India: Media & Entertainment: The Good, The Bad And The Uncertain

Last Updated: 26 September 2018
Article by Saket Shukla, Akshay Sachthey and Debottam Chattopadhyay
  1. Opportunities Unchained

The media and entertainment industry in India has seen rapid and unprecedented growth. The industry grew at 12.25% between 2011 and 2017 and is expected to touch USD 31.53 billion by 2020, up from USD 19.46 billion in 2016. As per estimates, the industry provides direct and indirect employment to nearly 4 million people1.

Apart from being one of the fastest growing advertising markets globally, India is also considered one of the highest spenders in this industry 2. This is thanks to a young population, a fast-growing middle class and an increasing focus on 'Digital India' initiatives, which are leading to a rapid increase to internet access. As a result, new avenues for entertainment have opened up, and there has been a surge in the demand for foreign TV shows, with a notable interest in American TV shows and movies. American interest in the media and entertainment sector is also evident.

  1. Game of Rules

Despite the rapid developments in this sector, the sector often faces challenges arising from a variety of factors ranging from a lack of clarity in the regulations and regulatory overreach, to litigation proceedings which can be avoided. The regulatory landscape in this sector is also evolving towards self-regulation, which has set the platform for an industry-enabling environment rather than being a hindrance to business. These are positive signs especially given the inherent cultural sensitivities and, often, political undertones involved in this sector.

From a regulatory and legal perspective, the media and entertainment sector can broadly be categorized as follows:

  1. print;
  1. broadcasting; and
  1. internet based and other unconventional/modern day media.

Some of the unconventional media industry players include media outlets engaged in creating content (TV show producers, film producers and online content providers) and online media (YouTube channels, over-the-top on-demand video, online streaming platforms and websites). There are also various other types of supporting stakeholders such as cable operators and direct-to-home service providers.

  1. The Law & Orders

Print

Foreign Investment

Foreign direct investment (FDI) in print media is permitted up to 26%, with prior government permission. In publication and printing of scientific and technical journals/periodicals and facsimile editions of foreign newspapers, FDI is permitted up to 100% with government approval, subject to compliance with guidelines issued by the Ministry of Information and Broadcasting (MIB).

MIB Guidelines

The MIB has also issued "Guidelines for publication of Indian editions of foreign magazines dealing with news and current affairs" which, among other things, permit only companies registered in India to publish Indian editions of foreign news/current affairs magazines.

These guidelines allow Indian companies to enter into financial arrangements (such as royalty payment arrangements, etc.) with foreign periodicals. The guidelines permit content reproduction and also allow Indian publishers the flexibility of local content and advertisement customization.

Registration requirements

Newspapers and periodicals in India are also required to obtain registration with the Registrar of Newspapers in India under the Press and Registration of Books Act, 1867.

Broadcasting

Foreign Investment

While FDI in uplinking of news/current affairs channels and terrestrial FM radio have been restricted to 49% with government approval, the Indian market has opened up to uplinking of non-news channels, allowing 100% FDI under the automatic route, without the need to obtain government permission. FDI in downlinking of all TV channels is permitted up to 100% FDI.

MIB Guidelines

The regulatory framework for setting up of TV channels in India is provided under the "Policy guidelines for uplinking of television channels from India, 2011" and "Policy guidelines for downlinking of television channels from India, 2011". The guidelines provide for permission from MIB for uplinking/downlinking as above, and various regulatory requirements, including operations, management and corporate governance of entities engaged in these activities.

Other Regulators

Broadcasting entities also need to comply with various regulations of the Department of Telecommunications and require security clearances from the Ministry of Home Affairs.

Self-Regulation

The News Broadcasting Standards Authority is an independent body set up by the News Broadcasters Association (NBSA), a industry association for broadcasters in India. The NBSA's task is to consider and adjudicate upon complaints about broadcasts. Similarly, advertisements are subject to self-regulation under a code formulated by the Advertising Standards Council of India.

Online content/news

Intuitively, one would expect there to be some parity between online news/content providers and print media. From an FDI perspective, while FDI in print is restricted, there is no such direct restriction on FDI in online content/news portals. At the time the FDI policy on print was framed, news was predominantly dissipated through the print media, which no longer holds good. Consequently, the lack of parity in the FDI regime for online content/news, which has wider reach than print media, needs a re-think and the FDI barriers on print media do seem to be past their expiry date.

At the same time, experiences indicate that the government has so far not taken a consistent view on its treatment of online news media/websites and has often treated it at par with broadcasting. In some instances, online news/media has been subjected to obligations similar to print media, which has led to ambiguities as to the regulatory regime and intent. In contrast, the government has taken a predominantly liberal view with FDI in other media and entertainment segments.

  1. Breaking Content

Content, as such, is mostly subject to industry regulations but is also subject to restrictions under law. The Constitution of India recognizes freedom of expression and treats it as a fundamental right while making it subject to reasonable restrictions. The Supreme Court of India, India's apex court, regularly upholds the right to dissent and free speech. However, this fundamental right is available only to Indian citizens and foreign citizens do not have the benefit of this right.

Central Government's Powers

The Information and Technology Act, 2000 gives the Central Government powers to block public access of any information through any computer resource in certain circumstances, such for public order, relations with foreign states, sovereignty of India, etc. The Cable Television Network Rules, 1994 also prohibit the carrying of programmes which contain live coverage of anti-terrorist operations by security forces3. The MIB has, in the past, blocked a TV news channel for a day for disclosing in its report sensitive security related information.

Cable Regulations

The Cable Television Network Rules, 1994 regulate functioning of cable operators and provides for registration of cable entities. The rules also regulate broadcasting and advertising of content transmitted through cable television.

