Netflix Tells Court It Isn't a Video Service Provider
Netflix Tells Court It Isn't a Video Service Provider
The streamer — no quarrel there — is looking to avoid
paying a portion of subscription fees to Missouri towns.
by Eriq Gardner SEPTEMBER 13, 2018 3:48pm PT
The streamer — no quarrel there — is looking to avoid
paying a portion of subscription fees to Missouri towns.
"Netflix is not a video service provider because it
does not provide video service."
This powerful argument comes from a memorandum submitted
in Missouri federal court on Thursday by Netflix, which along with Hulu faces a
lawsuit from the City of Creve Coeur, Missouri.
Back in 2007, Missouri passed the Video Services
Providers Act, which allowed municipalities and counties in the state to
collect franchise fees from video service providers. Since then, cable
operators in the region have obtained video service authorization and remitted
fees.
But according to Creve Coeur, which has a code of
ordinance that requires a video service provider fork over five percent of its
gross revenues, Missourians have shifted to subscription-based streaming
services like Netflix and Hulu. And those companies aren't paying these fees,
which states the lawsuit, "deprives Missouri municipalities of much-needed
revenue."
Creve Coeur seeks a declaratory judgment that Netflix and
Hulu are engaged in the business of providing video service within the meaning
of the 2007 law, and should the two companies continue to be stingy, restrain
Netflix and Hulu from engaging in business in Missouri.
Of course, this case is now coming down to an
interpretation of the 2007 law in question.
"Video service" is defined in the statute as
"the provision of video programming provided through wireline facilities
located at least in part in the public right-of-way without regard to delivery
technology."
"Netflix does not provide video programming,"
argues the streaming giant. "But even if Netflix did provide video
programming, such programming is specifically excluded from the definition of
video service when provided through the public Internet. The Act, and Creve
Coeur's ordinance, state that the definition of video service 'does not
include... any video programming provided solely as part of and via a service
that enables users to access content, information, electronic mail, or other
services offered over the public Internet.' This exclusion describes the Netflix
Streaming Service exactly."
Creve Coeur states otherwise in its complaint (read
here), but Netflix is arguing that the exclusion had a purpose: to impose a set
of regulations and fees on cable service providers, not internet-based services
like streaming.
A footnote in Netflix's brief (read here) adds that this
sort of issue has only come up once before — when a court in Kentucky in 2016
looking at a local tax dispute came to the conclusion that its state's
lawmakers couldn't possibly have subjected every possible new technological
development in the field of transmitting content to taxation. The judge in that
case wrote, "[I]t is unreasonable to conclude that Netflix's streaming
service is generally considered comparable to traditional cable and broadcast
television services: the two could not be more different."
Now a Missouri court must come to its own conclusion.
While this may only be the second case of its kind, it
likely won't be the last. This dispute might turn on an interpretation of a
decade-old statute, but there's a strong possibility that cord-cutting could
convince local governments to update laws in order to recover lost tax revenue
as consumer habits shift. And the prospect for doing so may have been boosted
by a Supreme Court decision in June, South Dakota v. Wayfair, which allowed
states to subject internet sellers to local sales taxes over arguments that
doing so would violate the dormant Commerce Clause in the U.S. Constitution.
Then again, that was a closely decided case, 5-4, with
Justice Anthony Kennedy authoring the majority opinion. Kennedy is now retired.
If confirmed, Brett Kavanaugh could provide the next chapter. He's a bit of a
stickler for the plain meaning of statutes even if it could gut the television
industry as we know it.
Comments
Post a Comment