Irving—The city of Irving joined a lawsuit on Dec. 13 filed by various Texas cities against video streaming producers (VSPs) Netflix, Hulu, and Disney+ seeking franchise fees from these companies because they deliver content using transmission lines, which are public property.
The cities in this suit, Abilene, Austin, Carrollton, Dallas, Frisco, Garland, Grand Prairie, Sugar Land, and Waco, seek monetary relief by asserting these streaming companies should be treated like cable television companies that use the same lines and pay accordingly.
“Irving voted to join other Texas cities in making claims against video service providers Netflix, Hulu and Disney+ for failing to pay the state’s 5 percent gross receipts franchise fee,” the city of Irving said in a prepared statement. “The state mandated fee was implemented by the Texas legislature as payment for use of the cities’ right-of-way lines buried under the streets or hung on poles for transmission of video services. Since it was implemented in 2005, the video service providers have not paid the fee to any Texas city. Subscriptions for video services have increased over the years as people cut their cable cords, and more recently, during the pandemic as people stay at home.”
Texas is not the first state to sue these companies. Three Georgia municipalities, including Gwinnett County in the Atlanta area, filed a $5 million suit against the same companies, joining four Indiana municipalities;Maple Heights, Ohio; a Cleveland suburb, and Reno, Nevada,in seeking franchise fees.
These suits have yet to be resolved.
However, another Texas cityfiled its own case and lost in summer 2021. In August 2021, the city of New Boston, which is in East Texas near the Louisiana border, sued Netflix, Hulu, and Disney+.
On Sep. 30, 2021, a judge in the United States District Court in Texarkana dismissed that case because the companies in question were not holders of state-issued certificates certifying their franchise authority, thus negating any claims New Boston had to collect franchise fees from them.
The Texas suit is being handled by three law firms: Ashcroft Sutton Reyes, McKool Smith, and KoreinTillery, firms which have considerable experience handling similar cases.
In January 2021, Kenner, Louisiananear New Orleans, sued Netflix and Hulu, asking the companies to pay a 5 percent franchise fee under a state law passed in 2008. That suit is pending.
Dallaswas the first Texas city to sue these streaming companies, filing its suit in February 2021 and seeking franchise fees dating back to 2007. Dallas-based AT&T, which owns popular streaming service HBO Max, currently pays franchise fees to the city much like local utilities Atmos Energy and Oncor Electric.
In May 2021, Waco joined while Plano followed in June. Abilene and Grand Prairie joined in November while Austin and Irving did in December.
“We started looking at it early summer,” Plano city attorney Paige Mims said. “I think Dallas authorized before we did. This was being talked about in our peer group, and we were aware of it going on in other states.”
One reason the suit has taken some time to come together is because each city must first gain approval from the Office of the Attorney General before entering into a contingency fee agreement with the law firms handling the case.
“Contingency contracts are you don’t get paid by the hour,” Mims said. “You get paid a percentage if you win. That’s how lawsuits like personal injury [are handled] in the private sector, [cases] that are going to take a lot of time but may have a big payout at the end.”
These cities argue Netflix, Hulu, and Disney+, much like cable companies, should be considered utilities and thus subject to franchise fees under the Texas Public Utility Regulatory Act.
However, the streaming companies argue they are not subject to these fees because they are not public utilities. VSPs cite the Internet Tax Franchise Act, passed in 1998 which initially established a three-year moratorium on state and local entities taxing Internet access.
That moratorium was made permanent in 2016.
Since none of these cases except for the one in New Boston have been resolved, it remains to be seen how these lawsuits will impact these streaming services and consumers.
Should Netflix, Hulu, and Disney+ start losing some of these cases and be required to start paying out franchise fees, viewers can expect the costs of their services to increase accordingly.
Even if the streaming services win in court, their continued expenditureson legal fees to defend themselves could also lead these companies to raise their rates to help offset increased expenses.
Since a majority of Americans currently subscribe to one or more streaming services, the outcomes of these lawsuits are something those who receive their programming via the stream have a vested interest in.