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FDI in digital media: 26% foreign direct investment to limit fund flows, hurt business models

Digital news platforms so far had no limitations on foreign direct investment and have therefore been attracting lot of interest from global private equity companies

twitter-logo Ajita Shashidhar   New Delhi     Last Updated: September 2, 2019  | 12:48 IST
FDI in digital media: 26% foreign direct investment to limit fund flows, hurt business models

The government's announcement of allowing 26 per cent foreign direct investment (FDI) under government route for uploading/streaming of news and current affairs through digital media has resulted in more questions than answers. The most confused lot are the digital-only news platforms, which have raised foreign capital much more than the 26 per cent FDI cap. Digital news platforms so far had no limitations on foreign direct investment and have therefore been attracting lot of interest from global private equity companies. One of digital players Daily Hunt recently raised over $6 million from New York-based hedge fund, Falcon Hedge. Other investors include Sequoia Capital India, Omidyar Network and Bytedance. "There is no clarity on how this policy will apply to digital-only news platforms. A large number of them are start-ups. On one hand they were being encouraged by the government to grow through initiatives such as Start-Up India and Digital India and now their wings are clipped," points out, Puja Sondhi, Partner, Shardul Amarchand Mangaldas.

Also read: Apple plans to start online stores in India, leveraging on relaxed FDI norms

While the TV news broadcasters and the print media already have an FDI cap of 49 per cent and 26 per cent, respectively, the government, according to Akash Gupt, Partner and Leader (Regulatory), PwC India, would have announced 26 per cent FDI for digital news platforms in order to provide more harmony in the industry. However, there is no clarity whether the FDI cap of 26 per cent is meant for aggregator-led news platforms or for creator-led platforms. "It is important for the government to clarify whether news aggregators, news creators and news intermediaries would be put in the same category," says Sondhi.

Assuming that the 26 per cent FDI in digital news platforms would include both aggregator and creator-led platforms, experts expect a lot of changes in existing business models. "The digital-only platforms require significant amounts of money to scale up. Till date there was no FDI cap for digital news platforms, as a result of which, many of them were able to raise a lot of foreign capital. Therefore, the 26 per cent FDI cap could limit their money inflow," says Girish Menon, Partner and Head, Media and Entertainment Practice, KPMG. Menon says that the digital-only news platforms would be forced to change their business models in a big way once the 26 per cent FDI cap kicks in. The 26 per cent FDI cap will force them to hunt for domestic investors and that's not going to be easy. "It will restrict them significantly. They will be forced to restrict themselves to strategic partners," points out Jehil Thakkar, Partner and Head, Media and Entertainment Practice, Deloitte.

There will also be business model tweaks in the established news organisations, which offer TV, print and digital. "These organisations may consider spinning a different entity for their digital offerings in order to reap the benefit of 26 per cent FDI," explains Menon. "Print and TV companies, which have digital platforms will restructure their digital business and create an independent subsidiary," agrees Thakkar of Deloitte.

Gupt of PwC says that there will be greater clarity on the nuances of FDI in digital news announcement only after Department of Industrial Policy and Promotion releases the fine print. As of today, the 26 per cent FDI announcement in digital media has left the industry thoroughly confused.

Also read: How relaxing FDI in single brand retail helps industry

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