model, which means we scale costs as the business grows, versus deficit-funding content in advance of users and revenues, it's an incredible opportunity. And of course, we're leaning into it. Our niche SVOD businesses are really natural complements to our Media Networks.

They leverage a common infrastructure, leverage programming. It's not large, but it's a nice incremental business. And so you put all that together, we have the assets and capabilities, including the financial resources, to pursue all of them. And we think this balanced economy is the right way to create returns and manage risk which create substantial value over time.

So we like this strategy, Rich.

Rich Greenfield -- LightShed Partners -- Analyst

That's really helpful. And could you just take one minute or 30 seconds and just comment, Bob Iger announced on the last Disney earnings call that they're going to put content from FX several hours later on an unauthenticated Hulu service. Just wondering whether you've thought about taking content that's on your air, and several hours later, licensing it, whether to CBS All Access or whether putting it on Netflix or even Hulu, whether that's something you think about doing as well?

Bob Bakish -- President and Chief Executive Officer

So we are in the middle of developing our combined company streaming strategy. As I said, that strategy will cross free, leveraging the tremendous head start we have with Pluto. And Pluto today, the last number I said, Pluto has 50,000 hours of content on it, 250-odd channels. We added many Viacom channels, but it's not just Viacom channels.

You saw that this week, we announced we're adding some more CBS channels. So there's no question that the free segment of the market and the associated subset of consumers that participate in it, we think that's clearly a growth segment. And we believe deploying our content and third-party content to that segment is a way to create a lot of value. Our deployment of content in that segment, it continues to be library value.

So that's a way of getting more ROI out of assets we already own. That's certainly the road forward. And vis-a-vis time where it moves from one place to Pluto, that's something we continue to evaluate. But again, using pure Viacom library content with good distance from airdate, that's working very well for us.

And again, we're tremendously excited about that. So I'm not surprised that Iger wants to participate in the free space, too. It's a big part of the market. And by the way, that market is partially people that are only using free and is partially people that are using free as a complement.

We see a lot of complementary use of Pluto, particularly in its on-the-go mobile configuration, which is a very high-growth portion of the user base.

Rich Greenfield -- LightShed Partners -- Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of Doug Mitchelson with Credit Suisse. Please proceed with your question.

Doug Mitchelson -- Credit Suisse -- Analyst

Thanks so much. Bob, I wanted to continue down the Pluto path, and you talked about it being the leading free streaming premium video service in the world. Just curious, what's the competitive set from your point of view? Peacock's coming. There's going to be an ad component to HBO Max in 2021.

YouTube and Roku are out there. What do you have to do to differentiate Pluto into the future? It's obviously growing fast right now. But I'm just curious, if you sort of look forward and say that there's sort of an evolution of that product that we should be thinking about. And then separately, I think you mentioned, Bob, a focus on free cash flow conversion on the content side of the house.

Certainly, the S-4s that were issued had some working capital on the CBS side that was well above The Street over the next several years. But on the Viacom side, and Wade, I don't know if you would jump in on this, Wade's been the working capital guru, and you've been ramping production of content without seeing an increase in working capital at least the last year or two. Any thoughts around the CBS working capital on the S-4? And whether we should consider that a guide for the combined company would be helpful. Thank you.

Bob Bakish -- President and Chief Executive Officer

Yeah. Let me start and then Wade will add in. We'll actually flip it. I want to talk a little bit about this working capital piece, and I want Wade to talk some more about Pluto.

I'm not going to comment directly on the CBS call in terms of their streaming content investment. And as I said, we're in the middle of integration planning, which includes forming a combined company operating plan and budget. That will obviously include the level of content investment across specific areas of the business, including streaming. And of course, it will feed our 2020 guidance.

That said, let me give you some context from a Viacom perspective with respect to content investment and streaming. There's a few things I would highlight. First, a key objective of the Viacom streaming strategy has been differentiation. That in turn led us to launching niche services based on our brands, targeting our specialized audiences.

And here as you know, we have an expanding portfolio. It also led us to the free ad-supported TV space, where we now have the industry-leading offering. As we pursue differentiation, we also focused on the development of a capital-efficient model. For example, on the niche SVOD side, our services are overwhelmingly based on the use of library versus original made-for-SVOD content, and that radically improves the economics.

Where we do have original made-for-SVOD content, which is BET+, we've done that in a partnership model, in this case with Tyler Perry, which has enabled advantaged economics in terms of access to his library, as well as his original production. On Pluto TV, we have a different path to capital efficiency. Pluto TV's model is based overwhelmingly on rev share-based content partnerships, which as I said, allows us to scale expenses as the business grows versus investing significantly ahead of user growth and ad revenue. And that creates a much more attractive financial envelope where, candidly, we're not losing billions and billions of dollars for a number of years.

In addition, we've deployed Viacom library assets versus new production as a key content source, again producing attractive financial returns. As we move forward with the combined Viacom and CBS, including the streaming space, differentiation and capital efficiency will be key considerations. And the good news is we believe the combined company's content asset base, as well as existing mix of free and pay services are really powerful levers in that regard. And Wade, why don't you talk a bit more about Pluto?

Wade Davis -- Chief Financial Officer

Yeah. The only thing I'd add on cash flow, Bob, is just we have seen for quite some time, and we'll continue to see in the Viacom businesses, some of the highest rates of free cash flow conversion in the industry. You did see a little bit of decline in this year -- in the fiscal year. And that was not really so much a function of working capital utilization as it was just lapping cash taxes from prior-year tax reform.

As you know, there is some lumpy -- when you're in the film business because just the timing of when the production and the release of the films come, there is some lumpiness to working capital consumption that is derived from the film business specifically. But in general, the working capital characteristics of the Viacom businesses are going to be -- continue to be leaders in free cash flow conversion. With respect to Pluto and its competitive positioning, I guess what I would say is let's kind of break it down into two: Its competitive positioning versus those in the market today and competitive positioning versus those that aspire to be in the market at some point in the future, perhaps. With respect to the folks that are in the market today, Pluto is the definitive market leader.

So I guess I would just say it's differentiation vis-a-vis the existing competitors speak for itself. With respect to the people who might enter the market at some point in the future. We'll see, but we are confident of Pluto's ability to maintain its market leadership for a number of reasons. I guess I'd focus probably on four: the product differentiation; its distribution approach; its content; and then ultimately, how that ladders up into its business model.

So from a product differentiation standpoint, Pluto's pursued a unique product approach, one that's linear-first that's a great familiar lean-back experience that's a front door to VOD, whereas most people have focused on a VOD-first experience. Second, from a distribution standpoint, I mean, there are some folks like Roku who are doing really, really well with their free product. So they're constrained to only being on their own O&O platform. Pluto's differentiating itself by being really everywhere.

Look, people who are going to be coming to the market, of course, everybody's going to be on the big three or four platforms. But one of the things Pluto has an extraordinary lead on is that, for years, we have been working on the long tail of distribution, particularly having the Pluto service embedded in devices that sit in the living room. So the fact that we've been able to get embedded distribution on the world's largest connected television platforms in a very differentiated way is something that's going to serve us well as a big lead. People can do that over time, but it takes years to get that level of penetration.

