Foreign direct investment (FDI) in media has historically been subject to government approval in India. The reasons are obvious! The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) stipulates that for an Indian entity engaged in broadcasting activities, foreign investment of up to 49% of its share capital is permitted with approval of the government, while for print media, the cap has recently been increased to 74%.

Since the NDI Rules did not initially stipulate any conditions for foreign investment into entities engaged in digital media, the market practice dictated (not unreasonably, perhaps) that such entities were permitted to receive foreign investment of up to 100% of the share capital. However, in August 2019, the Department for Promotion of Industry and Internal Trade (DPIIT) notified Press Note no. 4 of 2019 (Press Note 4), which capped foreign investment into an Indian entity engaged in uploading and streaming news and current affairs through digital media at 26% of its share capital, with the prior approval of the government.

Pursuant to reservations expressed by the industry regarding the fetters imposed by Press Note 4, a year later, on October 16, 2020, the DPIIT issued a clarification. As per this clarification, the 26% cap would apply only to the following digital media entities, whether registered or located in India:

1. Digital media entities streaming or uploading news and current affairs on websites, apps, or other platforms.
2. News agencies which gather, write, distribute, or transmit news, directly or indirectly, to digital media entities or news aggregators.
3. News aggregators which use software or web applications to aggregate news content from various sources in one location.

Apart from the shareholding-related restrictions, the DPIIT introduced several restrictions on the day-to-day management of these entities, such as the requirement of obtaining security clearance for all foreign personnel engaged by such entities in any capacity, as well as ensuring that the majority of the directors and the CEO are Indian citizens.

Shortly after the first clarification, the Ministry of Information and Broadcasting (MIB) issued another clarification directing all entities engaged in digital media activities to provide the MIB with details of the entity, its directors, shareholders, promoters and significant beneficial owners, its shareholding pattern, a declaration regarding compliance with the NDI Rules, and the latest audited or unaudited financial statements. Entities which already had foreign investment exceeding 26% of their share capital were directed to take all steps necessary to bring the foreign shareholding below 26%.

The clarifications failed to make a distinction between digital media entities which curate news and the entities which merely host news content on their platforms, akin to a cable service provider.

Over the past few years, the MIB has received additional representations from industry stakeholders, including the Chambers of Commerce and certain over-the-top (OTT) platforms, stating that an OTT platform merely provides a platform to display third-party news and current affairs on an ‘as is basis’, without any editorial intervention. On March 10, 2023, in a welcome move, the MIB clarified that since the role of OTT platforms is only limited to hosting news, and that they are not involved in the aggregation or curation of news content provided by third-parties, the FDI limit of 26% would not apply to such platforms, removing uncertainty regarding the caps on foreign investment into entities which own and operate OTT platforms which display third-party news and current affairs.

Regardless, the tea leaves indicate that ownership of digital media in India is bound to be subject to enhanced restrictions in the near future. What those restrictions are and how they affect existing organisations – only time will tell.

Please reach out to Mathew Chacko for queries.