The difficulty of taxing streaming services
Streaming services have been and continue to be disruptive to the entertainment industry, both small screen and big. For those with small-screen concerns, a number of municipalities in Georgia are attempting to sue Netflix and Hulu for upwards of 5% of the gross revenue that they missing out on because citizens aren’t paying for cable.
In the UK, viewers who stream live programmes from online TV need a licence, but those who only watch on-demand or catch-up TV don’t need one. It’s a fine line. But it is a more consistent taxation than the US, with most homes having one. However, those buying a licence are getting fewer. In 2020, 250,000 less people bought one as viewing habits change. The UK could be heading towards the similar troubles which the US is currently facing.
Most of the discourse, with regards to streaming services’ effect on the world, tends to focus on streaming services vs cinema. It’s a blockbuster in itself. This is, largely, because cinema has more immediate performance data – the box office – and it’s easier to form narratives around it. Movies are products, just like television shows, but generate revenue in vastly different ways.
The worry for those in the cinema industry, and, possibly, cinema lovers, is that streaming services threaten the movie theatre’s very existence. Their assumption is that the audience favours the convenience and catalogue of streaming services, meaning they won’t go to the cinema and instead stay at home. Theatrical releases will make less money, and the audience will instead watch them when they are made available on their favoured service.
This fight has already taken place in the gaming industry. Many worried that traditional, brick-and-mortar establishments would fold, and continue to, in the light of the advancement of the online portals into an industry is worth billions. Gamers head to PlayToro and other websites because of the convenience of being able to play from home, at their own speed, and with exclusive bonuses not available at their brick-and-mortar counterparts. The latter, however, continue to perform well. They have their place as an experience. People still attend them. They satisfy needs.
Netflix, Apple, and Amazon films will still have theatrical releases should they wish the Academy and other peers to consider them for awards. Prestige films will not necessarily vacate the big screen for the little one.
TV, as mentioned, is a little different. It is has a revenue impact on local authorities as much as production and distribution companies. This is why municipalities in Georgia are suing Netflix and Hulu.
States and municipalities charge annual franchising fees to television companies because the companies are using public property for their service. As more and more citizens opt to entertain themselves without cable television, relying on Netflix and Hulu, among others, instead, local governments are missing out on vital revenue. Gwinnet County, one of the Georgian municipalities suing the two streaming service giants, estimate that Netflix made $103m from their residents. They want to sue them for 5% of this revenue – amounting to $5.15mil.
There are obvious troubles with the filing. Namely, that Netflix, Hulu, and other streaming services don’t need or use require physical access like cable TV. They just use the internet. However, representatives of the municipalities insist that streaming services and cable TV providers have enough similarities for the lawsuit to be legitimate and worthy.
This doesn’t just extend to the fact that streaming services produce professional and copyrighted content – a “video service”. Netflix, for instance, uses what it calls Netflix’s Open Connect. This is where Netflix and internet service providers formed a partnership to ensure that Netflix customers receive the best quality viewing experience. They do this by using local servers to, essentially, make high volumes of traffic more efficient. This, the Georgia lawsuit contends, is where Netflix’s locality is defined. While Internet service providers pay for the area they use, states and municipalities want to get at Netflix via this route. This is part a wider issue that governments are facing, which is pinning down what services major tech companies offer and how they fit into old and out-dated legislation.
The editorial unit