Apr 28, 2017
Capitalism Defeats Bill O’Reilly
Plus 4 other cases of consumer/corporate activism
Bill O’Reilly is out at Fox, and it’s not because of sexual harassment. He’s been doing that for years. Fox knew about it, and obviously didn’t care. At least not enough to take him off the air.
O’Reilly and Fox have paid about $13 million to settle five different sexual harassment complaints. In 2004, an O’Reilly Factor producer sued him, claiming that he described sexual fantasies to her, repeatedly told her to buy a vibrator, and sounded like he was masturbating when they spoke on the phone. They settled for about $9 million.
The most recent — which also featured the sounds-like-he’s-masturbating-on-the-phone complaint — settled for nearly $1 million in 2016. And more women have come forward, some claiming O’Reilly offered to help them get ahead in exchange for sexual favors. It was clearly an ongoing issue, but Fox let it go.
This made sense for Fox’s bottom line. The O’Reilly Factor brought in about $180 million in advertising each year. A million a year in settlements was a drop in the bucket. Like Pittsburgh Steelers’ linebacker James Harrison setting aside thousands of dollars at the start of each season to pay fines for illegal hits, Fox determined the benefits outweigh the cost.
But that changed in April. As the settlements story gained traction, companies pulled their ads from O’Reilly’s show. 11 big companies started the trend, including BMW, Mercedes-Benz, Hyundai, and Mitsubishi (automakers), Sanofi and GlaxoSmithKline (pharmaceuticals), T. Rowe Price (finance), and Allstate (insurance). Within a week, over 60 advertisers backed out.
On April 19, Fox fired O’Reilly. The whole cycle (stories about the five settlements → advertisers flee → firing) took less than three weeks.
They reportedly paid him $25 million in severance, which shows how completely the economic calculus flipped.
Interestingly, his ratings were up. From Monday April 3 through Friday April 7 — the week in which advertisers began fleeing — the O’Reilly Factor averaged 3.7 million viewers, a 28% increase from the same week in 2016. Among 25–54 year-olds, the demographic prized by advertisers, the Factor got 652,000 viewers, a 42% increase from the prior year. On Friday, O’Reilly’s show had the highest ratings on basic cable.
But viewers aren’t worth anything if advertisers won’t pay to reach them.
Corporations Are Corporations
It’s easy for Fox critics to fault the company for keeping O’Reilly on the air all these years, and for O’Reilly fans to criticize the companies for pulling their ads, or Fox for firing him. But that misunderstands the nature of corporations.
Corporations aren’t people. Though it sometimes makes sense for the law to treat them as persons, they’re legal fictions — voluntary associations of people brought together under a series of contracts to make money.
There are, of course, some socially conscious corporations that voluntarily spend more on inputs, or forgo some revenue to advance a cause, such as environmentalism. But they almost never do it quietly. They make sure everyone knows what they’re doing and why they’re doing it, which means at least one reason for socially conscious corporate behavior is brand building.
Building a brand is not an exact science. Cultivating an image — associating a product with a feeling, lifestyle, identity, self-conception, etc. — contributes to sales, but it’s hard to measure exactly how.
For example, Coca Cola wants everyone to associate its name, red logo, and beverage with happiness — hence all those ad campaigns about smiling — but no matter how many focus groups they use, they cannot determine the precise number of sales generated by that association, nor the exact threshold where the subconscious link between their product and happiness leads an individual to choose cola over water, and then choose coke over pepsi.
It therefore made sense for Fox to cut ties with O’Reilly after the story broke. Sexual harassment hurts the brand, but that’s only true if people know about it.
You may think I’m being overly cynical. I’d say I’m being realistic. People will act like people. Corporations will act like profit-maximizers.
The upshot is it gives consumers an opportunity to shape corporate behavior. The fields of marketing, advertising, and behavioral economics are all built around the idea that human beings are not coldly calculating machines. They make economic decisions for all sort of reasons, many of which boil down to variations on “because I felt like it.”
