Should Netflix, Hulu pay local governments to stream? Michigan House says no

• Lawmakers consider exempting satellite and streaming services like Hulu, Netflix from fees to local governments borne by cable companies
• Critics argue any provider using the network should pay into the system, fear future budget hits to local governments and public access channels
• Bill sponsor hopes to avoid lawsuits, protect consumers from fee hikes

As more Michigan residents switch from cable to streaming services like Hulu and Netflix, lawmakers are exploring whether those providers should have to pay the fees cable companies currently pay to local governments.

A bill pending in the Michigan Legislature would let them off the hook, but some fear the proposed changes could ultimately drain city budgets and put a key funding source for public access channels that stream government meetings at risk.

The issue has come up in states across the country, including Missouri, where local governments filed a lawsuit to compel streaming services and satellite providers to pay the same annual fees cable companies do in exchange for use of the public right-of-way when setting up or maintaining cable lines. 

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In Michigan, streaming services have never been charged the fees for video service providers that were outlined in a 2006 law, and no lawsuits have been filed yet. But Mike Watza, legal counsel for both the Michigan Community Media Association and PROTEC, a group advocating for local control of public right-of-way access, said these groups are considering their legal options. 

“As streamers have come up and we've realized just how much revenue is slipping by, we realized we have to do something about this,” said Watza, who was involved in drafting the 2006 law. “They're not coming to the table offering money, so we're going to have to go after them and get that rolling.” 

Rep. Joey Andrews, D-St. Joseph, said he hopes that legislation he sponsored exempting streaming services from paying the fee will circumvent such lawsuits. He argued that the 2006 law wasn’t designed to apply to streaming services — then a nascent industry that has since ballooned to serve more than a billion subscribers worldwide — because those companies don’t own the lines and have no right-of-way access themselves. 

Andrews, whose bill passed the House last month and is now pending in a Senate committee, said the proposed change could also protect consumers from paying more for their streaming subscriptions.

“If you start charging every single service that uses these lines for sending video, that's going to get passed on,” he said. “We're saving the consumers money by not having them get hit with additional fees for using these streaming services.”

Twelve states have passed similar legislation, Scott Ward, an attorney representing DISH Network and DIRECTV, told lawmakers during a House committee hearing in September. Both companies support the proposed changes. 

The bill wouldn’t have any immediate financial impact on state or local governments, according to the nonpartisan House Fiscal Agency, because streaming services and satellite companies aren’t currently paying the fees. 

But as traditional cable companies launch their own streaming services, there’s concern the fees could either become obsolete or that companies could challenge them if competitors don’t have to pay, said Ian Locke, executive director of Orion Neighborhood Television in Oakland County and president of the Michigan Community Media Association.

In some communities, the fees bolster the government’s general fund, supporting services like police, fire and infrastructure. In others, funds support public access television that streams school board and government meetings as well as other local television content. 

If the primary funding source for public access television is diminished, Locke said, communities could lose out on a key source of civic engagement.

“This is our local news outlet,” Locke said of Orion Neighborhood Television. “No one else is going to cover this stuff. And if we go away, your government transparency, your civic engagement will go down.” 

Local government groups, including the Michigan Municipal League and the Michigan Townships Association, also opposed the legislation during House deliberations. 

Andrews said he sympathizes with those concerned about the future of funding sources for public access and other government services currently using the money, but argued the cable franchise fee “is just not the place for it.” 

“Maybe there is a fee they should be paying or some way to levy a tax there that we should be thinking about,” he said. “Essentially, a battle is being fought in the wrong place over this.”