Municipalities Want Streaming Services to Pay Franchise Fees

As streaming media services increasingly resemble cable bundles, more towns and counties are looking to regulate them. In Georgia for example, three municipalities filed a federal lawsuit against Netflix, Hulu and other services for as much as 5 percent of their gross revenue in an attempt to treat them as cable services. According to the lawsuit, Netflix earned about $103 million over the recent five years from subscribers in Gwinnett County, Georgia. If treated as a cable provider, that would represent $5.15 million in retroactive fees.

The suit, originally filed in state court last year, states the Netflix, Hulu, Dish Network, DirecTV and Disney’s entertainment distribution division violate Georgia’s 2007 Consumer Choice for Television Act.

The Verge reports that Georgia’s Act “specifies that ‘video services’ must pay a quarterly franchise fee to local governments, unless they’re part of a larger Internet service package or operate wirelessly.” Similar lawsuits have been filed by “towns in Texas, Indiana, Ohio, and Nevada … and in 2018, the city of Creve Coeur, Missouri paved the way by suing Netflix and Hulu under that state’s franchise laws.”

With budgets stretched to the breaking point, municipalities find these suits appealing and “the plaintiffs in these cases are seeking class action status, which would make companies liable for any ‘similarly situated’ state locales as well.” Until now, Netflix and Hulu have been “passing the costs to users” just like TV providers, “something many consumers find irritating or bewildering.”

If any of the current lawsuits succeed, “they could draw streaming services … under a new regulatory umbrella.” The Verge notes that, “even traditional TV providers have moved to online streaming,” which explains why Dish and DirecTV are named in the suits. It adds that the Georgia suit “could have broader, potentially unpredictable effects … [because] its definition seems to potentially encompass many smaller and less profitable streaming video companies.”

Under the rules of the Consumer Choice for Television Act, “the exemption for Internet service packages could give telecom-run streaming offerings” like Comcast’s Peacock an edge. The law “amended existing rules meant for cable TV providers, which pay franchise fees for the right of way to lay wires along public infrastructure like roads.”

“It’s a remnant of how we did cable franchising,” said Public Knowledge legal director John Bergmayer, who noted that it “specifically exempts some services that don’t require that physical access, like programming from mobile services.”

But lawsuits contend that a streaming service counts as a video service, because it is “carried over public Internet lines that require the right of way,” even as they state that “Internet service providers in many states — including Georgia — already pay for broadband rights of way, and the servers are located in data centers, not underground pipes or utility poles on public land.”

“These cases falsely seek to treat streaming services as if they were cable and Internet access providers, which they aren’t,” said a Netflix spokesperson. “They also threaten to place a tax on consumers that the legislature never intended, and we are confident that the courts will conclude that these cases are meritless.”