Growing Number of States Exempt Streamers From Paying Franchise Fees

A streaming TV exemption from the state video franchise law passed Friday in Illinois. Another bill could pass soon in Nevada. The Texas House State Affairs Committee heard testimony on a Senate-passed bill Thursday. Several states have enacted or are considering bills to clarify that streaming and satellite TV providers aren’t required to pay local fees, following lawsuits by municipalities in various states against Hulu, Netflix and others.

Recent legal and legislative action in the states “is more about a bigger picture question that is being actively debated at every level of government,” Best Best local government attorney Cheryl Leanza told us: “What do large, successful content providers and other online service providers owe to contribute to the public’s interest in high-speed broadband networks that reach everyone?”

Ten states in the past two years clarified that satellite and streaming needn't pay cable franchise fees. Arizona, Georgia, Louisiana and Ohio said so in 2022. States passed bills this year in Arkansas, Iowa, Indiana, Kansas, Oklahoma and Tennessee. More states could soon join them, including Illinois, Missouri, Nevada, South Carolina and Texas. About 20 states have video franchise laws, while others follow federal rules. Fort Scott, Kansas, abandoned litigation against the state earlier this month after an exemptions law was signed (see 2305120021).

The Illinois Senate voted 57-0 to pass HB-3808. The House previously passed the bill, 108-1. The bill clarifies existing policy and has no fiscal impact, Senate sponsor Bill Cunningham (D) told colleagues at a livestreamed floor session Friday.

The Nevada Senate adjourned Friday afternoon without taking up the similar AB-146, which passed the House by a 42-0 vote last month. The Senate next meets Monday at 11 a.m. PST.

"Many municipalities across the country are suing TV and video streaming providers to pay a separate cable franchise fee," said Texas state Rep. Charlie Geren (R) at the webcast hearing on SB-1117 Thursday. That would mean a 5% fee on each of possibly several streaming TV subscriptions bought by a household, "even though the video streaming companies do not own any infrastructure in the right of way like cable companies do."

Streamers “do utilize the public right of way,” disagreed Texas Municipal League lobbyist Snapper Carr. Dallas thinks SB-1117 “would essentially eliminate all cable franchise fees in the state of Texas,” said Nick Fehrenbach, the city’s manager-regulatory affairs: All cable companies could, “with a few strokes of the pen,” change their TV service to streaming to avoid franchise fees.

DirecTV and Dish Network supported the proposed exemption at the Texas hearing, as they have in other states. Both satellite companies sell streaming services. “We’re focused on protecting consumers from unlawful and unintended taxes on our services along with other satellite and streaming services that do not own infrastructure in the right of way,” a DirecTV spokesperson emailed. “We applaud the growing number of state legislatures across the U.S. that are supporting that position in an effort to minimize an unnecessary financial burden on consumers.”

Only under state law do the bills narrow the definition of video service, emailed Best Best’s Tim Lay. “They do not -- and cannot -- narrow the federal Cable Act’s definition of ‘cable service.’” They won’t affect fees in states without state video franchising laws and, “despite what video streamers and cable operators may tell you, neither the FCC nor any court has decided whether video streaming services are a ‘cable service”’ under the Cable Act.” Lay sees good “arguments that such services, when provided over a cable system, are indeed a ‘cable service.’”

“Merely excluding video from one set of rules does not mean that these providers shouldn’t compensate local governments for use of taxpayer-funded infrastructure which makes these networks possible,” Leanza said. Local governments want “a system that offers appropriate contributions and benefits to all players fairly, including consideration of mandates currently placed upon local taxpayers who are often footing the bill for these networks without any local autonomy to determine what is the best path for their own communities.”