Explained: Is Govt’s 26% FDI in Digital Media the Right Move?

Experts say the government views media as a sensitive sector and wants to have a say in the foreign investments.

A “clarification,” issued by the Union Commerce Ministry, has permitted three categories of digital media entities “registered or located in India” up to 26 percent foreign direct investment through the government approval route and has given companies one year’s time to align with the policy.

Is this an unexpected move though? Not really.

Experts told The Quint that FDI regulations in the digital media space were expected, given the drastic surge in news consumption through online means.

What does this mean for the digital only news companies? How would agencies like Reuters or BBC be impacted and what about big tech news aggregators like Google, Facebook and YouTube?

The Quint spoke with industry experts who said the message from the government is that news media is a sensitive sector and that it wants to have a say in which foreign investor comes in.

WHAT DOES THIS MEAN?

In simple words, a digital media company based in India can accept up to 26 percent investment from a non-Indian entity subject to approval from the central government.

The Centre, on 28 August, had approved 26 percent FDI in digital media. On 16 October, it provided further details on the type of digital media entities the policy would apply to.

The clarification, issued by The Department for Promotion of Industry & Internal Trade (DPIIT), under the Commerce Ministry, is with regards to a press note that was published on 18 September 2019.

Friday’s note states that the central government had received requests for clarification on “FDI Policy for uploading/streaming of news and current affairs through digital media.”

“FDI in television news and print news were regulated. Therefore, in September 2019 the government came out and said FDI in digital news is also to be regulated. This is only a further enunciation of the principle that FDI in news media is also to be regulated,” Vivek Gupta, partner at KPMG India told The Quint.

WHO WILL THE FDI POLICY APPY TO?

The 26 percent FDI through the government-approved route would apply to the following Indian entities:

1. Digital media entity streaming/uploading news and current affairs on websites, apps, or other platforms
2. News agency which gathers, writes and distributes/transmits news, directly or indirectly, to digital media entities and/or news aggregators
3. News aggregator, being an entity which, using software or web application, aggregates news content from various sources, such as news websites, blogs, podcasts, video blogs, user submitted links, etc in one location.

WHAT ARE THE IMPLICATIONS OF BEING ‘LOCATED OR REGISTERED IN INDIA’?

A key question is, what does “registered or located in India” mean? Since entities like Facebook, Google, YouTube take advertising revenues from India, they are “registered and located” in India.

Does it now mean that they could move out of India, and appoint a local representative to source ad revenues? Or does it mean they stop uploading Indian news? Neither seems like a tenable option for them. In this scenario, could they challenge these rules?

According to legal experts, the point to observe is the language says “registered or located in India” and not just “registered in India.”

“Which, perhaps means that entities which are even located in India which don’t need to be registered, even those are covered.” 

Vivek Gupta, Partner, KPMG

WHAT ABOUT POTENTIAL WORKAROUNDS THE FDI CAP?

Here’s a scenario to consider: What if an Indian company sets up a foreign subsidiary, licenses its content to that foreign subsidiary, which then uploads content to Facebook or YouTube from that overseas jurisdiction, which is then seen in India?

In that case the company gathering the news in India, will that be seen as a news agency? The question is, at what level will the FDI come?

Industry experts say, in such policy matters the government will seek to go with the substance of the situation.

According to an expert, say one sets up an Indian company with 100 reporters who are gathering news. You set up a shell company somewhere in the world only for the purposes of licensing the content and uploading and running the website.

According to the expert this is unlikely to work because in substance the Indian company is only doing everything.

WHAT ABOUT NEWS AGENCIES LIKE REUTERS THAT OPERATE IN INDIA?

Some industry veterans feel what is unclear is if an entity is registered outside India, say a Reuters working for an outside entity, how will that work? “Reuters.com is not registered in India. There is no Reuters.in,” a senior media consultant asked.

