Disney faces antitrust lawsuit over broadcast 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 supplier and distributor in business deals.

Disney operates Hulu, the nation’s second-largest live streaming pay-TV provider, and also controls ESPN. The proposed class action accuses Disney of operating the businesses as a single entity and claims that the arrangement allows the company to enter into anti-competitive agreements with competitors that raise the price of live television broadcast over the Internet.

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

“After Disney acquired operating control of Hulu in May 2019, prices around the world [streaming live pay television] The market, including YouTube TV, has doubled,” the complaint says. “This dramatic, market-wide price inflation was driven by Disney’s own price increases for Hulu + Live TV.”

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

Without this requirement, Disney would not be able to prevent competitors from selling “skinny” packages that offer subscribers limited live TV channels, according to the complaint.

Cable TV providers have long criticized Disney’s affiliate fees to air ESPN and its sister networks as part of a cable package. Such fees are widely acknowledged to be the main reason behind the rise in basic cable prices over the past decade. In 2015, ESPN’s affiliate fee was more than four times the broadcast fee of TNT, which has the second highest fee after ESPN.

ESPN’s leverage has been weakened by cable-cutting and viewers shifting away from cable TV. This was largely due to consumers having to pay for channels they didn’t watch or wanted. They flocked to lower cost or free alternatives.

The first significant surge came from traditional cable and satellite television providers, which controlled Internet providers. For example, in 2015, Verizon began offering “skinny” packages, taking advantage of an ambiguity in contracts that did not explicitly cover ESPN’s Internet distribution. Ending Disney’s longstanding mandates on pay-TV packages. Disney sued Verizon, claiming that its downgrading of ESPN as an add-on was a breach of its carriage agreement. Verizon finally relented.

The lawsuit also seeks to require ESPN to contractually include ESPN as part of any basic cable package and to enforce so-called “most-favored-nation” provisions of ESPN affiliate fees negotiated with any competitor as part of those agreements. an industry-wide price floor. That means if Disney raises the price for Hulu with Live TV, which it’s working on, its competitors must too.

YouTube TV subscribers say Google’s deals with Disney have resulted in the basic package increasing from $35 to $65 a month. In 2021, YouTube TV said it could offer the basic plan without ESPN for $15 less than it was charging during the dispute with Disney over the 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, has led Disney through a period of massive growth, pursuing mergers that have 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 2019 in a deal that included 20th Century Fox studio, Fox Searchlight and FX Networks. bought Fox for $71.3 billion.

Today, some acquisitions will be challenged by competition watchdogs focused on consolidation in the media industry.

The complaint, which seeks to represent nearly five million YouTube TV subscribers who say they pay exorbitant subscription fees, alleges violations of the Sherman Act.

Disney did not immediately respond to requests for comment.

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