Should streaming services have to pay municipalities fees to send videos over local internet connections?
A small town in Kansas thinks so and has sued Netflix and Hulu for failing to obtain authorization for use facilities located in public rights-of-way, as the municipality claims is required by state law.
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The class action petition filed last month in the District Court of Bourbon County, Kans., by the town of Fort Scott alleges that both Netflix and Hulu provide video content to their subscribers using broadband wireline facilities located at least partially in the public right of way.
Fort Scott is a town with an estimated population around 8,000, per U.S.
Census Bureau data.
According to the petition, Netflix delivers its content using local Fort Scott servers. It also claims customers of both companies typically access the internet with broadband technology such as DSL or fiber optic cable.
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“As video service providers, [Netflix and Hulu] were required to file an application with the Kansas Corporation Commission for a state-issued video service authorization prior to providing video service,” said the litigation.
Since the companies did not apply for this authorization, they are acting against state law, said the suit.
If Netflix and Hulu had received authorization, they would have been required to make a franchise payment equivalent to 5 percent of gross revenues received for the services provided in Fort Scott. Gross revenues include: recurring charges for video service, event-based charges for video service, rental of set top boxes and other video service equipment, services charges related to the provision of video service, and administrative charges related to the provision of video service.
In the petition, Fort Scott also claims to represent more than 200 other Kansas towns where residents access Netflix and Hulu via wireline facilities in the public right-of-way. It demands that the companies pay fees owed to the state municipalities.
In addition to alleging the companies did not pay and did not have correct authorization, Fort Scott filed a count of Unjust Enrichment, a legal term that is used to describe one party benefitting at the expense of another.
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According to a Topeka Capital-Journal report, Netflix and Hulu had combined profits near $30 billion last year. The report explained that, while municipalities receive revenue from cable companies, they often don’t from streaming services. As streaming becomes more popular, revenue from cable companies dwindles.
Similar cases have popped up in other states, said the outlet. In some cases, streaming services have tried to push litigation to federal court.
“The city is clearly singling out Netflix and Hulu,” Jean Pawlow, an attorney for Netflix, told a federal judge in a case brought by New Boston, Texas. “Not just this city but in cities around the United States. It’s obvious they are trying to increase revenue because their revenue has declined and therefore they are going after deep pockets.”
However, Fort Scott attorney Michael Fleming said the issue is about fairness.
“Like the City of Fort Scott, most Kansans expect that companies doing business in this state will pay their fair share,” Fleming said. “That is the entire point of this lawsuit.”
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