Disney Hit With Antitrust Lawsuit Over Streaming TV Prices – The Hollywood Reporter

An antitrust lawsuit has been filed against The Walt Disney Company in a case targeting the entertainment monolith’s dual role as a content provider and distributor in business deals.

Disney operates Hulu, the nation’s second-largest provider of live pay television, while it also controls ESPN. The proposed class action accuses Disney of running the businesses as a single entity, alleging that the arrangement allowed the company to negotiate anticompetitive agreements with rivals that raised the cost of live television streamed over the Internet.

The suit pits YouTube TV subscribers, who filed the lawsuit Friday in federal court in California, against Disney. They point to business deals that effectively give the company the ability to set “a price floor” for the market and drive up prices across the industry by raising the prices of its own offerings.

“Since Disney acquired operational control of Hulu in May 2019, prices across the [streaming live pay television] Market, including for YouTube TV, has doubled,” the complaint states. “This dramatic, market-wide price inflation was led by Disney’s own price increases for Hulu + Live TV.”

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The suit points to guidelines in Disney’s contracts with live pay-TV competitors that require them to carry ESPN as part of the cheapest bundle they offer. The term effectively limits the ability of Disney’s competitors to offer an option that omits ESPN, cable’s most expensive Disney-owned channel.

Absent this requirement, Disney would not be able to prevent competitors from selling so-called “skinny” bundles that give subscribers a limited supply of live TV channels, according to the complaint.

Cable TV providers have long criticized Disney’s affiliate fees to broadcast ESPN and its sister networks as part of a cable package. Such fees are widely believed to have been the primary driver of basic cable price increases in the past decade. In 2015, ESPN’s affiliate fee was as much as four times as expensive as the fee to broadcast TNT, which had the second highest fee behind ESPN.

ESPN’s leverage eroded with the advent of cord-cutting and viewers shunning cable TV. This was largely due to consumer aversion to paying for channels they did not watch or want. They flocked to lower cost or free alternatives.

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The first significant burst came from traditional cable and satellite TV providers who also controlled Internet service providers. Verizon, for example, began offering so-called “skinny” bundles in 2015, taking advantage of ambiguity in contracts that did not expressly cover distribution of ESPN over the Internet. to end Disney’s long-running mandate on pay-TV packages. Disney sued Verizon, claiming that downgrading ESPN as an add-on tier was a violation of its carriage agreement. Verizon finally capitulated.

The suit also seeks to contractually require ESPN to include ESPN as part of any basic cable package and by imposing so-called “most favored nation” clauses as part of these agreements, which ensure that ESPN affiliate fees associated with any given competitor negotiated, represents an industry-wide price floor. This means that if Disney raises the price for Hulu with Live TV, which it operates, its competitors must too.

YouTube TV subscribers say that Google’s deals with Disney led to an increase in the base package from $35 to $65 a month. In 2021, YouTube TV stated that it could provide a base plan without ESPN for $15 less than it charged during a feud with Disney over a content deal.

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The lawsuit was filed days before Bob Iger returned to Disney to lead the company. Iger, who succeeded Michael Eisner as CEO in 2005, led Disney through a period of massive growth, primarily by pursuing mergers that grew its reputation as a global content powerhouse. He acquired Pixar for $7.4 billion in 2006, Marvel for $4 billion in 2009, Lucasfilm for $4 billion in 2012 and Fox for $71.3 billion in 2019 as part of a deal that included 20th Century Fox studio, Fox Searchlight and included FX Networks.

Today, some of the acquisitions are likely to be challenged by competition enforcers who have turned their attention to consolidation in the media industry.

The complaint, which seeks to represent approximately five million YouTube TV subscribers who say they pay high subscription fees, alleges a violation of the Sherman Act.

Disney did not immediately respond to requests for comment.



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