Cities sue Netflix, Hulu, Disney+, claim they owe cable “franchise fees”

Discussion in 'Internet Streaming Services' started by Mark Holtz, Aug 18, 2020.

  1. Mark Holtz

    Mark Holtz New Texan

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    From Ars Technica:

    Cities sue Netflix, Hulu, Disney+, claim they owe cable “franchise fees”
    Cities demand 5% of revenue, claim online video uses "public rights of way."
    FULL ARTICLE HERE
     
  2. NYDutch

    NYDutch DBSTalk Club DBSTalk Club

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    And the lawyers get richer...
     
  3. Eva

    Eva Active Member

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    What's next? Franchise fee to forum owners for using public ROW on the way to your computer?

    [​IMG]
     
  4. 1948GG

    1948GG Icon

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    Money money money. Two basic problems with the us legal system rear it's head with this nonsense, the idiot cities (not unusual this is out of Indiana, leader along with Michigan in upper midwest wackos) is they need to be heavily fined above and beyond lawyer fees, plus the court systems, both state and federal, need to be held to a time limit to rule (2 weeks tops sounds about right). These kinds of nonsense lawsuits that linger for years on court dockets do nothing but line the pockets of the lawyers and their political buddies and result in an erosion of public confidence in the system
     
  5. b4pjoe

    b4pjoe New Member

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    Those services should just geoblock everyone in those zip codes. Problem solved. :D
     
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  6. CTJon

    CTJon Godfather

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    Win or lose we all pay for all thee in the end. All lawsuits just cost people money and make lawyers rich
     
  7. phrelin

    phrelin Hall Of Fame DBSTalk Club

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    It's a curious fiscal issue, sort of a "welcome to the 21st Century." Traditionally private utilities using public rights-of-way paid "franchise fees" to local governments. That was pretty simple "back then" because the utilities tended to be electric and phone. It did not involve broadcast TV because they used the airwaves regulated by the FCC.

    Then came cable TV on wires with a mish-mash of such regulations across the country. States and the FCC tried to make those a little simpler much to chagrin of local government.

    The 21st Century is essentially all new. Cell phones including internet service have more in common with broadcast TV. Most internet service is more like cable TV.

    Cable TV channels have never paid franchise fees as whatever such local government fees/taxes were paid by the cable companies.

    It seems pretty clear that streaming services are like cable TV channels and whatever local government right-of-way use fees are to be collected are going to have to be collected from the company owning the wires carrying the internet signals. In that regard, because of the complexity of federal and state regulations, that ship may have already sailed.

    I really don't get the thinking. It seems to me that if state and local government want revenue from the streaming services, they are going to have to subject them to sales tax and then go through the same hassle they did with Amazon and other online retailers.

    But what do I know, except of course in the early 1970's as a city manager working with cable company initial installation while struggling with expanding cable company lobbying at the state and federal levels. Actually, what I know is that the 21st Century is not the 20th Century.
     
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  8. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    Without getting political, the fee SHOULD cover the cost of a service provided. The early franchise fees paid by cable companies paid the cities for their management of rights of ways and expenses the cities incurred dealing with the cable companies. Unfortunately those fees expanded in to what are essentially an "entertainment tax". Satellite services got pulled in to the fee scheme where cable companies complained it was unfair that they paid a franchise fee/tax when the satellite carriers did not. (Code enforcement issues applying to dishes would be a cost the cities would bear.)

    Viewed as a "entertainment tax" there is no reason why the streamers should be able to deliver their product without paying the taxes their competitors are charged. Viewed as paying the city for services rendered one could probably argue that all the fees are excessive. What is the burden on the City of Indianapolis when someone subscribes to Netflix?
     
  9. harsh

    harsh Beware the Attack Basset

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    There is a huge difference between fees and taxes and they're absolutely not interchangeable. Franchise fees are negotiated fees. The satellite tax is more or less a unilateral government money grab created at the behest of the cable lobbies to financially disadvantage the DBS operators (as if launching and maintaining satellites and uplinks didn't cost anything).
     
