Franchise Fees And Streaming TV ' Municipalities Across The Country Seek To Subject Netflix, Hulu, Amazon And Others To Franchise Fees To Offset Declining Revenue From Cable TV Providers

• Published date: 22 February 2022
• Subject Matter: Corporate/Commercial Law, Media, Telecoms, IT, Entertainment, Corporate and Company Law, IT and Internet, Broadcasting: Film, TV & Radio, Franchising
• Law Firm: Duane Morris LLP
• Author: J. Tyson Covey

A billion-dollar battle continues to play out in lawsuits pitting municipalities against providers of over-the-top ('OTT') video streaming services, like Netflix or Hulu. For decades, municipalities have raised revenues by collecting 'franchise fees' from cable TV providers that needed to construct, install, or operate their facilities in public rights-of-way. More recently, however, many consumers have 'cut the cord' on traditional cable TV service in favor of streaming services. That reduces cable companies' revenues, thus reducing the franchise fees they pay based on a percentage of revenues. And that hits municipalities in the bottom line. In at least 14 states, municipalities have reacted by suing OTT streaming companies, asserting that they owe franchise fees under the statewide video franchising statutes passed in many states in the 2000s to reduce entry barriers and boost video competition with cable. The stakes are high, as municipalities seek both back payments and to impose the fees going forward.

Threshold Question - Jurisdiction and Comity Abstention. A threshold issue in many of these cases is whether they can be removed to federal court. The Seventh Circuit sent one case back to Indiana state court by relying on the doctrine of comity abstention under Levin v. Commerce Energy, Inc., 560 U.S. 413 (2010), reasoning that state courts were better positioned to address claims regarding local revenue collection and taxation, even when federal-law defenses were raised. City of Fishers, Indiana v. DirecTV, 5 F.4th 750 (7th Cir. 2021). A district court judge in Missouri remanded another case to state court on the same basis. City of Creve Coeur, Missouri v. DirecTV, LLC, 2019 WL 3604631 (E.D. No. Aug. 6, 2019). And the same kind of jurisdictional issue is currently pending at the Eleventh Circuit, where OTT streaming providers are challenging a Georgia district court's remand order. No. 21-13111 (11^th Cir.), appealing Gwinnet County, Georgia v. Netflix, Inc., 2021 WL 3418083 (N.D. Ga. Aug. 5, 2021).

Key Substantive Issues. Among the most recent cases is one brought by the City of East St. Louis against all the major streaming providers under Illinois' Cable Video and Competition Law of 2007 ('CVCL'), 220 ILCS 5/21-100 et seq. City of East St. Louis v. Netflix, Inc., Case No. 3:21-cv-561 (S.D. Ill.). The case provides a good overview of the key substantive issues common to almost all these lawsuits. The Illinois statute, like many others adopted...