Digital media means any media that are encoded in machine-readable formats. Digital media can be created, viewed, distributed, modified and preserved on digital electronics devices. Digital media has exploded in growth in India, similar to other countries, in the recent years. Keeping such growth of digital media consumption in mind the Department of Promotion of Industry & Internal Trade ("DPIIT"), vide the Press Note 4 of 2019 dated 18th September 2019 ("PN4"), introduced the Foreign Direct Investment ("FDI") regime for entities engaged in uploading/streaming of news and current affairs through digital media. Accordingly, such entities were permitted to receive FDI up to 26% under the Government approval route.
Prior to the PN4, there was no foreign direct investment sectoral cap prescribed for entities engaged in streaming digital media. Under the erstwhile FDI Policy of the Government of India dated August 2017, 49% FDI under approval route was permitted for up-linking of "News & Current affairs" TV channels and this position continues under the current Consolidated FDI Policy of the Government of India dated 15 October 2020 ("FDI Policy"). It is also interesting to note that 100% FDI is permitted under the automatic route in "Mobile TV" under the FDI Policy.
Vide Press Note PN4, The DPIIT has now clarified that 26% FDI is allowed in "Uploading/ Streaming of News & Current Affairs through Digital Media" on similar lines of the print media which is capped at 26%. The term "Digital Media" was not defined under PN4. Consequently, there was ambiguity on whether the term included entities such as online media companies, web portals and content aggregators. Therefore, clarification was sought by various stakeholders on the type of entities that would be covered within the ambit of the term 'Digital Media' as prescribed under PN4.
Accordingly, the DPIIT issued a clarification on 16th October 2020 ("the Clarification") to address the clarifications sought by the stakeholders after the PN4 notification. As per the Clarification, 26% FDI Government approval route would apply to certain categories of Indian entities, registered or located in India. These categories of entities include:
- Digital media entity streaming/uploading news and current affairs on websites, app or other platforms.
- News agency which gathers, writes and distributes/transmits news, directly or indirectly, to digital media entities and/or news aggregators.
- News aggregator, being an entity using software or web application, aggregates news content from various sources, such as news websites, blogs, podcasts, video blogs, user submitted links, etc in one location.
Consequently, entities/companies falling within the clarifications would be required to align their FDI shareholding to 26% level with the approval of the central government. The timeline indicated to comply with the FDI shareholding is within one year from the date of issue of the Clarification.
The investee entity is responsible for compliance with the FDI Policy. In addition, the investee entity would also have to ensure compliance with the following conditions in relation to management and hiring personnel:
- Board of Directors: The majority directors on the board of the Company are required to be Indian citizens.
- The Chief Executive Officer: The Chief Executive Officer is required to be an Indian citizen.
- Security Clearance of foreign personnel: The entity shall be required to obtain security clearance of all foreign personnel likely to be deployed for more than 60 days in a year by way of appointment, contract or consultancy or in any other capacity for functioning of the entity prior to their deployment. If the security clearance of any foreign personnel is denied or withdrawn for any reason, the investee company is required to ensure that the concerned person resigns or his services are terminated forthwith, upon receiving such directives from the Government.
Further, foreign investment in the broadcasting carriage services (which includes digital media news and current affairs services) are subject to the following security term/conditions as provided in Annexure 6 of the FDI Policy:
i. Infrastructure/Network/Software related requirement: (a) The officials of the licensee companies dealing with the lawful interception of services should be resident India citizens. (b) Details of infrastructure/network diagram (technical details of the network) may be provided, on a need basis only, to equipment suppliers/manufactures and the affiliate of the licensee company and clearance from the licensor would be required if such information is to be provided to anybody else. (c) The Company is not allowed transfer the subscribers' databases to any person/place outside India unless permitted by relevant law. (d) The Company is required to provide traceable identity of their subscribers.
ii. Monitoring, Inspection and Submission of Information:
a. The Company is required to ensure that necessary provision (hardware/software) is available in their equipment for doing the lawful interception and monitoring from a centralized location as and when required by Government.
b. The Company, at its own costs, is required to, on demand by the government or its authorized representative, provide the necessary equipment, services and facilities at designated place(s) for continuous monitoring or the broadcasting service by or under supervision of the Government or its authorized representative.
c. The Government of India, Ministry of Information & Broadcasting ("MIB') or its authorized representative have the right to inspect the broadcasting facilities without prior permission/intimation. The Company, (if required) by the Government or its authorized representative, is required to provide necessary facilities for continuous monitoring for any particular aspect of the company's activities and operations. Continuous monitoring, will be confined only to security related aspects, including screening of objectionable content.
d. The inspection will ordinarily be carried out by the MIB or its authorized representative after reasonable notice, except in circumstances where giving such a notice will defeat the very purpose of the inspection
e. The company shall submit such information with respect to its services as may be required by the Government or its authorized representative, in the format as may be required, from time to time.
f. The permission holder/licensee shall be liable to furnish to the Government of India or its authorized representative or Telecom Regulatory Authority of India ("TRAI") or its authorized representative, such reports, accounts, estimates, returns or such other relevant information and at such periodic intervals or such times as may be required.
g. The service providers are required to familiarize/train designated officials or the Government or officials of TRAI or its authorized representative(s) in respect of relevant operations/features of their systems.
iii. National Security Conditions: (a)The Licensor has the option to restrict the Licensee Company from operating in any sensitive area from the National Security angle. The MIB shall have the right to temporarily suspend the permission of the permission holder/Licensee in public interest or for national security for such period or periods as it may direct. The company shall immediately comply with any directives issued in this regard failing which the permission issued shall be revoked and the company disqualified to hold any such permission in future for a period of five years.
(b) The company is not permitted to import or utilize any equipment, which are identified as unlawful and/or render network security vulnerable.
iv. Other Conditions: (a) The Licensor has the right to modify these conditions or incorporate new conditions considered necessary in the interest of national security and public interest or for proper provision of broadcasting services.
(b) It is the responsibility of the Licensee to ensure that broadcasting service installation carried out by it does not become a safety hazard and is not in contravention of any statute, rule or regulation and public policy
Comments: Due to the proliferation of growth in media coming from digital media consumption in India, the potential of digital content is being recognized and an industry-specific FDI regime has been made in the PN4 and Clarification for entities engaged in "Uploading/ Streaming of News & Current Affairs through Digital Media".
In addition, the Clarification definitely has brought some clarity on the type of entities that would be covered under the Digital Media News and Current Affairs Sector. However, the Clarification still encompasses certain ambiguities such as:
i. The Clarification provides that it is applicable to entities registered or located in India. This includes registered corporates as well as branch offices in India. There is ambiguity on whether international news agencies having their offices in India prior to this notification are required to seek approval from the Government for their continuous operations of uploading/streaming news through digital media.
ii. The Clarification clearly covers news agencies and aggregators, however, there is ambiguity on whether the Clarification is applicable to social media, search engines and websites apps who are merely social media intermediary platforms. Since the Clarification states "Digital media entity streaming/uploading news and current affairs on websites, app or other platforms", it appears that this Clarification is applicable to social media intermediary platform also.
It is also interesting to note that the FDI sectoral cap in the digital media is only pertaining to digital media entities streaming/uploading news and current affairs on websites, app or other platforms and not to non-news and current affairs streaming entities. Under the FDI Policy in the event no restriction is prescribed for a sector 100% FDI is permitted in that sector unless specifically prohibited. Hence, it is possible to assume that no FDI sectoral cap is applicable to digital media entities streaming/uploading non-news and current affairs on websites, apps or other platforms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.