Netflix, Hulu fight Ohio Supreme Court over "video service provider" fees

Daniel Sims

Posts: 448   +18
Staff
Why it matters: Cities across the US have waged a legal battle for years to get streaming services like Netflix and Hulu to pay local governments the same fees cable companies do. The latest case in that fight has reached the Ohio Supreme Court and could cost the streaming companies millions.

Over 2,000 US cities have brought a federal class-action lawsuit against Netflix and Hulu, arguing they should pay franchise fees to city governments. As part of the suit, the Ohio Supreme Court is currently deciding whether to define the two companies as "video service providers" at the request of the city of Maple Heights.

Under a 2007 law, cable companies defined as "video service providers" must pay five percent of their gross revenue to each Ohio city in which they operate. Similar laws exist across the US. One case in Georgia last year threatened to cost Netflix $5 million.

Netflix and Hulu argue those fees should only apply to entities that lay down cables for services like cable and Internet. Neither company runs or controls any cables.

"The statute is very clear. This is about those who dig. They must pay," said Ohio Deputy Solicitor General Mathura Sridharan. "If they don't dig, they don't pay. And I think that is the core principle that animates this entire case."

However, Maple Heights attorney Justin Hawal argues that Netflix and Hulu should pay because cord cutting is taking business away from the cable companies that do pay, effectively decreasing city revenues. Despite not laying their own cables, Netflix and Hulu compete with cable companies by offering much of the same content and producing their own.

Ohio Supreme Court Justice Jennifer Brunner pointed out that the case singles out Netflix and Hulu without mentioning similar companies like Roku, Apple, and YouTube. All three produce content for their streaming services.

Netflix attorney Gregory Garre argued that applying the franchise fee law to streaming services could potentially include anyone who streams their own content online. He said that could mean schools, churches, or courts.

A Lost Angeles judge granted Netflix and Hulu a victory against a California city this week over the same issue. A main point in the streaming services' winning argument is that franchise fees applied to them should also apply to HBO, Disney, and Amazon, which the case didn't include.

Similar cases have occurred in Texas, Nevada, Arkansas, Tennessee, Indiana, and elsewhere. The first court to rule against Netflix and Hulu was in Missouri. Big streaming companies seem like an obvious source of additional revenue for municipalities, but if forced to pay, they could pass those costs to subscribers.

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wiyosaya

Posts: 7,694   +6,633
IMO, this is lame. If the cities want more money, raise taxes instead of preying on video services like this. Of course, though, they don't want to raise taxes as people might leave their cities. But if these services pass the costs on to consumers, how is this not a tax on their citizens?
 

ThrakazogZ

Posts: 56   +81
IMO, this is lame. If the cities want more money, raise taxes instead of preying on video services like this. Of course, though, they don't want to raise taxes as people might leave their cities. But if these services pass the costs on to consumers, how is this not a tax on their citizens?
That's the point. Politicians love finding ways to tax, but not call it taxes, to keep their popularity high for elections. The federal government does it with Tariffs. Everyone knows the people end up paying the tariffs, and not the companies.....but hey....it's not a tax.......
EDIT: Amazon is doing the exact same thing. 5% fuel surcharge to the companies that sell on amazon, but we all know who will end up paying for it........but hey, the headlines won't read "Amazon raises prices", so they're fine with it.
 

p51d007

Posts: 3,149   +2,652
Well of course the cities are "entitled" to those fees...after all, they worked "so hard" to get them.
 

tellmewhy

Posts: 182   +86
IF the cities (and not the state or the nation) they own the land which the private cables have passed then when the private owners of the cables had to dig to that land they had to take permission too from the land owner and at that phase the cities they would had the opportunity to negotiate the rental fee with the cable owners.

So If at that time they had give permission for free they can’t come at a later time and demand for a fee because it’s a breach of contract and a hit to the good faith and to the value of private properties (cables net) and that it’s against the law and the constitution.

And of course they can’t demand that type of fee from third party companies which are medium agnostic. Internet can be wireless too. And why only video and not data? What's the legal reason for this discrimination between video and data?

So if the cities at the beginning they had give permission for free to the cable owners and at a later time they had start to demand a fee then they have to return that money (with interests) from that fee because they took it by breaching the contract which they had with the cable owners for free pass. In the case that they don’t own the lands and they belong to the state or the nation the situation is even worst for them.
 
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passwordistaco

Posts: 205   +498
Cable cos and ISPs pay franchise fees to keep competition out. Not applicable to streaming content providers. Are they going to try to collect from DirecTV and Dish?
 

Theinsanegamer

Posts: 3,360   +5,586
When the cities and the state build out a proper 10Gbps fiber network to every home and business in the state, then and only then may they have the service fees for internet services. Until they they can shove their tax bills up where the sun dont shine.
 

BobHome

Posts: 141   +59
IMO, this is lame. If the cities want more money, raise taxes instead of preying on video services like this. Of course, though, they don't want to raise taxes as people might leave their cities. But if these services pass the costs on to consumers, how is this not a tax on their citizens?
Many cities cannot raise taxes because they already maxed out the amount they are allowed to collect.
Thus, new tactics are needed to fleece us of our money--I mean to fill their pockets--no, no, to take care of their infrastructure. Yeah, that's the ticket. Otherwise, we'd probably just spend in on, um, the increased costs of gas and food.
 

GoldenGoat

Posts: 46   +35
What makes Netflix and Hulu different from any other web site or app that streams video? And what makes video special compared to any other content? Companies like Sling and YoutubeTV are a lot more similar to what Cable Operators deliver. Netflix is not even live video. I don't think it makes any sense at all to make Netflix pay this tax. Though Ohio cities collect income tax from people who are not even residents of the city and therefore can't vote on the tax rate (taxation without representation, wasn't a war fought over that?), so I guess they can get away with whatever tax they want.
 

Athlonite

Posts: 314   +109
And this statement right here is what it's all about

effectively decreasing city revenues

they're just pi(ss)ed because they wont be able to give themselves a bigger pay rise