The third thing is just the content scope. So we have an incredible content offering on Pluto. There's over 260 channels. In the aggregate, that's 50,000 hours of content across the genres that people care about, like news, sports, weather, movies, entertainment, kids.

And then the last thing, as I said, just ladders up into the business model. So this is a platform. It's a platform that benefits all partners. The construct is overwhelmingly variable.

Since it's on a rev-share basis, we're able to sustain and refresh those 50,000 hours of content without losing billions dollars a year. So those are, I'd say, probably the four big points to keep in mind as it relates to why we believe Pluto's going to continue to be the market leader in free.

Doug Mitchelson -- Credit Suisse -- Analyst

Super helpful. Both of you, thank you.

Operator

Thank you. Our next question comes from the line of Michael Nathanson with MoffettNathanson. Please proceed with your question. Please proceed with your question.

Michael Nathanson -- MoffettNathanson -- Analyst

Thanks. I have two, maybe one for Wade and one for Bob. So Wade, on the Paramount side, given the ramping you guys have done in original TV and film, could you talk a bit about what's the ROI frameworks that you put in place to think about maybe payback period? And what type of thresholds do you need before you put something, greenlight? And then for Bob, now that you've returned to profitability at Paramount, my next question would be where is kind of the normal resting profitability? If you look back at history, it's been higher than here, obviously. But do you think the business mix has changed enough that we could see perhaps a new level of peak profitability of Paramount into the future, given the higher investment you made in TV? So those are my two questions.

Wade Davis -- Chief Financial Officer

So also on the Paramount, your questions on Paramount TV in particular and ROI --

Michael Nathanson -- MoffettNathanson -- Analyst

Yeah. TV and film ROI. How do you manage ROI?

Wade Davis -- Chief Financial Officer

Well, I would -- on the TV piece, it's very important to remember how we've built the television business at Paramount, which is we have taken a very, very capital-efficient approach to getting into the television business, in which we really mined the vast library of IP we've had. We've leveraged that into a leadership position in premium scripted. But because we're doing that in partnership with our customers, principally, they're underwriting the cost of that and we're taking our fees on top of them underwriting the cost. And that has a lot of strategic benefits.

But from an ROI standpoint, it's almost an infinite ROI, right? All we're doing is we're underwriting the overhead. And then the volume of production that we've been building has largely been on a cost-plus basis. That does some important things for us strategically. So first, it allows us -- although we're licensing to those customers the first window of this product, we're building the long-term library value of Paramount.

Second, by building out a real scaled television business next to the studio, the film studio, which hadn't had one since the split of ViacomCBS, we're really able to leverage our distribution power. And ultimately, having distribution power combined across film and TV is one of the things that's allowed us, as you've seen, to really increase dramatically how efficiently we're monetizing the film library. And then as it relates to the film business, there's not such a clear answer to ROI thresholds because, as Bob said before about how we think about the returns on content creation, franchise management, we're really looking at this holistically. Some films like the Spongebob film, we might actually on the pure underwriting of that film and that film alone, accept a relatively lower threshold.

Although in that case, we didn't because we think that film is going to be an extraordinary piece of business on its own. But we really think about the broader ecosystem and how we can underwrite our franchise content to grow our ecosystem.

Bob Bakish -- President and Chief Executive Officer

Yeah. And look, stepping back and thinking about Paramount bigger picture, you've seen the arc of where we got to from '16 to '19. And we think '19 is a really important milestone in our journey to move Paramount back to, and to your point, beyond historical profitability levels. We look at 2020, and we're excited about what's going on.

You got A Quiet Place 2 coming. You got the Sonic film that we dropped a trailer on this week. That created a bunch of excitement. You got Spongebob.

You got the Top Gun sequel that everyone's waiting for. We continue to manage risk. So we got 30% -- about 40% of it slate cofinanced, which we think is important. And we like what we're seeing at Paramount TV as well.

We mentioned 26 shows ordered to or in production, pipeline of other properties that are already in development. And given all the activity in the streaming world, we don't expect that demand to slow down any time soon. So you look forward, we'll continue to ramp volume. We clearly see a growing theatrical business, serving the streamers is another business, TV production is a business, taking that IP and doing more and more with it in the recreation space, which is something else we're up to.

As you think about Paramount in the context of ViacomCBS, a way to create additional value out of that bundle is -- out of that collection of Paramount asset is through bundled sales. We talked a bit about that on the global product licensing. We think that's a material share opportunity. Also Paramount's access to our owned and operated platforms, whether that's in the television space, the premium space, the streaming space.

And also Paramount as part of a ViacomCBS, which is undergoing cost transformation and the benefit of scale, whether that's in terms of support services, whether that's in the form of sourcing, etc. All that contributes to growth in revenue and also our ability to improve margins and really take this business to the next level, so to speak. And I think it's important to note that as we do this, this is really a unique asset. This is one of the few iconic motion picture and television studios in the world.

There are a few of them today than there were in the past. The library is truly irreplaceable. And you saw the benefit of us continuing to improve monetization of that in '19, tremendous demand for that product. So this is an asset that we love to own, that we love the momentum we're seeing.

We think the team is executing well. And the road ahead is extremely exciting.

Michael Nathanson -- MoffettNathanson -- Analyst

Thanks, Bob, and best to you, Wade.

Operator

Thank you. Our next question comes from the line of Marci Ryvicker with Wolfe Research. Please proceed with your question.

Marci Ryvicker -- Wolfe Research -- Analyst

Thanks. I have two. The first, and this may be premature, but how did the NFL factor into Viacom's decision regarding content investment, if at all? Number one. And then number two, it sounds like you're sharing some of the economics on the TV production side.

So I guess I just want you to clarify that that is correct. And then second, corollary to that, in what percent of what you produce in television do you tend to own?

Bob Bakish -- President and Chief Executive Officer

I don't understand your second. What do you -- when you say we're sharing some of the economics of TV production, you need to be a little more specific as to your question.

Marci Ryvicker -- Wolfe Research -- Analyst

I guess with regards to Wade's comments. The underlying question's do you own 100% of the series that you produce on the TV side?

Wade Davis -- Chief Financial Officer

Why don't I just clarify, and you can take the NFL.

Bob Bakish -- President and Chief Executive Officer

Yeah, clarify.

Wade Davis -- Chief Financial Officer

No. Generally speaking, we own the IP, and the majority of the business that we have been doing historically on the television side is that we are selling to a customer the project. And so that customer, whether it's Netflix or Hulu or Showtime, they are underwriting that -- we're doing that business on a cost-plus basis and they own a window of that content. So they're ordering the show.

We're agreeing on a budget. They're underwriting the budget, and they're paying us that budget plus, call it, 20%. They own the show for a certain -- either a certain window of time, a certain geography, the rights to a certain platform. We can then exploit the rights that they don't own.

And then in the longer term, the negative and the associated IP revert back to us. Does that answer your question, Marci?

Marci Ryvicker -- Wolfe Research -- Analyst

Yup.

