Bill O'Reilly's Exit Not Likely to Hit Fox News Hard Financially, Analysts Say
"Legal costs could be a big wildcard," said Pivotal Research Group's Brian Wieser.
He was a towering figure at Fox News Channel for two decades and its most watched personality for 15 years, but Wall Street analysts do not expect Bill O'Reilly's ouster amid sexual harassment allegations to have a long-term negative impact on the news network.
While losing one of its star anchors won't go unnoticed for the network or O'Reilly's loyal fans, analysts point out that the Fox News brand has remained a key performer and has other popular faces.
"I think there will be a short-term negative impact on revenue with O'Reilly going versus what would have occurred had the [New York] Times story never been published," Pivotal Research Group analyst Brian Wieser tells The Hollywood Reporter, referring to the April 1 story that uncovered payments to women complaining of sexual harassment by O'Reilly. (The anchor has denied the allegations.)
Asked about the decision to oust O'Reilly, Wieser notes though: "I think it's probably neutral to slightly positive given what is out there, and the fact that advertisers were otherwise going to restrain spending growth with Fox News so long as he was there. The growth of the news genre and Fox News in particular is more significant than any impact from O'Reilly's departure."
In his latest research report updating his thoughts on entertainment companies ahead of earnings season, which was published Thursday morning, Wieser also wrote: "At Fox, the ending of Bill O’Reilly's show will not cause any noticeably meaningful impact on the company."
Several observers said carriage fees would not be affected by the departure and mentioned the exit package O'Reilly is expected to receive as well as legal and related costs as most likely areas of financial hits. "Legal costs could be a big wildcard," Wieser tells THR. "That probably depends on whatever the U.S. Attorney's office comes up with in light of the immunity deal they offered the former CFO."
Avoiding bigger damage to the Fox News brand was a key driver behind the swift decision to part ways with O'Reilly. "The negative news flow for Bill O'Reilly is not affecting ad revenues or ratings to date, it appears, but it remains a brand risk longer term, we believe," FBR & Co. analyst Barton Crockett wrote in a Wednesday report.
It's a brand that is not only popular with its viewers, but also has been a financial engine for 21st Century Fox, whose stock as of Wednesday's market close showed a decline of 6 percent since the New York Times report.
Fox News, whose results are part of the conglomerate's cable network programming division, "had a great year with all of the political [news, with] revenue up 15 percent to $2.7 billion and cash flow up almost 20 percent to $1.8 billion" in 2016, estimates SNL Kagan research director Derek Baine. (Fox's fiscal year ends in June, but his estimates are for the calendar year.)
That would mean Fox News accounted for about 10 percent of the total revenue that 21st Century Fox reported for the four quarters of calendar year 2016. Baine's cash flow estimate for Fox News may not be directly comparable to the operating income before depreciation and amortization of more than $7.1 billion that Fox's financial reports show for the whole company for 2016, but it also focuses on the underlying profitability of the business and would amount to roughly 25 percent of the figure reported for all of Fox.
The analyst also notes another key Fox News financial metric. "At a 66 percent cash flow margin they are one of the most profitable in the industry," says Baine.
Possible advertising fallout has in recent weeks come into the spotlight with Mercedes-Benz and Hyundai, followed by a slew of other marketers, withdrawing advertising from Fox News flagship show The O'Reilly Factor.
One analyst and one media investor said at least some marketers may simply have moved ad spending to other shows on Fox News, meaning the financial impact could be limited so far. Paul Rittenberg, executive vp of advertising sales at Fox News, said in a recent statement: “We value our partners and are working with them to address their current concerns about The O’Reilly Factor. At this time, the ad buys of those clients have been re-expressed into other Fox News Channel programs."
But RBC Capital Markets analyst Steven Cahall wrote in a report Wednesday: "An independent law firm had been brought in to investigate the O'Reilly situation, but we think pressure from advertisers has pushed leadership to make a definitive decision earlier in the process."
O'Reilly's show in 2015, the last full year for which data is available, generated $178.4 million in advertising revenue, according to research firm Kantar Media. SNL Kagan put Fox News' total revenue that year at $2.32 billion, meaning O'Reilly's show would have accounted for about 7.7 percent of the total.
For the first nine months of 2016, Kantar estimates ad revenue reached $118.6 million, compared with $126.4 million for the same period in 2015. Kantar data suggests none of the advertisers that have withdrawn from O'Reilly's show as top marketers on it. The data shows Rosland Capital, My Pillow, Furniture Feet, Prevagen and Pfizer as the show's top five advertisers during the first nine months of 2016.
What is the likely fallout of Fox News giving the time slot to a new anchor? "A new host would presumably have lower ratings, and it's possible this will impact ratings at adjacent programs," says Wieser. "But maybe ratings at whatever replaces The O'Reilly Factor will be a quarter lower — not necessarily noticeable in context of the broader growth the network is seeing."
Indeed, Tucker Carlson's show at 9 p.m. was losing some of its lead-in from Bill O'Reilly, which this year is pulling in close to 4 million viewers a night. Adds Cahall: "The O'Reilly Factor is Fox News' top-rated show and often ranks as the No. 1-rated cable show. Recall that Megan Kelly's replacement with Tucker Carlson has gone smoothly with adults 25-54 ratings in the 9 p.m. spot up some 30 percent in the first quarter."
He concluded: "While O'Reilly is arguably a bigger deal to Fox News viewers, and Kelly had arguably fallen out of favor with some of the audience, we think Fox News' brand affinity remains unique and unchallenged in conservative political news, hence viewers are likely to tune in to O'Reilly's successor."
The New York Times reported at the beginning of the month that an investigation has found that a total of five women have received payouts, worth about $13 million overall, from either O’Reilly or the company in return for agreeing not to pursue litigation. Two of the settlements came after former Fox News chairman Roger Ailes was ousted last summer amid a sexual harassment scandal.
O'Reilly has denied all claims. "Just like other prominent and controversial people, I'm vulnerable to lawsuits from individuals who want me to pay them to avoid negative publicity," he said in a statement early on. "In my more than 20 years at Fox News Channel, no one has ever filed a complaint about me with the Human Resources Department, even on the anonymous hotline."