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Texas Cities Sue Netflix, Hulu, Disney+ for ‘Unpaid Franchise Fees’

Trevion Anglin

Financial disputes between local governments and streaming services rage on, as Texas cities are the latest municipalities to take streamers to court, according to a new report from Media Play News. In a recent suit, a group of nearly two dozen Texas towns have taken streaming services such as Netflix, Hulu, and Disney+ to court for alleged “unpaid municipal franchise fees,” dating as far back as 2007. These cities claim that the unpaid annual franchise fees are required by Texas Public Utility Regulatory Act (PURA) and are used for basic city services.

PURA requires video service providers to pay a franchise fee of 5% if the service delivers content through cables that lie in the public right of way; essentially the fee is a tax on using public goods in order to make a profit. These monies are then reinvested in maintaining various city services, including the ones that the video providers are using in the first place.

“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, Texas mayor Blake Margolis said.

The Texas cities — including Arlington, Dallas, Fort Worth, Houston, Waco, and others — are looking to receive back payment dating back as far as 2007 to when each individual streaming service launched in the state. Around the country, these attempts to charge streamers have come in response to a severe loss of income due to the decline of cable subscriptions. Nearly all municipalities charged cable companies something similar to PURA fees in order to run physical wiring through public property.

However, with more and more households cutting cords, there has been a noticeable financial vacuum that cities and states believe streaming services should be required to fill.

“Franchise fees are an important source of city revenue,” Margolis said. “We have an obligation to our residents to ensure that these companies comply with state law and pay what is owed to the City of Rowlett.”

These Texas cities are just the latest of various local governments who have filed suits over streaming franchise fees in recent years. The judicial results have been mixed as Some states are seeing some big wins, such as Chicago and Apple recently settled out of court, while other states — including Arkansas, California, Illinois, Indiana, and New Jersey — have been unsuccessful in motions against streamers.

In an effort to counter these suits, some streaming services have seemingly responded to their anticipated increased tax burden with price hikes. With traditional pay-TV subscriptions declining at an increasingly rapid rate, undoubtedly other local governments are following these types of cases to see if they will be able to compensate for one pile of lost media fees with another.

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