In an effort to boost a lacklustre economy, the government, on August 28, 2019, created a new digital media category and relaxed foreign direct investment (FDI) rules for several sectors, such as manufacturing, single brand retail, and digital media. This category would be different from print and broadcast media. The announcements were in sync with Finance Minister Nirmala Sitharaman’s Budget promise of further opening up of FDI in several sectors. Until now, digital media was not considered as a separate category for the purposes of FDI, as there was no policy on FDI-related matters in the sector.
FDI Policy
According to the press statement, the government said, “The extant FDI policy provides for 49 per cent FDI under approval route in up-linking of ‘News & Current Affairs’ TV channels. It has been decided to permit 26 per cent FDI under government route for uploading/streaming of News & Current Affairs through digital media, on the lines of print media.”
The decision attracted different reactions from the industry. While most stakeholders welcomed the policy as it would push investments into the country thus fuelling growth, employment, and income, some felt that the decision was restrictive and ambiguous because several digital media outlets have different levels of FDI presently: some digital media companies have 100 per cent FDI, while others are at 49 per cent. Another concern is ambiguity, so clarity is needed on the definition of digital media. There is confusion even for large news broadcasters who already have 49 per cent FDI infusion, but also stream online and have a digital presence. If the digital media is not defined, then even Google, a digital company, will have 26 per cent FDI and will be only a subsidiary, say experts. So far, there was no FDI limit for digital media. Now, since 26 per cent FDI has been announced, every news channel has to create two legal entities, one for TV and another for digital. Otherwise, it would get only 26 per cent. Therefore, the government should bring in industry experts to rationalise the policy to remove its restrictedness.
There has been a phenomenal growth in the digital media, owing to cheap data availability, a growing smart phone user base, and consumption of content through the internet. Therefore, 26 per cent FDI in digital media would expectedly help unlock the true potential of the industry. This move would definitely benefit the online media industry as companies could raise additional capital from overseas players/investors. According to an industry analyst, it is good news for media conglomerates as they would be able to raise additional capital by carving the digital platforms as separate ventures.
What Experts Say
According to Himanshu Parekh, Partner & Head, International Tax, KPMG India, the government’s proposal to allow 26 per cent FDI in digital news media is a welcome move. As per media sources, the M&E industry grew by 13.3 per cent in FY19 (as compared to FY18) on the back of colossal growth of 43.4 per cent in digital media segment in spite of 49 per cent foreign investment in up-linking of News & Current Affairs TV channels and 26 per cent in print media sector, both through government approval route. However, it was silent on FDI in the digital media segment.
As per Sabyasachi Mitter, Founder & Managing Director at Fulcro, the FDI policy on digital media is restrictive and lacks enough details—it does not seem to reflect ground realities of a multimedia news and current affairs environment where news is disseminated through both TV and streaming via mobile apps and websites of the same entity.
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While the policy might force some digital news platforms to discontinue their India operations or change their ownership structure, the decision will be beneficial for larger media companies such as Times Group, HT Media, Dainik Bhaskar, and Dainik Jagran who have spun their digital media businesses into subsidiaries.
The government already has 49 per cent FDI in place for broadcast content services and 26 per cent for print, both through government approval route. However, the future of platforms such as UC News, Quartz India, Vice India, Huffington Post, Dailyhunt, VC Circle, Bloomberg Quint is still not clear for lack of proper regulatory framework in place for foreign capital. These platforms have either raised foreign capital or have full foreign ownership.
Unlike broadcast and print media, digital media has no entry barriers. To broadcast news in India, a broadcast media company needs an uplinking and/ or downlinking licence, while newspapers or magazines need to register with the Registrar for the Newspapers of India (RNI), both of which fall under the Union Ministry for Information and Broadcasting. However, digital news media companies, which have websites or mobile apps, do not need any such registration. Websites of almost all global news platforms are viewed in the country, even without a licence here. Likewise, there are foreign digital news platforms in the country. Now, the government will have to treat them equally.
It is also expected that the decision brings much-needed clarity, as a company that creates content and uploads it from India will be allowed only 26 per cent FDI, while platforms that publish news, including websites or mobile applications, could be based anywhere and read in India.
It is also opined that the 26 per cent limit on news and media sites can unlock a lot of value for existing organisations with digital media operations. They will be able to carve them out, raise capital, and seek separate valuation.
The need is to define ‘digital media’, which is ambiguous and makes capping FDI at 26 per cent a negative step, like Google, which is a digital company, will have 26 per cent FDI and would only be a subsidiary.
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