The Walt Disney Company has urged the Federal Communications Commission (FCC) to dismiss a complaint filed by satellite and streaming pay TV provider DirecTV, saying the complaint largely rests on a misunderstanding of a proposed term that was put forward during a carriage negotiation last month.
In a brief filed with the FCC on Monday, attorneys representing Disney said the term, known as a “clean slate” provision, is common in agreements between broadcasters and pay TV distributors, and that the term isn’t necessarily illustrative of a failure to reach an agreement in good faith.
The complaint came after DirecTV was unable to reach a new agreement with Disney for continued carriage of its channels in September. The dispute ultimately forced DirecTV to pull around a dozen pay TV networks owned by Disney, including ESPN, FX, National Geographic and Freeform. It also resulted in DirecTV dropping ABC-owned stations in eight markets from its satellite service, and all ABC stations and affiliates from its streaming platforms.
Under federal law, programmers like Disney are allowed to seek retransmission consent from pay TV providers like DirecTV in exchange for the privilege of distribution broadcast and cable channels to TV subscribers. Those deals usually involve companies like Disney demanding a fee for rights to redistribution channels, though in the case involving DirecTV, the satellite company was holding out for more-favorable channel bundling terms.
Federal law requires both sides to negotiate toward a new agreement in good faith, though the term “good faith” is ambiguous. One week after Disney-owned channels were pulled from its service, DirecTV filed its complaint with the FCC, arguing Disney was not negotiating in good faith as required.
Related: DirecTV files FCC complaint against Disney, arguing good faith violation
The satellite platform leveraged the agency’s recent decision in a complaint filed by Hawaiian Telcom against broadcaster Nexstar, through which it determined that Nexstar’s requirement that Hawaiian Telcom drop a pending FCC complaint and agree not to file future ones was proof of a good faith violation. (The FCC fined Nexstar $720,000 over the matter; the broadcaster is appealing the fine.) DirecTV said the situation was substantially similar because Disney’s insistence on a “clean slate” term restrained it from characterizing the company’s bundling terms as anticompetitive in court — something at least one DirecTV executive did earlier in the year when he filed an affidavit supporting Fubo’s still-ongoing lawsuit against Disney and two other broadcasters.
On Monday, attorneys representing Disney said they were surprised by the FCC complaint, because clean slate clauses are common in carriage agreements. The attorneys claimed DirecTV misunderstood Disney’s intent with the clean slate provision, which was to resolve outstanding legal issues, and not to prevent the company from filing complaints with the FCC. The FCC has jurisdiction over DirecTV’s complaint because the dispute between it and Disney involved carriage of eight ABC TV stations, which are licensed and regulated by the agency.
Attorneys representing Disney say the two sides started negotiating toward a new agreement in January — or eight months before its contract with DirecTV was set to expire. At some point during those discussions, Disney proposed the clean slate term, which they said is not unusual, as prior agreements with DirecTV contained the clause.
The clean slate proposal was reiterated to DirecTV during a phone call on August 31, and was one of “over 100 open points of negotiating,” Disney’s lawyers say. Disney insisted on the clean slate term as a condition of carriage, the attorneys wrote. When talks broke down, DirecTV pulled Disney-owned channels one day later.
“Thereafter, Disney continued its extensive negotiations with DirecTV with the goal of quickly narrowing the open issues and reaching a tentative agreement so as to restore the Stations’ and the Company’s other content for DirecTV’s subscribers while the parties finalized the various agreements,” the attorneys wrote. “While the parties continued to exchange counterproposals, including on the topic of a clean slate agreement, that specific proposal was not the focus of negotiations during this period.”
It very much became a focus of negotiations on September 7, when DirecTV sent its pending FCC complaint to their counterparts at Disney. Attorneys for Disney contacted DirecTV the next day, with a confirmation that the broadcaster “had never intended the clean slate provision to curtail DirecTV’s ability to file a complaint with the FCC.”
Both sides reached a new carriage agreement about a week later. At the time, a spokesperson with DirecTV declined to say whether the new agreement included the clean slate provision that Disney sought, asserting that the company’s view on retransmission consent agreements and channel bundling arrangements were well-documented.
The deal did not resolve DirecTV’s complaint at the FCC, which is still pending, much to the surprise of Disney’s attorneys who believe the matter is now moot.
To that point, Disney says DirecTV misconstrued the FCC’s prior decisions in similar good faith complaints and “embellish[ed] its argument with collateral and immaterial issues.”
Among other things, Disney says DirecTV misinterpreted the FCC’s finding in the Hawaiian Telcom-Nexstar dispute and misapplied it here. In that case, the FCC ruled against Nexstar because the broadcaster had specifically sought to restrain Hawaiian Telcom from moving forward with its initial FCC complaint; in the issue involving DirecTV and DIsney, there was no explicit prohibition in filing an FCC complaint nor in the future as a condition of carrying Disney-owned channels, they said.
“The Bureau did not state generally that all clean slate proposals are inconsistent with competitive marketplace considerations,” attorneys for Disney wrote.
Disney also said the clean slate provision could actually benefit DirecTV in the future because those clauses largely prevent broadcasters from suing cable and satellite companies when their subscriber counts turn out to be erroneous. They also prevent pay TV platforms from suing broadcasters like Disney “for claims regarding the application of most-favored nation clauses after the parties have negotiated a new retransmission consent agreement.”
“Disney’s general proposal in the August 31, 2024 issues list made no reference whatsoever to the filing of complaints before regulatory authorities, including the FCC,” the attorneys wrote. “And the FCC does not resolve claims concerning breaches of privately negotiated contractual agreements. It resolves claims about whether a party has breached its duty to negotiate in good faith under its own rules. Here, a review of the full record of the negotiations between the parties…would lead any rational fact finder to conclude that Disney has more than met that duty.”
Disney characterized the dispute as one involving “sincere disagreements and take positions at odds to the other’s interests,” but assured the FCC that “at no time during the course of this negotiation did Disney act in bad faith, nor has DirecTV alleged facts that demonstrate a breach of the duty to negotiate in good faith.”
“Therefore, its Complaint should be dismissed without further consideration,” the attorneys wrote.
