The Federal Trade Commission last week charged DirecTV with deceptive advertising practices in a complaint filed in the United States District Court for the Northern District of California, San Francisco Division.
DirecTV, which has been in discussions over a potential merger with AT&T, currently has more than 20 million subscribers across the United States. It is the largest provider of multichannel video direct-to-home satellite television services.
The FTC alleged that the company failed to make clear that a discounted 12-month programming package required a two-year contract, and that subscribers who wished to drop the service would face a US$480 cancellation fee.
In addition, the FTC claimed that DirecTV did not make it clear to subscribers that the cost of the package could increase by up to $45 more per month in the second year.
Moreover, the FTC alleged that DirecTV required its subscribers to cancel premium channels after a free three-month trial or face automatic charges.
The FTC is seeking a court order to bar DirecTV from engaging in further deceptive advertising, as well as a monetary judgment that could be used to provide refunds to affected consumers.
“DirecTV misled consumers about the cost of its satellite television services and cancellation fees,” said FTC Chairwoman Edith Ramirez.
“DirecTV sought to lock customers into longer and more expensive contracts and premium packages that were not adequately disclosed,” she added. “It’s a bedrock principle that the key terms of an offer to a consumer must be clear and conspicuous, not hidden in fine print.”
DirecTV offered customers premium channels — such as HBO or Showtime — “free for three months,” but it failed to disclose with sufficient clarity that it thereafter would levy charges to subscribers’ bills automatically unless they proactively canceled the plan before the trial period ended, the FTC alleged.
DirecTV has denied the agency’s claims.
“The FTC’s decision is flat-out wrong, and we will vigorously defend ourselves for as long as it takes,” said DirecTV spokesperson Cara Brugnoli.
“We go above and beyond to ensure that every new customer receives all the information they need, multiple times, to make informed and intelligent decisions,” she told the E-Commerce Times. “For us to do anything less just doesn’t make sense.”
The devil may be in the details.
“The likely defense is that the ads were not in fact misleading to consumers — that the ads were short but that the terms appeared in the contract [and] on the website — though the FTC claims it wasn’t up front on the website either,” said Orly Lobel, a law professor at the University of San Diego.
“The judge will have to interpret what is ‘deceptive and misleading’ to an average consumer, and that is a … case-by-case inquiry, depending on the norms of the industry and so forth,” she told the E-Commerce Times.
“The remedies can range from monetary fines to an injunction to stop the advertising, to corrective measures of putting out statements and ads over the next couple of years with apologies and clarification of the actual terms,” Lobel added. “DirecTV could also be hit by a class action.”
DirecTV may not be alone in placing crucial billing details in small print.
“It is clear that these practices exist,” said Erik Brannon, senior analyst for U.S. television at IHS Technology.
“This case with the FTC likely stems from consumer complaints, but if you look at the fine print it isn’t really that hard to find,” he told the E-Commerce Times. “Most pay-TV operators operate the same way, and as a category, there is a culture of a fine line between honest and deceptive advertising that is the norm.”
If DirecTV is compelled to change the way it markets its services to consumers, it could change the industry. Moreover, it could put the merger deal between DirecTV and AT&T — as well as the Comcast and Time Warner Cable merger — under greater scrutiny.
“Those mergers will get a closer look, but the ultimate beneficiary in this case is going to be the consumer,” noted Brannon. “The fallout will be a greater resolution of the true nature of what you’re signing up for, and the fine print won’t be so fine.”