Wade Davis -- Chief Financial Officer

OK. Great. And NFL, Bob?

Bob Bakish -- President and Chief Executive Officer

Yeah. By the way, I would use the word rent, not own. We tend not to sell property in the model that Wade just described. It's really a rental for a term.

We ultimately own the IP and can remonetize it over time. To your question on the NFL, look, the NFL is a world-class brand. It's important to certainly American video consumers. We have, a CBS, a very long-standing and highly productive partnership with the league and the teams.

As we look to the NFL, we think the NFL is important going forward. We -- and when you think about ultimately an NFL renewal, and it's still a little ways away, if you think from my conversations, the people at the leagues, as well as people at CBS, the NFL clearly values and continues to value broadcast reach. Why do they do that? Because they got a mass market brand and there's a well-understood consumption habit of people sitting around and watching Sunday football on their television through broadcast feeds. They want to continue to have a mass market business, and broadcast is mass market reach.

So that's clearly important to them. The second thing that people don't talk so much about is super high-quality production. CBS actually produces many games every week for the NFL. This is live sports, multi-camera, dynamic production.

And it's the way that the American public, and in some cases, the world, sees the NFL product. That is very important to the league. And again, they trust CBS is able to do that at the highest level. You shouldn't underestimate the value of that.

As you look forward and Viacom enters the equation, there's two other things that we bring to the table in the context of the NFL. One is younger audiences. Whether it's through our linear feeds or our on-demand product like Pluto, we serve significantly younger audiences than CBS. And a league that wants to have a long-term brand, they need to bring young audiences and get them excited with the game, etc.

And the Viacom assets are clearly additive to doing so. I've had those conversations. The second thing also that gets to longer-term brand development and growth for the NFL is international. Clearly, Viacom has one of the strongest international operating portfolios in media, including broadcast, CBS-like, if you will, assets in markets outside the United States, as well as a pay bouquet that reaches over 170 countries.

So -- and again, if you're developing a brand long term, you've got to develop your business outside the United States, and we're additive there. So I look at that and say the NFL is important to us as ViacomCBS. We've had a great partnership. We bring more to the table on a combined basis than CBS alone historically.

And sure, they're going to want a bigger check, but I'm confident that we'll have a strong partnership for many years to come.

Jim Bombassei -- Senior Vice President of Investor Relations and Treasurer

Operator, we have time for one more question.

Operator

Thank you. Our final question comes from the line of Jessica Reif Ehrlich with Bank of America Merrill Lynch. Please proceed with your question.

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

Thank you. I have follow-ups to two topics, revenue synergy and Paramount. On the revenue synergy, I guess it's like a two-parter. But can you talk a little bit about the timing on distribution? CBS said on their call that 50% of their retrans deals come up in the next year.

I think YouTube comes up by year-end this year. Will you be -- how will you be able to benefit? Are any of your deals co-terminus? And on advertising, can you talk a little bit about your approach to the upfront, but just more generally, maybe the advertising community? Because you have such a broad platform of networks now, both linear and digital, and so much premium content is going to non-advertising platforms, meaning subscription-only, it just seems like a really great opportunity. And then on the Paramount side, you've had such an impressive turnaround under Jim Gianopulos, which is I guess not so surprising given his history of managing the business at Fox. But he's done a great job, and you talked about the opportunities of scaling up both in film and television.

Maybe could you address some of the challenges? The home video market that seems -- how do you replace a market that is clearly in decline? And have you had any pushback from China? Like are there any pushback from the recent trade issues?

Bob Bakish -- President and Chief Executive Officer

Sure, Jessica. A lot packed in there, so let's try to tick through it pretty quickly. First, on your distribution question, the combined company. We do have at the first point, we are in the middle of creating a combined company sales force serving MVPDs and vMVPDs here in the U.S.

Ray's going to lead that. And we're, like I say, creating a combined company team. We are going to go to market on that post-close. There are deals in '20 that are, we believe, actionable.

And so we continue to think that's an opportunity. We do ultimately believe that the realization of that opportunity is not all in 2020. This will take some time to play out. But nonetheless, I'm excited about it.

And I think we really have a very important position in this ecosystem, given the breadth of our content and audience shares, etc. And there's no question that that's a revenue synergy. On the ad side, as you said, we have a tremendous opportunity here. If you look at what Viacom did in the last upfront, where we combined the Viacom portfolio of networks with Advanced Marketing Solutions, including Viacom Video and Pluto, doing things like taking our 18 to 34 reach from low 40s with our linear networks, high 40s with Pluto, 90 with Viacom Video, bringing that to market in a package to help get advertisers more reach without frequency cap problems and help them manage inflation, that was compelling.

Every agency in the industry signed up for it. And as you know, we had a very strong upfront. ViacomCBS is that on steroids. We will be the definitive problem-solver for the industry and the first port of call almost without a doubt.

And look, U.S. ad impressions, U.S. ad delivery for product and services companies is very important. The market is complicated given what's going on in TV ecosystem, that's why our portfolio of solutions, which spans linear television and other forms of video, including by the way, branded content, is so important.

And we're clearly ahead of the industry. And you see it in the strength of the market. Pricing and demand remains very strong. It was strong in the upfront, it's strong in current day scatter, 30-plus percent premiums versus the upfront, teens premium scatter-to-scatter.

This is a strong market and we're really looking forward, under Jo Ann Ross' and John Halley's leadership, to serving it. So that's a great opportunity ahead. Again, we will see that play out and create value in 2020. On the Paramount side, there's challenges, sure.

But you see demand ramping from streamers. Whether that's in the television series space or that's in the film-length space, that's a good growth segment. In some respects, that is the new home video. We have a longer-term opportunity probably in the PVOD space.

That's something that hasn't come to market yet. And clearly, ViacomCBS, given its ownership of Paramount, combined with its relationships with all the distributors in the United States, is ideally positioned for that should we choose to go down that path. On China, it's a market we watch. Thankfully, we haven't had any issues.

And look, our product resonates there. So net-net, we're very excited. I'm very excited about the revenue opportunities associated with the ViacomCBS combination across a whole range of areas. And as you've heard, very, very excited about what's going on at Paramount.

In closing, I just wanted to say we are really proud of Viacom's accomplishments and evolution over the past few years, and we could be more excited about what's next. As we get ready to embark on it, know that the ViacomCBS management team will be transparent. We will be accessible. We will lay out a clear plan.

And we will update you on our progress along the way. Lastly, I'd like to offer my thanks on behalf of the Viacom management team to two important groups. First, the Viacom employees for their dedication and relentless execution over the last three years. It's your hard work that has set us up for this next exciting chapter.

And second, to you, our investor base. I want to thank all of you for your continued support and partnership, and we look forward to the road ahead.

