India’s FDI rules for digital media begs one question — do we benefit from fewer news outlets?

Due to this new FDI policy, India will see international investments directed towards entertainment websites rather than those that provide news.

Representational image | Pixahive

India’s Department for the Promotion of Industry and Internal Trade, or DPIIT, issued a clarification in October this year, which outlined rules that digital media companies had to comply with to receive foreign direct investments (FDI). The regulations would be applicable to news websites, agencies and aggregators that publish as well as curate content on their platforms. They mandate that the CEO and a majority of any digital media company’s board of directors had to be Indian citizens. The rules also state that such entities will have to “align” their current investments to 26 per cent – the limit set by the Narendra Modi government in 2019. At the time, it had announced that FDI in digital media would be allowed via the government approval route.

The government’s FDI policy for digital media is in consonance with similar rules for the print and broadcast sectors. In 2002, the NDA government at the time had allowed foreign investments in both sectors with a 26 per cent cap and subject to government approvals. In 2016, these norms were further liberalised when the cap for news TV was raised to 49 per cent and 100 per cent for entertainment channels.

The central question that these rules create is this: does it benefit India to have more news organisations or less? As a consequence of this FDI policy, the country’s news ecosystem will undergo a change. What will emerge is an environment in which international investments will be directed towards entertainment websites rather than those that provide news. This shift comes at a time when fake news is flourishing on social media – a concern that Prakash Javadekar, the Minister for Information and Broadcasting, flagged earlier this year.

Ramifications for media businesses

Another fallout of the FDI policy will be on the business of digital news media. On 24 November, HuffPost India announced that they would no longer publish content. Multiple media reports suggested that the six-year-old website’s demise, along with its Brazilian counterpart, was a result of the new FDI norms. Jonah Peretti, Chief Executive Officer of Buzzfeed, which recently acquired Huffpost.com, reportedly said that they “weren’t legally allowed to take on the Brazil and India editions”. He added that foreign companies weren’t allowed to “control” news organisations in the country.

Peretti’s statement unwittingly gave a glimpse into a future where digital media acquisitions and mergers, that involve news properties, will exclude Indian platforms and businesses. Consider the conundrum that Peretti, or any other foreign investor, will find themselves in: should they pump in money in the news media ecosystem and vigilantly comply with the government’s FDI policy? Or would it be easier to stay away from one of the world’s largest digital media markets, for the sake of business efficiency? The choice is a difficult one to make.

Perhaps the most visible impact of these FDI rules will be on platforms themselves. They will now have to make pragmatism the bedrock of their ambitions, rather than international investments. The result will be content that caters to limited audiences, rather than that which helps cultivate readerships spanning geographies and demographics. In other words, the reach of a digital news platform is often wider than the combined circulation of say, a few newspapers and magazines. For instance, The Telegraph newspaper’s total readership in Kolkata stood at 710,000 in the last quarter of 2019, according to the Indian Readership Survey. For The Hindu that number was 946,000 in Chennai in the same period. In contrast, Huffpost.in attracted an average of 1.1 million readers between May and October this year – 57.6 percent of whom belonged to India, according to similarweb.com’s analysis.

In sync with global practices

Globally too, some countries have put in place rules for FDI in media. Singapore’s Newspaper and Printing Presses Act restricts foreign control of newspaper companies. France forbids foreign ownership of capital or voting rights above 20 per cent in any company holding a terrestrial broadcasting license. Non-EU media companies are also restricted from acquiring more than a 20 per cent stake in French-language media companies. Spain’s 1988 Private Television Act established constraints on non-EU ownership. These were reformed in 2009 by royal decree, but nationals from outside the European Economic Community (EEC) are still forbidden from directly or indirectly holding over 49 per cent of any broadcasting license holder.

A striking feature of these aforementioned examples is that the FDI rules were designed for traditional media. The nature of print and television broadcasting is such that these rules are enforceable. In contrast, the advantage (and challenge) of digital media is that it is boundary-agnostic. To illustrate, if a foreign newspaper company or a TV channel were to be refused licenses to operate in a country, they won’t be able to set up the required infrastructure – that is, printing presses, dish antennae and transponders, among other things. However, no licenses or permissions are required to run a website. The internet allows for the limitless exchange of news across the world, without the trappings of conventional regulatory mechanisms. So if Huffpost.in has reportedly ceased operations due to the FDI rules, it won’t be surprising if the website marks a return in a different avatar.

The way forward

In this context, India has a golden opportunity to move away from conventional rule-making, when it comes to governing digital media. The country’s policies must reflect the reality that today, individuals and organisations use the internet as the principal instrument to participate in the marketplace of ideas. To that end, policymakers can lay out a simple process. Back self-regulation to uphold and improve standards of news reporting in digital media. Two self-regulatory organisations called The Digital News Publishers Association (DNPA) and the Indian Digital Media Association (IDMA) have been set up. Such a move will eliminate the need for government involvement in news media and, simultaneously, help a fledgling self-regulatory environment grow.

Most importantly, the approach to make international news organisations a part of such associations will delink editorial oversight from foreign investments. The notion that limits on overseas investments can work as a lever to create a ‘conducive’ news media environment is a myopic one. In the short-term, it might force publications like HuffPost to shut shop. However, in the longer run, they can still commission freelance writers from India to publish journalistic content on the Huffpost.in domain name.

The beauty of the internet is that international news organisations don’t necessarily have to formally register themselves as companies in India, to write about the country. Therefore, in a scenario where conventional regulatory methods will likely prove counterproductive, India needs to adopt an approach that unambiguously recognises the primacy of the internet in the marketplace of ideas. The country has an opportunity to create a regulatory template that lets the engines of choice, diversity, self-regulation and inclusiveness power the growth of media in India.

The author works at Koan Advisory Group, a technology policy consulting firm. Views are personal.

This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.