“Say, if they’re trying to regulate Reuters India, which is a service provider to Reuters.com, there is no registration as a news agency as such. Now, if you are ANI, one can understand that you’re calling yourself a news agency, but Reuters will not call itself a news agency”, the consultant said, adding “They may say they are the service provider to Reuters.com which is located outside India.”

Gupta clarifies again that an entity engaged in any activity related to news and current affairs is likely to be covered as the government will seek to go with the substance of the situation.

ARE GOOGLE, FACEBOOK, YOUTUBE ‘AGGREGATORS’? HOW WILL THEY BE AFFECTED?

Some experts The Quint spoke to said that the definition of a “news aggregator” is not clear enough.

The government has to clarify what is the difference between an entity that is aggregating news as its primary function and a social media platform that is aggregating news among other things.

According to a media consultant, “If you’re a social media platform that is ten things, one of them being news then that’s different. There is a difference between a news aggregator and a platform because a platform is not regulated by this press note, a news aggregator is.”

However, Vivek Gupta Says, “Whether news is one percent or 100 percent of my turnover, the guidelines must apply in the same manner.” According to Gupta, this guideline seems to say if you are doing anything at all to do with news and current affairs you are covered under the guidelines.

“I don’t think this can be a defence that I am also doing news and current affairs and also have other businesses I should not be covered. So long as you are doing news and current affairs you are covered under this guideline. So long as I am a digital news media I have to comply with the 26 percent FDI,” Gupta added.

IS THIS A LIBERALISATION OF THE FDI REGIME?

The Commerce Ministry’s clarification states, “The central government has decided to liberalise the FDI regime for entities engaged in the News Digital Media Sector.” Does the policy actually liberalise the FDI regime? Digital media practicioners have differed on this point.

Medianama founder Nikhil Pahwa said in a tweet, “Govt is positioning this as a benefit. That's incorrect. FDI has been reduced from 100% to 26%. How do we know it was 100%? NewsCorp had bought VCCircle in 2015.”

In the absence of a specific FDI cap in digital media, an entity could attract FDI above the 26 percent cap. In 2015, News Corp had acquired specialty media business VCCircle for an undisclosed amount, Medianama had reported.

“They've now sold it at a loss to Mint, after the FDI policy was announced,” Pahwa added.

WHAT ABOUT THE GOVERNMENT APPROVAL ROUTE?

Industry experts said the announcement was not developed recently and the government has already applied its mind on this issue, not only once but twice. The government approval route is not a new edition but has already been in existence.

“In 2014 and 2015, Newslaundry had applied for an approval to DIPP on whether foreign investment in setting up the NL website required permission from FIPB or not. In the annual compendium there is approval on this,” said a senior media consultant.

Be it television or digital media all FDI is subject to government approval.

Experts feel the government is clearly saying that news media is a sensitive sector and that it wants to have a say in which foreign investor comes in. “You have heightened tensions with China also so this speaks to all of that,” a senior media consultant said.

WHAT ARE THE CONCERNS & CHALLENGES?

A number of concerns of various kinds have been articulated with regards to the FDI regulation. Experts have pointed to ambiguity in language and in interpretation of who qualifies as a news aggregator or a news agency.

“The question is, what is news? Is sports commentary news? Is talking about an industry news? Or is only politics news? What is a news aggregator?,” asked a senior consultant. “Is it one that publishes news among many other services or only those who are primarily doing only news aggregator.”

Nikhil Pahwa raised the point about the practicality of regulating digital media “in a global internet environment.”

“The government of India is trying to do something which is difficult to do. There will be collateral damage and one where there will be loopholes created. Something that the government shouldn’t have embarked on,” Pahwa said.

Pahwa adds, this is step one of the government’s plans to have a greater say in how media is run. He points out that on 25 November, the Ministry of Information and Broadcasting (MIB) released a draft Registration of Press and Periodicals Bill (RPP Bill) for public consultation.

“Step two will be the tabling and passing of the RPP Bill which is likely to put in further restrictions on digital media entities. So, through law the government is trying to restrict digital media companies in India and find levers to exercise control,” Pahwa added.