An antitrust lawsuit has been filed against the Walt Disney Company in a case targeting the entertainment monolith’s dual role as a content supplier and distributor in business dealings.
Disney operates Hulu, the nation’s second-largest provider of live streaming pay TV, while it also controls ESPN. The proposed class action accuses Disney of managing the businesses as a single entity, alleging that the deal allows the company to negotiate anticompetitive agreements with competitors that have raised the cost of live television broadcast over the Internet.
The lawsuit opposes YouTube TV subscribers, who filed a lawsuit Friday in California federal court against Disney. They point to business relationships that effectively give the company the ability to “set a price floor” for the market and raise prices across the industry by raising the prices of its offerings.
“Since Disney gained operational control of Hulu in May 2019, prices across the [streaming live pay television] The market, including YouTube TV, has doubled,” the complaint states. “This dramatic market-wide price inflation has been driven by Disney’s own price increases for Hulu + Live TV.”
The lawsuit points to guidelines in Disney’s contracts with live-streaming pay TV competitors that require them to carry ESPN as part of the cheaper package they offer. The term effectively limits the ability of Disney’s rivals to offer an option that removes ESPN, the most expensive cable channel that Disney owns.
Absent that requirement, Disney would not be able to prevent competitors from selling so-called skinny bundles that give subscribers a limited offering of live TV channels, according to the complaint.
Cable TV providers have long criticized the fees Disney affiliates charge to carry ESPN and its sister networks as part of a cable package. It is widely believed that such fees were the main driver of the increase in the basic price of cable in the last decade. In 2015, ESPN’s affiliate fee was four times more expensive than TNT’s broadcast fee, which had the second highest fee after ESPN.
ESPN’s leverage eroded with the advent of cord-cutting and viewers shunning cable TV. In large part, this was due to consumers’ aversion to having to pay for channels they didn’t watch or want. They flocked to lower-cost or free alternatives.
The first significant attack came from traditional cable and satellite TV providers who also controlled Internet service providers. For example, Verizon in 2015 began offering so-called skinny packages, taking advantage of ambiguities in contracts that did not expressly cover ESPN’s online distribution. to end Disney’s long-standing mandates on pay-TV packages. Disney sued Verizon, alleging that dropping ESPN as an add-on was a breach of its carriage agreement. Verizon eventually capitulated.
The lawsuit also seeks to have ESPN contractually require that ESPN be included as part of any basic cable package and by establishing as part of those agreements so-called most-favored-nation clauses, which ensure that ESPN affiliate fees negotiated with any given competitor represents a worldwide industry. price floor. This means that if Disney raises the price for Hulu Live TV, which it operates, its competitors must do so as well.
YouTube TV subscribers say Google’s relationship with Disney has resulted in an increase in the basic package from $35 to $65 a month. In 2021, YouTube TV said it could offer a basic plan without ESPN for $15 less than it was charging during a dispute with Disney over a content deal.
The lawsuit was filed days before Bob Iger returned to Disney to lead the company. Iger, who succeeded Michael Eisner as CEO in 2005, shepherded Disney through a period of massive growth, largely by pursuing mergers that enhanced its reputation as a global content powerhouse. It bought 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, Fox Searchlight and FX studios. 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 are paying inflated subscription fees, alleges a violation of the Sherman Act.
Disney did not immediately respond to requests for comment.