Jim Bombassei -- Senior Vice President of Investor Relations and Treasurer

We want to thank everyone for joining us for our earnings call.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Jim Bombassei -- Senior Vice President of Investor Relations and Treasurer

Bob Bakish -- President and Chief Executive Officer

Wade Davis -- Chief Financial Officer

Alexia Quadrani -- J.P. Morgan -- Analyst

Rich Greenfield -- LightShed Partners -- Analyst

Doug Mitchelson -- Credit Suisse -- Analyst

Michael Nathanson -- MoffettNathanson -- Analyst

Marci Ryvicker -- Wolfe Research -- Analyst

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

More VIAB analysis

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CBS (NYSE:CBS)Q3 2019 Earnings CallNov 12, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the CBS Corporation third-quarter 2019 earnings release teleconference. Today's call is being recorded. At this time, I'd like to turn the call over to the executive vice president of investor relations, Mr. Anthony DiClemente.

Please go ahead.

Anthony DiClemente -- Executive Vice President of Investor Relations

Thank you, and good morning, everyone, and welcome to our third-quarter 2019 earnings call. Joining us with today's remarks are Joe Ianniello, our president and acting CEO; and Chris Spade, our chief financial officer. Following Joe and Chris' remarks, we will open the call up to questions. Please note that during today's conference call, results will be discussed on an adjusted basis, unless otherwise specified.

Reconciliations for non-GAAP financial information related to this call can be found in our earnings release or on our 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. In connection with the pending merger with Viacom Inc., CBS has filed a registration statement on Form S-4, which was declared effective by the SEC on October 25th, and contains important information regarding the transaction.

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Today's remarks do not constitute an offer to buy or sell or the solicitation of any offer to buy or sell any securities or solicitation of any vote or approval. A webcast of this call and the earnings release related to today's presentation can also be found on the Investor Relations section of our website at cbscorporation.com. And before we begin, I want to note that the focus of this morning's call is to discuss CBS Corporation's stand-alone financial results. And with that, I'll turn the call over to Joe.

Joe Ianniello -- President and Acting Chief Executive Officer

Thank you, Anthony, and good morning, everyone. I'm pleased you can join us today. Before we discuss our third-quarter results, I want to give you an update on our merger with Viacom. As you may have heard, our S-4 has been declared effective, and we are on track to close in just a few weeks.

In the meantime, we continue to announce a number of key leadership positions for ViacomCBS including the people who will oversee ad sales, affiliate revenue and content licensing as well as our top programming and digital executives. And we remain fully focused on integrating these two great companies. As we head into the merger, I am very pleased with the way we have positioned CBS to thrive in this ever-changing media landscape. We have proven we know how to strategically invest in the right content on the right platforms to drive growth, and the company will reap the benefits going forward.

Our front-loaded content investment is the key reason we are driving sustained revenue growth across direct-to-consumer, content licensing, advertising and our linear distribution revenue. And in terms of dollars, the biggest increase during the third quarter came from a revenue source that's been at the forefront of our growth plan, retrans, reverse comp and virtual MVPDs, which were up 18% despite CBS being off the air with AT&T for more than 20% of the quarter. And now as a result of our new carriage deals, our retrans revenue will accelerate here in the fourth quarter. Plus, about 50% of our retrans footprint and about 30% of our reverse comp footprint are coming up for renewal next year, which means we will have another strong year of healthy gains from retrans and reverse comp in 2020 as we continue to reset the value of our content to current market rates.

Our programming investment is also driving dramatic growth in another key part of our strategy, direct-to-consumer. D2C revenue was up over 39% for both the quarter and year to date as consumers shift from traditional bundles to skinnier bundles, to CBS All Access and to Showtime OTT, we are getting paid higher rates per sub. Our rapid growth in direct-to-consumer means that our total subs are growing as well. Even with the headwinds of the traditional MVPD business, when you include subs from virtual MVPDs and our direct-to-consumer platforms, our overall subs at CBS and Showtime grew 4% year over year, which means consumers are actively seeking out our content as they select the platform of their choice.

Our programming investment is also setting us up for growth in content licensing. In a world where other studios are pulling back from the marketplace creating a scarcity of premium content, we will have an opportunity to determine how to best maximize the value of each of our content franchises. So we are growing our lucrative programming library and we can unlock the value of that programming when we think it's optimal. We now have more than 1,000 episodes of CBS and Showtime content that we have not yet monetized from the likes of Ray Donovan and The Affair, to Seal Team and MacGyver as well as shows that we have not yet fully monetized including our global hit franchise, NCIS.

So we are sitting in an enviable position as this opportunity only gets bigger for us. At the same time, we continue to ramp up our production output. We are currently creating an all-time high of 94 shows, up 20% from a year ago, and that's up more than 120% from what we did just five years ago. So we are adding intellectual property to our content pipeline, which gives us even more strategic windowing opportunities in the years to come.

Meanwhile, our base business continues to be strong and stable. Our underlying network advertising revenue was up 2% for the quarter and 2% year to date as well. And the momentum continues here in the fourth quarter with strong scatter pricing and steady advertiser demand, which bodes very well for us as we close out the year and head into 2020. And that's thanks to the CBS Television Network, which is having another great start to the season.

We have the No. 1 drama in NCIS, the No. 1 comedy in Young Sheldon and five of the top eight new shows on television, meaning we will benefit from all five of our freshman series into the future. And even better is we have ownership in four of the five new shows and in more than 85% of our entire prime time schedule, which, in turn, will lead to more licensing revenue.

So with our balanced schedule of new and established hits throughout the week, we can already predict that CBS will finish the season in May of 2020 as America's most watched network for the 12th consecutive year. We will also finish the year No. 1 in late night yet again. And we're very pleased to have reached multiyear contract renewals with both Stephen Colbert and James Corden.

Stephen and James have become the two most powerful voices in late night, and we now have them at CBS for years to come. There's no secret that the ways in which people are viewing content have changed. They are watching programming on their own time, on the platforms of their choice and outside their homes. And we are changing the business model to capture all of this on-demand, multi-platform viewing.

In one major example, starting next September, Nielsen's measurement of out-of-home viewing will be included in our ratings, so we will have an opportunity to monetize this viewing for the very first time. The NFL offers a great example here. Nine weeks into the season, the NFL on CBS is off to a strong start, up 6% year to date. When you factor in out-of-home viewing, we get an additional 11% lift to that increase.

And while sports is an obvious beneficiary, we are also seeing increases in out-of-home ratings in our primetime, daytime and news programming, which we will begin monetizing next fall. And at CBS News, our emphasis on quality reporting is leading to additional opportunities as well. For example, because CBS News programming travels well around the world, there is significant opportunity for us to grow our international revenue. And moving the CBS Evening News to Washington, D.C.

just as the political season kicks into high gear will help create premium content that we can monetize well beyond ratings. This programming will also help feed CBSN, which leads to incremental digital advertising as well as subscription revenue as a complement to CBS All Access. CBSN is already on a number of platforms including Pluto, and I am pleased to announce today that we have a deal in place with Viacom to add more AVOD channels on Pluto starting tomorrow. And we continue to look at our content to see how we can expand our reach of our CBS properties on a growing number of platforms.

Next, I'm going to take a minute to talk about the programming at our direct-to-consumer services, CBS All Access and Showtime OTT. This is a revenue stream that represents one of the biggest growth opportunities. Each time we add content to these services, we are accelerating our growth, reaching new viewers and reducing the number of customers who paused their subscriptions. This progress was demonstrated during the third quarter in a number of ways.

