Ohio city sues Netflix, Hulu for cable fees

Posted at 11:40 AM, Apr 14, 2022

COLUMBUS, Ohio — The City of Maple Heights only has about 20,000 people, but it is making headlines by taking on two multi-billion dollar companies in the Ohio Supreme Court.

The town argued Wednesday morning that Netflix and Hulu must pay franchise fees to municipalities, the same as cable companies.

As more and more people are "cutting the cord" with their cable providers, the city's attorney Justin Hawal said it is only fair that streaming services pay up since municipalities are losing money from the telecommunications fees.

"The fees that go to the municipalities and townships to invest in this infrastructure are being pulled away from the cities because there are not as many subscribers to the cable companies," Hawal said. "They're going towards Netflix and Hulu, who are using the exact same infrastructure but aren't being required to pay any fee."

This is just one of the latest dozen of lawsuits from across the country against the companies.

Maple Heights filed a class-action lawsuit in the U.S. District Court for the Northern District of Ohio in 2020 on behalf of all Ohio local governments receiving franchise fees. The city claimed Netflix and Hulu are now required to receive video service authorization.

The 2007 video service authorization law states companies deemed "video service providers" must pay a fee to local governments.

Maple Heights' argument is that the streaming services should fall under the same statute that regulates cable providers because they provide content that reaches customers through fiber optic cable lines along with public rights of way.

Counsel for Netflix and Hulu says that Hawal is misinterpreting the statute.

"They're fundamentally unlike the cable operator operators, which are the paradigm example of the video service provider for which this act was intended, which actually own, operate, and install wires and cables in the public rights of way," said Netflix's attorney Gregory Garre. "In the case of Netflix, Netflix doesn't provide video programming under the Act, which is defined in reference to programming that is like a television program. Netflix is programming which is available anywhere, any time and any place — is not scheduled or channelized."

The companies can't be video service providers, like cable, because they are not internet service providers, he added. They simply exist on the internet, and people can access them through WiFi.

"There's nothing in that definition of video service that requires Netflix and Hulu to operate facilities in the rights of way, nothing that requires them to construct facilities in the rights of way," Hawal said. "They only must provide their programming over wires and cables, and there's no dispute."

But the core principle that animates the law is delivery, according to Ohio Deputy Solicitor General Mathura Sridharan.

"It's about those entities that are physically intruding in Maple Heights as public rights of way, those who are digging up their roads and they pay for the right to do that, and that's what the authorization does," she said. "The statute is very clear — this is about those who dig. They must pay. If they don't dig, then they don't pay."

Sridharan said that another program under the statute would be to even get authorization from the municipalities.

"Under the statute, and there's only one person who's authorized to call the shots, that is, to declare an entity, a video service provider, and compel them to get an authorization — and that person is the director of commerce, who is not only the franchising authority, but the sole franchising authority under the statute," Sridharan said. "And that really ends the case here because Maple Heights cannot sue to compel entities like Netflix and Hulu to get authorizations."

This argument of what falls under the 2007 law was the primary debate and back-and-forth between Maple Heights, the streaming services, and the Supreme Court, who seemed to find humor in the whole ordeal.

Justice Pat Fischer posed a hypothetical: if governments are taxing streaming services, does that mean that Columbus should tax the Ohio Government channel, where anyone can stream most state government hearings if they have access to the internet?

Hawal said no.

"Video programming is defined in the statute as being comparable to that of broadcast television, and so our allegations are such that an entity like this, I mean—" Hawal started, getting cut off.

"These are pretty good broadcasts," Fischer said, chuckling at his comment.

"I agree, your honor, but they don't provide the same content, quality, genre, entertainment that Netflix and Hulu—" Hawal responded, getting cut off again.

"Woah, Woah, wait," Justice Melody Stewart said. "How do you know we don't?"

Laughs erupted from the Court and each of the parties.

"No, but seriously, I imagine that there are some citizens across the state who might tune in to government programming regularly, be at this court's hearings, be it legislative sessions, be it of meetings of the governor, whatever," Stewart continued. "And if they are entertained by that, I mean, isn't that a subjective standard?"

It's not about the standard of entertainment per se, Hawal responded.

"I think the fact that makes Netflix and Hulu video programmers is the fact that their content is virtually indistinguishable from broadcast television," the attorney said. "They provide the same shows, the same movies. They're competing with broadcast television. They produce their own content."

The questions-and-answers continued until Victor Jih, attorney for Hulu, rebutted Hawal's points. He brought up the fact that ISPs are not controlled by the services.

"The person is providing over the wires and cables as the ISP, not Hulu, not Netflix — we don't control it, we don't dictate it," he added. "We simply make it available on the internet, just like this court does this session."

The Supreme Court will now decide whose interpretation is correct.

Similar lawsuits are being heard around the country, according to the Associated Press.

Already, Netflix and Hulu won their arguments in Arkansas, Nevada, California and Texas. The Supreme Court in Tennessee will hear arguments next month. The city of Knoxville also sued Netflix and Hulu. There's also a case pending in Missouri.

Four cities in Indiana sued not just Netflix and Hulu, but also Disney+, DIRECTV, and DISH.

Morgan Trau at WEWS first reported this story.