Streaming service giants Netflix and Hulu, along with satellite providers DIRECTV and Dish Network, emboldened by a state court decision rejecting a 5% franchise fee on their operations imposed by the City of Fort Scott, have turned their attention to the Kansas Legislature for a more permanent fix in Senate Bill 144.
A Bourbon County District Court last fall dismissed a lawsuit filed by Fort Scott in 2021. The city sought to levy the same fee on those providers as it does to cable TV companies as “rent” for the use of city streets and rights-of-way to install their buried cable and wires to provide subscription television programming. The court ruled the streaming services, which either beam their signals to subscribers’ satellite dishes installed on their homes or businesses, or transmit through cell phone lines to Internet connections, are not governed by the Kansas Video Competition Act (KVCA). The Act requires cable companies or “video service providers” to obtain state-issued authorization from the Kansas Corporation Commission and pay 5% of its gross revenues to the city as “rent” for use of its streets and rights-of-way.
The court found:
“The KVCA was only intended to apply to entities that construct or operate wireline facilities in municipal rights-of-way. The ability to collect the video service provider fee was premised on the municipality’s interest in the public property and rights-of-way in which the wireline facilities were placed. Netflix and Hulu do not use the public rights-of-way—they do not have their own wirelines in the public rights-of-way; rather, their content is accessed by subscribers over the wirelines of third-party ISPs (Internet Service Providers). What Fort Scott seeks is the ability to charge video service provider fees from Netflix and Hulu even though their content is delivered by third parties over already-existing wirelines. By trying to collect video service provider fees from Internet streamers like Netflix and Hulu that do not have wireline facilities, Fort Scott is trying to collect multiple sets of fees for the same set of wirelines beyond the fees Fort Scott may already collect from the entity that places the wirelines in the public rights-of-way. This is not how the KVCA was intended to be applied.”
The court used as precedent recent decisions in favor of streaming and satellite services from across the country as cities seek to make up lost revenue from consumers “cutting the cord” on cable television and increasingly opting for less expensive streaming services for entertainment.
SB 144 exempts providers of broadcast satellite services and video programming delivered over the Internet from the provisions of the KVCA.
Renee Bivens of Dish TV hailed the court’s ruling and called for the passage of SB 144:
“This bill will affirm the status quo, as recognized by the Bourbon County District Court – the Kansas Video Competition Act does not authorize cities to collect an additional fee on content, in addition to the fees they already collect on infrastructure. Dish fully supports Senate Bill 144 and thanks the Senate for acting swiftly to protect Kansas families from a potentially major fee increase.”
DIRECTV’s Hamlin Wade calls the bill “pro-customer”:
“This legislation provides consumers the protection necessary to ensure they are not assessed a fee twice on the same service – once for the content and again for delivery. Unfortunately, the parties involved in the municipalities are more focused on their own personal financial gain than the additional constraints another fee will place on their constituents.”
Fort Scott is appealing the court’s decision. Mayor Matthew Wells is adamant about the city’s position:
“It would be short-sighted for any multi-million-dollar company to charge its customers for a fee it must pay in many other cities. If they don’t want to do business in our city, that’s their choice. These corporations that profit so insanely need to understand we all play by the same rules. If you provide a monthly service in our community, you must pay the fees; it is unfair that they would be the only ones not paying that fee. We either charge everyone the same tax; or do away with all taxes and government altogether.”
SB 144 has been assigned to the Senate Committee on Energy, Utilities, and Telecommunications.