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Beaumont among 25 Texas cities suing Netflix, Hulu, Disney over accusations of unpaid fees

The franchise fee funds city services including fire departments, libraries and road repairs.
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BEAUMONT, Texas — The City of Beaumont has joined 24 other Texas cities in filing a lawsuit accusing three streaming giants of not paying millions in municipal franchise fees dating back to 2007.   

The lawsuit was filed in Dallas County and accused Disney, Hulu and Netflix of failing to pay annual franchise fees that are required by the Texas Public Utility Regulatory Act (PURA) and used to fund basic city services, according to a news release from the City of Beaumont. 

Other Texas cities that joined the lawsuit are Abilene, Allen, Amarillo, Arlington, Austin, Carrollton, Dallas, Denton, Frisco, Fort Worth, Garland, Grand Prairie, Houston, Irving, Lewisville, McKinney, Mesquite, Nacogdoches, Pearland, Plano, Rowlett, Sugar Land, Tyler and Waco.

PURA requires that a video service provider pay a Texas municipality a 5% franchise fee if the video service’s programming is delivered using wireline facilities located at least in part in the public right of way, according to the release.

The franchise fee funds city services including fire departments, libraries and road repairs.

City Attorney of Beaumont Sharae Reed says Beaumont is seeking the reimbursement of annual franchise fees, as well as interest, since Disney, Hulu and Netflix began streaming their platforms in Texas in 2007, 2011, and 2019, respectively.

“With this lawsuit, we hope to ensure streaming video companies’ compliance with their PURA obligations moving forward and also recoup unpaid franchise fees from the Disney, Hulu, and Netflix streaming services as follow-on relief,” she said. “Franchise fees are an important source of city revenue. If streaming companies refuse to pay these fees, the city has to cut services or seek alternate sources of revenue. We have an obligation to our residents to ensure that these companies comply with state law and pay what is owed to the city.”

Dallas-based McKool Smith is serving co-counsel for the lawsuit with Austin-based Ashcroft Sutton Reyes and St. Louis-based Korein Tillery. Other cities are expected to join the litigation, according to the release.

“Disney, Hulu and Netflix have long withheld statutorily required payments to cities throughout Texas, depriving them of fees that help fund essential city services,” said McKool Smith principal Steven Wolens. “This case was filed on behalf of our municipal clients to ensure future compliance with PURA and recoup significant fees owed by some of the nation’s largest streaming services.”

From a City of Beaumont news release:

The city of Beaumont joined 24 other Texas cities today in filing a lawsuit accusing Disney DTC LLC, Hulu, LLC, and Netflix Inc., of failing to pay millions of dollars in municipal franchise fees as far back as 2007.
The lawsuit was filed in Dallas County on behalf of Abilene, Allen, Amarillo, Arlington, Austin, Beaumont, Carrollton, Dallas, Denton, Frisco, Fort Worth, Garland, Grand Prairie, Houston, Irving, Lewisville, McKinney, Mesquite, Nacogdoches, Pearland, Plano, Rowlett, Sugar Land, Tyler and Waco. It alleges that the streaming services have not paid annual franchise fees, which are required by the Texas Public Utility Regulatory Act (PURA) and used to fund basic city services. "With this lawsuit, we hope to ensure streaming video companies' compliance with their PURA obligations moving forward and also recoup unpaid franchise fees from the Disney, Hulu, and Netflix streaming services as follow-on relief," said Sharae Reed, City Attorney of Beaumont. "Franchise fees are an important source of city revenue. If streaming companies refuse to pay these fees, the city has to cut services or seek alternate sources of revenue. We have an obligation to our residents to ensure that these companies comply with state law and pay what is owed to the city." Under the PURA, a video service provider must pay a Texas municipality a 5% franchise fee, if a video service's programming is delivered via wireline facilities located at least in part in the public right of way, such as utility poles over the streets or sidewalks or beneath the roads. The franchise fee funds city services including fire departments, libraries and road repairs. "Disney, Hulu and Netflix have long withheld statutorily required payments to cities throughout Texas, depriving them of fees that help fund essential city services," said McKool Smith principal Steven Wolens, who along with co-counsel represents the Texas cities in this lawsuit. "This case was filed on behalf of our municipal clients to ensure future compliance with PURA and recoup significant fees owed by some of the nation's largest streaming services." Beaumont is seeking the reimbursement of annual franchise fees, as well as interest, since Disney, Hulu, and Netflix began streaming their platforms in Texas in 2007, 2011, and 2019, respectively.
Dallas-based McKool Smith is co-counsel on the lawsuit with Austin-based Ashcroft Sutton Reyes and St. Louis-based Korein Tillery. Additional cities are expected to join the lawsuit.

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