Arkansas city sues Netflix, Disney over video franchise fees

A city in Arkansas is suing Netflix and the Walt Disney Company’s streaming service Hulu over a state law that allows municipalities the right to collect franchise fees from video services.

The lawsuit filed in federal court last week seeks class action status on behalf of all incorporated Arkansas communities in which Netflix and Hulu have not paid video-related fees.

At issue is a little-known law called the Arkansas video Service Act, which requires cable companies to pay a fee for transmitting video services over lines that cross through public rights-of-way.

The law is similar to video franchise fee regulations in other states, which allow local municipal governments to collect money in exchange for cable and other communications services laying their utility lines alongside public streets, sidewalks and other areas.

But the suit filed by the city of Ashland claims the Arkansas law applies to all types of video services that use broadband infrastructure, including streaming services like Netflix and Hulu. The town wants the two services to pay 5 percent of their gross revenue, whether they actually provide service to a home in Ashland or not, and even though Netflix and Disney were not responsible for the installation of broadband infrastructure there.

The lawsuit comes as other towns in Texas, Missouri, California nad Illinois have filed similar claims in federal and state courts against streaming services — primarily, Netflix, though Hulu has also been targeted — over similar franchise fees that they claim they’re owed.

In nearly every case, the towns are represented by big-name outside law firms with established attorneys who appear to be approaching small towns with loose franchise video fee laws on the books.