Texas Cities Press Their Case for Franchise Fees From Disney, Netflix

Citing chapter 66 of the Texas Public Utility Regulatory Act (PURA), plaintiffs said anyone who seeks to provide video programming through wireline facilities located “at least in part” in the public right-of-way (ROW) in Texas must obtain a franchise and pay Texas cities a franchise fee. Defendants provide such video programming in Texas but failed to obtain the franchise and pay the required fee, they said.

In “largely duplicative briefs,” the streaming media defendants “seek to perpetuate their free use of the public right-of-way by presenting four varieties of meritless arguments,” said plaintiffs. Netflix argues it doesn't offer video programming because its product is “highly interactive,” said the memorandum, saying the FCC has determined the argument is “irrelevant as to whether Netflix provides video service.” Whether Netflix is highly interactive is a “disputed matter of fact,” plaintiffs said: “Pushing ‘Play’ to watch Cheers on Netflix is no more interactive than selecting NBC to watch Cheers.”

Netflix offered the “doomsday prediction” that a ruling in plaintiffs’ favor would subject “everyone sending a video over the internet to a franchise fee,” said the memorandum. Plaintiffs said PURA “only applies to a certain type of video” that’s “comparable” to programs traditionally viewed on TV in 1984, such as TV shows and movies, as set forth in 47 U.S.C. 522(20), which the FCC interpreted to mean programming comparable to that provided by TV stations in that year, including cable networks and pay cable on a per channel or per program basis. A franchise fee is due on gross revenue earned by providing video programming, the memorandum said: “Very few internet users derive ‘gross revenues’ from transmitting TV shows and movies through the public right-of-way.”

The cities compare defendants’ programming to that provided by broadcast TV stations and other video programming providers that pay franchise fees under PURA. They note defendants’ programming is comparable to “and sometimes identical to” that on traditional TV stations. Defendants maintain the Texas Legislature intended PURA to apply to some video service providers who use IP technology but not to them, said the memorandum, but “there is no basis” for such a distinction, plaintiffs said.

Defendants’ argument that ownership or control of a network in the public ROW is necessary under PURA “is incorrect”; instead, “one need only provide video programming ‘through wireless facilities located at least in part in the public rights of way,'” said the memorandum.

The streaming companies argue they're not subject to the franchise fee because they don’t use wireline facilities in the public ROW, but PURA defines “use” as “the provision of video programming ‘through wireline facilities located at least in part in the public right-of-way,’” said the memorandum. Even if use of facilities located in a public ROW were a requirement, “it is absurd to suggest that Defendants are not ‘using’ the public right-of-way,” it said. “Defendants must be ‘using’ something to get their programming from point A to point B.”

Plaintiffs have four causes of action against defendants: express rights of action under PURA; the Uniform Declaratory Judgment Act; implied rights of action under PURA; and common law rights for unjust enrichment and trespass, the memorandum said. Falling within PURA is “simple,” they said: “If you send things comparable to TV shows and movies through wireline facilities in the public right-of-way, you owe a fee.” That’s what plaintiffs allege the streaming defendants do, “which is all that is required at this stage.”