"That's a wiretap"
No, it's not. It's deep packet inspection for purpose of network management.
"blocking a service without a DMCA notice is criminal."
No, it's not. First, the world is bigger than the US, and second, we do it as sysadmins all the time. We blacklist spammers, and people involved DDoS attacks.
None of this matters, however, to a system like this, which involves watermarking the content, and blocking it on the upstream side. The provider watermarks all the streams of their videos, and when it shows up on the internet somewhere, that subscriber is shut off. Perfectly, completely legal.