Judge allows lawsuits brought by DirecTV, YouTube TV customers against Disney to move forward

A federal judge in California has ruled that the Walt Disney Company must face a potential class-action lawsuit brought by current and former subscribers of AT&T-owned pay television platforms and Google-backed YouTube TV last year.

The order, issued last week by District Judge Edward Davila in San Jose, tossed out significant chunks of two proposed — and identical — class-action lawsuits brought by several subscribers of DirecTV Stream and YouTube TV, who are aggrieved by ever-increasing prices for television service that they say is due in part to expensive licensing costs associated with ESPN.

The cases mainly center around a clause in Disney's distribution agreements that require pay TV providers to make ESPN available in their base programming package. The condition is not too far off from similar terms imposed on cable and satellite companies — and the plaintiffs argue that the carriage of ESPN is the primary reason why the costs associated with pay TV packages have increased sharply over the years.

But that term prevents customers of DirecTV and its two sister properties from subscribing to a live television package that excludes the ESPN channels, which plaintiffs say would be substantially cheaper.

How much cheaper? The plaintiffs say at least $15, drawing upon a promise made by YouTube TV to subscribers in which the streaming service promised to lower the rate of its base programming package from $65 a month to $50 a month as it stared down a potential carriage dispute with Disney in 2021.

After a two-day programming blackout, YouTube TV and Disney reached a new deal covering ESPN and several other Disney-owned channels, including ABC, FX, Freeform and National Geographic. But the $15 price point caught the attention of DirecTV subscribers, who leveraged that price as the cornerstone of their antitrust lawsuit filed last year, arguing Disney's market power was tremendously influential across the entire streaming live TV marketplace.

Earlier this year, attorneys for Disney filed a motion to dismiss, and later followed up with a motion to stay the case. In the motions, Disney said the plaintiffs in the case couldn't prove that the company had too much influence over a "relevant market," as required under federal antitrust law, and that the subscribers couldn't simply rely on Disney's carriage agreement terms — specifically, that ESPN is bundled with other Disney-owned channels — to allege reduced competition in the marketplace and an injury to streaming TV customers.

Last week, Davila agreed with Disney on the last point, and said the plaintiffs in the case couldn't pursue monetary damages based solely on the bundling terms between Disney and the streaming live TV services. But he sided against Disney over its concentration of market power, saying the plaintiffs were free to continue pursuing an antitrust case on the basis that its deals with DirecTV, YouTube TV and others concerning ESPN drive up the cost of subscriptions for all customers, whether they want the sports network or not.

To that point, the judge agreed with the plaintiffs that Disney's majority ownership of Hulu — which offers ESPN in its live TV package — ultimately forced upstart streaming services to also offer the channel if they wanted to compete on equal footing.

"In addition to alleging reduced consumer choice and increased prices, plaintiffs allege that Disney’s anticompetitive conduct has strengthened the CSIBE (Carriage and Streaming Infrastructure Barrier to Entry) to prevent entry by a potential rival because a new entrant would need to contract with Disney in order to obtain 'several notable channels,' such as ESPN, that are on every [streaming live TV platform]," Davila wrote in his ruling.

Davila continued: "Taken as true, these allegations are sufficient at the pleading stage to state an injury to competition in violation of Sherman Act," the federal antitrust law that bans monopolistic practices among businesses.

Even without the ability to get financial penalties, the plaintiffs could still get a legal injunction that would prevent Disney from imposing restrictive terms on streaming live TV services in the future.

It wasn't clear if the plaintiffs were going to proceed with the case or file an amended complaint by the middle of the month. They have until October 16 to re-file an amended complaint or move forward with seeking an injunction.