First, we launched a new original series on All Access, Why Women Kill, starring Lucy Liu, which was just renewed for a second season and helped drive subs for us during the quarter. Next, we had a summer reality show, Love Island, which launched on the CBS Television Network and attracted a much younger audience on All Access, where more than a third of the viewers binge the show. So this represents an example of our ability to expand our reach across multiple platforms. In addition, combined streams from the NFL and the SEC are up nearly 60% over last year's strong growth.

All of these things, along with the premiere of our new fall schedule on the CBS network, helped make September the third highest month for new subs in the 60 months since we launched All Access. Meanwhile, the momentum continues here in the fourth quarter as we broaden our reach by adding children's programming to All Access. And the production is nearly complete for four more All Access originals coming in 2020 including the highly anticipated Star Trek: Picard; the true crime drama, Interrogation; and The Stand based on Stephen King's best-selling novel. And the investments we are making this year on these premium shows will fuel our subscriber growth on All Access next year and beyond.

We are also very excited about a new development for All Access. We will now have exclusive live marquee sports for the very first time. The UEFA Champions League, including a UEFA Europa League, and the newly created UEFA European Conference League will be coming to CBS and CBS Sports platforms with all matches available on All Access and select games airing on broadcast. We will now have more than 400 matches per year spanning nine months across the calendar.

Soccer fans know these rights represent some of the most prestigious and popular soccer tournaments in the world, so we couldn't be more pleased that we won this hotly contested process. We are currently finalizing contracts for this multi-year deal, and we will be releasing more details in the coming weeks. So with over 10,000 episodes of library content, catch-up viewing from the most watched television network, a live stream of your local news and syndicated content, big tent-pole sporting events and a growing slate of premium original series, All Access has something for everyone and it continues to differentiate itself by offering this unique value proposition to consumers. Like All Access, our strategy of adding more programming is also paying off at Showtime.

During the third quarter, we launched three new critically acclaimed series, The Loudest Voice, City on a Hill and On Becoming a God in Central Florida, and these original series are helping drive sub growth at Showtime OTT. And there's more to come with big programming lineup that rolls right into next year. Here in the fourth quarter, we have Shameless, Ray Donovan and a brand-new version of The L Word. And in 2020, we have a number of new shows with lots of star power including Penny Dreadful: City of Angels, starring Nathan Lane; The Good Lord Bird, starting Ethan Hawke; and Your Honor, starring Bryan Cranston.

With such a strong programming slate, we expect continued strong growth on Showtime OTT in the months ahead. Turning to local media. While political spending won't really kick in until next year, our Boston stations are already receiving orders for the New Hampshire primary in February. And our TV stations in Los Angeles, San Francisco and Sacramento will all benefit in Q1 from the California primary moving from June to Super Tuesday in March.

Plus, by early next year, we will have our local versions of CBSN in all the major CBS markets where we have local news operations, so we can benefit from a more robust multi-platform approach as we head into the next election cycle. As we've said before, we expect 2020 to be a record-setting year for political ad sales. In publishing, Simon & Schuster continues to create great content that inspires programming for our other businesses as well. This includes the best-selling book, Three Women, by Lisa Taddeo, which was recently picked up as a series by Showtime.

And we have a strong publishing lineup here in Q4 including the new addition of the Joy of Cooking being released today just in time to help all of us prepare our Thanksgiving meals. So across our company, we are focused on creating and distributing premium must-have content. And as you have seen, we have a strong and consistent track record of monetizing that content in ways that generate incremental revenue and position us for long-term success. We were pioneers in achieving fair value for broadcasters and retrans and reverse comp.

We were an early entrant in direct-to-consumer by launching CBS All Access and Showtime OTT. We were leaders in working with Madison Avenue to fully measure and monetize all viewership. And we strategically exported our shows to create global content franchises that resonate with viewers around the world. What's most exciting is how we have evolved our traditional businesses by embracing changes in technology and consumer habits, and as a result, we have grown CBS into a preeminent global multi-platform premium content company.

I'd like to take a moment to thank all of our hardworking and dedicated CBS employees. Day in and day out, they execute and deliver the success we continue to see at our great company. I am very proud of all that we have accomplished, and as always, we will keep our eye on the future. So as we prepare to close our deal with Viacom, we view this as a new beginning, a way to take all of our CBS growth opportunities and make them even bigger.

With that, I'll turn the call over to Chris.

Chris Spade -- Chief Financial Officer

Thank you, Joe, and good morning, everyone. As you heard, our strategy of increasing our investment in premium content continues to fuel our success. We are driving revenue growth in retrans and reverse comp, direct-to-consumer and content licensing. As a result, we continue to strengthen our business model by diversifying our revenue mix.

And with our proven record of creating hit shows and monetizing them across platforms and around the world, we are poised for continued growth as the media landscape continues to evolve. Now let me tell you more about our third-quarter results. Revenue of $3.3 billion grew 1% from last year when we had record political spending. As you heard, the results were also affected by the temporary impact of the 19-day carriage dispute with one of our distributors.

Combined, these two items affected our revenue growth by 2 points. Even so, we delivered record revenue for the quarter. With regard to our three key revenue sources, affiliate and subscription fees were up 12%, driven by healthy increases in revenue from retrans, reverse comp, virtual MVPDs and direct-to-consumer. As a result, affiliate and subscription fees represented 34% of our overall revenue during the quarter, reflecting our more diversified business model.

In addition, our direct-to-consumer subs continued to grow strongly and were up 62%. And as we continue to add more original content, retention rates are increasing and churn rates are declining. Next, content licensing and distribution revenue increased 1%, mainly due to higher sales to third-party platforms including season 2 of Insatiable, which dropped on Netflix last month. By producing more programming for third-parties as well as for our own platforms, we are adding to our library of programming that we can monetize in the years to come.

Advertising was down 7% from last year when we had record political spending. As you heard, underlying network advertising was up 2% for the quarter and 2% year to date. And digital advertising for network content across platforms grew 19%. Operating income for the third quarter of 2019 was $581 million compared to $736 million last year, which included an increase in non-sports programming of more than 20%.

And our operating income margin was 18%, which is relatively steady with the first half of the year and in line with the expectations contemplated in our long-range guidance. EPS for the third quarter came in at $0.95 compared with $1.24 in Q3 of 2018. On a year-to-date basis, our results are very strong. Revenue for the first nine months of the year increased 7% to $11.3 billion with growth across our key revenue sources.

Advertising was up 7%, content licensing and distribution was up 3% and affiliate and subscription fee revenue was up 13%. Operating income for the first nine months of 2019 was $2.1 billion compared with $2.2 billion in 2018. Year to date, we have aired 40% more hours of original programming on Showtime and 48% more hours of original programming on CBS All Access, and we will reap the benefits of these investments well into the future. And EPS for the first nine months of 2019 was $3.47 compared with $3.70 last year.

