Social media firms seek more clarity on FDI policy on digital media

The Government’s directive capping Foreign Direct Investment (FDI) in digital media organisations at 26% has left social media companies worried as it is unclear if the restriction is applicable to them as well.

Though the Department for Promotion of Industry and Internal Trade (DPIIT) issued the note in this regard on September 18, 2019, it did not provide a definition of ‘digital media’ and it was unclear which entities fall within their ambit. 

They later released a clarification in October, categorising three entities for which the new restriction would apply and gave them a year’s time to adhere with the policy. 

This was further reinforced on November 16, when the Information and Broadcasting Ministry issued a public notice asking “entities involved in uploading/streaming of news and current affairs through digital media, to comply with the decision of Union Government on September 18, 2019, which had permitted 26% FDI under Government approval route”.

The three categories stated in the clarification included news aggregators. This raised concerns that a broad interpretation of the term news aggregation service could make the restriction applicable to them as well.

“News aggregators have been defined broadly as entities that use a software or web application to aggregate news from sources, such as other news websites, blogs, podcasts, video blogs, and user-submitted links, in one location. There is no clarity on whether the term is restricted to entities that disseminate news as a primary function. And, therefore, social media companies can technically fall under this category. The government may look to clarify that digital media platforms may fall outside the scope of the recent amendments if news aggregation/transmission of news is an ancillary function,” said Vivan Sharan, Partner, Koan Advisory Group. 

Further, as the clarification does not spell out what classifies as ‘news and current affairs’, it may specifically affect social media platforms as they host a variety of content.

“News and current affairs is self-explanatory in the traditional broadcasting and print space, as it is linked to licences and registrations under specific statutes. However, there is no analogous construct in the digital space, and the public interest in such a classification is also not firmly established. Digital has fostered a marketplace of ideas and information like no other medium, and is not easily straight jacketed,” Sharan added. 

It has also made a mention of news agencies as another category, "which gathers, writes and distributes/ transmits news, directly or indirectly, to digital media entities and/ or news aggregators”. While, the term ‘indirect’ raises concerns that it may also bring social media platforms under its ambit, Sharan believes it only refers to foreign news agencies. 

“Several foreign news agencies have local bureaus and do not directly transmit news. The intention in the clarification appears to be to cover such entities. That said if such branch offices are set up as per the RBI guidelines, then no additional obligations are required under the FDI policy,” he said.

Move may hinder FDI flow in social media sector 

The industry has also raised concerns that this move may hinder the introduction of new FDI in the social media sector. 

After the government banned ByteDance-owned TikTok earlier this year, several local short videos apps such as Chingari, Mitron and Josh among others have attracted a lot of attention from investors. 

If social media firms are also included under the ambit of 26% FDI policy, the local startups would have limited access to foreign capital. 

"If the government is serious about India having its own home-grown social media apps ecosystem (the way China has), they should first define clearly that a short video app like ours doesn't fall under the ambit of this cap," said a top executive of an upcoming social media platform. 

Apps such as Dailyhunt that are in the news aggregation business have already restructured their ownership. Others might follow the suit soon. 

“Companies may have to find ways to restructure. It is worth highlighting here that the clarification states that the restriction applies to entities registered or located in India. Therefore, the perverse incentive for many entities would be to reduce spends in India or to relocate abroad,” said Sharan.

A top government official told BestMediaInfo.com that the I&B ministry has received queries from several social media platforms, among others, on the same issue. 

"The industry has sought a clarification on the issue. We may come up with a clarification soon," the official said. 

Info@BestMediaInfo.com