INDIANAPOLIS—Netflix and other streaming companies are now fighting a battle over franchise fees on multiple fronts, as four cities in Indiana have filed a lawsuit saying they are owned franchise fees.

The City of Fishers, Indianapolis, City of Evansville and City of Valparaiso in Indiana have filed a joint lawsuit against Netflix, Disney, Hulu, DirecTV and Dish Network that would require them to apply as franchises and pay the necessary associated fees, including unpaid fees for past services.

The lawsuit claims that since 2006, Indiana has required those offering video services to apply for a franchise from the Indiana Utility Regulatory Commission and pay franchise fees to cities and other units of government, per the Indiana Video Service Franchises Act (VSF Act). They require these quarterly fees because they claim that the services are using facilities in the public rights-of-way.

It says that the defendants “have been, and are now, providers of video service throughout Indiana,” but that they have not complied with the VSF Act, by either applying for a franchise or paying franchise fees.

This is the second such lawsuit to be levied against Netflix and Hulu in the last week, following the City of New Boston in Texas. Another lawsuit covering similar against Netflix involving the City of Creve Couer, Mo., is still pending.

Netflix’s argument in the Missouri case has been that it is not a video service provider.

WASHINGTON—The FCC is clearing up some confusion that came about in its order denying a request for stay of its cable franchise fee deregulation decision, removing two sentences that it ruled could be misinterpreted as permission for local franchising authorities to “enforce unlawful franchise provisions.”

 NCTA—The Internet & Television Association filed a petition with the FCC specifically related to these two sentences in paragraph 21 of the FCC’s Stay Denial Order: 

•  “The rules in the [Third Report and Order] did not supersede provisions in existing franchise agreements on their effective date”; and 
•  “[i]f negotiations fail, the terms in the franchise remain in effect unless and until a cable operator challenges those terms and proves that the terms violate the [Third Report and Order’s] requirements.” 

Upon review, the FCC agreed with NCTA’s petition that these sentences conflicted with the order’s directives and required procedures that were not mandated by the commission, and instead parties should adhere to the order’s recommendations for negotiations within 120 days. It also stated it disagrees with NATOA that removing these sentences undermines the FCC’s reasons for denying the stay petition.

“[W]e find, in accordance with the Third Report and Order, that the LFA and the cable operator have a reasonable period of time to renegotiate the franchise argument, which in most cases is 120 days,” the FCC writes. “If negotiations fail, the cable operator and the LFA can continue to rely on the processes and remedies that may be contained in their franchise agreement or that are otherwise available.”

The full order of reconsideration is available online.

In an op-ed in Current this week, leaders of local community access TV criticized the FCC’s vote last week to deregulate local cable franchise fees that they say could threaten the future of PEG (public, educational, governmental) channels.

In the column, Ernesto Aguilar, program director for the National Federation of Community Broadcasters, and Mike Wassenaar, president/CEO for the Alliance for Community Media, said the FCC’s move could “devastate” PEG stations, adding that current trends in media consolidation and a decreased public trust in the media are proof enough that access to local news and information is more vital than ever.

“PEG stations supported through the fees have widely been considered a hallmark of media localism,” the writers said. “For the elderly, working people, students and everyone, PEG channels have been a window into the intricacies of City Hall, the classroom of a town’s college and the insightful, creative journalism and storytelling offered on public-access television.”

A local PEG channel’s airing of candidate forums and public meetings can help spur public interest in elections, especially in rural communities that don’t have local broadcast affiliates, they said, citing numerous examples of PEG channel programming that have helped “reignite waning interest” in local elections.

“Now multiply that success to 1,500 channels across the country,” they wrote. “All of these affected cities are at risk because of the FCC order, which treats local communities with contempt.”

The op-ed is available here. 

WASHINGTON—The FCC this week adopted new rules that prohibit excessive franchise fees and explains that local governments may not regulate most non-cable services, including broadband internet access service, offered over a cable system. These rules are a response to a remand by the U.S. Court of Appeals for the Sixth Circuit and set forth how local franchising authorities may regulate cable operators pursuant to the Communications Act.

The rule was adopted despite an 11th hour effort from U.S. Senators, who told FCC Chairman Ajit Pai that the new regulations could threaten the future of cable access TV, which relies on such fees.

“If implemented, the Order puts at risk critical funding for public, educational or governmental (PEG) stations, which are vital resources for residents across the country,” the Senators wrote. “These stations connect Americans to their communities, catalyze civic engagement and keep us up to date on the local issues and activities that affect our lives.

“Your proposal would force local government to decide between supporting PEG stations and supporting other important services for critical community institutions like schools and public safety buildings,” the Senators added.

In all, 14 senators signed the letter, including Edward J. Markey (D.-MA) and Sen. Elizabeth Warren (D-MA).

Chairman Pai, Commissioners O’Rielly and Carr approved the adoption while Commissioners Rosenworcel and Starks dissented.

Rosenworcel said the adoption of the new rules could have a detrimental impact on local community coverage.

“This agency should seize opportunities to reinvigorate local newsgathering and community coverage,” she said. “In fact, that has traditionally been a hallmark of Federal Communications Commission media policy.

“But on that score, today’s decision misses the mark,” she added. “That’s because it cuts at public, educational and governmental channels across the country. It goes beyond placing reasonable limits on contributions subject to the statutory franchise fee and jeopardizes the day-to-day costs, like staff and overhead, required to run such stations. I’m not the only one with this concern. Take a look at the record. We’ve heard from thousands of communities across the country worried we are cutting the operations of so many local channels. I am saddened that this agency refuses to listen.”

Under the Communications Act, every local franchising authority and every cable operator that offers cable service must comply with the Act’s cable franchising provisions, and local franchising authorities may charge franchise fees that are capped at 5% of a cable operator’s revenue derived from the provision of cable service. But some local governments, through the practice of requiring “in-kind contributions,” have been imposing franchise fees that exceed the 5% cap. In addition to being unlawful, this practice discourages broadband investment, deployment and innovation by cable operators.

In order to rein in overreach by local franchising authorities, and facilitate the deployment of broadband infrastructure, the commission concluded today that, under the Act, cable-related, non-monetary contributions required by a local franchise are franchise fees subject to the statutory 5% cap with limited exceptions, including an exemption for certain capital costs related to public, educational and governmental access channels.

It has also prohibited, pursuant to the Act, local franchising authorities from regulating the provision of most non-cable services, including broadband internet access service, that cable operators offer over their cable systems.

In addition, the commission decided that any state or local regulation of a cable operator’s non-cable services that imposes obligations on franchised cable operators beyond what the Communications Act allows is preempted.

Finally, the commission concluded that requirements concerning local franchising authority regulation of cable operators should apply to state-level franchising actions and state regulations related to local franchising.