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Do streaming services count as video service providers and should they be subject to franchise fees like traditional cable TV? Judges Melissa May, Elizabeth Tavitas and Paul Felix weighed the above question in a remote hearing held at Wabash College on Tuesday.
Also at question was whether state lawmakers unconstitutionally intervened in 2023 to nullify a lawsuit filed by four Indiana cities seeking to recoup franchise fees from some streaming service providers.
In August 2020, four cities sued a handful of streaming services seeking franchise fees equal to 5% of local gross revenue for using facilities in the public right-of-way, similar to how cable television stations operate.
A 2006 law requires video service providers to be licensed with the state and pay quarterly franchise fees to cities and other governments. But the cities of Fishers, Indianapolis, Evansville and Valparaiso say that streaming giants like Netflix, Disney+, Hulu, DirectTV and Dish Network haven’t complied.
Such companies depend on Internet services, specifically shared cables that are part of the greater utility framework accessed through public right-of-way.
“I’m accessing the Hulu programming via the Internet, but I can only access that because the programming has traveled through the public right-of-way to get to my house,” argued attorney Michael Limrick on behalf of the cities. “… if I’m going to pull up programming on my phone that will have been broadcast to my phone from a tower that may be sitting in the public right-of-way.”
Broadcasting through satellite services, for example, wouldn’t be included under Indiana’s video service provider law, Limrick said.
But, rather than letting such questions play out in the courts, the General Assembly intervened, tweaking the definition of video service providers in a way that killed the effort.
The original version of the bill that became House Enrolled Act 1454 didn’t include any mention of video service providers, but as the 2023 bill grew from 42 pages to 282 pages, it picked up provisions. The relevant addition explicitly said that video programming offered over the Internet isn’t considered to be a video service provider — and then backdated the language to 2006, when the franchise fees were established.
On Tuesday, judges also wondered whether re-opening up the definition in a way that includes the Internet might capture other forms of video content, such as creators on YouTube and TikTok.
“We have these YouTube producers that are making all of these videos … somebody like a Mr. Beast, who now has huge production abilities. He’s not just a guy with a cell phone anymore taking videos of the crazy things he’s doing,” said Felix. “It begins to blur the line as to what is video programming that’s similar to regular broadcast.”
Limrick argued that accessing YouTube videos aren’t all fee based, though he acknowledged there’s a separate, paid service for watching live television and ad-free videos built into the platform.
The case for streaming services
Citing the new law, a trial court judge ruled in favor of the streaming services to dismiss the case and ruled that the additions were constitutional in June 2024. A story from the Northwest Indiana Times detailing the bill’s journey to become law reported that the author said the language came from a lobbyist affiliated with Dish Network.
But the cities continued to argue that lawmakers overstepped by adding the video service provider language to a bill that initially sought to address certain Department of Local Government Finance concerns — in effect, creating “special” legislation.
Peter E. Davis, arguing on behalf of Netflix and others, said it didn’t count as special legislation and simply clarified existing law — noting that it mirrors how other states have approached the issue.
“The cities’ arguments today undermine the General Assembly’s ability to legislate, both for this case and for the future,” said Davis. “… The cities’ argument would make such amendments impossible, locking Indiana into taxes and fees passed in a different time, in a different day, with no ability to adjust.”
Davis said it was his understanding that Internet service providers don’t pay franchise fees either. Additionally, since the companies are “agnostic” about how users access their offerings — whether by phone, Internet or otherwise — he said it makes “very little sense to impose a fee” on streaming.
“What the Internet service provider is doing is very different than what a cable company is doing … they’re enabling access to all kinds of content. So it’s not just video, but it’s email. It’s information; it’s social media; it’s video games,” said Davis. “It doesn’t make any sense to impose franchise fees on just one piece of something that the Internet service provider — whose not even the streaming company here — is ultimately providing.”
He also pointed to a 2022 report from the Indiana Utility Regulatory Commission concluding that “streaming video is not treated as a traditional video provider and, therefore, is not required to obtain a state-issued franchise.”
However, in a rebuttal, Limrick argued against the notion that the legislature only wanted to regulate the companies installing wiring for the Internet in the public right-of-way.
“It could do that; it hasn’t done that,” said Limrick. “What the act regulates are companies that transmit video programming through facilities located, at least in part, in the public right-of-way.
“… the act says nothing about who owns those facilities,” continued Limrick, referring to the 2006 law.
Carving out streaming services who operate using the Internet, he said, would be special treatment.
Felix noted a “tension” created by the arguments because any ruling would impact not only existing streaming services but companies yet to be created. The three judges didn’t indicate when to anticipate their ruling.
The Indiana Capital Chronicle is an independent, nonprofit news organization that covers state government, policy and elections.
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