Now let's turn to the quarterly performance of our operating segments. Entertainment revenue was up 4% to $2.3 billion. The increase was driven by strong growth in affiliate and subscription fee revenue, which was up 22%, reflecting solid gains in reverse comps and subscriber growth at CBS All Access. Content licensing grew 7% as we continue to see the benefits of our increased production output and licensing to third-party platforms.

Advertising revenues declined 5% as a result of the move of the PGA Championship to Q2 from Q3 as well as the temporary impact of our carriage dispute. Entertainment operating income for the third quarter decreased to $302 million, which reflects the execution of our programming strategy. In our cable networks segment, revenue grew 6% to $563 million, fueled by increases in Showtime OTT. And as you heard, we launched three new original series during the quarter, City on a Hill, The Loudest Voice and On Becoming a God in Central Florida, which contributed to the growth.

Cable networks operating income decreased to $196 million, driven by our content investment including over 60% more hours of original programming in this year's third quarter versus Q3 of 2018. And for the quarter, cable networks operating income margin was a healthy 35%. And on a nine-month basis for 2019, it was 33%. Turning to publishing.

Third-quarter revenue was $217 million compared with $240 million a year ago when we had the record-breaking Simon & Schuster title, Fear, by Bob Woodward, which sold more than a million copies in its first week alone. For this year's third quarter, best-selling titles included the Institute by Stephen King and The Book of Gutsy Women by Hillary and Chelsea Clinton. Publishing operating income for the third quarter increased 2% to $52 million, driven by lower production costs. In local media, third-quarter revenue decreased 6% to $406 million from Q3 of 2018 when we had record political ad sales.

This segment was also temporarily affected by our carriage dispute. At the same time, retrans continued to be a strong growth driver for this business. Our local media operating income for the quarter decreased to $96 million, mainly as a result of the decline in high-margin political dollars. Turning to free cash flow.

For the first nine months of the year, free cash flow was $247 million compared with $1.1 billion in 2018. The decrease was mainly driven by two items: our higher programming investments and a onetime cash tax payment of $260 million from the second quarter. We have consistently said that the highest and best use of our cash is to invest in our premium content in our direct-to-consumer platforms. This is a key part of our long-term growth plan.

Year to date, we have invested about 20% more in programming compared to last year in accordance with the strategic plan all the while we have reduced our debt and improved our leverage ratio, so our balance sheet remains strong. We have also grown our revenue and accelerated the growth of our direct-to-consumer platform, which is our biggest growth opportunity. And we achieved all of this while creating valuable programming assets that we can monetize for years to come. Now let me tell you what we see ahead for the CBS Corporation.

At our local media segment, nonpolitical revenue is pacing to be up mid-single digits. At the CBS Television Network, scatter is up more than 30% from upfront pricing here in the fourth quarter, and we are seeing strong increases in all entertainment and news daypart. In addition, demand for our brand-enhancing digital content remains very strong in Q4 scatter. Advertisers and viewers alike are attracted to our strong direct-to-consumer platform led by CBS All Access, CBSN and CBS Sports HQ, which have fueled significant year-over-year volume growth.

Tech and pharma are our strongest categories. And while it's early, we have seen the beginnings of what we believe will be a very hot political market. So overall, we expect a strong finish to what is shaping up to be a record year for us in advertising. In content licensing, we continue to add to our programming library and we have a lot of flexibility in the ways that we can monetize it.

As you heard, we now have more than 1,000 episodes of premium CBS and Showtime content that we have not yet licensed, which gives us a big opportunity as our peers pull back from the market. In addition, we are now creating 94 shows, which is 18 more than last year including a number of new hits for CBS, Showtime, CBS All Access and The CW. And almost 20% of these shows are for third-party platforms, which is another lubricant source of licensing revenue, plus with production well under way on a number of new original series including nearly 70 episodes from the shows set to launch in 2020 on CBS All Access and Showtime, we are making programming investments this year that will pay off for us next year and into the future. Affiliate and subscription fees continue to grow strongly across-the-board and here, too, we are set up for continued success.

As we renegotiate deals that recognize the fair value of our content, we are on track to reach our target of $2.5 billion in retrans and reverse comp revenue in 2020. And as we continue to accelerate the growth of our direct-to-consumer services with our investment in premium content, we are also confident we will reach 25 million subscribers combined on CBS All Access and Showtime OTT in 2022. In summary, for the first nine months of the year, we have achieved record revenue for the CBS Corporation. We believe our disciplined approach to investing in more premium content to grow for the long term while also maintaining a healthy margin and strong balance sheet is a prudent strategy for future success.

We are positioning CBS, and ultimately now, ViacomCBS, for continued growth across our key revenue streams in advertising, content licensing and affiliate and subscription fees, and we are set up for particularly strong growth in our biggest revenue opportunity, our direct-to-consumer services. All of this bodes extremely well for us as we enter into our merger with Viacom, which, as Joe said, will enhance our growth prospects so that we can further compete in this rapidly changing media landscape. During our February 2020 call, which will be our first call as ViacomCBS, we will be giving you pro forma guidance for 2020. In the meantime, we look forward to closing our transformational deal with Viacom early next month.

And with that, Matt, we can open the line for questions.

Questions & Answers:

Operator

[Operator instructions] And our first question will come from Ben Swinburne with Morgan Stanley. Please go ahead.

Ben Swinburne -- Morgan Stanley -- Analyst

Thanks. Good morning. I'd love to hear from you guys a little bit more about the content investment strategy and plan looking forward. One of the things that the S-4 forecast kind of brought to light is how much you are investing back in the business and you talked a bit about it in your prepared remarks, but I just wanted to give you a chance to talk a little bit more about where that money is being directed, how you think about producing content for your own platforms or third-parties.

And maybe most importantly, Joe, how you think about monetizing it because you're obviously ramping production quite a bit across a lot of the different businesses at CBS. But I think it'd be important to help us think about how you view ultimately earning an attractive return on that. And then I would just add as a follow-up, but related on the sports side. The Champions League decision was really interesting.

How do you think about getting bigger in sports, either on the digital -- or how do you think about sports, right, on digital versus linear platforms as you look out over the next kind of three to five years. So it's really a content question, but touching on both entertainment and sports.

Joe Ianniello -- President and Acting Chief Executive Officer

No, I got it, Ben. Look, I think our investment -- I mean we really view it as kind of success-based capex. So as you see, we've been ramping up the spend. I mean just use All Access as a barometer, we had 0 originals on All Access a few years ago.

We didn't go from 0 to 11. We went from 0 to 3 to 7 to 11. So we've really seen the proof points along the way that justify that investment. We're seeing much higher usage rates.

We're seeing -- when folks come to the service for an original and they view two originals, the retention rate is significantly higher. So we look at that and that investment is driving value, not just on D2C, but obviously on advertising as well, as well as content licensing. I think you make the point that we can monetize these things down the road. We like to think about it, we call it strategic windowing so we have the content on All Access.

You've seen us do that with The Good Fight. You've seen the season 1 come to the CBS broadcast network in the summer. So we're really trying to be strategic to drive more subscribers to the direct-to-consumer services, and like I said, the same applies really for Showtime. So on the entertainment side, again, the investment spend is our best and highest use and we continue to validate that with every proof point.

