An antitrust lawsuit has been filed against The Walt Disney Company in a case alleging the entertainment monolith’s dual role as a content supplier and distributor in commerce.
Disney operates Hulu, the country’s second-largest live-streaming pay-TV provider, while also controlling ESPN. The proposed class action lawsuit accuses Disney of conducting business as a single entity and alleges that the agreement allows the company to negotiate anti-competitive agreements with competitors that have skyrocketed the cost of live television streamed over the Internet.
The lawsuit pits YouTube TV subscribers against Disney, who filed the lawsuit Friday in a California federal court. They point to business relationships that effectively give the company the ability to “floor price” the market and drive up prices across the industry by raising the prices of its own offerings.
“Since Disney took operational control of Hulu in May 2019, pricing has been on the whole [streaming live pay television] The market, including for YouTube TV, has doubled,” the complaint reads. “This dramatic, market-wide price inflation was led by Disney’s own price increases for Hulu + Live TV.”
The lawsuit cites policies in Disney’s contracts with live-streaming pay-TV competitors that require them to carry ESPN as part of the cheapest package they offer. The term effectively limits the ability of Disney’s competitors to offer an option that omits ESPN, the most expensive cable channel Disney owns.
Without this requirement, Disney would not be able to prevent competitors from selling so-called “skinny” packages, which offer subscribers a limited range of live TV channels, according to the complaint.
Cable TV providers have long criticized Disney’s affiliate fees for broadcasting ESPN and its sister networks as part of a cable package. It is widely believed that such charges have been the main reason for fundamental cable price increases over the past decade. In 2015, ESPN’s affiliate fee was four times the fee for broadcasting TNT, which had the second highest fee after ESPN.
ESPN’s influence eroded with the advent of cable cutting and viewers’ avoidance of cable television. This was in large part due to consumers’ reluctance to pay for channels they don’t watch or want. They flocked to cheaper or free alternatives.
The first significant salvo came from traditional cable and satellite television providers, which also controlled internet service providers. For example, in 2015, Verizon began offering so-called “skinny” bundles, taking advantage of ambiguity in contracts that didn’t specifically cover ESPN’s distribution over the internet. to end Disney’s longstanding mandates for pay-TV packages. Disney sued Verizon, claiming that downgrading ESPN as an add-on tier was a violation of its carriage agreement. Verizon eventually capitulated.
The lawsuit also alleges that ESPN contractually requires ESPN to be part of every basic cable package and, as part of those agreements, imposes so-called “most-favoured-nation clauses” that ensure ESPN affiliate fees are negotiated with a given competitor at an industry-wide price floor. That means if Disney raises the price of Hulu with live TV it powers, its competitors will have to do the same.
YouTube TV subscribers say Google’s deals with Disney have resulted in an increase in the base package from $35 to $65 per month. In 2021, YouTube TV said it could offer a basic plan without ESPN for $15 less than it was charging during a content agreement feud with Disney.
The lawsuit was filed days before Bob Iger returned to Disney to run the company. Iger, who succeeded Michael Eisner as CEO in 2005, led Disney through a period of massive growth, primarily through mergers, that bolstered 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 FX Networks.
Today, some of the acquisitions would likely be challenged by competition watchdogs who have turned their attention to consolidation in the media industry.
The complaint, which is said to represent around five million YouTube TV subscribers who say they pay excessive subscription fees, alleges a violation of the Sherman Act.
Disney did not immediately respond to requests for comment.