The Netflix logo is displayed at Netflix’s Los Angeles headquarters. (Photo by Mario Tama/Getty Images)
A small Ohio city asked the Supreme Court to declare that streamers like Netflix and Hulu are “video service providers” under state law and therefore must pay a franchise fee to their customers’ localities.
As people increasingly sever ties with cable companies and opt for streaming services — be they live television offerings like sports or on-demand movies and shows — cities have lost on the franchise revenue.
Ohio cities can charge up to 5% of providers’ gross revenue for businesses that provide “video programming over wires or cables” located at least in part on public rights of way. However, it excludes video programming provided solely via a service that offers content “over the public internet.” The fee has typically been paid by cable companies.
An attorney for Maple Heights, a Cleveland suburb of 23,000, argued that Netflix and Hulu’s content is “indistinguishable” from cable companies. Moreover, it reaches customers’ screens via wires and cables that run through public spaces, even if the streamers don’t operate the hardware themselves.
“Netflix and Hulu rely on the same infrastructure,” said Justin Hawal, representing Maple Heights.
The streamers, through their attorneys, said their content is different from standard cable service. They offer on-demand movies and shows as opposed to the cable model of channels with live TV (Hulu also offers a similar live TV package, however). Additionally, they said the law calls for a “facilities-based” scheme, centered around who builds the hardware systems.
“This is about those who dig — they must pay,” said Mathura Sridharan, an attorney representing the Ohio attorney general, who sided with the streamers.
“If they don’t dig, then they don’t pay. That’s the core principal that animates this entire case.”
The law passed in 2007, when Hulu didn’t yet exist, and Netflix was mailing customers DVDs and just beginning to offer streaming services.
Both liberal and conservative justices on the court needled at Hawal with an array of skeptical questioning.
Justice Melody Stewart, a Democrat, asked Hawal about other forms of video accessed over the internet. Should TikTok, a social media company where users create short video clips to share, pay franchise fees if it relies on infrastructure from internet service providers? What about the Supreme Court itself, which hosts a livestream of court proceedings on its website?
Hawal said Netflix and Hulu offer comparable programming to a cable company. A TikTok or a recording of a government meeting aren’t the kinds of things people turn on the TV to watch. Both Justice Jennifer Brunner, a Democrat, and Justice Patrick Fischer, a Republican, questioned whether the issue calls for a policy change rather than judicial intervention.
“Shouldn’t it be up to the statehouse a block and a half away instead of the courthouse to get the law changed?” Fischer said.
Maple Heights filed its lawsuit, a class action, in federal court in 2020. In July, U.S. District Judge James S. Gwin asked the court to answer two certified questions: Are Netflix and Hulu “video service providers” under state law? And does Maple Heights have standing to bring the case in the first place?
Both Dish Network — which owns both cable and streaming companies — and Ohio Attorney General Dave Yost have filed legal arguments supporting Netflix and Hulu.
The city versus streamer dynamic isn’t unique to Ohio. Cities in at least 13 states, according to a review from Bloomberg Law, have filed similar legal action with mixed success. Most those cities, like those of Ohio, have seen dwindling budgets over the years, further threatened by residents’ transition from cable to streaming services.
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