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Four Indiana cities are suing Netflix and other video companies, saying online video providers and satellite TV operators should have to pay the same franchise fees that cable companies pay for the use of rights of local passage.
The lawsuit was filed against Netflix, Disney, Hulu, DirecTV and Dish Network on August 4 in Indiana Commercial Court in Marion County. The cities of Indianapolis, Evansville, Valparaiso and Fishers want companies to pay the cable franchise fees set out in Indiana’s Video Service Franchise Act (VSF), which requires payment of $ 5. % of gross income in each city.
The lawsuit is based on an unusual legal argument and does not appear likely to succeed. Essentially, the cities claim that Netflix and similar providers are using public rights of way simply by offering video streaming services over the internet:
The defendants transmit video programs to subscribers in Indiana using Internet Protocol and other technologies. In doing so, the defendants transmit their programming through facilities located at least in part within public rights of way within the geographic boundaries of Indiana units, including public rights of way located within the boundaries. geographies of applicants. Therefore, defendants are required by VSF law to pay plaintiffs – and all other units in Indiana in which defendants transmit video broadcasts through facilities located at least in part in a public right-of-way – franchise fees.
“Netflix is clearly not a cable operator”
But streaming companies don’t need to build a physical infrastructure in every city to deliver videos online, so they don’t deploy their own feeds on public rights of way.
“I find it extremely unlikely that this lawsuit will win,” Harold Feld, a longtime telecommunications lawyer and senior vice president of consumer advocacy group Public Knowledge, told Ars. “The [federal] The Communications Act defines terms such as “cable system” and “cable operator” in physical terms. “
As Feld noted, US law defines a cable system as “an installation, consisting of a collection of closed transmission paths and associated signal generation, reception and control equipment designed to provide a cable service ”. Local franchise rules and fees rely on the power of cities to manage their local rights of way.
“Netflix is clearly not a cable operator,” and therefore is not subject to local franchise rules, Feld said. “Also, because broadband is not considered a cable service, Netflix does not offer video programming ‘over a cable system’, which would be required to make it a cable operator.”
Netflix, Hulu, and Disney + are Internet-only services. Dish and DirecTV are primarily satellite operators but also offer online access. The cities lawsuit never mentions the word “satellite” and does not fully explain how DirecTV and Dish use public rights of way. “Defendants DirecTV and Dish have transformed their businesses and delivery methods over the past decade to meet market demands, and subscribers now access their services through facilities located at least in part in a public right-of-way,” indicates the lawsuit, apparently. referring to the new online components of the services.
A little history
Historically, satellite services have not had to pay the franchise fees imposed on cable companies. “For years, cable companies have called franchise fees unfair because competitors who do not need the right of way, such as satellite television or online video services, do not not pay cities a dime, ”The Colorado Sun wrote in a 2019 article.
Contacted by Ars today, a spokesperson for DirecTV owner AT&T said “DirecTV does not use public rights of way and is not covered by the Indiana Video Services Franchise Act.” Dish has fought efforts to impose franchise fees on satellite service providers, stating on its “Fair TV Tax” website that “Require satellite service providers to pay franchise fees or equivalent tax, it’s like asking the cable and telecom companies to pay for orbit. “
Dish declined to comment today. We’ve reached out to Netflix, Disney, and Hulu as well, and will update this story with any answers.
Turnover of urban franchises down
Even if the Indiana state court system agrees with the cities, companies could appeal to federal court and argue that US law prevents local franchise fees on streaming companies. The Federal Communications Commission could also get involved in the legal battle, as it has in cases involving federal preemption of local rules. We contacted the FCC today and will update this article if we get a response.
The lawsuit may have been motivated in part by cities getting less franchise revenue as TV customers switch to online video. “Records maintained by the Clerk-Treasurer of Valparaiso show that the city of Porter County received $ 446,000 in video franchise rights last year, $ 457,000 in 2018 and $ 476,000 in 2017,” the Times wrote. of Northwest Indiana last week.
Valparaiso City Attorney Patrick Lyp told The Times: “Our case helps ensure a competitive market where all who are subject to the fees pay them. The current situation is unfair for the cable operators who have followed the Indiana law. “
The cities lawsuit refers to the broad definition of “video service” in the Indiana Video Service Franchise Act, which defines video service as “(1) the transmission to subscribers of video and other programs. programming services: (A) through facilities located at least in part within a public right of way; and (B) regardless of the technology used to provide the video programming or any other programming service. “Netflix and the other defendants should be compelled” to acquire the necessary franchises, pay the required fees in the future, and indemnify the plaintiffs and all other government units for unpaid past service charges, “the trial.
A similar lawsuit was filed by the city of Creve Coeur, Missouri, in 2018. Netflix sought dismissal of the Creve Coeur case in federal court, claiming it distributed video programs “exclusively over the public Internet”. The case has been transferred to the Twenty-First Missouri State Court, where it is still pending.
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