Class Action Claims Netflix, Hulu Owe ‘Franchise Fees’ to New Jersey Municipalities

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Two New Jersey towns claim in a proposed class action that Netflix and Hulu owe the state’s municipalities franchise fees for providing online streaming services through broadband wireline facilities located at least partially in public rights-of-way.

According to the 18-page case, the New Jersey Cable Television Act (CTA) imposes upon companies who provide “video programming” and “cable television service” to subscribers, such as Netflix and Hulu, certain franchise obligations and fees in exchange for the use of the state’s utilities in providing those services.

The lawsuit, filed by the Borough of Longport and the Township of Irvington, contends that Netflix and Hulu qualify as providers of “video programming” and “cable television service” and are thus required to pay New Jersey municipalities fees that are “equivalent to a percentage of their gross revenue, derived in each municipality.”

The lawsuit argues that Netflix, Inc. and Hulu, LLC qualify as providers of “video programming” and “cable television services” as defined by the CTA given they offer customers a subscription-based service through which viewers can watch TV series, shows, films and documentaries through Internet-enabled devices using a broadband Internet connection. According to the case, the broadband Internet connections through which Netflix and Hulu deliver their services depend on wireline facilities “located in whole or in part” in public rights-of-way.

The CTA, the suit says, requires entities who seek to provide cable services in New Jersey to apply for either individual certificates of approval with municipal consents or a system-wide franchise from the New Jersey Board of Public Utilities in exchange for the use of public rights-of-way to provide such services. Moreover, the companies must also pay to municipalities fees of either two percent of their gross revenues from subscription fees paid by customers in the municipality (in the case of municipal consent) or 3.5 percent of their gross revenues from fees paid by subscribers in the municipality (in the case of a system-wide franchise), the lawsuit relays.

According to the suit, Netflix and Hulu have failed to apply for and obtain certificates of approval and municipal consents or a system-wide franchise in New Jersey and are therefore providing their services without authorization. Despite failing to obtain the proper approval or franchise, the defendants are still obligated to pay franchise fees based on a percentage of their revenues, the lawsuit argues.

The lawsuit looks to require Netflix and Hulu to comply with the CTA and “pay what they owe” to New Jersey municipalities.

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