Tennessee Supreme Court Holds Netflix, Hulu Need Not Pay Franchise Fees to Localities

November 22, 2022

Today, the Tennessee Supreme Court answered a question of law certified by the United States District Court for the Eastern District of Tennessee: whether two video streaming services—Netflix, Inc. and Hulu, LLC—provide “video service” within the meaning of the Competitive Cable and Video Services Act, a Tennessee law that requires certain providers to obtain a franchise and pay franchise fees to localities. The Court answered that question “no,” concluding that Netflix and Hulu do not provide “video service” under the Act.

The City of Knoxville sued Netflix and Hulu in the United States District Court for the Eastern District of Tennessee. Knoxville contended that Netflix and Hulu are “video service providers” as defined in the Act, meaning that they must apply for a franchise and pay franchise fees to Knoxville and violated the Act by failing to do so. Netflix and Hulu moved to dismiss, arguing that they do not provide “video service” under the Act.

Under Tennessee Supreme Court Rule 23, a federal court can ask the Tennessee Supreme Court a certified question if there are no cases to guide the federal court in applying state law.  The case remains in federal court and the Supreme Court only provides an answer to the question. In this case, the district court certified the question of whether Netflix and Hulu are video service providers under the Act to the Supreme Court, and the Court accepted the question.

Under the Act, Netflix and Hulu are “video service providers” if they provide “video service.” Knoxville argued that Netflix and Hulu are “video service providers” because they (a) provide “video programming” and (b) do so “through wireline facilities located, at least in part, in the public rights-of-way.” Netflix and Hulu countered that they do not provide “video service” because, among other things, they do not own, construct, or operate the wireline facilities that third-party internet-service providers use to deliver Netflix and Hulu content to end-users.

The Supreme Court agreed with Netflix and Hulu. An entity provides “video service” under the Act if it engages in the “provision of video programming through wireline facilities located, at least in part, in the public rights-of-way.” The Court explained that this language must be interpreted not in isolation, but in the context of the Act as a whole. The Act as a whole is focused on granting video service providers permission to physically occupy the public rights-of-way and ensuring that those providers adequately compensate localities for that privilege. Given this focus, the Court concluded that the Act should not be interpreted to apply to entities like Netflix and Hulu that do not construct or operate the wireline facilities that are used to transmit their content.

To read the Court’s unanimous opinion, authored by Justice Sarah K. Campbell, visit the opinions section of TNCourts.gov.