Texas Town Sues Netflix, Hulu Over Utility Fees

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Netflix and Hulu are using broadband infrastructure to provide their services to New Boston, Texas residents and the city says the streamers ought to be paying it five percent of their local gross revenue as a fee.

The City of New Boston on Tuesday filed a putative class action in Texas federal court and it starts with a lesson on how the services work. 

"When a Netflix subscriber wants to view Netflix programming, the subscriber’s Internet service provider will connect the subscriber to the closest Netflix Open Connect server offering the fastest speeds and best video quality," writes attorney Austin Tighe in the complaint, which is posted below. "According to Netflix, that means that most of its subscribers receive Netflix’s video programming from servers either inside of, or directly connected to, the subscriber’s Internet service provider’s network within their local region."

Hulu operates similarly, according to the complaint. The city argues that the state requires video service providers to file an application with the Public Utility Commission of Texas for certification and Netflix and Hulu failed to do that — and failing to fill out the paperwork doesn't relieve them of the obligation to pay a quarterly franchise fee to each city where they provide service. 

The city of Creve Couer, Missouri in 2018 filed a similar suit against several companies, including Netflix and Hulu. There Netflix argued that it isn't a video service provider and therefore isn't subject to the rules. That fight is pending in state court after a federal judge declined to exercise jurisdiction

The City of New Boston has defined the proposed class as "All Texas municipalities in which one or more of the Defendants has provided video service."

Under the Texas utilities code, video service is defined as "video programming services provided through wireline facilities located at least in part in the public right-of-way without regard to delivery technology, including Internet protocol technology." (It doesn't include commercial mobile service providers.) 

The city is asking for a declaration that Netflix and Hulu's services meet that definition and therefore they were required to file the requisite paperwork and pay the five percent fee. 

The streamers have not yet commented on the complaint.