Indiana Cities File Doomed Lawsuit Against Disney, Netflix, Demand 5% of Gross Revenues

from the yeah-good-luck-with-that dept

A coalition of cities has filed a desperate, and likely doomed, lawsuit (pdf) against streaming providers like Netflix and Disney. In it, the cities proclaim that they are somehow owed 5 percent of gross annual revenue. Why? Apparently they believe that because these streaming services travel over telecom networks that utilize the public right of way, they're somehow owed a cut:

"Defendants transmit video programming to Indiana subscribers using Internet protocol and other technologies. When doing so, Defendants transmit their programming through facilities located at least in part in public rights of way within the geographic boundaries of Indiana Units, including public rights of way located within Plaintiffs' geographic boundaries. Therefore, Defendants are required by the VSF Act to pay the Plaintiffs—and all other Indiana Units in which Defendants transmit video programming through facilities located at least in part in a public right-of-way—franchise fees."

To be fair, cities have long been solidly screwed by the telecom and cable industry, which in the early aughts effectively gutted most local (town, city level) franchise agreements. Basically, phone companies like AT&T and Verizon, looking to get into the TV business whined incessantly about how unfair it was to have to do things like expand broadband and TV service evenly, provide a few public access TV channels, and give local municipalities fair compensation for using city utility poles and public rights of way.

So, highlighting the very real occasions where city leaders made unreasonable demands (not to mention the hassle of striking numerous municipality agreements), they lobbied to shift most franchise control to the state level, claiming this would result in greater efficiency, more competition and lower prices for consumers. All things that certainly sound superficially reasonable. Especially since a minority of cities really were pains in the ass in terms of making difficult demands before telecom companies could secure a cable franchise agreement.

The problem: because state legislatures are more efficiently corruptible by AT&T, Verizon, and Comcast lobbyists, most of these new state agreements by and large screwed cities over, gutted most consumer protections, obliterated local franchise revenue, neutered most of the benefits more local agreements provided (like even broadband deployment), and resulted in new state agreements that were little more than telecom legislative wishlists. And, if you hadn't noticed, TV prices never dropped, which was purportedly the whole point. Incumbent telecom giants simply pocketed the proceeds and went on their merry way.

Fast forward to now, and cities are desperately trying to cling back some modicum of control (and lost revenues) in this lopsided equation. But as consumer rights lawyer Harold Feld tells Ars Technica, dumb lawsuits like this one aren't the solution, especially since any franchise agreements that do remain don't apply to streaming providers in the slightest:

"I find it extremely unlikely this lawsuit will prevail," Harold Feld, a longtime telecom attorney and senior VP of consumer-advocacy group Public Knowledge, told Ars. "The [federal] Communications Act defines terms such as 'cable system' and 'cable operator' in physical terms."

As Feld noted, US law defines a cable system as "a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service." Local franchising rules and fees are based on cities' authority to manage their local rights of way.

"Netflix is clearly not a cable operator" and is therefore not subject to local franchising rules, Feld said. "Furthermore, because broadband is not considered a cable service, Netflix does not offer video programming 'over a cable system,' which would be required to make it a cable operator."

At this point the state and federal legislative and regulatory field has been shifted so completely in favor of the biggest corporations (be they Netflix or AT&T), municipalities often find themselves increasingly powerless by design. And as COVID-19 decimates budgets, this desperation is more and more likely to result in "creative" efforts to claw back revenues. Unfortunately, that shipped sailed quite some time ago, and without significant state and federal lobbying/influence reform (not to mention a massive Congressional shakeup), isn't likely to change anytime soon.

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Filed Under: broadband, cities, franchise rules, indiana, local tv, states, streaming
Companies: disney, netflix


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  • icon
    That One Guy (profile), 19 Aug 2020 @ 7:41am

    Do you want riots? Because that's how you get riots

    Win or lose in court at no point is Netflix going to be paying out from this as at 5% of gross revenue even if an entire state managed to secure a 'win' Netflix would be much better off cutting the entire state off from service rather than pay up, as caving even once would have states falling over themselves to get 'their' cut and that percentage would grow fast.

    If they 'win' this all they have ensured is that there will be a lot of very pissed off people who just lost their primary entertainment source and I don't imagine that's going to go very well for the politicians involved.