Telecom Regulator

The telecom regulatory, the Telecom Regulatory Authority of India (TRAI), recently brought into effect the Telecommunication (Broadcasting and Cable) Services Interconnection (Addressable Systems) Regulations, 2017. The regulations have been challenged before courts4, on the ground that TRAI does not have the power to regulate content of broadcasters. The challenge was unsuccessful in view of various decisions of the Supreme Court5 which have recognized spectrum as a natural resource and a matter of public interest, and accordingly, have taken a view that TRAI has broad powers.

Film Certification

Content certification has gone beyond film certification solely for exhibition in multiplexes. In Super Cassettes Industries v. Central Board for Film Certification6, the Delhi High Court held that even viewers who watch films within the confines of their homes would amount to members of the public and such viewing would be an "exhibition" of the film. This judgement indicates that both public and private spheres of viewing activity amount to exhibition of the film. The court held that DVDs come within the purview of the Cinematograph Act, 1952 as Section 52A(2)(a) of the Copyright Act, 1957 disallows one from making a film available to the public unless it is certified by Central Board of Film Certification (CBFC).

The MIB has not come out with a framework to deal with the regulation of content available on the internet. In fact, in 2016, in response to a right to information application, the MIB stated that it does not have the power to censor any content online, and that it is "not pursuing the creation of a regulatory framework" that would allow it to have any online censorship powers.7

That said, the Punjab and Haryana High Court8, in response to a plea made by CBFC, has directed a director/producer to submit an undertaking to the effect that the deleted parts will not be released online. Arguably, the doors remain open for future regulation of online content.

Decency and Morality

Advertisements related to sexuality are permitted, provided there is no indecent representation of women, as required under the Indecent Representation of Women (Prohibition) Act 1986.

Defamation Action

Defamation can lead to both civil and criminal consequences under Indian laws. At times, publication, be it in a movie or reporting by a journalist, do face impediments by the initiation of civil and criminal proceedings against a potentially defamatory statement. A civil suit or criminal proceedings can be filed in a place where the content is said to have been accessed, and is mostly done in inconvenient jurisdictions.

An action for criminal defamation is not per se reportable to the police, but has to be filed before a magistrate's court. Once the magistrate takes a view that the matter is fit to be tried, the accused gets summoned before the magistrate. There have been challenges to strike down the criminal defamation law as being unconstitutional, but these have thus far been unsuccessful.

  1. A Fistful of Challenges

M&A

The MIB requires permission to uplink and/or downlink TV channels can be transferred only with the prior permission of the MIB. Consequently, any merger, demerger, amalgamation or business transfer can only be done with MIB permission, if it deals with the transfer of a news channel as a going concern.

As a means to avoid delays due to MIB consent, entities may want to acquire a news channel by purchasing stock, but this would also trigger disclosures to the MIB, since MIB's guidelines require news channel operating entities to intimate any changes in foreign investment or amendments to shareholders' agreements, within 15 days of the change. On a practical level, the MIB also insists that their permission is obtained prior to such shareholding changes.

Structuring

Foreign investment in media (such as news channels and newspapers) is limited to FDI in companies. Other structures such as limited liability partnerships are not currently permitted. This can pose a challenge, since limited liability partnerships are typically more tax efficient than companies and are subject to lesser regulatory reporting and compliance, and may therefore be a preferred structuring option for some.

Media Ownership

There have been various concerns raised in relation to cross-media ownership and TRAI released a consultation paper on Issues relating to media ownership9. The consultation paper mentioned that:

"Media outlets owned/controlled by industrialists or business houses have it in their power to propagate biased analysis or forecasts to further their business interests or harm the interests of business opponents, to the detriment of the interests of investors and other stakeholders. Such exercises could vitiate the investment climate in the country and jeopardise economic growth. Similarly, media outlets owned/controlled by politicians/political organisations may also try to influence public opinion in their favour by propagating biased analysis or forecasts e.g. manipulated EXIT polls etc"

Therefore, it would be useful for potential investors to keep an eye on developments in media ownership in India as that could significantly impact conglomerates with business interests in varied sectors or media owning and controlling outlets.

  1. Beginning of a Beautiful Friendship

The media and entertainment industry in India has thrown open a plethora of opportunities for American companies and businesses to benefit. American presence in this sector has been increasing, with companies such as Netflix, Amazon, Bloomberg, Walt Disney and Viacom becoming household names in urban Indian markets, and yet there is vast opportunity for more brands to enter the market and cater to the Indian consumer. Regulatory gaps are being fast remedied, with the Indian regulatory regime veering towards a foreign-investment-friendly and pro-industry approach. With the government's rapid reforms, it is only a matter of time before the growth potential in this sector is unleashed.

Footnotes

1 India also has a large broadcasting and distribution industry, comprising approximately 900 satellite TV channels, 6,000 Multi-system operators, around 60,000 local cable operators, 7 direct-to-home operators and a few IPTV service providers. Additionally, India has 114,820 registered publications (newspapers and periodicals), close to 2,500 multiplexes and more than 400 million Internet users (second largest base after China).

2 Source: https://www.ibef.org/industry/media-entertainment-india.aspx

3 In such instances, media coverage is required to be restricted to periodic briefings from a designated government officer.

4 Star India Private Limited and Anr v Department of Industrial Policy and Promotion and Ors.

5 Bharti Airtel Ltd. v. Union of India (2015 12 SCC 1).

6 W.P.(C) No. 2543 of 2007.

7 Source: https://www.medianama.com/2016/12/223-ib-ministry-not-considering-censorship-hotstar-netflix/

8 Raksha Jyoti Foundation vs. Union of India (CWP No. 1322 of 2016 (O&M)).

9 Source: https://trai.gov.in/sites/default/files/CP-Media_Ownership_final.pdf

Originally published 'IACC- 14th Indo US Economic Summit (book).'

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.

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