On the sports side, we are really excited about this opportunity. I think one of the reasons we won these rights was really because we had digital and broadcast because what we will do is we'll take certain matches kind of the championships, if you will, the playoffs and air those on the CBS broadcast network, which has been the massive reach. So that was very important to the league when -- for our bid. So I think where you can have the volume, and we're talking about over 400 games over a nine-month season, it's just -- it's a lot of games, it's a lot of volume.

We think it's going to reduce churn. We think it drives subscribers. There are loyal fans. It is obviously the most popular sport in the world.

So we're going to continue to drive and make these prudent investments because, again, we are seeing the returns and we want to stay focused on being smart about that.

Chris Spade -- Chief Financial Officer

Hi, Ben, it's Chris. To that, I would just add the keyword there that Joe said is prudent investment. So again, it's about the proof points that's leaning into what we see. It's also doing it in a way that we can spend our cash flow in a smart way and sustain our investment-grade rating.

Ben Swinburne -- Morgan Stanley -- Analyst

Thank you both.

Joe Ianniello -- President and Acting Chief Executive Officer

Thanks, Ben. Operator, we'll take our next question please.

Operator

Certainly. And your next question will come from Jessica Reif Ehrlich with Bank of America Merrill Lynch. Please go ahead.

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

Thank you. I have -- I'll ask both my questions now. You have an unusually large amount of reach trends and reverse comp deals coming up in the next year. And I believe that some of the deals coming up are longer-term deals, which implies they're underpriced in today's market.

So can you talk about your approach to the next set of negotiations including potentially bundling with Viacom's channels? And the second question is now that you've announced all these management changes and -- for the new company, on advertising, you've put everything under Jo Ann Ross who is probably the most experienced and respected advertising executive in the U.S. today. Can you talk about how your approach will be different with a larger portfolio of assets?

Joe Ianniello -- President and Acting Chief Executive Officer

Sure. Thanks, Jessica. Retrans and reverse comp, that's right. As I said in my prepared remarks, on the retrans side, we have about 50% of our footprint.

And on the reverse comp side, about 30%, really just timing. We do have one in particular deal that was longer term that has to be reset. But it's really to current market rates. So we don't -- we never negotiate deals as percentage increases.

We negotiate deals in terms of dollars and cents. And I think all of our distribution partners know what the current fair market value rate that we're getting for retrans, so I don't think that will be any surprise. But again, that's why we think it's going to be another strong year for retrans and reverse compensation. And I'd add that if looking beyond that, we still have a ways to go to get paid for the value we're bringing.

I think we offer a significant value to our distribution partners because we are the largest network out there. And so we think it's really a win-win relationship. As far as the management changes, I mean, you've seen them, we couldn't agree more. We think Jo Ann is the best ad sales executive in the business.

She's going to look at the entire portfolio and the massive reach that the ViacomCBS portfolio brings to our clients and we would expect to be paid fair market value for that, and Jo Ann is going to deliver on that.

Anthony DiClemente -- Executive Vice President of Investor Relations

Great. Thanks, Jessica. Operator, we'll take our next question please.

Operator

And next, we will hear from Alexia Quadrani with J.P. Morgan. Please go ahead.

Alexia Quadrani -- J.P. Morgan -- Analyst

Thank you so much. My question is really also on the renewals, you're coming up on the expiration of a 10-year deal with Comcast, I'm assuming that's one of the ones for next year, and I believe that agreement includes Showtime. Given the challenges occurring in another premium cable network right now with Comcast, I guess how should we think about this negotiation in terms of what it means for Showtime? And then just my follow-up is really you mentioned Nielsen's change in ratings next year. I'm curious if you have any thoughts on how great a benefit that might be for advertising for you guys?

Joe Ianniello -- President and Acting Chief Executive Officer

Yeah. Sure, Alexia. Appreciate it. You are right.

We do have an agreement coming up with Comcast next year and Showtime is part of that. Our approach, as we said previously, will be the same. I don't believe all content is created equal where you can interchange shows for people. People, again, as we see, seek out the content they want.

Again, I look at the track record of Showtime and the quality content they have on the air as well as the CBS Television Network. So again, I think the approach is the same. And we've been successful with every other distributor getting paid fair market value, so we would fully expect the same. As far as Nielsen, so when the next broadcast season starts, we will finally have out-of-home.

It is a significant lift in ratings. For example, the Super Bowl had an over 10% lift and that means that's over 11 million people watch that were not in the rating. So having that local -- national news is also another one. Believe it or not, daytime content is also a big lift.

So people are watching, as we've said, on their own time, wherever they are. And that is a convenience. And so we are very excited and kind of overdue to have Nielsen have this in the measurements for the currency where Jo Ann and her team can finally monetize. So stay tuned as we go into the upfront next May.

Alexia Quadrani -- J.P. Morgan -- Analyst

Thank you very much.

Joe Ianniello -- President and Acting Chief Executive Officer

Thank you, Alexia.

Anthony DiClemente -- Executive Vice President of Investor Relations

Thank you, Alexia. Operator, we'll take our next question please.

Operator

Thank you. We will now hear from Michael Morris with Guggenheim. Please go ahead.

Michael Morris -- Guggenheim Securites -- Analyst

Thank you. Good morning. A couple of topics. First, can you just talk about how demand is in the third-party market right now for -- your off-network content seems to be maturing, of course, both domestically and we don't have much visibility internationally so if you could share that? And also talk about kind of the incremental demand that we're expecting or that you're expecting from the third-party services, the streaming services as companies like Disney and Warner pull theirs back.

Are you starting to have those discussions in terms of making product available? And then just on All Access, could you share any updated details on kind of the mix of consumption there? Joe, you talked about the NFL and SEC streams being up 60%. How is live sports comparing to your premium content comparing to catch-up viewing, wondering if there's been any evolution there? Thanks.

Joe Ianniello -- President and Acting Chief Executive Officer

Yeah. Sure, Mike. Look, demand continues to be strong. Let's break it down between domestic and international, as you suggest.

International, it's steady. I think we have proven global hits that resonate around the world. Clearly, the streaming players, there are new ones coming in. I think the existing platforms are certainly going to want to see that consumption.

I think if you looked at the data for the U.S. streaming players, I think you'll see a lot of consumption on kind of off-net shows. But as important, the entire cable marketplace relies on proven hit shows. I mean, again, part of their budgets are acquisitions because that's where most of the ratings points are coming from so -- for their business model.

So we think there's actually going to be a resurgence from lots of cable nets for the beachfront content that we produce. So what we're doing is we're trying to be strategic and really pause as we close our deal with Viacom to really think about how should we approach the marketplace. So like I said, is I think the opportunities only grow from here. But I would say demand for international, steady and strong; U.S.

changing. And we're pulling back for a moment as we see it really settles and making sure we're not underselling any of our content. For All Access, I think the mix is, I mean, I said it in my remarks, is kind of -- everybody comes for a different reason. But what we're seeing is the folks who come for originals stay longer.

