Netflix and Hulu don't own or lay cable, they don't need right-of-way. As I understand it, the tax is already levied on cable providers and ISPs. I don't think it's good or bad, because Netflix/Hulu will just charge customers in those cities more (or refuse service).

It's a bit dumb to search for a legal technicality in the state law to raise taxes and avoid public scrutiny, if the cities need money from their residents they can raise property taxes (or cut services). But my guess is that is less politically expedient. However the tax payers now have to foot the bill for the lawsuit, so who really wins?

This, Hulu and Netflix argue, is a mutually exclusive tax with the franchise fee that the municipality wants to levy, a tax specifically targeted at cable companies that actually lay cable and therefore the State would actually lose money if they were reclassified from their current business status under State law.

It makes sense, and this does look like a money-grab. It can pay for its infrastructure out of its share of sales tax revenue or whatever other sources of revenue they have, raise those, or levy a new tax that specifically targets the type of business Ohio apparently classifies Hulu and Netflix to be under their State’s laws: a “specified digital products”, whatever that means, but I’m betting they don’t want to because doing so would hit more than Netflix and Hulu and bring more big players into the political fight.

I'm struggling to find where OP said any such thing.

One of the defenses is that if the levy is correct, then they should not owe sales taxes, which they point out with reduce the states income. The goal of the municipality is to circumvent the state government by claiming a municipal tax is owed as well.