The U.S. Department of Justice has launched an investigation into whether a proposed transaction involving the marriage of Fubo and the Walt Disney Company’s pay television businesses violates federal antitrust laws.
The move comes four months after Fubo agreed to settle its civil lawsuit against Disney and two other broadcasters over the formation of a joint venture that was developing a rival sports streaming service, one that intended to undercut Fubo and other pay TV providers on price and programming.
The settlement in the case was structured as one independent of Disney’s plan to merge its Hulu-based pay TV business with Fubo, though it was announced on the same day. The joint venture, called Venu Sports, has since been called off, with Disney and its other two participants, Fox Corporation and the Walt Disney Company, agreeing to pay Fubo a $220 million to end the lawsuit.
The merger of Fubo and Disney’s pay TV businesses was to be effectuated through the launch of a new standalone company, called “NewCo,” which consisted of Fubo’s executive team and Disney’s cash. Fubo would remain a publicly-traded company through the formation of NewCo, and its executives would operate the Fubo and Hulu with Live TV services under common ownership. Disney would own a controlling 70 percent stake in the business.
The plan raised red flags with some federal lawmakers, who questioned whether Disney had wiggled its way out of the antitrust lawsuit on Venu Sports by effectively agreeing to buy Fubo. One month after the deal was announced, Senator Elizabeth Warren sent a letter to federal prosecutors urging them to investigate the agreement.
“Disney’s acquisition of Fubo…threatens to eliminate substantial competition between current competitors, which could suggest the merger may substantially lessen competition,” Warren wrote.
At the time, it wasn’t clear if the DOJ would take up the matter — shortly after the merger was announced, President Donald Trump took office, and his administration has been viewed as one that is favorable to media mergers and acquisitions.
But Disney has ruffled feathers with Trump in the past: Earlier this year, FCC Chairman Brendan Carr sent a letter to Disney CEO Bob Iger with numerous complaints about how the company’s broadcast network, ABC, handled its business, including the company’s commitment to diversity and equity initiatives. The letter came several months after Trump settled a defamation lawsuit against Disney over remarks made on an ABC News program.
On Tuesday, the website Puck reported that the DOJ is moving forward with an antitrust review of the matter, noting that the ” investigation itself shouldn’t be surprising” because Disney’s deal with Fubo “effectively ended antitrust litigation between two rivals.”
Both companies have received requests from federal antitrust investigators for the procurement of documents related to the merger, according to a source who spoke with The Desk on condition of anonymity. The request also covers the settlement involving Venu Sports, even though it was structured as separate from the pay TV merger, the source said. Puck also reported that the DOJ was seeking records related to the pay TV transaction, but didn’t specify what was sought.
Even if the merger is challenged in court — there is no indication that things are headed that way just yet — Fubo ultimately obtained what it wanted from its earlier antitrust lawsuit.
Venu Sports was marketed as a way for fans to receive access to live broadcast and cable networks that offered sports programming, without having to pay for cable news and entertainment channels that drive up the cost of service. That arrangement is substantially different from how Fubo and other pay TV providers have offered channels, largely because the broadcasters dictated distribution terms that required news, sports and entertainment networks to be bundled and sold together.
The Fubo lawsuit argued this was unfair, because Venu Sports was backed by broadcasters who were offering favorable terms to their joint venture while saddling it and other pay TV services with a substantially worse deal. Over time, Disney and others have renegotiated their agreements with pay TV providers — including Fubo — that gives them greater flexibility to distribute packages of channels based on genre, including sports.
Fubo has announced plans to launch a lower-cost, sports-inclusive package at some point in the near future, and its distribution deal with Disney and others will continue to allow it to do just that, even if its pay TV merger falls apart.
