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TN Supreme Court says Netflix, Hulu don't need to pay franchise fees to cities amid Knoxville lawsuit

The lawsuit claims that Netflix and similar services provide services across Tennessee without a franchise. The court said these services don't need one.

KNOXVILLE, Tenn — The Tennessee Supreme Court issued an opinion Tuesday that streaming services like Netflix don't need to pay franchise fees to a city if they operate out of one. This comes after the city of Knoxville filed a federal lawsuit against Netflix and Hulu in court over the issue.

The state Supreme Court was asked the question by the federal court because there wasn't clear guidance in this case: Do streaming services like Netflix and Hulu fall under Tennessee's Competitive Cable and Video Services law that requires certain providers to apply for a franchise and pay franchise fees to cities? 

The court decided the answer is "no."  

Knoxville's lawsuit claims that Netflix, Hulu and similar services provide video services across the state operated without paying franchise fees under the act. That law effectively established a statewide franchise for cable and video companies, instead of them having to work out agreements with individual cities. The franchise fee is set at 5% and is payable every quarter.

The court said the question hinged on the definition of "video services." Netflix and Hulu's legal teams filed motions to dismiss the lawsuit, saying they do not provide "video services" under the definition in the CCVSA law.

The court agreed with that assessment, saying a "video service" is only provided if the company engages in the "provision of video programming through wireline facilities located, at least in part, in the public rights-of-way." 

The court said it determined the law did not apply to streaming services because they do not construct or operate wireline facilities in the city to transmit their content and instead go through third-party internet service providers, saying the act as a whole is focused on granting video service providers permission to physically occupy public rights-of-way.

You can read the full court opinion at this link.

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