  10. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    If you check various states you will see "entertainment" taxes that have been put in place and expanded to include satellite. Cable systems are not free to install - and franchise rules can require the local cable company to cable areas with limited return on investment in order to keep their franchise to serve the rest of a community. Franchise fees are "negotiated"? While not speaking for every community that charges a fee I believe you will find the negotiation to be lopsided. Pay the fee or lose the community.

    If you look at the "satellite taxes" that DISH has fought in the past few years you will see that most of them are taxes that apply to al MVPDs regardless of delivery. The "unfair" part being the difference in burden on the taxing authority (as stated in my post).
     
  11. phrelin

    phrelin Hall Of Fame DBSTalk Club

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    The theoretical difference between "fees" like franchise fees and "taxes" is that fees are to cover a cost while taxes are general revenue unless otherwise specifically designated to support some particular governmental service. But the details varies from state-to-state depending upon constitutional provisions and statutes. The Indiana situation is a puzzle to me but I don't know anything about Indiana law.

    If I were a California Legislator, I might consider a law including services like Netflix within the definition of a service covered by the the sales and services tax aka sales tax.
     
  12. techguy88

    techguy88 Well-Known Member

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    I think things like this are bogus and unnecessary. Just because Netflix, Disney+, HBO Max and to an extent DirecTV and Dish use the Internet to provide all or some of their service/features does not mean they should have fees imposed on them. Every service from a cable or telecom is delivered via these right of ways. Netflix, Disney+, HBO Max, AT&T TV Now, Sling TV, etc. just make use an existing service (aka the Internet) already provided by a cable and/or telecom. Cable and telecoms benefit greatly for their use of the right of ways whereas satellite & streaming services can't use those right of ways in the same manner.

    If those cities can't make due with the sales tax that comes from satellite & streaming services then they seriously need to re-balance their budgets. Since the cable & telecom industry wants satellite providers to pay the same fees as them the cable & telecom industry should also pay both DirecTV & Dish back all the costs incurred for launching satellites into space all these years.
     
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  13. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    Do you believe the cable infrastructure is free?

    All MVPDs have spent a lot of money building their systems. Headends in every community. Cable on every street. Billions of dollars in infrastucture. Some systems have been able to combine head ends and serve neighboring communities ... which just means more backhauls between communities. Do a full audit and you would find that the satellite carriers paid LESS for their satellites and launches than all the cable infrastructure in the US.

    Perhaps satellite companies should pay cable companies for their decades of building the market? Cable companies are the ones that transformed "free TV" into a service that customers would pay for. A shared antenna service that provided a platform for national channels to be created and grow long before the first DBS dish was installed. Cable companies introduced "paying for TV" into the marketplace. And the thank you cable companies received was satellite companies swooping in and taking customers.

    I don't see why cable companies should pay for DBS infrastructure unless they are using it to receive the signals they resell. Cable infrastructure costs money too.
     
  14. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    Where a tax is imposed shouldn't the tax be equal regardless of delivery method? As noted, looking through past "satellite tax" complaints from the satellite companies the taxes often were written into law as an "entertainment tax". In some communities that covers movie theaters and other venues. It is my desire - if a tax is charged - that the money collected goes to something related to the service taxed but too many cities tax whatever they can to pay for what they want. They have balanced their budgets based partially on income from cable TV - as the business moved away they are following the money.

    If people in those local communities do not like the taxes and fees charged by their government it is up to them to change their city's laws/ordinances.

    One final thought on the issue is looking at how taxes are collected. For years it was "too big of a burden" for online retailers to collect and pay sales tax for every state and jurisdiction within the country. They passed the sales tax burden back to the customer. Many people continued to purchase items "tax free" from out of state companies until the major companies agreed to collect taxes. Was it fair that a local business in a city with a sales tax was forced to collect taxes when their competitors online were not? If there is a tax in place that applies to MVPDs regardless of delivery method is it fair that satellite and cable collect that tax and vMVPDs don't?
     
