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Disney hit with antitrust suit over live streaming TV prices

An antitrust suit has been filed against The Walt Disney Company in a case that focuses on the entertainment monolith’s dual role as a content provider and distributor in business transactions.

Disney operates Hulu, the country’s second-largest pay-TV provider for live streaming, while also operating ESPN. The proposed class action accuses Disney of running the companies as a single entity, claiming that the arrangement allows the company to enter into anti-competitive agreements with competitors that have driven up the cost of live television streamed over the Internet.

The lawsuit brings YouTube TV subscribers, who filed the lawsuit Friday in California federal court, against Disney. They point to business transactions that actually allow the company to “establish 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 have increased around the world [streaming live pay television] The market, also for YouTube TV, has doubled,” the complaint reads. “This dramatic, market-wide price inflation is being driven by Disney’s own price increases for Hulu + Live TV.”

The suit references guidelines in Disney’s contracts with live-streaming pay-TV competitors that require them to have ESPN as part of the cheapest bundle they offer. The term effectively limits the ability of Disney’s rivals 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” bundles that give subscribers a limited supply of live TV channels, the complaint said.

Cable television 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 main driver of basic cable price increases over the past decade. In 2015, ESPN’s affiliate fee was a whopping four times the fee for broadcasting TNT, which had the second highest fee after ESPN.

ESPN’s influence waned with the advent of cable cutting and viewers shunning cable television. This was due in large part to consumers’ aversion to having to pay for channels they don’t watch or want. They flocked to cheaper or free alternatives.

The first substantial salvo came from traditional cable and satellite TV providers who also controlled Internet service providers. For example, Verizon began offering so-called “thin” bundles in 2015, exploiting ambiguity in contracts that did not expressly address distribution of ESPN over the Internet, to end Disney’s long-term mandates on pay-TV packages. Disney sued Verizon, claiming that downgrading ESPN as an add-on tier was a violation of its carrier agreement. Verizon eventually capitulated.

The lawsuit also seeks ESPN to contractually require ESPN to be included as part of every basic cable package and to impose so-called “most favored nation” clauses as part of these agreements, which ensure that ESPN-affiliated fees paid with a negotiated with a particular competitor represent an industry-wide price floor. This means that if Disney raises the price for Hulu with Live TV, which it operates, its competitors must do the same.

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

The lawsuit was filed days before Bob Iger returned to Disney to run the company. Iger, who succeeded Michael Eisner as CEO in 2005, guided Disney through a period of tremendous growth, primarily by pursuing mergers that cemented 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 20th Century Fox studio, Fox Searchlight and FX Networks.

Today, some of the acquisitions would likely be challenged by competition law enforcement officials who have turned their attention to consolidation in the media industry.

The complaint, which seeks to represent about 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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