    Desperation to get some cashflow going into the city coffers is one thing, but this is just a waste of time and taxpayer money as there is no way for them to win this.

    reply to this | link to this | view in chronology ]

    • icon
      Anonymous Anonymous Coward (profile), 19 Aug 2020 @ 8:10am

      Re: Do you want riots? Because that's how you get riots

      Wouldn't it be a bit selfish for Netflix to not accede to their demands? After all 5% of gross revenue isn't very much, and .05 times 50 is only 2.5 which is only 250% of gross revenue, and that's before expenses. Netflix can easily afford that as everybody knows the Indiana legislature attempted to reconfigured Pi to equal 3.2 so why shouldn't a company be able to pay out 250 times their income and still be successful, according to several Indiana cities?

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 19 Aug 2020 @ 9:11am

        Re: Re: Do you want riots? Because that's how you get riots

        LOL. Thank you for that link. Made my day. Nice to be reminded that there are always idiots running around trying to politicize practically anything for their benefit.

        reply to this | link to this | view in chronology ]

    • icon
      Scary Devil Monastery (profile), 20 Aug 2020 @ 2:42am

      Re: Do you want riots? Because that's how you get riots

      The body politic of indiana looks like a clown act in general, but you really can't blame them for trying to muscle in on the very same scam Comcast already tried.

      reply to this | link to this | view in chronology ]

  • identicon
    Glenn, 19 Aug 2020 @ 7:51am

    Governments wanting tax dollars while providing absolutely no service or support for the operation in question... nothing new at all here.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 19 Aug 2020 @ 8:22am

    using city utility poles and public rights of way.

    In previous articles where the discussion was about attachment rules and trying to streamline them, it was established that the telcom companies owned the poles.

    Now it's the cities. Which is it?

    I would have thought the poles would have been placed by the electric companies and was always surprised to read that it was telcom.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 19 Aug 2020 @ 10:10am

      Re: using city utility poles and public rights of way.

      The power company or the telecom company owns the poles, but only on sufferance of the city/county whose easement the pole resides on.

      reply to this | link to this | view in chronology ]

  • icon
    redhill_qik (profile), 19 Aug 2020 @ 8:31am

    Internet Tax Freedom Act

    Putting aside the cable/video distinction, isn't this prohibited by the Internet Tax Freedom Act that was made permanent in 2016?

    reply to this | link to this | view in chronology ]

  • icon
    dan8mx (profile), 19 Aug 2020 @ 9:24am

    Declaration

    Unless these cities have a contract/agreement with these streaming companies, it sounds like they're just loudly and publicly declaring that these companies should give them money.

    I guess I've never tried that myself to see if it works. Maybe later, preferably when my neighbor isn't using the garden hose

    reply to this | link to this | view in chronology ]

  • icon
    DannyB (profile), 19 Aug 2020 @ 9:39am

    Dear Indiana residents

    Due to recent changes by your state legislature, we are unable to provide streaming video service in your state. You can expect a refund for any service already paid for beyond the date of this letter.

    Thank You for having used our service.

    Oh, BTW, the value of PI is not exactly equal to 3.

    Sincerely,

    reply to this | link to this | view in chronology ]

  • This comment has been flagged by the community. Click here to show it
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    reply to this | link to this | view in chronology ]

  • icon
    Ehud Gavron (profile), 19 Aug 2020 @ 10:15am

    Indiana ows me money

    Each year, Indiana sends video of their Inbred 500 race which enters my house on a wire which is on my property without my express permission.

    I do have a telco cable to provide broadband data, but they also send this other thing over it from Indiana, which I neither have chosen to request, pay for, nor watch.

    Over the past 15 years I figure Indiana has used my infrastructure at least 90 hours... for which they should pay me a good fortune.

    I'll accept any of:

    1. Indiana admits the race is worthless, and then owes me for 90 hours of worthless pomp and circumstance.
    2. Indiana admits the race is worth so much and credit that "so much" for 90 hours I didn't watch.
    3. Indiana claims that just because it uses my infrastructure they don't have to pay me because they're not the actual lessor of the right to use that infrastructure.

    Anyone out there a lawyer that wants to sue Indiana for me?

    Ehud

    reply to this | link to this | view in chronology ]

  • icon
    Toom1275 (profile), 19 Aug 2020 @ 11:33pm

    Who's to bet that Ajit Pai, after tilting at the windmill of the reasonable fees cities charge ISPs for installing physical equipment, will turn a blind eye to this?

    reply to this | link to this | view in chronology ]


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