A San Francisco federal judge says Walt Disney Co. can't wish away a class action lawsuit accusing the entertainment giant of allegedly leveraging its control of both sports network ESPN and TV streaming service Hulu to force all TV streaming customers to pay more than they otherwise should for their streaming subscriptions.
On June 25, U.S. District Judge Edward J. Davila ruled that a group of subscribers to television streaming services YouTubeTV and DirecTV Stream have done enough so far to back their claims that Disney has exerted too much improper control of the streaming TV marketplace.
The judge said they can continue with their class action lawsuit. But the judge said they may not be able to collect any damages under federal antitrust law.
U.S. District Judge Edward J. Davila
| Cand.uscourts.gov/
The decision breathes new life into a class action lawsuit filed first in 2022, accusing Disney of wrongly jacking up the prices all TV customers must pay for their streaming TV services, allegedly as part of a bid toe preserve profits for Disney's ESPN property as more and more people opted to cancel traditional pay TV services, such as cable and satellite television.
According to court documents, "ESPN hemorrhaged tens of millions of customers from about 2012 through 2017, as online platforms like Netflix, Hulu and Amazon Prime made non-sports pay TV programming increasingly available" via streaming, rather than traditional pay TV models.
"... The remaining subscribers - who wanted live TV - comprised too small a pool to sustain the massive television revenues Disney had historically realized from the high prices if charged for ESPN," the judge wrote.
At that time, Disney gained control of online streaming TV service Hulu, and moved quickly to raise prices from $39.99 a month to $74.99 by the end of 2022. And Disney then allegedly began to lean on other online TV streaming services, using their market and product power, as owners of both Hulu and ESPN, to press the others to agree to new, more expensive "carriage agreements" for ESPN, resulting in the other streaming services providers raising prices.
A traditional clause known as an MFN, or "most favored nation" clause, in the carriage agreements worked to ensure "an industrywide price" for ESPN and other Disney entertainment products.
According to court documents, the results are that "the competitors charge roughly the same price for their services; no price increase for either service has been met with price competition in the form of lowered prices by a competitor."
The plaintiffs seek to expand the action to include millions of Americans who subscribe to YouTube TV and DirecTV Stream, including special so-called "subclasses" of plaintiffs for claims brought under state consumer protection and antitrust laws, including in California, Arizona, Florida, Michigan, New York and Nevada, among others.
Plaintiffs are represented by attorneys Brian J. Dunne, Yavar Bathaee and others with the firms of Bathaee Dunne LLP, of New York, and Austin, Texas; and Korein Tillery PC, of San Diego and Chicago.
Disney moved to dismiss the lawsuit, claiming the assertions fell short under antitrust law.
But Judge Davila said the plaintiffs had done enough so far to establish their claims.
"... Plaintiffs have specifically alleged that the terms of the MFN provision permit Disney to set a price floor and raise its competitors' ESPN prices (which translate to the subscription package prices) whenever it raises Hulu's prices," Judge Davila wrote.
Further, the judge said the plaintiffs "plausibly allege that Disney's combined actions in the upstream and downstream markets prevent players in the relevant downstream SLPTV (streaming live pay TV) market ... from engaging in competitive actions such as lowering price to gain additional subscribers," the judge wrote.
In addition to allowing actions to continue against Disney under federal antitrust law, the judge further allowed state-law based counts in the complaint to continue against Disney in all states except Illinois and Tennessee.
The judge said all of the other states' antitrust laws were similar enough to the federal law for the analysis conducted under federal law to also apply to those state-law-based claims.
The judge, however, said Illinois and Tennessee laws operate differently.
Specifically, in Illinois, Davila said the Illinois law does not permit claims from so-called indirect purchasers who pay more under so-called "pass-on" damages.
In this case, the judge said the plaintiffs have presented such "pass-on" damages, because they allege they were made to pay more as subscribers to YouTube TV and DirecTV Stream, not as direct customers of Disney themselves.
The complaint, the judge said "does not alleged that Plaintiffs purchased SLPTV subscription packages from a member of a conspiracy, but rather from a victim of Disney's anticompetitive conduct."
For that same reason, the judge said previous federal case law precedent prevents judges from awarding damages to antitrust plaintiffs presenting "pass-on" damages claims.
Disney did not respond to a request for comment about the decision from The Record.
Disney is represented in the case by attorneys Christopher C. Wheeler, J. Wesley Earnhardt and others with the firms of Farella Braun + Martel LLP, of San Francisco; and Cravath Swaine & Moore LLP, of New York.