Georgia Towns Sue Netflix In Flimsy Bid To Nab A Slice Of The Pie

from the good-luck-with-that dept

A handful of municipalities in Georgia have filed a lawsuit (pdf) against Hulu, Netflix, and other streaming providers in a ham-fisted bid to saddle customers with cable franchise fees. Such franchise fees were common in the cable TV era. In large part because such cable providers had a physical presence in local municipalities. They utilized public rights of way, hung their coaxial cable on city-owned utility poles, often had local offices or broadcast hubs, and in some instances provided public access television.

As a result, traditional cable companies struck local franchise agreements requiring they pay the local community for the right to access public property and resources. Since streaming providers (usually) have no physical presence in the states they're doing business, those fees didn't transfer over to the streaming industry. Enter these Georgia towns, which filed a lawsuit not only claiming that traditional cable companies haven't been paying the money they owe, but that streaming providers like Hulu and Netflix should also be paying up:

"Gwinnett County, Brookhaven and Athens-Clarke County are seeking an injunction to keep these video service providers from operating in their municipalities until they acquire the necessary franchises, agree to pay franchise fees in the future and compensate the plaintiffs for the unpaid fees for past service dating back to July 1, 2007 as well as legal fees.

The total amount owed to these municipalities if they win the case could be much more than $5 million."

The towns are leaning heavily on a Georgia law named the Consumer Choice for Television Act. The Act was updated in 2007 to require that "video services" pay the town or city a quarterly franchise fee to municipalities in areas where they use the local internet service provider’s broadband facilities to deliver content. The problem, of course, is aside from local content delivery network hubs (CDNs), the municipalities in question aren't really doing anything that warrants getting a slice of this revenue. That's not stopping them, apparently:

"While competitors such as Charter Communications, Comcast and Cox have paid franchise fees in compliance with this law, DirecTV, DISH, Netflix, Hulu and Disney have neglected to apply for a franchise or pay franchise fees since this law went into effect on July 1, 2007, the court filing claims."

This isn't the first effort of this type. Towns in Nevada, Texas, Indiana, and Ohio have been trying something similar. Companies like Netflix, as you might expect, aren't particularly impressed:

"These cases falsely seek to treat streaming services as if they were cable and internet access providers, which they aren’t,” a Netflix spokesperson told The Verge. "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."

While there's always the chance the case could be heard by idiot judges, I think Netflix is probably right. That said, most of these municipalities have every right to be annoyed, and this is more complicated than just "mean old municipalities are being greedy."

Cities have long been solidly screwed by the telecom and cable industry, which in the early aughts effectively gutted most local (town, city level) franchise agreements. Basically, phone companies like AT&T and Verizon, looking to get into the TV business, whined incessantly about how unfair it was to have to do things like expand broadband and TV service evenly, provide a few public access TV channels, and give local municipalities fair compensation for using city utility poles and public rights of way.

So, over-emphasizing the real occasions where city leaders made unreasonable demands, they lobbied to shift most franchise control to the state level, claiming this would result in greater efficiency, more competition and lower prices. The problem: because state legislatures are more efficiently corruptible by AT&T, Verizon, and Comcast lobbyists, most of these new state agreements by and large screwed cities over, gutted most consumer protections, obliterated local franchise revenue, neutered most of the benefits more local agreements provided (like even broadband deployment), and resulted in state-level agreements that were little more than telecom legislative wish lists.

In the end, cities lost authority and income while facing no shortage of new, costly challenges (like climate change, infrastructure erosion, and COVID). But while it's understandable that municipalities are pissed in the wake of getting railroaded by the telecom sector and losing revenue, trying to claw back this income from streaming providers that have little to no actual presence in these areas doesn't make a whole lot of sense.

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Filed Under: cable tv, franchise fees, georgia, streaming
Companies: hulu, netflix