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Massachusetts considers streaming tax to fund public access channels

The tax would offset a decline in cable franchise fees paid by subscribers as more TV viewers shift away from expensive cable TV packages.

The tax would offset a decline in cable franchise fees paid by subscribers as more TV viewers shift away from expensive cable TV packages.

The studios of public access channel RCTV in Reading, Massachusetts. RCTV would benefit from a tax imposed on streaming services to offset lower cable TV franchise fees. (Photo via Google Street View)
The studios of public access channel RCTV in Reading, Massachusetts. RCTV would benefit from a tax imposed on streaming services to offset lower cable TV franchise fees. (Photo via Google Street View)

Lawmakers in Massachusetts are weighing a proposed bill that would impose a tax on streaming subscriptions in order to fund government, educational and public access television channels.

The bill, called “An Act To Modernize Funding For Community Media Programming,” would install a 5 percent tax on streaming services like Netflix, Hulu, Prime Video and Disney Plus in order to cover the bills for public access and local government-operated television stations in the state.

For years, public, educational and government — or PEG — channels were funded through a franchise fee imposed on cable television services that operate in the state. The franchise fees were justified because cable companies needed access to public rights-of-way like sidewalks and streets in order to erect utility poles and lay down cable lines that were needed to deliver TV programming and other services like broadband Internet.

The model has been franchised throughout the country, giving local governments significant revenue that was used to support various PEG channels. In most areas, at least one PEG channel airs local government meetings and other events of community interest.

Franchise fees are typically only passed on to cable TV customers in their bills — a federal law passed in 2004 bans local governments from taxing broadband Internet connections. As more consumers ditch cable TV services for cheaper, streaming-only platforms, local governments have seen their franchise fees reduced to the point where supporting PEG services has become a challenging endeavor.

Last year, lawmakers in Massachusetts floated the idea of charging streaming services the difference, since the federal broadband tax prohibition only extends to providers, not services. They say streaming services use the same public infrastructure — specifically, utility lines that are laid through public rights-of-way — to deliver their service as cable TV.

If approved, streaming services would be charged a 5 percent tax on all customer accounts in Massachusetts. The amount is identical to the 5 percent franchise fee that cable operators like Comcast, Charter and Verizon must pay on a per-subscriber basis.

Supporters of the measure say it would help fund critical PEG channels in areas where local governments are unable to deliver the same programming on their own via other means like YouTube and Facebook. In those parts of Massachusetts, cable television remains a lifeline for people who want access to local government meetings and other community-oriented programming.

Earlier this week, officials with Reading Community Television (RCTV) sent a letter to their local newspaper urging citizens to rally around the initiative.

“Since fiscal year 2018, the Comcast and Verizon grants to Reading in support of RCTV have been steadily decreasing while the related operations costs have been increasing,” the letter said. “As a result, each year deficits have grown, and operating cash, capital funds, and reserves have decreased.”

RCTV said it provides critical coverage of events that go beyond the municipal meeting, to include community performances and holiday events happening around town. Without finding new sources of funding — RCTV also encouraged businesses to sponsor their channel — much of that coverage will go away.

“PEG stations provide an invaluable service for communities across the state; while often viewed as a relic of the past, the services that cable access stations provide are more important now than they’ve ever been,” Caleb Tobin, a production technician at Holbrook Community Access, wrote in an editorial published by Commonwealth Beacon. “Broadcasting government meetings, covering community events, letting citizens produce their own shows, and providing training on equipment are just a small part of what these stations do. Without modernizing the funding structure these stations rely on, we could soon see them disappear. The Legislature must act quickly to pass the necessary legislation to keep cable access alive.”

But similar initiatives passed in other areas have faced legal challenges by the streaming services — and courts have typically taken the side of those services when deciding the outcome of those cases.

Last October, the federal Seventh Circuit Court of Appeals upheld a lower court ruling that said a town in Illinois could not charge franchise fee-like taxes on streaming cable services simply because their products are delivered over cable broadband and fiber lines.

To that end, the court rejected the notion that streaming services were considered “video services” under Illinois law at the time and applied a narrow view to the definition, which largely involved cable TV services. An amended definition that took effect earlier this year did nothing to persuade the court that the city would be entitled to collect franchise fees from streaming services, either.

“Over-the-top streaming services do not ‘resell’ cable TV service; an Internet service provider sells the transmission of data to and from arbitrary sources,” the court held. “Customers use that bandwidth to receive streaming videos from Netflix and similar providers. The internet service provider is paid for bandwidth; Netflix is paid for content — nothing is resold.”

The court also found that Internet service is substantially different from cable TV service, finding that the two were unrelated, even if the same company provides both to customers.

“An internet service provider may use coaxial cables or microwave relays for some of its data but does not employ a ‘closed-circuit’ system,” the court said. “The Internet is as open as any circuit gets. It would take an exceedingly creative reading of the ordinance’s language to support the city’s claims.”

Massachusetts is not part of the federal Seventh Circuit, but the outcome of the case has the effect of a precedent, one that other courts could look to in deciding similar legal challenges concerning the same matter.

The Massachusetts initiative remains pending in the state legislature.

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About the Author:

Matthew Keys

Matthew Keys is a nationally-recognized, award-winning journalist who has covered the business of media, technology, radio and television for more than 10 years. He is the publisher of The Desk and contributes to Know Techie, Digital Content Next and StreamTV Insider. He previously worked for Thomson Reuters, the Walt Disney Company, McNaughton Newspapers and Tribune Broadcasting.
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