No Chill for Netflix: New E-Commerce Rules Hit Streaming Services?

New FDI rules for e-commerce could affect Netflix and Amazon Prime thanks to ambiguous definitions.

What’s this all about then?

The new rules on Foreign Direct Investment (FDI) in e-commerce, which came into force on 1 February 2019.

You can read them here in this press note from the RBI.

Why on earth should I care about them?

Because they could have a big impact on what you’ll be able to purchase online. Do you use Amazon or Flipkart to buy stuff?

Of course I do. Do you think I go to the market to buy my super-weight-loss green tea? But what do that have to do with FDI rules?

Well, under the new rules, an e-commerce company which gets FDI cannot sell products which are made or supplied by the e-commerce company itself.

This has hit both Amazon and Flipkart, because they’re foreign-owned, and the largest vendors on their sites – Cloudtail and WS Retail respectively – are partly owned by them.

Wait, is that why I saw different search results when I was doing my monthly search for new earphones to replace the earphones I keep losing?

Probably. After the new rules kicked in, both e-commerce giants had to pull a lot of products off the shelves. Amazon have since then restored their Cloudtail inventory after – jargon alert – diluting their shareholding in the controlling company to less than 26%, but that’s a “creative interpretation” of the rules, so the government could say they can’t do this.

So basically, everything is fine for now and I don’t need to care about this. I’m still going to get most of what I need, and the companies will do some jiggery-pokery or the other to ensure it’s business as usual.

You say that, but what if I told you that these new rules could affect news websites for which you have to pay a subscription fee, like BloombergQuint, or Business Standard or the Financial Times?

People pay for news? Who does that? This hypothetical horror situation means nothing to me.

Ok, let me try again. What if I told you that these new rules could restrict what you get to watch on Netflix, or Amazon Prime, or Hotstar?

WHAT! THIS IS OUTRAGEOUS! THIS IS RIDICULOUS! YEH BIKK GAYI HAI GORMINT!

There we go.

YOU MUST BE JOKING! HOW CAN E-COMMERCE RULES APPLY TO NETFLIX?

For that you have to thank the geniuses who drafted the new rules, the Department of Industrial Policy and Promotion (DIPP).

‘E-commerce’ is defined in their rules as “buying and selling of goods and services including digital products over digital & electronic network.” That’s a really broad definition, and is ambiguous enough to include pretty much anything on the web that you pay for.

A video streaming service like Netflix which charges money for access technically falls within this definition since it is “selling” a “digital product” to the viewer, ie, the shows/movies you can watch after paying your subscription.

Ok, so they made a mistake in that definition in that one document. Surely they’ll change it, and not use the same broad, ambiguous definition in other policies and regulations, right?

Well, it’s still open for comments, but the draft e-commerce policy which was released on 23 February and sets out all the details of how e-commerce is to function in India, uses the same definition…

Son of a –

Language, please. There could be kids reading this. Or society uncle-types.

Son of a kabootar, happy? Now let me get this straight. The government puts out an FDI policy with a vague definition of e-commerce which could cover pretty much anything. But this isn’t a one-off, they actually use the same vague definition in their main e-commerce policy?

That’s correct.

So the government is intentionally keeping the definition of e-commerce broad so that they can make it apply to not just Flipkart types, but Netflix types as well?

We can’t be sure of that. Industry insiders don’t think the government intended to go after things like Netflix, and for it to apply to digital news would also require a very rigid interpretation. The actual targets of this policy are what we generally view as e-commerce marketplaces – the Amazons, the Flipkarts – and you can see that from the rest of the RBI’s press note.

To be honest, this is technically in line with India’s longstanding policy of not allowing FDI in multi-brand retail, which is meant to save small traders, kirana stores and the like. Amazon and Walmart (through Flipkart) were getting around it by keeping everything online, but this still defeated the purpose of the FDI policy on multi-brand retail: The small traders were still being hit even though the big foreign retailers didn’t have brick-and-mortar stores.

The potential impact on Netflix and all seems to be an unintended consequence of this broader move, according to industry insiders and lawyers who work in this area.

Phew. So the government will just issue a clarification to confirm that these e-commerce rules and policies don’t apply to video streaming, news and so on. No need to worry then.

Ummm...

Why are you ummming? Nothing good ever comes of an ummm.

The thing is, there’s a lot of conflicted messaging coming from the DIPP and the Ministry of Commerce. In consultations with the industry, they have told some companies that the FDI rules and draft policy won’t apply to anyone apart from traditional e-commerce platforms. But they refuse to give anything in writing, and they’ve been vague to other companies who asked the same question.

Besides, even if they are planning to issue a clarification, this won’t come for some time. Not before the elections, and this isn’t likely to be a top priority for the new government either.

So what does that mean? Will I no longer get to ruin my sleep cycle by binge-watching Netflix or Amazon Prime or Hotstar?

Not entirely. If the FDI rules apply to streaming services, this doesn’t mean they have to shut down or anything. But they wouldn’t be able to show any of their own original stuff. So no Marvelous Mrs Maisel or Made in Heaven on Amazon Prime, no Sacred Games or Roma on Netflix. Hotstar hasn’t yet made their own shows, but they had earmarked a big budget for this year – all of that would be down the drain too.

That sucks b-

Ahem.

Ugh, fine. Now this is a hypothetical horror situation that I’m worried about. Will the RBI start sending notices to these companies, or will the government ban them if they don’t remove the original content?

So the inside track is that the government won’t send notices to Netflix or Amazon Prime, but the worry is that people will start making complaints against them. This could be from Indian competitors like Jio TV or Alt Balaji, or could be from someone just looking to cause trouble.

This is what happened in 2016 when complaints were raised that websites offering tax advice or accounting services couldn’t have foreign investment – the government never made any decision either which way and the complaints just went away, so hopefully that’ll be the case this time too.

But?

What do you mean, but?

There’s always a but. Come on, out with it.

Ok, there is one concern that the FDI e-commerce rules were brought in primarily to benefit one particular industrial group. Which also has a digital streaming service. So…

So if applying these rules to streaming services would benefit that streaming service, the government may not restrict the definition of e-commerce here.

You didn’t hear it from me. That’s what the conspiracy theorists would say.

Anything else to be worried about?

Well, another absurd consequence of the new rules is that Google Play Store won’t be able to include any Google apps which require payments. Which would just be weird.

Also, if the government doesn’t clarify that Netflix et al don’t count as e-commerce entities, the draft policy would also apply to them, which means they’d have to set up Indian entities and comply with data localisation requirements-

And this matters because?

It means more costs, which means they might want to avoid the hassle, and so…

NOOOOOOOOO! Isn’t there anything we can do about this?

You could support the efforts of technology policy advocates and civil society groups like Software Freedom Law Centre which are planning to send responses to the government on the draft e-commerce policy consultation, in which they’ll be asking the government to exclude things like streaming services.

You could also try writing to your MP, or to the Ministry of Commerce to ask them to clarify what exactly they mean by e-commerce, and which things aren’t covered by it.

That sounds like effort.

It’s up to you. If you’re happy to Netflix and Chill without Narcos, Russian Doll or Queer Eye, then don’t bother. But if you want to be sure you’re getting bang for your buck (teehee), then do consider it.