Skip to main content

The fight to make Netflix and Hulu pay cable fees

The fight to make Netflix and Hulu pay cable fees

/

A Georgia lawsuit is pushing to expand TV franchising rules

Share this story

If you buy something from a Verge link, Vox Media may earn a commission. See our ethics statement.

Illustration by Alex Castro / The Verge

Streaming services are slowly turning into cable TV — complete with bundles, an ever-growing list of channels, and a reinvented TV guide. And a series of lawsuits could portend the return of something even worse: the hidden cable fee.

Three municipalities in Georgia are suing Netflix, Hulu, and other streaming video providers for as much as 5 percent of their gross revenue in the district — joining a nationwide group of towns and counties that want these services regulated more like cable TV. It’s a small but growing front in the war over cord-cutting, challenging regulators to decide which matters more: the increasing role streaming services play in American media diets or their significant practical differences from traditional TV.

Missouri paved the way for pushing streaming franchise fees

The federal lawsuit, reported earlier this month by Atlanta Business Chronicle, was originally filed in state court last year. It argues that Netflix and Hulu — along with satellite providers Dish Network and DirecTV, as well as Disney’s entertainment distribution division — violated a 2007 law called the Georgia Consumer Choice for Television Act. That rule specifies that “video services” must pay a quarterly franchise fee to local governments, unless they’re part of a larger internet service package or operate wirelessly.

Georgia isn’t the only place where local towns are pushing for streaming fees. As The Hollywood Reporter reported last year, two law firms recently filed similar suits on behalf of towns in Texas, Indiana, Ohio, and Nevada. And in 2018, the city of Creve Coeur, Missouri paved the way by suing Netflix and Hulu under that state’s franchise laws. With municipal budgets cratered by the pandemic, slapping a franchise fee on cash-heavy tech companies has never been more appealing.

A single successful lawsuit could cost these companies millions. Gwinnett County, one of three municipalities named in the suit, charges 5 percent of a company’s local gross revenue in franchising fees. A filing calculates that Netflix made $103 million from Gwinnett County subscribers over the past five years — which would translate to $5.15 million in retroactive fees for that area alone. (Netflix declined to comment on the numbers cited in the story.) The plaintiffs in these cases are seeking class action status, which would make companies liable for any “similarly situated” state locales as well.

TV providers have opted to directly bill subscribers for franchise fees, and companies like Netflix and Hulu could follow their lead, passing the costs to users. Those fees aren’t why cable costs so much, and they help fund important services — but they’re also something many consumers find irritating or bewildering.

All TV is streaming now

If the cases succeed and aren’t preempted by any federal laws, they could draw streaming services — a category that’s exploded in popularity — under a new regulatory umbrella. Even traditional TV providers have moved to online streaming: the suit notes that Dish and DirecTV chose to “fundamentally change” their satellite-only options by adding services like the Dish-owned Sling TV, which routes live TV over broadband networks.

The Georgia suit in particular could have broader, potentially unpredictable effects. Its definition seems to potentially encompass many smaller and less profitable streaming video companies, although there’s far less incentive to sue them. Meanwhile, the exemption for internet service packages could give telecom-run streaming offerings — like Comcast-owned NBCUniversal’s Peacock service — a built-in advantage over competitors like Netflix.

The Consumer Choice for Television Act wasn’t passed with streaming video in mind. Passed in 2007, the law amended existing rules meant for cable TV providers, which pay franchise fees for the right of way to lay wires along public infrastructure like roads. “It’s a remnant of how we did cable franchising,” says John Bergmayer, legal director of the internet-focused nonprofit Public Knowledge. And it specifically exempts some services that don’t require that physical access, like programming from mobile services.

Despite this, the municipalities contend that streaming companies tick the same legal boxes as cable TV. The complaint says people are getting a similar service; in the complaint’s words, they “view professionally produced and copyrighted television shows, movies, documentaries, and other programming.” More technically, it argues that this programming counts as a “video service” because it’s carried over public internet lines that require the right of way.

But conversely, the suit also notes that streaming giants like Netflix aren’t just running over a global internet backbone. They’re building local content delivery networks (or CDNs), like Netflix’s Open Connect, which route user traffic to a nearby server. Internet service providers in many states — including Georgia — already pay for broadband rights of way, and the servers are located in data centers, not underground pipes or utility poles on public land.

An early January ruling favored fee-seeking cities

The companies have objected to the string of franchise fee lawsuits. “These cases falsely seek to treat streaming services as if they were cable and internet access providers, which they aren’t,” a Netflix spokesperson told The Verge. “They also threaten to place a tax on consumers that the legislature never intended, and we are confident that the courts will conclude that these cases are meritless.”

Franchise fee claims — all based on different local laws — remain mostly untested in court. But earlier this month, a Missouri state judge rejected an early bid to toss that state’s lawsuit, agreeing with the claim that these companies were “video service providers.” The judge specifically noted the presence of CDNs like Open Connect, a system that “bypasses the ‘public internet’” and distinguishes streaming giants from smaller services. She also rejected claims that the federal Internet Tax Freedom Act provided blanket protection from the fees.

With little precedent, it may take years to understand the implications of these cases. Companies will likely appeal any decision, and unless the Supreme Court takes up one of the cases, states will be covered under a patchwork of lower court rulings. But an increasing number of local governments see these fees as an opportunity to recover money from the services that are slowly replacing cable TV. “They need money now, and they’ve got this law on the books,” says Bergmayer. With the status of streaming services in flux, they’ve settled on an optimistic approach: “let’s go for it and see what happens.”

