Judge refuses to dismiss proposed class action lawsuit against Disney

Even though plaintiffs have been denied damages on federal antitrust claims, pressure continues to be on Disne…

Although the plaintiffs were denied damages on federal antitrust claims, Disney continues to apply pressure.

In 2022, YouTube TV subscribers filed a class action lawsuit against Disney to “rectify and recover damages” for the US multinational media and entertainment company’s anticompetitive arrangements with its direct competitors that led to price increases for live streaming pay TV ( SLPTV) ) market”.

The lawsuit was filed in Federal Court in California under Art. 1 of the Sherman Act, and the damages sought were almost twice the subscription price requested by the plaintiff.

Yesterday (June 26), U.S. District Judge Edward Davila denied the motion to dismiss, but also ruled that YouTube TV subscribers will be limited only to seeking an injunction blocking further antitrust violations and will not be able to seek damages in connection with federal antitrust claims.

THE COMPLAINT

The crux of the claim stems from its total operational control over U.S. subscription streaming and content hub Hulu and U.S. international primary sports channel ESPN, which plaintiffs allege caused prices in the SLPTV market to skyrocket. The use of carriage contract mandates, as well as the inclusion of most favored nation clauses to pressure price increases in the SLPTV market, allowed Disney to use its control over Hulu and ESPN to establish and maintain a “floor price level” in the market.

Disney successfully forced competitors to offer ESPN as part of their lowest price bundles through negotiations for horizontal, anticompetitive carriage agreements. Since the company acquired Hulu in May 2019, prices have been seen to have doubled across the market in line with Disney’s own price inflation for Hulu+TV and the negotiation of carriage agreements with all leading competitors in the SLPTV market.

“ONE ECONOMIC UNIT”

Disney acquired ESPN in 1996 as part of its $19 billion purchase of Capital Cities/ABC, which gave Disney an 80% controlling interest in ESPN. The remaining 20% ​​of shares belong to Hearst Communications. Disney acquired the remaining 33% stake in Hulu it did not already own from international telecommunications and media conglomerate Comcast last December for $8.6 billion.

The complaint alleges that Disney operates itself, Hulu and ESPN as a single operating entity, which allows it to negotiate anticompetitive agreements that have resulted in such significant price increases in the SLPTV market. Stating that “ESPN, Hulu and Disney operate as a single economic entity with a common purpose,” the complaint argues that the profits and losses of both ESPN and Hulu are reported and shared “on Disney’s balance sheet” and that Disney has full control negotiations over both entities, which allows for anti-competitive activities.

WHERE IS THE “BASIC PLAN WITHOUT ESPN”?

With market prices doubling in the wake of Disney’s acquisition of Hulu, the complaint also noted a “nearly 100% price increase YouTube TVBasic Package, $35 to $65.”

By including clauses in its contracts requiring competitors to include ESPN in their lowest-priced packages, Disney has deprived competitors of the ability to skip the sports channel, the most expensive cable channel it owns, and sell alternative, narrow packages. These narrow packages, cheaper packages with a lower channel offering, would eliminate the price floors set by Disney and would lead to lower prices across the board.

Consumers have no choice but to purchase a package that includes ESPN, even if they are willing to forego the lower price. This inflation brought prices back to “pre-cord-cutting and cable TV levels,” irritating consumers who abandoned satellite and cable TV in favor of SLPTV services that promised flexibility and price reductions that they now cannot deliver.

YouTube TV publicly stated during the 2021 renegotiation of carriage agreements that freeing itself from its binding agreements with Disney would provide customers with a “basic plan without ESPN” that would be charged $15 less than what is currently required.

In 2015, Disney sued the American multinational telecommunications conglomerate Verizon after it introduced a narrow package without ESPN due to the ambiguity of the agreement regarding the distribution of ESPN on the Internet. Disney argued that changing ESPN as an additional tier of service was a breach of their carriage agreement, to which Verizon ultimately relented.

HEARING?

Competition enforcers, both individuals and governments, are becoming increasingly hostile to mergers in the media sector. In 2023, the Writers Guild of America called for special attention to Disney, Netflix and Amazon, which it says will likely become the industry’s “new gatekeepers.” The guild criticized Disney’s recent mergers with companies such as Lucas Films and Pixar for raising prices and limiting “production and innovation.”

In November 2022, U.S. District Judge Florence Pan blocked the proposed merger of Penguin Random House and Simon & Schuster, writing that the government anticipated “substantial harm to competition as a result of the proposed merger.” In May 2024, the United States Department of Justice filed a lawsuit against Live Nation Entertainment and its subsidiary Ticketmaster, along with American Economic Liberties Project executive director Sarah Miller, arguing that Ticketmaster’s “market power over live events defrauds” fans, in a comment to The Hollywood Reporter from October.

IN Biddle v. Walt Disney Company, The plaintiffs were represented by Brian Dunne, Edward Grauman, Yavar Bathaee and Andrew Wolinsky of Bathaee Dunne.