How individuals spend their money is up to them. If someone doesn’t want to buy a product because the company that makes it pollutes, or will not allow religious employees to opt out of actions that go against their beliefs, or works with a racist — or anything else they care about— that’s their choice.
As economist Friedrich Hayek pointed out, a primary benefit of capitalism is the market communicates private information. Each individual knows more about her wants and needs than anyone else. Communism, Hayek argued, would fail because it is impossible for central planers to know what millions of individuals want or need in a given moment. But as individuals make consumer decisions, they transmit that private information, leading to a more efficient distribution of goods via supply and demand.
If enough consumers choose not to buy something because it goes against their values, corporations will change in response. They’re not people, so they’ll rarely do the right thing because it’s the right thing. But they’re easy to manipulate, because we know what they care about.
Consumer and Corporate Activism
The O’Reilly case is interesting, because it’s multilayered.
Companies advertising on Fox decided they didn’t like what was going on and stopped buying. Fox didn’t act on O’Reilly’s behavior as long as he was making the corporation money, but as soon as he started hurting the bottom line they cut him loose.
But the consumers in this instance were other corporations, not individuals. And those companies weren’t losing sales because of association with O’Reilly. At least not yet. But the possibility that association with O’Reilly would hurt their brand, which then would hurt their sales, led them to act.
Here are four other 21st century cases of consumer and corporate activism:
1 — Don Imus
In 2007, CBS fired the longtime radio host after he called the Rutgers women’s basketball team “nappy-headed hos” on air. Many people denounced the comment as racist. Al Sharpton, Jesse Jackson, and various activist groups asked CBS to get rid of Imus, and people began organizing boycotts of companies that advertised during Imus’ show.
Imus brought in about $15 million annually. That’s less than a 10th of the $180 million O’Reilly brought in for Fox. But $15 million is a solid profit-maker for radio. And Imus in the Morning had been an institution for decades.
However, enough people were upset that companies saw damage to their brand by association, and pulled ads from Imus’ program. Affiliates took his show off the air, and shortly after, CBS — sensing damage to its brand and bottom line— pulled the plug.
Imus’ firing was a precursor to O’Reilly’s. In both cases, corporate anticipation of consumer behavior led to the ousting of a prominent media figure.
2— Chik-fil-A
In 2011 and 2012, the fast food chain’s president and COO Dan Cathy made multiple statements against same sex marriage. Chik-fil-A is a private company founded by Dan’s father, and research revealed that Cathy’s family foundation gave millions to anti-gay causes, including an organization that supported “conversion therapy.” Gay rights activists called for a boycott.
In response, former Arkansas governor and Fox News personality Mike Huckabee, and other opponents of same sex marriage, called for a Chick-fil-A Appreciation Day. Sales leapt 30% that day, and 12% overall in 2012, thwarting attempts at a boycott.
However, less than two months after Appreciation Day, LGBT rights groups noted that Chick-fil-A and Cathy’s foundation stopped donating to organizations the activists identified as discriminatory. In 2014, Dan Cathy, now CEO, publicly regretted drawing the restaurant into a political controversy.
Comparing this case to Imus and O’Reilly’s:
- The market communicates the idea that Americans strongly oppose racist statements and sexual harassment, but are divided on the issue of same sex marriage.
- It’s easier for consumers to affect media figures who depend on advertising than businesses that depend on sales. That’s especially true for privately-held businesses like Chik-fil-A, in contrast to the public companies that pulled ads from O’Reilly and Imus’ shows.
- Corporations dislike political controversy, even if it does not directly result in consumers fleeing. O’Reilly’s ratings stayed high, but advertisers still fled. Chik-fil-A’s sales increased, but the owners still stopped donating to anti-LGBT causes. That shows how much they care about branding.
3 — Uber
In 2017, the ride-hailing company announced it would suspend surge pricing around New York’s JFK airport during protests against the Trump administration’s travel/refugee ban. NYC taxi drivers were holding a strike in response to the ban, and critics accused Uber of exploiting the situation for profit, and of supporting Trump’s order.