Today’s Storystream

Feed refreshed 12:00 AM UTC Dimorphos didn’t even see it coming

R
Twitter
Richard Lawler12:00 AM UTC
A direct strike at 14,000 mph.

The Double Asteroid Redirection Test (DART) scored a hit on the asteroid Dimorphos, but as Mary Beth Griggs explains, the real science work is just beginning.

Now planetary scientists will wait to see how the impact changed the asteroid’s orbit, and to download pictures from DART’s LICIACube satellite which had a front-row seat to the crash.


M
The Verge
We’re about an hour away from a space crash.

At 7:14PM ET, a NASA spacecraft is going to smash into an asteroid! Coverage of the collision — called the Double Asteroid Redirection Test — is now live.


E
Twitter
Emma RothSep 26
There’s a surprise in the sky tonight.

Jupiter will be about 367 million miles away from Earth this evening. While that may seem like a long way, it’s the closest it’s been to our home planet since 1963.

During this time, Jupiter will be visible to the naked eye (but binoculars can help). You can check where and when you can get a glimpse of the gas giant from this website.


Asian America learns how to hit back

The desperate, confused, righteous campaign to stop Asian hate

Esther WangSep 26
E
Twitter
Emma RothSep 26
Missing classic Mario?

One fan, who goes by the name Metroid Mike 64 on Twitter, just built a full-on 2D Mario game inside Super Mario Maker 2 complete with 40 levels and eight worlds.

Looking at the gameplay shared on Twitter is enough to make me want to break out my SNES, or at least buy Super Mario Maker 2 so I can play this epic retro revamp.


R
External Link
Russell BrandomSep 26
The US might still force TikTok into a data security deal with Oracle.

The New York Times says the White House is still working on TikTok’s Trump-era data security deal, which has been in a weird limbo for nearly two years now. The terms are basically the same: Oracle plays babysitter but the app doesn’t get banned. Maybe it will happen now, though?


R
Youtube
Richard LawlerSep 26
Don’t miss this dive into Guillermo del Toro’s stop-motion Pinocchio flick.

Andrew Webster and Charles Pulliam-Moore covered Netflix’s Tudum reveals (yes, it’s going to keep using that brand name) over the weekend as the streamer showed off things that haven’t been canceled yet.

Beyond The Way of the Househusband season two news and timing information about two The Witcher projects, you should make time for this incredible behind-the-scenes video showing the process of making Pinocchio.


R
External Link
Russell BrandomSep 26
Edward Snowden has been granted Russian citizenship.

The NSA whistleblower has been living in Russia for the 9 years — first as a refugee, then on a series of temporary residency permits. He applied for Russian citizenship in November 2020, but has said he won’t renounce his status as a U.S. citizen.


E
External Link
Emma RothSep 26
Netflix’s gaming bet gets even bigger.

Even though fewer than one percent of Netflix subscribers have tried its mobile games, Netflix just opened up another studio in Finland after acquiring the Helsinki-based Next Games earlier this year.

The former vice president of Zynga Games, Marko Lastikka, will serve as the studio director. His track record includes working on SimCity BuildIt for EA and FarmVille 3.


A
External Link
Vietnam’s EV aspirant is giving big Potemkin village vibes

Idle equipment, absent workers, deserted villages, an empty swimming pool. VinFast is Vietnam’s answer to Tesla, with the goal of making 1 million EVs in the next 5-6 years to sell to customers US, Canada and Europe. With these lofty goals, the company invited a bunch of social media influencers, as well as some auto journalists, on a “a four-day, multicity extravaganza” that seemed more weird than convincing, according to Bloomberg.


J
James VincentSep 26
Today, 39 years ago, the world didn’t end.

And it’s thanks to one man: Stanislav Petrov, a USSR military officer who, on September 26th, 1983, took the decision not to launch a retaliatory nuclear attack against the US. Petrov correctly guessed that satellite readings showing inbound nukes were faulty, and so likely saved the world from nuclear war. As journalist Tom Chivers put it on Twitter, “Happy Stanislav Petrov Day to those who celebrate!” Read more about Petrov’s life here.


Soviet Colonel who prevented 1983 nuclear response
Photo by Scott Peterson/Getty Images
J
The Verge
James VincentSep 26
Deepfakes were made for Disney.

You might have seen the news this weekend that the voice of James Earl Jones is being cloned using AI so his performance as Darth Vader in Star Wars can live on forever.

Reading the story, it struck me how perfect deepfakes are for Disney — a company that profits from original characters, fans' nostalgia, and an uncanny ability to twist copyright law to its liking. And now, with deepfakes, Disney’s most iconic performances will live on forever, ensuring the magic never dies.


E
External Link
Hurricane Fiona ratcheted up tensions about crypto bros in Puerto Rico.

“An official emergency has been declared, which means in the tax program, your physical presence time is suspended,” a crypto investor posted on TikTok. “So I am headed out of the island.” Perhaps predictably, locals are furious.


R
The Verge
Richard LawlerSep 26
Teen hacking suspect linked to GTA 6 leak and Uber security breach charged in London.

City of London police tweeted Saturday that the teenager arrested on suspicion of hacking has been charged with “two counts of breach of bail conditions and two counts of computer misuse.”

They haven’t confirmed any connection with the GTA 6 leak or Uber hack, but the details line up with those incidents, as well as a suspect arrested this spring for the Lapsus$ breaches.