Two East Texas cities join million-dollar lawsuit against Disney, Hulu, Netflix

TYLER — The cities of Tyler and Nacogdoches are among 23 other Texas cities 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. According to our news partner KETK, 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. The lawsuit alleges that the streaming services have not paid annual franchise fees that are required by the Texas Public Utility Regulatory Act (PURA) and are used to fund basic city services.

The PURA states that a video service provider must pay a Texas municipality a 5% franchise fee if a video service’s programming are 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.”

According to a release from the city of Nacogdoches, the franchise fee funds city services including police, fire protection, 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.”

Nacogdoches city officials said the city is seeking 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,” said Steven Kirkland, City Attorney of the City of Nacogdoches. “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 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, according to the release.