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Texas Cities Sue Streaming Services for Franchise Fees

Texas State Capitol
Texas State Capitol (Image credit: Wikimedia Commons)

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.

According to one of the cities in the suit, which was filed in Dallas County, the others taking the streamers to court are  Abilene, Allen, Amarillo, Arlington, Austin, Beaumont, Carrollton, Dallas, Denton, Frisco, Fort Worth, Garland, Grand Prairie, Houston, Irving, Lewisville, McKinney, Mesquite, Nacogdoches, Pearland, Plano, Rowlett, Sugar Land, Tyler and Waco.

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 Mayor Blake Margolis said in a statement, 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% 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.

That argument notwithstanding, for its part Rowlett wants reimbursement and interest on fees dating back to 2007 for Disney, 2011 for Hulu and 2019 for Netflix.

“Disney, Hulu and Netflix have long withheld statutorily required payments to cities throughout Texas, depriving them of fees that help fund essential city services,” said suit co-counsel Steven Wolens, principal with law firm McKool Smith. “This case was filed on behalf of our municipal clients to ensure future compliance with PURA and recoup significant fees owed by some of the nation’s largest streaming services.” ■

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.