“’Video service’ means the provision of video programming over wires or cables located at least in part in public rights-of-way, regardless of the technology used to deliver that programming.”
— Ohio Revised Code 1332.21(J)
“Respondent has no rebuttal to the fact that Netflix is not a ‘video service provider’ under the VSA Law, nor is there one.”
— Brief of Netflix, Inc.
We cut the cable cord at our house several years ago amid ever-rising cable bills and the realization that no one in the house but me watched live television, and even then only sporting events. (I hold a particular disdain for cable “news” channels which provide almost no actual “news” and poison the well of productive political discourse from all points along the political spectrum.) We replaced cable, at a huge savings, with a couple of streaming services, including Netflix and Hulu.
Now, those two streaming services find themselves before the Ohio Supreme Court fighting off a claim that they should pay the same video service access fees that cable companies have to pay under Ohio’s “Fair Competition in Cable Operations” statute.
Cable companies are required to obtain a license and pay a fee to the municipal corporations in which they operate. These “video service provider fees” come about as a result of the cable companies being licensed by the Ohio Department of Commerce. As people continue to cut the cable cord and switch to streaming providers, the amount being paid in these fees dwindles.
The City of Maple Heights, on Cleveland’s southeast side, has decided to take legal action against two of the biggest streaming services — Netflix and Hulu — with a claim that they should be subject to the same provisions. Originally brought in federal court, the Northern District Court of Ohio certified the matter to the Supreme Court of Ohio in July of 2021 as involving a question of state law. A number of amicus briefs were filed by interested parties, including the Ohio Attorney General’s Office, the open internet organization Public Knowledge, and, not surprisingly, two other providers of streaming services, DIRECTV and DISH Network. Each of those amicus filers took positions in support of Netflix and Hulu.
Maple Heights notes that the streaming services seem to fit the definition of a “video service provider” in the act, in as much as they provide television and movie programming to consumers and do so using wires or cables. They also point out that the exception for internet service providers that is built into the law does not apply to the streaming services.
For their part, Netflix and Hulu have a multi-point argument in response. First, they note that the law defines a “video service provider” as being someone granted a license by the Department of Commerce — something the Department of Commerce has never done as to streaming services.
Second, they note that the law explicitly provides that only the director may bring an action to enforce the statute, which they say bars any action by a municipality such as Maple Heights.
Finally, and as back-up argument if those positions fail, they note that they do not own the means of transmission in the way that cable companies do, and that they do not provide a “video service” because they neither own nor operate any physical property in a municipal right of way. In fact, Netflix and Hulu point out, the entire purpose of the fee to the city is to reimburse it for the fact that the cable provider is digging in the city’s right of way.
It is notable that Ohio is, by no means, the only state where this kind of litigation is pending. There are several similar actions around the nation. Should Maple Heights prevail, the same fees that are charged to cable companies could be charged to streaming services. Streaming services could, of course, pass those fees on to the consumers in the form of higher monthly subscription costs.
Even if Netflix and Hulu prevail, the issue would not be resolved indefinitely. The Ohio General Assembly could always revisit the Fair Competition in Cable Operations statute and explicitly change the language to cover streaming services. Or they could simply impose a new tax on those services that generates the same kinds of fees for municipalities.
Oral arguments were held this Wednesday morning, and it will likely be several weeks before the court issues a written decision. A ruling in favor of the city would be the crown jewel for them and result in a black summer for Netflix and Hulu. Legal experts seem to think the networks have the stronger case (and the grilling the justices gave to Maple Heights’ legal counsel seems to support that), but stranger things have happened.
The case is City of Maple Heights, Ohio v. Netflix, Inc. & Hulu, LLC, and carries Ohio Supreme Court case number 2021-0864. The full briefs of all of the parties and the video of the oral argument (running 31 minutes) can be found on the website of the Supreme Court of Ohio at www.supremecourt.ohio.gov.