In short:Netflix, along with Hulu is currently facing a class action lawsuit headed up by the city of Creve Coeur, Missouri, on behalf of “dozens of state municipalities,” which is looking to ensure the companies pay what the city considers to be relevant taxes and fees for operating in Missouri. As part of the online streaming services defense, Netflix has argued the fees and taxes in question do not apply as Netflix is not by definition a “video service provider.” The lawsuit is ongoing.
Background: In Missouri there is the 2007 Video Services Providers Act which requires video providers, such as cable companies to pay additional fees locally, as well as requiring a “video service authorization” to operate in a given area. In the case of Creve Coeur, the fee could amount to as much as 5-percent of a company’s gross revenue. However, Netflix is arguing that it isn’t technically a video service provider as it does not provide ‘video programming’ and certainly not in the same way traditional cable operators do, due to the service’s provision of video content universally through the internet. With the company effectively arguing it offers a service irrespective of locality, device or equipment. Netflix also points out that by current definitions it’s not eligible to apply for a video service authorization, which further highlights how streaming services in general are not covered under, or subject to the existing laws surrounding video service providers.
Impact: This particular case has the potential to impact the market in different ways depending on the eventual outcome. For example, if Netflix is deemed to be liable for the fees, then it’s likely it will prove costly to the streaming service, as well as others including Hulu. At which point, if these companies continue to avoid paying, they could in theory be stripped of their ability to operate in Missouri altogether. If, on the other hand, Netflix wins the case by arguing its status disqualifies it from these fees and classification, this could lead to more of a wider conversation, and possible even a change to the law to be more inclusive of streaming services such as Netflix. Especially considering the use of language and definitions is what the case looks likely to be ultimately decided on.