05/17/23: Taking it to the Max at Warner Bros. Discovery

A CYNOPSIS MESSAGE FROM WARNER BROS. DISCOVERY
 

Cynopsis Medias First Morning Read
Wednesday May 17, 2023

WBD Ad Sales Chief Jon Steinlauf Oversees a Transformative Year

It’s been just about a year since Cynopsis checked in with Jon Steinlauf, Chief U.S. Ad Sales for Discovery, and only weeks longer than that since his company merged with WarnerMedia to create Warner Bros. Discovery. Since then, WBD has gone through a transformative 12 months, as the company adjusted to new strategies and structures, but also looked to build a more sustainable and integrated organization able to take on giant competitors both traditional (Disney, Comcast) and less so (Netflix, Apple, Amazon). Just ahead: The late-May launch of a rebranded, far bigger lead streaming service dubbed Max that will mashup HBO Max with a considerable portion of Discovery+, which will also remain available.

By David Bloom

To start, what’s your vision of the state of TV advertising?
It is a pretty tumultuous time. Every year around this time, we’ve sat with reporters and talked about how much change there’s been in the last year. A lot of times, that’s overstated. This time, it might not be as overstated. The big issue really is this emergence of streaming. It has made an impact on entertainment, but has not made a huge impact on sports or news.

If I could take a step back, we finished our first year as WBD about a week ago. We’re really looking back on that first year and saying “What did we learn?”. Max is really the manifestation of this merger. When you put a company like Discovery together with a company like Warner, you’re forming one of the great collections of brands, studios, libraries, original content, sports, news, all of the above. What is the one thing that we really want to talk to advertisers about? It’s what we can do in terms of scaling Max over the next six to 12 months. What I love most about it is the AVOD potential. That $9.99 a month ad-supported service we’re going out with is going to be a lot bigger than the current one. So, the proposition for consumers is, you now have HBO Max with AVOD, and you’re paying $9.99 for it, and you’re getting a little bit of advertising and a lot of content. We’re about to probably double the amount of content by bringing in all of the Discovery brands. The decision was made to keep both (streaming services) going. So, discovery+ lives on, and Max is rebranded. But Max also gets the best of discovery+.

A CYNOPSIS MESSAGE FROM WARNER BROS. DISCOVERY

We’ve heard it’s around 80% of the programming.
We haven’t said specifically, but discovery+ is running with around 60,000 episodes of content. In the new world, a pretty good percentage of the most popular discovery+ content will be available on both platforms. If you’re a $4.99 customer of discovery+ and you’re getting five minutes of advertising per hour, these people may decide, “At $4.99, I’m fine. I’m going to stick with what I have. Thank you for keeping me in this product that performed. I really enjoy it.” We’re selling a lot of advertising on it. Or do you want to step up and pay five more dollars, and get the entire Max experience? You have people who may say, “I like this product at $9.99, so sign me up.” There may be some people who have the $14.99 ad-free HBO Max who say, “I’d rather have the $9.99.” So really all roads lead to a big growth boom, coming from the Max AVOD business and the discovery+ ad business combined. I really like our hand.

What’s different if you’re an advertiser on Max or discovery+?
First of all, what’s different is the ad load. HBO Max AVOD has been in the market since June of ’21. But it wasn’t until February of ’23 that we began to offer ads alongside HBO Originals on the service. So, if you are a $9.99 customer watching “Succession,” you’re going to get an ad from one of two “title sponsors,” Mercedes and Vital Farms. Those companies own the first 45 seconds of that consumer experience, similar to pre-show ads that were shown in the cinema, but a condensed version. These title sponsors get the opening, and we can customize that experience. You’re giving an ad-supported consumer the most talked-about shows on the platform commercial free when they’re paying for commercials, but the (title) sponsor gets a lot of the rub off. And it’s going to get even better when we expand it. It will be the best deal for the consumer streaming dollar. So, we’re going to talk to advertisers about the $9.99 version a lot.

