MCD McDonalds Corp

By Suzanne Vranica and Heather Haddon 

Two companies owned by media mogul Byron Allen have filed a lawsuit against McDonald's Corp., accusing the fast-food giant of discriminating against Black-owned media companies.

Entertainment Studios Networks Inc. and Weather Group LLC filed the complaint in Superior Court of California, seeking $10 billion in damages. The lawsuit targets what the companies allege are the restaurant chain's "discriminatory contracting process and refusals to advertise on Plaintiffs' networks on the basis of race."

The suit marks the latest move by Mr. Allen, who is Black, to pressure large U.S. corporations to spend more ad dollars on Black-owned media companies. His Allen Media Group/Entertainment Studios produces movies and owns more than a dozen television stations as well as the Weather Channel and 10 digital-TV networks, such as Pets.TV and Cars.TV.

The lawsuit alleges that McDonald's spent approximately $1.6 billion on U.S. TV ads in 2019 and estimates that less than $5 million, or 0.31%, of that budget was spent on Black-owned media. The complaint also alleges that McDonald's hasn't advertised on Entertainment Studios' lifestyle networks since they were launched in 2009 but has purchased significant advertising on similarly situated, white-owned networks.

Mr. Allen has previously called on advertisers to spend at least 2% of their budgets with Black-owned media companies, a target he later increased to 5%.

In their complaint against McDonald's, Entertainment Studios and Weather Group don't indicate how they arrived at their estimates of the restaurant chain's ad spending. A spokesperson for Mr. Allen said the figures came from "multiple sources across the industry."

A McDonald's spokesman said the company would review the lawsuit and respond accordingly. He pointed to McDonald's planned changes, announced earlier Thursday, aimed at diversifying the company's ad-spending practices.

Those moves include a commitment to more than double the advertising dollars McDonald's devotes to media companies with diverse ownerships in the next four years. The chain said that by 2024 it would increase to 10% the portion of its national advertising budget going to groups owned by Black, Hispanic, women and other underrepresented groups, up from 4% today. McDonald's said its spending with Black-owned media groups would rise to 5% of national ad spend by 2024 from 2% today.

The fast-food giant also said it would join with diverse-owned media and production companies, content-creators and influencers. The company said it has longstanding relationships with marketing companies with diverse ownership, including the Boden Agency, Lopez Negrete Communications, IW Group Inc. and Burrell Communications Group.

"Together with our franchisees we have doubled down on our relationships with diverse-owned partners," the McDonald's spokesman said.

Entertainment Studios and the Weather Group accuse McDonald's of engaging in racial stereotyping tied to what their complaint says is a tiered advertising structure that differentiates on the basis of race. McDonald's operates a separate "African-American" tier that gets a smaller budget and less-favorable pricing than its larger "general market" tier, according to the complaint.

McDonald's declined to comment on how it structures its advertising.

Mr. Allen has accused some of the country's largest advertisers, including General Motors Co. and Coca-Cola Co., and big advertising agencies like Omnicom Group Inc. and Interpublic Group of Cos. of inadequately supporting Black-owned media companies.

After Mr. Allen and other Black media executives publicly criticized GM in newspaper ads, the auto giant pledged to increase the amount it spends on advertising with Black-owned media companies. The nation's largest car maker by revenue said last month that it would allocate 4% of its U.S. advertising spending on Black-owned media companies by next year and boost that level to 8% in 2025.

Madison Avenue has faced criticism in the past over the effects of industry practices on Black-owned media organizations, which have long complained of receiving disproportionately less business from advertisers than outlets not controlled by Black executives.

Following public outcry over the murder of George Floyd, a Black man, by a white police officer in Minneapolis last year, many companies promised to direct more money to Black-owned businesses. Some ad agencies pledged to improve transparency around the composition of their workforces. Recently, some agencies have also promised to direct more ad dollars to Black-owned media companies.

McDonald's previously stood out for its record on race, having promoted numerous Black executives into senior leadership roles. It has faced criticism for its commitment to diversity in recent years after minority representation in upper management diminished. Chief Executive Chris Kempczinski said last year that the company has more work to do. Earlier this year, McDonald's connected executive pay to reaching diversity and inclusion targets and said it would increase the percentage of historically underrepresented groups in senior roles by 2025.

During the company's shareholders meeting Thursday, Mr. Kempczinski said he remained committed to improving diversity among the company's restaurant owners, suppliers and employees.

Write to Suzanne Vranica at suzanne.vranica@wsj.com and Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

May 20, 2021 20:53 ET (00:53 GMT)

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