New FDI norms: Key online media companies feel the pinch of 26% cap

The government’s move to cap foreign direct investment in digital media in line with print media has left a few key players in the lurch. News portal VCCircle, owned by NewsCorp, New-York-headquartered Quartz, which has a partnership with Scroll.in, and HuffPost, which operates independently in the country, will have to reduce their foreign holding to comply with the rules, experts said.

While none of the players are likely to be happy with the move, some say more clarity is needed on the matter. “The policy does not mention if the FDI cap is restricted only to foreign companies investing in digital media or includes foreign venture capitalists (VCs) and private equity (PE) funds, too. If PEs and VCs are included, Bengaluru-based The Ken could face issues, since the company has more than 26 per cent foreign holding,” said an industry executive in the know of things.

NewsCorp, Quartz, and HuffPost were not immediately available for comment. 

Another concern factor, said experts, is the role of over-the-top platforms that stream news. The government has not provided any clarity, said sources in the know, on whether the FDI rules apply to aggregators as well. 

Hotstar, owned by Novi Digital, a subsidiary of Star India (now owned by Disney) streams news from various TV channels.

What’s making news

• News portals such as VCCircle, Quartz, and HuffPost will have to reduce foreign holding to comply with new FDI rules
• Another concern is that the government has not provided any clarity on the role of over-the-top platforms that stream news
• If the new rules do apply to aggregators, VOOT and Hotstar may also come under the scanner
• Some argue in favour of regulation in digital media

Similarly, Viacom18’s video platform VOOT streams clips from various TV18 channels. American broadcaster Viacom, for the record, holds 49 per cent stake in Viacom18.  So, if the new FDI rule does apply to aggregators, said sources, VOOT and Hotstar will also come under the scanner. News content has helped VOOT drive watch time on the platform, especially in the case of regional content. 

Some experts, however, argue in favour of regulation in digital media. 

“The media and entertainment industry grew by 13.3 per cent in FY19 on the back a 43.4 per cent growth in digital media. This is despite the fact that while the FDI policy currently permits 49 per cent foreign investment in news channels and 26 per cent in print media, it was silent on FDI in digital media,” said Himanshu Parekh, partner, KPMG India. “At least now there is some regulation in place, which should help the industry in the long run.”

Jehil Thakkar, partner, Deloitte, said, “FDI in digital media is a welcome development. Clarity around this fast-growing segment will act as an enabler for capital infusion. Significant value will be unlocked going forward.”

Gautam Sinha, chief executive, Times Internet, said, “At present, a significant part of the growth in the media sector is coming from digital consumption of content. I believe the move on FDI in digital media will benefit the industry since it will help companies raise additional capital from overseas players.”