Indiana Cities File Class Action Lawsuit Against Streaming Service Providers For Unpaid Franchise Fees
August 5, 2020 – Four Indiana cities have filed a class action lawsuit in Indiana state court against streaming providers Netflix, Disney, Hulu, DirecTV, and Dish Network for unpaid franchise fees.[1]
The Plaintiff cities – Fishers, Indianapolis, Evansville, and Valparaiso – argue Netflix and the other Defendants are providers of video-streaming service throughout Indiana, but since 2006 have failed to comply with the Indiana Video Service Franchises Act by not applying for a franchise from the Indiana Utility Regulatory Commission and not paying franchise fees. The Plaintiffs claim the proposed class includes at least 600 Indiana governmental entities.
The Indiana Video Service Franchises Act requires any company offering “video service” in Indiana to apply for a franchise from the Indiana Utility Regulatory Commission and pay franchise fees to cities and other local governments. Here is how the Indiana law defines video service:
(1) the transmission to subscribers of video programming and other programming service:
(A) through facilities located at least in part in a public right-of-way; and
(B) without regard to the technology used to deliver the video programming or other programming service; and
(2) any subscriber interaction required for the selection or use of the video programming or other programming service.
(b) The term does not include commercial mobile service (as defined in 47 U.S.C. 332).[2]
The Indiana cities claim the streaming-video service providers transmit their programming through facilities located at least in part in public rights-of-way within Indiana, including public rights-of-way located within the cities’ geographic boundaries, subjecting them to the Indiana Video Service Franchises Act. This allows Netflix and the other streaming services to “gain[] substantial revenue from Indiana subscribers.”
In other words, the Plaintiff cities believe streaming providers are just like traditional cable companies, except the streaming providers are not paying franchise fees. As they point out, even “Netflix states that it offers video programming that is ‘comparable to similarly-focused US domestic cable networks.’” The cities mention similar statements made by Hulu and Disney+.
The lawsuit is an effort by the Indiana cities to regain lost revenue that is attributable to cord-cutting. Franchise fees are based on gross revenues. Indiana cable TV providers are losing subscribers, resulting in less revenue. As the Indianapolis Star reports:
Records maintained by the Valparaiso clerk-treasurer show the city received $446,000 in video franchise fees last year, compared with $476,000 in 2017 – a decline likely to an increasing number of residents “cutting the cord” by replacing their cable television service with subscriptions to streaming services.[3]
Cable TV providers everywhere are experiencing a decline in revenue as consumers dump their overpriced cable bills for over-the-top streaming services. This is the second such lawsuit against Netflix et al. In July 2018, the city of Creve Coeur, Missouri filed a class action lawsuit against online video service providers Netflix and Hulu for not paying franchise fees under Missouri’s 2007 Video Services Providers Act. Creve Coeur is seeking payment of video-service-provider fees due for the past five years, plus interest and penalties, and wants Netflix and Hulu enjoined from providing service within Missouri until they have paid the fees they owe.
As for relief, the cities “seek to require Defendants to acquire the necessary franchises, pay the required fees in the future, and compensate Plaintiffs and all other units of government for unpaid fees for past service.” Specifically, the complaint requests the following:
Declare and adjudge that Defendants provide video service in Indiana within the meaning of the VSF Act, I.C. § 8-1- 34-15 and grant all further necessary and proper relief;
Declare and adjudge that Defendants have failed to comply with their obligations to obtain a franchise and to pay franchise fees under the VSF Act and grant all further necessary and proper relief;
Order an accounting of all monies that Defendants owe Plaintiffs and class member Units, including prejudgment interest;
Enjoin and restrain Defendants from providing video service in Indiana, and deriving gross revenues therefrom, without obtaining a franchise and paying the re-quired franchise fees;
Order that Defendants perform their statutory duties and pay all franchise fees owed, past and future, to Plaintiffs and class member Units;
Award attorneys’ fees, costs, and expenses from the amounts recovered for the common benefit of the class; and
Order such other and further relief as the Court deems just and proper under the circumstances.
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[1] Cities of Fishers, Indianapolis, Evansville, and Valparaiso, Indiana v. Netflix, Inc.; Disney DTC LLC; Hulu, LLC; DirecTV, LLC; Dish Network Corp.; and Dish Network LLC, Indiana Commercial Court, Marion Superior Court, Civil Division 1, Complaint (Aug. 4, 2020).
[2] IC 8-1-34-14.
[3] Indianapolis, 3 other Indiana cities sue Netflix, Hulu and others for franchise fees, Indianapolis Star, Associated Press, IndyStar.com (Aug. 15, 2020), https://amp.indystar.com/story/news/2020/08/15/indianapolis-3-other-indiana-cities-sue-netflix-hulu-franchise-fees/5593011002/.
