Over the top regulation

Classifying OTTs as e-commerce firms is a bad idea

Over-the-top (OTT) platforms such as Netflix, Hotstar and Amazon Prime are worried because they may have to scout for ways to comply with the proposed e-commerce policy if the current draft is accepted. At the centre of the problem is the definition of goods and services to be covered by the e-commerce policy as envisaged by the Department for Promotion of Industry and Internal Trade (DPIIT). The recently issued draft policy defines e-commerce as “buying, selling, marketing or distribution of goods, including digital products and services, through electronic network”.

Once this definition is taken in conjunction with the foreign direct investment (FDI) rules, the complexity of the situation becomes clear. Press Note 2 of the FDI policy, also issued by the DPIIT, states that an e-commerce platform with FDI cannot exercise ownership or control over the inventory sold on its platform. It is precisely for the reason specified by the FDI rules that Amazon, which is primarily an inventory-based e-commerce company in the US and other big markets, had to change its business model to become a marketplace player in India. Flipkart, also controlled by foreign investors and now majority-owned by American firm Walmart, was also forced to convert from an inventory-based to a marketplace model. The government should look closely at how pure play e-commerce firms have taken the back-door channel to reroute investments and ownership to skirt the complex FDI rules from time to time. That lesson should prevent authorities from imposing similar complex guidelines on OTT players. It’s well known what happened in the case of e-commerce firms. They changed their essential business models on paper while finding imaginative ways to bypass the rules. For instance, these firms created sellers, with significant ownership and control, on their marketplace platforms. These sellers emerged to be the dominant ones till the government took note of the aberration and again tweaked the rules. 

Distorting well-established business models is not a good idea and policymakers must not repeat the e-commerce mistake in another high-growth area — OTT. At a time when Netflix, Hotstar and Amazon Prime are turning out to be household names, the government should not play spoilsport by micromanaging ownership and control issues in the sector. OTTs may license some content from different production houses, but original content gives them better control over their intellectual property. Classifying OTTs as e-commerce firms will open a Pandora's box, and the DPIIT should be mindful of that. Also, the temptation of protecting a domestic lobby while making and tweaking policies must be resisted at all cost. In the case of e-commerce, the government has often been guided by the Indian traders’ lobby protesting the deep discounts offered by the foreign-owned online firms. If a similar stance is taken for the digital content streamed by OTTs, it will be a retrograde step. All the OTT majors have planned heavy investments to produce original content focused on Indian audiences. Original content, a concept introduced by Netflix in 2011, has become the key to success in the online video-streaming industry. Any move to stop that would send a wrong signal to the multinationals and also deprive millions in India of their favourite shows. Policymakers would do good to revisit the concept of the inventory model, which was barred to have uniformity between online and offline commerce.