#DeleteUber took off on Twitter, and about half a million people deleted their account within a week. Uber sent an email to everyone who deleted their account, calling the ban “unjust, wrong, and against everything we stand for as a company.”
It’s unclear why all those people deleted Uber. Anti-Trump activists claimed the company supported the president, and called on #TheResistance to delete their accounts to pressure the White House. But Uber insisted it never supported Trump, and cut surge pricing to avoid profiting from a controversial situation. Some deleted Uber for other reasons, such as the company’s poor response to accusations some drivers sexually assaulted passengers.
Uber sent that email, and subsequently avoided controversies relating to anti-Trump protests, but otherwise, it’s not clear if the campaign affected the company’s behavior.
However, Uber was a perfect target for this sort of consumer activism. As a tech company, it has detailed, constantly updating data on its customers’ activity. Uber has about 40 million monthly users worldwide, so 500,000 only amounts to 1.25%. But for a company seeking rapid growth, losing users is problematic, and Uber had the metrics to see what was happening in real time.
It’s main competitor, Lyft, did not cancel surge pricing around JFK during the protests. As #DeleteUber began trending, Lyft put out a statement denouncing the travel/refugee ban and announcing a $1 million donation to the ACLU. A few days later, more people downloaded Lyft’s app than Uber’s for the first time.
Of all the cases, this was the most overtly political. O’Reilly’s actions were illegal, subject to civil penalty. Imus and Cathy made statements others saw as bigoted. Uber faced criticism for being pro-Trump.
It’s main user base is younger and urban, and therefore more likely to be anti-Trump. It’s in direct competition with a rival with a nearly identical product. And it has metrics showing the campaign’s effects in real time. That made it especially susceptible to political pressure from consumers.
4 — Under Armour
In another Trump-related controversy, Under Armour CEO Kevin Plank praised the president, saying Trump’s “pro-business” approach “is a real asset for the country.”
Celebrities affiliated with Under Armour criticized Plank, including Dwayne “the Rock” Johnson, ballerina Misty Copeland, and NBA star Stephen Curry. Curry — a shareholder, and one of the company’s premier endorsers — said he agreed with Plank’s description “if you remove the ‘et’ from asset.”
As news of the controversy gained traction, some financial analysts downgraded Under Armour, and its stock price dropped. And #BoycottUnderArmour trended on Twitter.
In the end, none of the celebrities cut ties with Under Armour. Nevertheless, Plank took out a full page ad in the Baltimore Sun — his company’s hometown paper — clarifying his stance on Trump. After some platitudes about supporting “American jobs and manufacturing,” Plank closed with this:
We are against a travel ban and believe that immigration is a source of strength, diversity and innovation for global companies based in America like Under Armour.
This once again shows how much corporations value their brand, and do not want to be associated with anything perceived of as bigoted. The number of white nationalists who inherently dislike diversity is much smaller than the number of people, of all races, who value inclusion. In other words, being anti-diversity is bad for business.
Because businesses care about branding, and act in response to how they think consumers perceive them, hashtag activism can have an effect. #BringBackOurGirls — in response to Boko Haram kidnapping 276 female students—did not get the terrorist group to release their captives. But #DeleteUber and #BoycottUnderArmour created a real threat to their targets, and got them to respond.
A Note on Free Speech
Very few would defend sexual harassment as free speech. But, besides O’Reilly, these cases raised accusations that Imus, Cathy, and Plank’s rights were violated.
That misunderstands free speech. Free speech means the government cannot punish individuals for speaking. It doesn’t mean private organizations have to give individuals a platform, and has nothing to do with how consumers choose to spend their money.
None of these cases involve free speech, except for Chik-fil-A. Mayors of Chicago, Boston and San Francisco tried to keep Chil-fil-A from opening new restaurants in their cities. That’s government officials penalizing an organization for an individual’s political speech.
No matter what you think of Cathy’s comments on same sex marriage, cities using their power to hurt his business because he publicly expressed a political opinion is, as the ACLU argued, a serious violation of free speech.
However, customers — from individuals buying products to companies buying ads — can spend their money however they want, including as a reaction to political speech.
