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FDI In Digital Media Capped At 26%: Will It Hold Back India’s Emerging Media Startups?

FDI In Digital Media Capped At 26%: Will It Hold Back India’s Emerging Media Startups?

Earlier, 100% FDI was allowed in digital media through automatic route

The government notification is unclear about TV news, which is also available online

Media analysts say the move is expected to negatively impact funding in the sector

News media has been called the fourth pillar of democracy, a watchdog and a nuisance, but whichever side the public opinion falls on, there’s no doubt that it plays a massive role in everyday lives. This is only amplified in the digital world today. News and news media has gone from being a twice-a-day affair for consumers, to a near-constant barrage of conflicting opinions and a 24×7 feed ticking over. At least that’s the reality of digital media.

It has changed the face and definition of news, leveraging multiple formats to make information more appealing to internet consumers. But is the government looking to clip the wings of digital media and news outlets before it gets out of hand in India? In an official circular last week, the foreign direct investment (FDI) limit for the digital media sector was said to be restricted to 26%. This move came as a surprise as there had been no caps on FDI in the digital news space i.e 100% FDI was allowed through the automatic route.

To understand why it means what it does it is to be noted that until now the FDI policy allowed only 26% and 49% FDI in print media and news television broadcast companies respectively.

The notification restricts FDI in digital media to 26% with no additional explanations. At the time when print as well as broadcast media have been heavily depending on digital media for next phase of growth and for revenue, any FDI limit on digital media businesses can impact media businesses across the board.

The Questions Around 26% FDI In Digital Media

In a three-line statement on FDI for media by the government, here’s what we missed in the announcement:

  • What happens to TV channels with 49% FDI who stream online?
  • What happens to news streams being accessed online?
  • Will global news sites be blocked in India?
  • Will FDI regulations will apply to those uploading content on YouTube or Facebook, or to the platforms (Facebook, YouTube) themselves?
  • The rules mentions the word “uploaded”, does it mean that text based websites, where content is being uploaded, will also be impacted?
  • What about media websites that have raised more than 26% funding? Will they now have to buy back equity?

 Media Companies Still Await Full Details

In what can be called typical government fashion, the notification is silent on many of the above aspects and this means businesses cannot do anything to make room for these changes till many of these details are released.

Talking to Inc42, Rajat Prakash, managing partner, Athena Legal explained that government seems to have restricted the extent of FDI permitted in the sector as earlier 100% FDI was permitted since there was no specific restriction.

“It is unclear how will the policy be enforced in cases of foreign owned news sites operated from outside India and will the policy by applied to news aggregators as well? Hence fine print of the policy will be important,” Prakash said.

Media and entertainment remains a hot sector in the Indian market. According to DataLabs by Inc42, media and entertainment startups have raised $234 Mn across 29 deals in H1 2019.

According to another study by Assocham and PwC, the Indian media and entertainment industry is estimated to touch $52.68 Bn by 2022, led by increasing disposable income, rising population, and content consumption across formats.

Vinay Singhal, cofounder, and CEO, WittyFeed told Inc42, “I believe there is a requirement of some clarity on how much is allowed, since print media and TV have already been defined. And in a world where so many foreign media sites and digital platforms, especially Chinese, are dominating the Indian market. What they put on their platforms can be very well hidden agenda driven and can be risky.”

“Also, we have already seen the immense impact of fake news in recent times and can risk life as well. However, the govt should also be cognizant of the complexities involved here. They need to realise, digital platforms do not operate within the limitations of physical country boundaries,” he added.

Tiger Global Management-backed Inshorts, Falcon Edge Capital-backed Dailyhunt, Shunwei Capital-backed Vokal, Lightspeed Venture Partners-backed Sharechat were among the companies that didn’t respond to Inc42 queries on the matter, but are heavily dependent on FDI. Further, OTT players which also have news and news-like content on their platforms such as Disney-owned Hotstar, Viacom 18 Digital Ventures’ Voot, Amazon’s Prime Video and Netflix also didn’t respond to queries on the matter.

Among the companies that have spoken in public is Eros International. Manav Sethi, its group chief marketing officer, said the impact of the policy will be determined by the wording of the provision. “News and current affairs are present on social media platforms, on digital platforms that are subsidiaries of foreign brands etc. How would you differentiate between TV channels which have 49% and their online streams, which will effectively have 26%?”

Many digital media outlets are bootstrapped or only have angel funding, but for them to grow beyond its limited audience set and expand its coverage focus. Vignesh Vellore, CEO of The News Minute, reportedly said, “The Indian investors are not bullish and are mostly reluctant to invest in media portals, more so in the current economic situation. The new policy hurts smaller players like us and the ones who are looking to launch new projects. In future, when we have to look at investments to scale up our operations, this kind of cap will be very discouraging.”

Prakash further said that most digital media outlets are startups and need to invest in digital infrastructure besides news gathering. “Restriction on foreign capital will lessen the options for funding and they will have to look for Indian capital. It is unclear what will happen to existing funds raised beyond 26% in specific startups and companies may need to buyback,” he added.

Author

Bhumika Khatri

Inc42 Staff

Hailing from a business-oriented family, Bhumika has always been crunching numbers in her head. Words are her escape and she looks to find hidden startup stories. Reach her on [email protected]

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