They -- a live event, live television is also a differentiator for us. So the two drivers are really originals and live television. All Access, by the way, is the only service that has live television in news and sports on there because we reached deals with our affiliates that we have locked in for multi-years. So we are the only network that has been able to figure out a model that's a win-win.

And so it's really driving the consumption. And then that's where you're going to see, I think, the kids product and all of our catch-up viewing and library stuff really keeps them in the system and reducing what we call churn because we used to use the word churn because people would switch. But now it's actually should be called, we said, pause, because it's what we call easy on, easy off. So it's easy to come in and out of these subscription services.

So what we're trying to do is make sure we have these subscribers year round, which just really improves the lifetime value of that subscriber. So our focus is really always on that lifetime value, the revenue that we can get from each subscriber. And we're seeing that, and that's why we're making these investments in these originals and sports. So they're very targeted on those investments.

Michael Morris -- Guggenheim Securites -- Analyst

Great. Thank you.

Anthony DiClemente -- Executive Vice President of Investor Relations

Thanks, Mike. Operator, we have time for one last question.

Operator

Thank you. And we will take our final question from Laura Martin with Needham. Please go ahead.

Laura Martin -- Needham and Company -- Analyst

Hey there Joe. I just wanted to follow up on the level of streaming data. Could you talk about -- if I'm doing the numbers right, it sounds like you might have 13 million subs if you're up 4% and we know that the TV ecosystem is shrinking. So I'd love your comments on whether that number sounds right for the two combined streaming services? And then one of the things that a lot of your competitors are doing now is bundling in time.

Have you thought about making it less easy to actually turn off and turn on the system and so you don't have this issue of pausing that you've locked people in maybe with a price discount or with some other asset that CBS offers? And then, finally, just on as we think about integrating with Pluto. Did I hear you right, it sounds like maybe you're going to launch some new free services that we haven't heard about yet on the Pluto platform? Did I hear that right? Thanks.

Joe Ianniello -- President and Acting Chief Executive Officer

Yes. Look, I think, stay tuned for more -- thanks, Laura. Stay tuned for more announcements as we're getting CBS content on to Pluto. We said, starting tomorrow, you'll see some of that and you'll see more of that in the coming weeks.

So we are focused on doing that. And it's a win-win because it's greater distribution. It's the top of the funnel like -- we like to say. So it's really additive.

The making it more difficult for people to unsubscribe, certainly, I'm sure lots of media companies thought about it. But I mean current marketplace is really, again, the consumer is in control and so we're really earning their business based on the content investment that we make in it. And so we think they're going to want to subscribe. We think the content is going to be compelling at a price point that's really -- has a high-value utility to them.

The 4%, I should actually clarify that. I was adding in the traditional MVPD subs that we have in Showtime and All Access, the traditional business as well as direct-to-consumer and as well as virtual MVPDs. So Laura, that number, just 4%. Just so you're clear, it's not 13 million.

It's over 60 million. So that's overall sub. So why we think that's important because there's a lot of headwinds in the traditional business, and our point is when you factor all of that in, we are growing subs. And so because, obviously, the direct-to-consumer will be growing it, but if you're losing it in the traditional business, it's offsetting.

And so that's why we thought that statistic was meaningful that consumers are seeking out our content on other platforms, which bodes well for our future. Thanks.

Laura Martin -- Needham and Company -- Analyst

Right. Right.

Anthony DiClemente -- Executive Vice President of Investor Relations

Thanks you, Laura. Thanks, everybody, for joining us. And with that, this concludes today's earnings call.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Anthony DiClemente -- Executive Vice President of Investor Relations

Joe Ianniello -- President and Acting Chief Executive Officer

Chris Spade -- Chief Financial Officer

Ben Swinburne -- Morgan Stanley -- Analyst

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

Alexia Quadrani -- J.P. Morgan -- Analyst

Michael Morris -- Guggenheim Securites -- Analyst

Laura Martin -- Needham and Company -- Analyst

More CBS analysis

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The markets have been doing very well over the past several weeks, and finding some good bargains has been a bit challenging of late. However, there are still some good deals out there, with the three dividend stocks listed below offering investors a good opportunity to lock in a higher-than-normal yield, since their share prices have been underperforming.

1. Canon

Canon (NYSE:CAJ) has had a pretty mediocre year and while it has recently rallied, the stock is still flat year to date. It saw a big decline in mid-July when the company reduced its forecast as a result of slowing demand from China. Canon now expects its profits to be down by about 37% from the prior year.

However, that's likely due to the economy in China as a whole starting to slow down. Over the long term, there's still a lot of potential growth in that part of the world, especially once things pick up again and trade issues get resolved between China and the U.S. Canon is still a premier camera brand in the world, and investors shouldn't count out the stock just yet.

The good news for investors is that they're able to pick up the stock at a reduced price since it's coming off lows not seen in a decade. While there will be fluctuations in currency, currently investors will be earning a dividend of 5.4% per year. There is some risk investing in Canon, especially relating to China, but with a solid brand and strong financials, the stock could be a bargain as it is trading near its book value.

IMAGE SOURCE: GETTY IMAGES.

2. CBS

CBS (NYSE:CBS) has been on a significant decline over the past 12 months, falling close to 35% in value. It was about a year ago that the stock started to crash when the company announced that Les Moonves would no longer be its chairman amid news that Moonves was facing numerous sexual misconduct accusations.

And then in August, the stock declined after investors learned that CBS would merge with Viacom (NASDAQ:VIAB) in an all-stock deal. The expectation is that the merger will be completed sometime in December. For dividend investors, it's a great opportunity to benefit from a much larger, combined company that will have more resources. CBS currently pays investors a dividend of around 2%, while Viacom's yield is much higher at 3.7%.

With content providers facing growing competition and more streaming options available for consumers, it's going to be more important than ever for CBS to have the resources it needs to be able to stay competitive, and the merger certainly helps give it that capability.

3. Luminex

Luminex (NASDAQ:LMNX) has also run into some challenges this past year. Inconsistent financial results have been a bit of a problem for the biotech company, and that didn't change in its Q3 results, which were released earlier this month. Although revenue was up 8.6% from the previous year, it fell short of expectations, and the company posted a loss for the third time in the past four quarters.

While that might be concerning for investors, it can also be a little misleading. The company has done a good job of generating positive free cash flow and continued to do so this past quarter. Free cash flow of $4.5 million was more than enough to cover the company's dividend payments totaling $2.7 million. Noncash items like depreciation and amortization can sometimes take out a large chunk of the company's earnings and paint a worse picture than what is really the case.

Although the stock dipped as a result of the earnings report, that makes its $0.09 dividend, which was recently increased, that much better as it is now yielding close to 2% per year. The healthcare stock has customers all over the world. Its testing technologies could continue to see strong demand, making the stock an attractive investment with it trading near its 52-week low and less than two times its book value.

Key takeaways

There's always going to be some risk investing in dividend stocks that are near their 52-week lows. After all, they've declined for a reason. But these three stocks each have a lot going for them that should make them quality long-term investments. While Luminex may not benefit from the brand recognition that the other two companies can lean on, it could arguably have more potential upside given its more modest market capitalization of $730 million.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.