India has, over the last two years, seen an explosion in the video on demand (or “VoD”) platforms, launched by a variety of players ranging from some of the world’s leading entertainment and media players to an exciting array of start-ups. Indian law’s inability to play catch up has resulted in these companies adopting a bewildering mix of legal and contractual strategies, a situation that does not seem to be rectifying itself.
This note summarises some of the legal and contractual complications that arise in the context of video-on-demand platforms. Do note that while many of these complications plague audio on demand platforms as well, notable differences do exist.
Foreign Investment into VoD
India’s foreign exchange laws permit multinational corporations to set up wholly-owned subsidiaries (subject to restrictions under the Companies Act, 2013) that run and manage VoD platforms. The law also allows global private equity, venture capital, and strategic investors to invest in VoD platforms. Standard reporting requirements would apply in respect of such investments but ought not to prove a stumbling block for most acquisitions or investments.
Most VoD platforms in India do not distribute their own content. The few that distribute only their content do so along with acquired content. As such, questions around structuring licensing arrangements continuously arise. Unlike in more mature markets, negotiating standards have not yet crystallised in India. Below are some of the trickier aspects of negotiating content acquisition for a VoD platform.
a. Grant of rights
Copyright’s forever expanding ‘bundle of rights’ poses a preliminary hurdle to a content acquisition agreement. Most licensors of content would like to restrict the grant of rights to a particular platform. Most VoD platforms would like wider rights to cover any expansion in business or changes in technology.
b. Subtitles & Translation Rights
Again, most VoD players would like the right to create subtitles and dub the content into local languages. Licensors, on the other hand, are keen to ensure that these translations and dubbing (if any) are of a certain quality and that they can offer the translations and dubbed versions to other licensees in other jurisdictions. This often gives rise to complex structures involving approvals by the licensor, sharing of costs, and in some cases, sharing of revenue from any derivative content by the licensor.
c. Copyright Societies
Indian copyright societies are waking up from a rather long period of inactivity and sharpening their attempts at enforcement of rights, particularly in light of 2012’s amendment to the Copyright Act. This is evidenced by a slew of recent judicial decisions involving copyright societies. Typically, an exclusive licensee would undertake to clear any dues payable to a local copyright society.
d. Representations & Warranties
Representations and warranties in a content acquisition agreement tend to be fairly standard. Licensors tend to guarantee that they have all the rights required to authorise the distribution of content and that the distribution of content will not lead to any lawsuits against the distributor.
The VoD platform tends to provide representations and warranties around digital security, maintenance of DRM systems, and covering for “spillage”.
For the vast majority of content acquisition deals, indemnities tend to be rather wide, broad, and open-ended. Limitations on liability, a staple of commercial deals in other sectors, are not as popular in content acquisition deals.
f. Digital Rights Management
Digital Rights Management systems are fairly standard and adopted across the board by traditional VoD platforms. The rapidly maturing Indian market has recognised the need to adopt some of the latest DRM technologies to prevent unauthorised redistribution. However, some of the more technologically advanced platforms, including those based on blockchain, struggle to adopt these standards to the world of immutability.
g. Governing Law & Dispute Resolution
In cross border content acquisition deals, governing law tends to a bone of contention. American licensors tend to prefer the application of American law, particularly the laws of California. Indian VoD platforms ought to prefer the application of the slightly less extortionary Singapore
or English law, both laws that have a mature IP regime and globally accepted concepts of damages. US law ought to be resisted as far as possible. However, if unavoidable, it must be noted that the laws of Washington D.C. and New York City have a far better record in adopting
an even-handed approach to damages (as opposed to the laws of California).
Arbitration is generally preferable from the perspective of maintaining confidentiality and enforcing any decision. However, licensors tend to resist arbitration of disputes on account of an antiquated understanding of the grant of interim remedies by arbitral tribunals.
Indian censorship laws are mired in a patriarchal morality that would have made Queen Victoria proud. However, they do apply to VoD platforms and censor certification is mandated by Indian law for any content disseminated by these platforms. The inconsistency between the unbridled powers of the regulator and its interplay with the constitutional guarantee of equality and freedom of speech and expression has not yet been tested in the modern era. Regardless, the law as it stands requires regulators’ blessings prior to widespread dissemination. Many players do not conform to these censorship laws and assume the risk of regulatory action.
Pornography, Obscenity & Sedition
Similar to Indian censorship laws, India’s laws on pornography, obscenity, and sedition are of Victorian vintage. They include:
- The Indian Penal Code, 1860
- The Young Persons (Harmful Publications) Act, 1956
- The Unlawful Activities (Prevention) Act, 1967
- The Indecent Representation of Women (Prohibition) Act, 1986
- The Information Technology Act, 2000
These laws collude to set standards that would bar much international content and render them obscene or seditious. Recent judicial trends indicate that courts are reluctant to prosecute on the basis of these antiquated laws and apply a more modern standard to what may be legally distributed in India. However, only a comprehensive judicial challenge to these antiquated laws would reveal whether they conform to the constitutional scheme. VoD players in India appear to be operating under the presumption that the relaxed approach to enforcement that has been adopted by the regulator will continue.
Many VoD platforms enter into clickwrap agreements with viewers and users. These are enforceable, as long as they are not unconscionable or unreasonable.
Licensees tend to tie up with some of the larger digital payment platforms to structure payment solutions. PayTM continues to be the most popular, although smaller rivals like RazorPay appear to be catching up. For international actors, payments introduce several layers of tax complexities and highly structured solutions are not uncommon. While multiple players are considering the use of cryptocurrencies on their VoD platforms, none of the larger players enable the use of cryptocurrencies as a form of payment at this moment.
Errors and omissions insurance is available in India and global insurers do provide global coverage that extends to India. Given the relatively low costs of insurance and the high risks associated with running a VoD platform in India, we actively advise all clients to obtain appropriate forms of insurance.
Data Protection & Data Security
India’s data law is in a state of flux, caught between the old law, a comprehensive new law, and an extremely progressive Supreme Court judgment. We advise clients to take a proactive approach to privacy and data protection and to design their data architecture with global standards in mind. On account of the threat of IP litigation in the event of a data breach, we see VoD platforms adopt cutting edge anti-circumvention and anti-hacking technologies. Market standards in data security closely rival global standards.
Future of the market
VoD platforms have opened a whole new “market” for Indian and global content. Given the size of the population, the explosion of internet and mobile penetration and the significant increase in disposal income for a wide section of society, VoD players in India are primed to grow rapidly.
The fragmented nature of this large market, the absence of significant barriers to entry, and the explosion of innovation and investments into VoD indicate that we will see considerable consolidation in the market, both horizontally and vertically. Parties that are in the market would also be well advised to consider the impact of competition law on its business models.
Given the clear dichotomy between market standards and the law, we also expect to see the establishment of a self-regulatory organisation that can impose an element of discipline in the Indian VoD market.
For any comments or queries, please do reach out.