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Beaumont versus Disney, Netflix, and Hulu

Oh, this is going to be fun.

The City of Beaumont is suing Netflix, Hulu, and Disney for failure to pay franchise fees.

At Tuesday’s city council meeting, the city attorney was officially authorized to file the lawsuit.

The city alleges that the companies violated the 2005 Texas Video Service Providers Act, according to a public notice published last week.

“The city’s desired outcome in pursuing the litigation is to recover from the VSPs damages owed to the city for failure to pay franchise fees and obtain an order requiring the VSPs to pay the franchise fees going forward,” the public notice stated.

This is not a nationwide law, City Attorney Sharae Reed said. It is Texas specific, and to her knowledge, Netflix, Hulu and Disney are not paying the franchise fees to any cities in Texas.

“I’m not privileged to say what other cities are doing, but I am aware of some other cities who are in a class action lawsuit,” Reed said. “It’s each city filing their own individual lawsuits, and then we’re coming together.”

All three companies are expected to vigorously oppose the charge, so the city is hoping to employ highly-skilled lawyers on the case. Beaumont intends to work with three law firms on the lawsuit — McKool Smith, P.C., Ashcroft Sutton Reyes LLC, and Korein Tillery LLC.

[…]

Should the lawsuit prove successful for the city, recovered franchise fees will be used to pay for essential municipal services going forward.

I mean, I think the odds of this succeeding are pretty low. I Am Not A Lawyer, but I am a guy who has some insight into how this kind of lawsuit tends to play out in this state. If nothing else, the AG’s office tends to jump in front of a parade like this when it’s viable. But maybe I’m wrong, and maybe a bunch of other cities will look at this and think “we gotta get in on that”. Any real lawyers out there who want to tell me if I’m off base or not, please do so.

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One Comment

  1. Greg Degeyter says:

    I grew up right outside of Beaumont. The area in general gets some really odd ideas and tries to cram them through. Looking at the Utilities Code the litigation isn’t frivolous. The named defendants are going to have some trouble with the defense because they haven’t challenged the underlying statute.

    Beaumont is unlikely to receive a substantial amount of revenue from the litigation. The Utilities Code requires a franchise fee of 5% of gross revenue. This is limited to the amount of users receiving service for transmission through municipal property.

    Netflix as an example:

    Beaumont Households: 46,000 per Census Bureau estimate
    Netflix pricing: Standard plan 15.49/month
    Revenue per customer: $0.77/month or $9.24/year
    Potential revenue cap: $425k/year

    That’s if every household in Beaumont 1) subscribes to Netflix and 2) receives Netflix via municipal property transmission.

    Statistia says 52% of the USA has subscriptions, so using that value for Beaumont the potential revenue is $212.5k/year. Then you have to subtract the amount of customers who receive Netflix not using municipal property (say they use Dish Network) and the amount received is under $200k/year.

    It’s the lack of revenue generated rather than the underlying legal merits that have prevented litigation like this from being filed so far.