Besides light ad loads, the second thing that’s different is there’s much more targeting available in the streaming home than in linear. In the streaming world, it’s 100% targeted. We build hundreds and hundreds of segments that are standardized and customized. The linear world is more index-based buying. For most advertisers, they’re not going to park 100% of their money in streaming. As the years go by, there will be more ad viewership in streaming than there is in linear. Right now, it’s more like 80% or 85% of the ad impressions are seen on the 20 linear networks and about 20% are seen on the streaming services. But that ratio will change over time.

A CYNOPSIS MESSAGE FROM WARNER BROS. DISCOVERY

How fast are we likely to see that transformation hit? And what does that mean for what you do?
Today, there are about 130 million US homes, and around 80 million subscribe to some form of paid television and 50 million are streaming only. If you look at the demographics, median income and net worth of those 80 million homes, they have the spending power of a lot more than what the distribution represents. What kind of home keeps the cord? No. 1 is wealth. No. 2 is sports interest in the households that are wealthy enough to afford the full bundle. If you have a sports fan in your household, it’s hard to give up on the bundle. So, when does streaming surpass linear? It’s a long way off.

Let’s talk about metrics and currency. Metrics have been a complicated issue for a while. What’s the current state and where are those issues headed?
If I look back through my career, I think more progress was made in the last 52 weeks than any other year in my career in trying to get to a more stable, more accurate audience measurement. And I think it’s been a really, really big step forward. The industry is in the business of selling about $60 billion worth of traditional television advertising per year, where it’s all based upon 40,000 households speaking for 130 million households. We’re in the process of ramping that up one thousand times. We’re very close to being at a point where 40 million homes will set the bar for 130 million TV homes. I look forward to that. I’m trying to be patient about it. And there’ll be cross-platform measurement too. But let’s start with better, more accurate measurement for linear television, which is still 75%, 80% of our revenue. At some point, we’re going to flip the switch. I was hoping it would be this Upfront season. I really want to get there as quickly as the industry will allow it to happen.

A CYNOPSIS MESSAGE FROM WARNER BROS. DISCOVERY

Let’s talk about DEI – diversity, equity, and inclusion – and how that manifests with WBD.
There’s a lot going on with DEI in this company. We have the Oprah Winfrey Network. We have the NBA, we have TLC, we have “The Jennifer Hudson Show” in syndication. There’s a lot of content that we create with diverse casts, diverse audiences, diverse themes. It’s a big initiative for our company, but I would like to point out one deal in particular, an arrangement with GroupM that incentivizes GroupM advertisers to support diverse creators. If there aren’t enough Black-owned or minority-owned media companies or media properties, what they’ve done is come to leading media and entertainment companies and said, “We would like to get access to Black-owned production companies.” What we’ve done is we’ve started to create content, giving GroupM and their clients the opportunity to help present that content through advertising support.

There’s a really good business reason to do this, given the size and growth in those audiences, and over-indexing among Latino and Black audiences with entertainment as a whole and with premium content, right?
It’s the growth opportunity. The Chief Brand Officer of Proctor & Gamble, Marc Pritchard, has been quoted saying, “Multicultural marketing is now mainstream marketing.” A lot of the growth is going to come from multicultural. Those audiences also have a younger median age.

What’s your vision of what Max and Warner Brothers Discovery are doing three to five years from now?
The biggest growth will come from Max. We continue to support the traditional big bundle, through sports, through CNN, through making big investments into the linear channels themselves.So, we want to be a real big player in the bundle to keep the bundle stable. I wouldn’t be shocked if a day comes where the bundle number of subscribers starts to reverse and go up. I think it reaches a point where maybe consumers will say, “Let’s go back and do the cable bundle.” It could be a better value.

Cynopsis Team

Lynn Leahey
Editorial Director
@Lynn_Leahey

Kerry Smith
Division President
Access Intelligence

Robbie Caploe
VP/Group Publisher
@robertacaploe

Executive Director of Sales
Albert Nassour
917-545-3129
Cynopsis Job Listings Sales
John Cox

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