  15. techguy88

    techguy88 Well-Known Member

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    The thing is franchise fees or any fee imposed on cable & telecom providers for the use of right of ways (regardless if these fees are at the local or federal level) is a cost of doing business for those providers. They pass this fee onto the customer but are not required to do so. Cable television, satellite television and streaming television services are each different mediums and should be treated as such. The whole thing about taxing satellite television and streaming video services is mainly to taxes on those services to match cable television.

    In relation to sales tax for online realtors vs local business or physical retail locations that is entirely separate from this. Yes all online retailers should collect sales tax on the products they sell just as if the customer went into a physical retail outlet to purchase those products. If it was such a "burden" on online retailers then physical retailers should have been treated the same as online retailers. There is no difference between a physical Point of Sale (POS) system being able to figure up and collect taxes from a shopper than an online POS system from doing the same thing.

    When it comes to content delivered over the Internet and the use of additional fees and taxes on certain types of content is wrong. It's like saying to an online retailer (in your previous example) "Hey since you are not paying property taxes that a local retail store in our local area. We are going to being charging you a "virtual goods" fee that is the same as the property tax a physical retailer would pay!" Should an online retailer pay a local or state government a tax equal to the amount of property taxes a physical retail store when the online retailer doesn't have a physical presence in the state?

    Access to the Internet is not subject to taxes & fees from local, state and the federal government because of a law passed in 2015 by Congress. States that had fees prior to 1998 (like Ohio) had to phase them out by June 2020 or sooner. This does not stop governments from requiring online retailers from collecting sales tax on goods & services. This is why things like franchise fees are often passed down to the consumer of a "video" product or "phone" product from cable & telecom providers because it is illegal to pass them down to the "Internet" product.

    Online video services (SVOD & vMVPDs) & satellite providers collect sales tax from their customers just like a cable & telecom provider does. However any kind of fee or tax that a cable or telecom provider is subject to pay for their use of the "right of ways" to deliver a video product should not be forced onto an online video service of any type.

    Also things like Netflix, Prime Video, Hulu (ad-supported & commercial free SVOD plans), Disney+, HBO Max, etc. are not vMVPDs or even MVPDs by any stretch of the definition. So why should they be subject to taxes & fees that a traditional MVPD is subject to?

    Now Pluto TV, TiVo+, Xumo, Peacock, Prime Video Channels, The Roku Channel and possibly CBS All Access, Showtime & Starz can be considered vMVPDs since they at least include 1 linear channel in their services. How would things like Pluto TV, TiVo+, Xumo, Peacock, & The Roku Channel be treated since they rely on advertising for their linear channels and consumers are not charged a fee to use them? Should a Prime subscription be subject to a franchise fee / entertainment tax since it includes Prime Video Channels?

    Also why should Sling TV, Hulu Live TV, AT&T TV/TV Now and fuboTV be subject to any fee or tax that is meant for MVPD services using the right of ways? Their content is delivered through the Internet and counts against a customer's metered data usage just like Facebook, Twitter, government websites, Wikipedia, this forum, etc.

    For example if I was a subscriber of Armstrong's cable TV service watching linear & on demand HBO through Armstrong EXP doesn't count against my Internet usage because the cable TV product is separate from the Internet product. Watching linear HBO through AT&T TV or DirecTV's mobile app via Wi-Fi counts against my Internet usage because I'm using the Internet product to access those services. Watching anything from HBO On Demand through my DirecTV Genie counts against my data allowance because DirecTV's On Demand is Internet delivered not satellite delivered.

    Another example if I was living in an Xfinity territory and had their TV product I could watch AMC On Demand through a Xfinity set-top-box without the use of Internet because the cable TV product (linear & on demand) is separate from the Internet product. As a Dish subscriber watching anything from AMC On Demand through the Hopper would require the use of the Internet and count against Xfinity's Internet usage caps.

    So again why should a consumer pay any kind of franchise/video fees that cable & telecom customers pay when SVOD & vMVPDs are subject to the home Internet provider's data usage caps?

