Opinion: How FDI restrictions are hitting digital news media | Opinion

On August 26, 2021, Yahoo, an American online services company, closed its content publishing business in India. According to the FAQ section of Yahoo’s website, the company has chosen to stop publishing any material in India due to revised foreign direct investment (FDI) regulations that limit foreign ownership of media companies to 26%. who operate and produce digital content in India in the news and current affairs space. ‘

The Department for the Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Trade and Industry regularly publishes legal updates and announcements governing FDI through policy circulars, press notes or notices. press releases, on the Indian market, as well as the 1999 Foreign Exchange Management Act. (FEMA) and Foreign Exchange Management Rules (Non-Debt Instruments), 2019 (NDI Rules). NDI rules impose sector limits and entry routes for FDI into an Indian entity.

Prior to 2019, there was flexibility in the flow of online information through digital media platforms, as there was no sector cap specified for FDI. The sectoral FDI thresholds only applied to news and current affairs downloading and dissemination activities.

However, on September 18, 2019, DPIIT released Press Note No.4 (the 2019 Press Note), capping foreign direct investment in downloading and streaming news and current affairs at 26% via digital media, subject to government approvals. It should be noted that FDI in print media has been limited to 26% since 2002, and since then the limit for the same has not been increased by the central government.

On December 5, 2019, NDI Rules notified the changes made by the 2019 press briefing, creating further confusion as it did not clearly define what it meant by digital media. In addition, no time limit has been given to digital media entities to allow adherence to the new FDI standards.

On October 16, 2020, DPIIT issued a clarifying circular (the 2020 Circular) to dispel the confusion surrounding the new FDI rules for the digital media sector by specifying which entities would fall within the scope of digital media.

The 2020 circular very broadly defined the type of entities that would fall under the scope of digital media, as digital media entities that broadcast / upload news and current affairs to websites, apps and other platforms; news agencies that collect, collate, edit, organize and distribute / transmit information to digital media entities and / or news aggregators, directly or indirectly; and news aggregation entities that use software or web applications to aggregate news content from various sources such as news websites, blogs, podcasts, video blogs, submitted links by users in one place.

The 2020 circular was published to shed light on the existing uncertainties; however, it brought its share of problems – the main one being compliance within one year of the date of the circular, i.e. October 15, 2021, for all entities falling within the scope of the press note 2019, the responsibility for compliance falling on the issuing entities.

FDI policy allows up to 49% FDI with prior government approval in news channels. However, the scope of the 2019 Press Note is wide and expands to cover all news aggregators as well as news agencies that provide information to digital media companies and companies that upload news and material. current affairs on their websites, applications and other online platforms. . Therefore, it is safe to say that news channels that also upload the same news and current affairs content to digital platforms will have to restructure within a year and increase their foreign stake to 26%.

There are additional conditions specifying that a majority of the members of the board of directors of the issuing company, including the CEO, must be Indian citizens; and the requirement of a prior security clearance for any foreign personnel who could associate with the beneficiary company by appointment, contract or consultation, for more than sixty days.

It is not surprising that some platforms, like Huffpost India, have completely left the Indian market, and that others have decided to find buyers (for example, VCCircle, which was sold to HT Media). One possible ramification is that some platforms may also decide to switch from “digital news” to entertainment-only content, in accordance with this notification. For publications in India that are supported by foreign funding, they would be required to comply with 26% FDI levels and obtain approval from the I&B department. This would mean that they would have to look for other models of financing and ownership.

As the new regulatory regime proves difficult to implement and forces companies like Yahoo and Huffpost to abandon operations in India, various other digital media platforms are also being hit hard due to the cap on FDI funding. . The problems encountered by these platforms following the change in policy are the restructuring of capital structures and operations, and the search for alternative financing. It is getting harder and harder due to the effect of the Covid pandemic, and it will be interesting to see how digital media houses fare.

(The author is a partner of L&L Partners. Associates Anirudh Singh, Tanushri Agarwal and Srijan Srivastava also contributed to this article.)

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