Discovery’s Jon Steinlauf on Catching Up to Broadcast and Dropping Legacy Demos

The upfronts week presentations have ended, and now it’s time for the real work: the negotiations. Adweek is sitting down with each of the ad sales chiefs who presented this week to talk about their respective events and their strategies for navigating this year’s marketplace. Following NBCUniversal’s Mark Marshall and Fox’s Marianne Gambelli yesterday, next up is Jon Steinlauf, chief U.S. advertising sales officer, Discovery Inc. During Discovery’s first-ever upfronts week presentation on Tuesday, Steinlauf told marketers that the company can stand “shoulder to shoulder” with its broadcast peers. Of course, the event was somewhat overshadowed by the previous day’s stunning news that Discovery and WarnerMedia would be merging, with Discovery CEO David Zaslav leading the combined company. (Discovery scrambled to film a new introduction to its already-completed presentation, in which Zaslav briefly discussed the deal.) Steinlauf (who detailed his upfront plans for Chip and Joanna Gaines’ upcoming Magnolia Network in this week’s issue) declined to comment on the merger, but he did talk with Adweek about how it will affect upfront negotiations. The ad sales chief also elaborated on his top upfront priorities, which include moving away from transacting on cable’s traditional adults 25-54 demo. This interview has been edited for length and clarity. Adweek: How did you decide to structure your first upfronts week presentation this way? What was the message you wanted to send to marketers?Steinlauf: The very first thing that I said was: we're going up against broadcast, and that's what we believe. We believe that we've moved up in the pecking order, and now we belong in that world. My theory about television is that today a one rating is a hit—a one on a buying demo, live same-day. Most of these broadcast network companies have 10 or 15 shows that can do a one. We have 25 spread across five networks: HGTV, Food, TLC, Discovery and OWN. Then I talked about what the industry is calling the plus demos. I'm a big believer that the industry needs to make that shift [away from transacting on 18-49 and 25-54 demos] to 18-plus and 25-plus. I think if we don't, they're going to be paying triple-digit CPMs before too long. Why is that?There's two and a half reasons why the supply looks the way it looks. One is that a good percentage of the viewing has gone into streaming in the last five years, and even more so in the pandemic year. And more than half of the viewership on streaming is commercial free. So it's not that people are watching less television, they're just watching less television with commercials on streaming services. The second biggest reason why we have a supply problem is because television is a good ad medium for the 40-plus viewership; it's not a good ad medium anymore for the under 40s. So as we see this concurrent shift of the linear audiences past 49, past 54, there's not a lot of replacements for that. The buying currencies have worn out over time, and you have these dual shifts going on. One is the aging out of the buying demos, one is the shift to platforms that don't have ads, so that shrinks the supply. And the half factor would be the universes for the cable channels have come down. There was a time when Food Network was in 100 million homes; now it's in about 85. That's happened slowly, a couple of million homes a year for the last five or six years. So things have changed, and I think the advertisers have to keep up. This is a topic of conversation [in negotiations], what the industry is calling the plus demos. Things have changed, and I think the advertisers have to keep up.—Jon Steinlauf, chief U.S. advertising sales officer, Discovery Inc. What are your top upfront priorities?1A would be Discovery Premiere, [which allows advertisers to buy a mix of the 30 most-watched shows from across the Discovery portfolio], and 1B is the plus demos. Not Discovery+ and the other streaming platforms?The demand for our digital streaming properties is taking care of itself. Last year, I would have added digital video streaming to that list. But there's so much demand now because the advertisers are saying, "I want to spend as much as I can in digital." But digital is expensive. Digital video tends to be double the price of linear. So when you move money from linear to digital, what are you really seeing? You're seeing a tighter market—there are a lot of flavors of digital. Digital video becomes its own ecosystem, with different ad loads, different price points, different screen sizes. You heard Jim Keller [evp, digital ad sales and advanced advertising, say during the presentation that] 80% of our [digital video] viewership is on the living room screen. And that matters. Speaking of Jim, he talked at the event about Discovery’s audience solutions, which would seem to be a bigger deal this year with the Discovery+ rollout. What are you looking to do on that front that you weren’t able to last year?One thing we're looking to sell more this year is OneGraph. It's a tracker for unique reach across all screens, per campaign. It’s a way to prove that, within the walls of Discovery, you can accumulate a lot of unique reach when you go multiple linear channels, into set tops, into video on demand, into Discovery Go, into Discovery+. We have a lot of channels that have unique, passionate fan bases that don't always overlap. So advertisers now are looking at their strategic targets. How much scale can I get out of one particular content company? And that's what OneGraph is set up to prove: We can get you more unique reach by putting more of your share within Discovery's suite of services. Discovery Prepares for ‘Company-vs.-Company Combat’ as Discovery+ Debuts At the upfront, you mentioned that “Discovery+ is built to complement linear and not cannibalize it.” Is that a concern you’d heard from marketers?There’s a lot of conversation about: What's the priority? Is the priority streaming, or is the priority broadcast? Speaking for us, we're as focused on linear as we are on streaming. What’s the biggest way this year’s upfront will be different from last year’s?I think it's going to be earlier and more expensive. How will Monday’s merger news affect your upfront strategy and this year’s negotiations?I don't think it will. WarnerMedia, they're going out into the market as WarnerMedia. This is day one. We could be a year away from answering that question. Will any upfront deals marketers make still be honored if the merger closes before the end of the upfront calendar? I can only speak for us, and the answer for us is yes. You mentioned that your negotiations are already underway. What are you hearing in those early discussions?Advertisers trying to get their money down. We're trying to show that a hit show is a hit show. And you can get [CPMs that we hear cost] $20 less by buying it from the Discovery Premiere package versus the ABC/CBS/Fox primetime packages. And our four direct competitors are selling mixes that are combinations of first run and repeat. Discovery Premiere is 100% first run, and it's a lot less expensive. And I think the environment in many cases is better because of the loyalty and the engagement that the fans have to our content. Has your Discovery Premiere offering changed at all this year?We have a higher share of hit shows than we've ever had before. In the second quarter, we have over 100 advertisers that are using Premiere that are in flight right now. Our second [quarter] ’21 Premiere ad revenue has tripled what it was in second [quarter] of ’20, so it's growing very fast.