Texas Cities Sue Streaming Services for Franchise Fees

Two dozen Texas cities have sued streaming giants Netflix, Hulu and Disney Direct-to-Consumer for not paying what the municipalities said are the millions in franchise fees that the streaming services owe them. A favorable decision could lead to millions more from other cities seeking more funds for municipal services. The cities are alleging that the streamers should be paying annual franchise fees back to 2007, as they said is required by the Public Utility Regulatory Act (PURA). Those are the fees that cable/broadband operators provide that go toward city services. “With this lawsuit, we hope to ensure streaming video companies’ compliance with their PURA obligations moving forward and also recoup unpaid franchise fees from the Disney, Hulu and Netflix streaming services as follow-on relief,” Rowlett (TX) Mayor Blake Margolis said, pointing out that the fees are a key source of city revenue. Streaming services may indeed have big pockets, but they argue they are definitely not covered by PURA, which requires video service providers to pay a 5 percent franchise fee “if a video service’s programming is delivered via wireline facilities located at least in part in the public right of way.” While a cable/broadband operator does indeed deliver facilities-based programming, streaming services have no facilities, but ride that operator’s facility —and its use of the public right of way — to the home. So, it is the cable/broadband provider that is the one providing the service to customers.