    So if we are going to argue that satellite, AVOD, SVOD and vMPDs consumers should pay the same franchise/entertainment fees/taxes that a cable/telecom consumer pays then either data used by satellite, AVOD, SVOD and vMPDs services should be exempt from Internet usage data allowances or cable/telecom MVPD services should count against those same Internet usage data allowances.

    Fair is fair regardless of distribution method right?

    Applying these kind of franchise/entertainment fees/taxes to video streaming products while allowing them to be subject to Internet data usage allotments puts them at a competitive disadvantage to a traditional cable/telecom MVPD offering which isn't subject to Internet data usage allotments. The cable/telecom industry would defiantly use this as a selling point for their MVPD products.

    Also what would stop local/state governments from imposing similar fees on Internet music based streaming services like Apple Music, Spotify, Pandora, SiriusXM, etc. when cable/telecom MVPDs could argue they provide similar digital music services to their customers via Music Choice & Stingray Music?

    What's to stop a local/state government from passing on these same fees to Facebook, YouTube, Twitter, Tic Tok even though they are free to the consumer they generate money from ads when people views their video content. The local/state government could say impose a franchise/entertainment fee/tax on those services based on the income generated via advertising revenue if their case is successful against paid streaming and vMVPD video products.

    If the Indiana case is a success this begins a whole slippery slope for anything that contains "video" or anything remotely associated to "entertainment" like music & video games (see Xbox Game Pass, PlayStation Now, EA Access gaming subscription services.)
     
    Last edited: Aug 23, 2020
  16. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    Similar fees imposed on satellite companies are also a cost of doing business. Sometimes they are highlighted on the bill as a "regulatory fee" but it is a fact that all businesses in America pay some sort of regulatory fees from time to time. Most just bury the fees in their markup and go on with business.

    Someone has to pay the fee. Even if not explicitly listed on the bill all expenses end up being paid for by the consumer. That is where businesses get their money from.

    Not true. The typical POS system in a physical location is programmed solely for that physical location. If you set up a POS in Chicago Illinois you program in the appropriate tax rates for Chicago Illinois. The POS system in a Chicago store doesn't need to know the rates and taxibility of items in Detroit Michigan. The customer pays the taxes based on the point of purchase - the store in Chicago. A Detroit Michigan resident pays the taxes relevant to Chicago Illinois ... even if he takes his purchase back to Detroit Michigan.

    An online POS system needs to know the sales tax rate and taxibility for every jurisdiction where an item might be sold. The customer pays the taxes based on the point of delivery (shipping or billing address). This was one of the major complaints of small online retailers who did not want the additional expense of keeping an accurate database of taxes for every taxing jurisdiction. There was also the issue of how to send the tax to the actual taxing authority. They felt the burden of collecting taxes for each jurisdiction was too high.

    One would need to look at the actual taxes in place judge the validity of the city's complaints. If the point of delivery for the vMVPD product is within their taxing area and there is a tax on the books that applies then Netflix et al need to figure out how to pay the taxes. Just like cable and satellite have figured out how to pay.

    To remain free of vMVPD taxes they need to stay out of the vMVPD business - or whatever business is being taxed in that jurisdiction.
     
  17. techguy88

    techguy88 Well-Known Member

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    That's the thing the companies are paying their fair share of taxes and fees within the definition of the laws. States and local governments are trying to force years old laws that are meant for cable and telecom companies on satellite and newer streaming services simply because they have "video programming." If Netflix had a dedicated line to a consumer's home (like cable TV) to provide their programming then I would understand the need for them to pay these types of fees but they don't.

    I agree with the necessary fees need to be paid however forcing laws meant for cable TV onto other mediums is not the answer. Franchise fees are part of the cable & telecom sector and affords them privileges that no one else enjoys. Like in most of the country establishing a third MVPD/ISP/telephony provider (or even an overbuilder) is damn near impossible because of laws forbidding new franchises outside of an incumbent cable & telecom provider.

    Apparently online retailers have made it work and they are still surviving just as they were before. However my point still stands, physical retail locations operating at the local level pay some sort of property taxes to the local government. Online retailers with no physical local presence do not pay property taxes.

