Netflix, Hulu Beat California City That Sued to Tax Streaming Services

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Netflix, Hulu Beat California City That Sued to Tax Streaming Services
Photo courtesy of Hulu

Netflix and Hulu have won another court battle against a local government trying to force the streaming giants to pay taxes typically imposed on cable TV companies.

A Los Angeles County judge ruled Wednesday that the city of Lancaster doesn’t have the right to sue the streaming services to charge so-called franchise fees, which legacy TV providers have long paid municipalities for the right to dig up streets to lay their cable wires, according to the Hollywood Reporter. L.A. County Superior Court Judge Yvette M. Palazuelos noted that even if Lancaster had the right to bring the case, Netflix and Hulu would be exempt from the fees as they don’t own or operate infrastructure on public property.

The ruling is the latest victory for streaming services facing a flurry of similar lawsuits across the country. Municipalities have argued that companies like Netflix and Hulu should pay franchise fees, which are usually up to 5% of the gross revenue generated from providing video service in a town or city. As more consumers cut the cord on traditional cable TV and opt for streaming instead, local governments are seeing less franchise fee revenue enter their coffers.

Local governments bringing legal complaints against streamers have sought both back payments and fees going forward, according to law firm Duane Morris, which has identified cases in at least 14 states and described the suits as a “billion-dollar battle.”

In addition to the Lancaster case, Netflix and Hulu have already won legal arguments in Arkansas, Nevada and Texas, according to the Associated Press. But the streaming services have lost one ruling at the dismissal stage in Missouri, THR reported. The Ohio Supreme Court considered a similar case this week, while the Tennessee Supreme Court is set to hear arguments next month.

Lawyers for Lancaster, located in northern Los Angeles County, argued in October that Netflix and Hulu were subject to the California law requiring “video service providers” to pay the fees because they used third-party broadband wires to provide similar, if not identical, video programming to cable companies

In response, Netflix noted that it does not own or operate infrastructure in public rights-of-way and argued that it does not even provide “video programming” under the state’s definition, since its services “are not live, linear, channelized, scheduled or programmed,” according to a January court filing.

The two sides have also squabbled over whether California towns like Lancaster have the right to sue for franchise fees in the first place. On Wednesday, Judge Palazuelos said they did not—adding that if Lancaster was allowed to sue Netflix and Hulu, it could open the door for the city to impose fees on a growing list of streaming services including Disney Plus, HBO Max and Peacock.

“Such an interpretation would result in a financial windfall for local entities that the Legislature did not intend,” she ruled.

In a statement to dot.LA, Lancaster assistant city manager Trolis Niebla said the city “has no comment on the ruling and has not determined next steps.” Representatives for Netflix and Hulu did not respond to requests for comment.

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