Ill-defined scope of ‘digital news media entities’

Though the August 2020 Clarification was issued on the back of long standing demands for clarity on the scope of ‘digital news media entities’, it leaves many questions unanswered.

Firstly, there is ambiguity in the purported meaning of the term ‘Indian entities, registered or located in India’. Since the word ‘located’ is juxtaposed to ‘registered’, it appears that the intent is to include even entities registered outside India, but having a virtual / digital presence in India. But, this is problematic since the FDI Policy is not meant to deal with entities incorporated outside India. If the intent is to regulate such entities which are incorporated/registered outside India, it will amount to legislative overreach. Further, it will be practically impossible for the GOI to enforce restrictions on ownership / directorship / management of such foreign entities operating India centric news sites and portals.

Another point of confusion is the characterization of news agencies as ‘entities which gather, write and distribute / transmit news to digital media entities and/or news aggregators’. By providing for such an expansive meaning, this could cover the activities of global news agencies operating Indian entities and employing Indian journalists for transmitting news for consumption by their overseas principals. Thus, it could have helped to bring in more clarity if the definition was curtailed by carving out news agencies catering predominantly to overseas digital media houses. Otherwise, these entities would also have to re-structure their holding. However, since these agencies mostly own wholly owned Indian subsidiaries and given their conventional ‘service provider’ business models, it is highly improbable for such news agencies to find co-investors and dilute their holding to at least 74% in their Indian entities.

‘News Aggregators’ get a rough deal

The August 2020 Clarification has hit ‘news aggregators’ the hardest. This is particularly true since news aggregators had been vying for their exclusion from the 26% cap. Their expectations of being de-linked from the restrictions on the digital news media space stems from two reasons –

• They operate as ‘news marketplaces’ with no activities directed at ‘news gathering and/or creation’. If GoI’s purported object in bringing forth restrictions on ‘digital news media’ is to alleviate reporting of news and shaping of public opinion from foreign influence, news aggregators could have been let off the hook;

• They are tech driven businesses developing and investing in software and algorithmic tools. This makes it a perfect foil for ‘tech VC’ driven investments which can nurture and fine-tune technological skillsets.

There is considerable force in the news aggregators’ pitch for an FDI friendly regime. Moreover, it is pertinent to note that the FDI Policy, itself, accords preferential treatment to e-commerce marketplaces (which can receive up to 100% FDI under automatic route) vis a vis e-commerce players operating an inventory based model (which cannot receive any FDI under automatic route). The FDI Policy also prescribes conditions for e-commerce marketplaces (such as prohibiting vendors with equity participation from being listed on their platforms and turnover based thresholds for vendors) to ensure that they provide a level playing field to the vendors on their platforms. Thus, the GoI appears to have recognized the rationale in subjecting entities operating marketplaces to a less restrictive regime vis a vis entities owning / exercising control over their offerings to customers.

Accordingly, a mature regulatory approach would have been to exclude news aggregators from the 26% cap on FDI and lay down conditions to ensure that the news marketplaces remain ‘truly’ neutral. Such conditions could include ownership based restrictions which prohibit news aggregators from hosting content published by related/affiliated news sites and news agencies. Further, since these are algorithm driven websites, suitable specifications regarding ‘search neutrality’ and ‘non-interference’ could help ensure that these news aggregators stick to unbiased operational practices.

Fallout – What is next ?

With entities in the digital news media space being asked to ensure compliance with the 26% cap within a year, these players should act fast to bring new Indian co-investors into the mold. Thus, this sector (especially news aggregators which had received relatively higher FDI inflows) is expected to witness a surge of outward remittances as Indian investors pick up foreign holdings. Further, there are several players which are operating as digital arms of news broadcasting entities and housed under the same entity. Given that news broadcasting entities enjoy FDI up to 49%, such entities would need to evaluate re-structuring their businesses. Given the newly introduced restrictions on citizenship of majority of directors and the CEO, entities in the digital news media space shall also require to re-jig their boards and management. Further, they would also need to secure security clearances for their personnel proposed to be engaged for more than 60 days in a year.

At the same time, the GoI should ponder over the casualties[3] inflicted by the August 2020 Clarification. The consequent job losses does not bode well for a sluggish economy struggling to pick up amidst the harsh realities of the pandemic. Moreover, cash strapped digital news media entities require access to investor pools to scale their businesses. News aggregators could also usher in cutting edge technological developments with access to investor funding. Most digital news magazines have went behind paywalls and endorsed a clarion call for switching from ‘foreign direct investment’ to ‘subscriber direct investment’.^[4] Circumstances are already ripe for GoI to re-consider the new restrictions!

Footnote

[1] https://theprint.in/india/job-losses-pay-cuts-editions-shut-coronavirus-triggers-new-crisis-for-indian-media/407195/

[2] https://www.moneycontrol.com/news/business/exclusive-dailyhunt-seeks-1-2-billion-valuation-unicorn-tag-in-fundraise-5787031.html

[3] https://scroll.in/latest/979406/huffpost-shuts-down-its-indian-edition-after-six-years

[4] https://tinyurl.com/y9gdudjk

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