    Imposing franchise fees meant for a cable/telecom company on online streaming services and the satellite providers for simply using the Internet to provide some sort of video streaming service is like imposing a fee on an online retailer equal to the same percentage physical retailers in the local area pay in property taxes.

    Property taxes are the cost of doing business in a physical retail location but not for an online retailer. Franchise fees are the cost of doing business for a cable/telecom provider for their MVPD and telephony products not for an online streaming service or direct broadcasting satellite systems that uses the Internet for enhanced features.

    Ok so federal law's definition of a "cable system" does not mean things like Netflix.

    Indiana's VSF has a very broad definition in that anything merely offering video is included. Indiana also argues that offering "video" that is delivered through an Internet Service Provider means the service is using part of the right of ways and requires that service to pay the 5% franchise fee.

    I'm not opposed for streaming video services being required to pay necessary fees and taxes to do business. What I'm opposed to is stunts like Indiana trying to force a franchise fee meant for cable & telecom company onto any service providing "video". Their VSF law is a 2006 law which the definition of "video services" was widely expanded beyond the federal definition to include anything that has a shred of video content.

    Point blank the federal government caused this mess when they exempted "Internet" services from franchise fees but allows cities and states to continue them for "video" and "phone" services offered by the local cable & telecom companies. If anything should be charged a franchise fee it should be the entire "Internet" service not the various companies that happen to offer any kind of video service delivered through the Internet.

    I'll say it again if a cable/telecom provider is offering a TV service that can be used without an active Internet connection and doesn't count towards a user's Internet data allowance then it is using infrastructure at the local level and should pay franchise fees for those right of ways. If a video service is providing nationwide video programming that requires an active Internet connection that counts against Internet data allowances then they shouldn't be charged a franchise fee because they are not local.

    So what you are saying is every service on the Internet offering video content in some capacity should simply stop offering video content to avoid paying franchise fees under Indiana's Video Service Franchises (VSF) Act since its broad definition of "video service" includes pretty much every service that distributes video content over an Indiana ISP since they are using the Indiana ISP is using the right of ways.

    What about Internet services offering video outside of the United States that can be viewed by Indiana's Internet consumers? Should they pay Indiana's VSF fees when an Indiana Internet subscriber streams a video from them using the right of way granted to the ISP?

    Should DirecTV and Dish simply stop offering Internet related features in Indiana? Should all online services offering video just blanket geo-block everyone in Indiana from using their services to avoid paying their Indiana's vague and broad franchise fees?
     
    Last edited: Aug 23, 2020
  18. b4pjoe

    b4pjoe New Member

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    Ha Ha...beat you to it! :D
     
  19. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    Nope. I did not say I wanted any provider to stop providing their service. Perhaps in your attempt to "win" the argument by flooding the thread with thousand word essays you have failed to read what I have written?

    If a provider provides a service that is taxable or subject to a fee that provider should pay the tax or fee. If they disagree with being charged a tax or fee they should either get the law changed or have the courts clarify how the law should be applied. This is the generic answer I have been giving for when a satellite carrier or other service is asked to pay a tax or fee allegedly intended to be exclusive to cable.

    This particular issue will not be solved based on which lawyer writes the thickest briefs or is the most long winded in court. This issue will be solved based on how the courts view Indiana's law: "The transmission to subscribers of video programming and other programming service through facilities located at least in part in a public right-of-way and without regard to the technology used to deliver the video programming or other programming service." It does not take many words to say the definition is overly broad. Nor does it take many words to demonstrate how the providers in question fit the definition. It may take a few years, but the courts will decide.
     
  20. inkahauts

    inkahauts Well-Known Member

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    It’s bad as far as I’m concerned because the franchise fee is about hardware and physical space required to provide a service like cable tv. They still get those fees from the company delivering the internet to those houses. This to me is Akin to also charging a fee for what they are delivering over those cables as well as having them in the first place.

    It’s a money grab pure and simple and needs to be shot down.

    Pull the services if it ever gets enacted. The people will be mad and the state will relent.
     
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