FDI in Indian Media

Background  Government of India in June 2002 had decided to allow 26 per cent foreign direct investment (FDI) in news and current affairs print media.  Technical and medical publications have been allowed a higher FDI of 74 per cent.  The decision, taken by the Union Cabinet, reverses the 1955 Cabinet resolution prohibiting any foreign investment in print media.

Why withheld for so long?  Fear FDI in print might may lead to foreigners controlling the Indian media.

The pre-conditions to FDI in print media  verify the “sound credentials and international standing” of the foreign investor;  keep editorial and management control in the hands of resident Indians (e.g. at least three-fourths of the directors and all key executives and editorial staff must  be resident Indians);  ensure against dispersal of Indian equity; and  require that the equity held by the largest Indian shareholder is at least 51% of total equity, excluding equity held by certain passive financial investors.

The pre-conditions to FDI in print media  When calculating whether the 26% threshold has been reached, indirect foreign shareholdings (through Indian shareholding entities) will be included.  At least 50% of the foreign direct investment must be introduced through the issuance of new equity. The reminder may be introduced through transfers of outstanding equity.

The Opportunity  India has 49,000 publications, but annual revenues total just $1.1 billion.  While they can be vibrant and gutsy, most are starved for technology, marketing, and capital to expand.  Effect: Handful publications are dominating

The Opportunity  Dominant publication like the Times of India Group, used its political clout to block foreign entrants by claiming news media are a "strategic" industry. Its seven newspapers use strong marketing and distribution to overpower rivals. The group earned $40 million in 2001, more than the rest of India’s print media combined.

What is the market potential?  According to a national survey, 248 million literate adults still don’t read any publication. But readership of newspapers and magazines is up 15% since 1998, to 180 million. It’s a reflection of a younger, more educated population, especially in small-town India, feel experts.

Immediate effects:  Some publications took the leap. E.g. Business Standard.  Companies such as Pearson, Haymarket, Time India, News Corp., and Dow Jones had eyed India’s big, English-reading market. So the day the new policy was announced, stocks of five newspaper companies shot up 10%. Bankers in Bombay began asking other media concerns if they want to go public. ICICI Ventures, which holds stakes in three media companies, is quite bullish about the industry’s prospects.

Immediate effects:  Trade books offer the best openings, since as much as 74% FDI has been permitted in them. Britain’s Haymarket Publishing Group already has ties to Autocar India, with 80,000 subscribers. Haymarket doesn’t own a stake, but helps with research and management.  Now, it can invest, provide funds to print more copies, market more strongly and use Autocar as a platform to bring its other brands.  Bombay’s Tata Infomedia, a $30 million publisher of yellow pages and trade magazines, also started to solicit business with foreigners.

Immediate effects:  A survey commissioned by a group of large New Delhi newspapers, showed that 34 out of 50 newspapers across the country were opposed to foreign investment.  Only 16 newspapers with a circulation share of 23.7 per cent favored the proposal. In India while there is wide readership of daily newspapers in Indian languages, the English press is taken more seriously by the government.

Immediate effects:  And from a marketing point of view, the English press reaches the most lucrative segment of society - the 400 million plus -strong middle class.  Foreign players were seen as a threat to market share.  One of the few local media houses in favour of foreign investment has been the India Today Group.

General Regulation of Foreign Investment in India  Foreign investment in India is governed primarily by:  the Industrial Policy of the Indian government, as formulated by the Secretariat of Industrial Assistance (SIA);  press notes issued by the Ministry of Commerce and Industry;  the Foreign Exchange Management Act of 1999; and regulations and notifications issued by the Reserve Bank of India (RBI) and the  Securities and Exchange Board of India (SEBI).

General Regulation of Foreign Investment in India  RBI administers exchange controls;  the Foreign Investment Promotion Board (FIPB), which reviews all foreign investment proposals that require prior governmental authorization; and  SEBI regulates India’s capital markets.

General Regulation of Foreign Investment in India  Foreign investment in sectors that do not qualify for the automatic route, including media sectors such as print media and broadcasting, must be approved in advance by FIPB.  FIPB uses the following criteria, among others, when evaluating proposals :  the amount of the investment;  the effects of the investment on employment;  the availability of new technology;  the level of exports proposed to be generated as a result; and  other benefits to India resulting from the investment.

General Regulation of Foreign Investment in India  Other avenues for foreign investment in India beyond FDI include registration as a foreign institutional investor (FII) or foreign venture capital investor (FVCI). Each of these alternatives offers benefits tailored to the needs of particular investors. In addition, foreign investment is also possible through the purchase of American Depository Receipts and Global Depository Receipts.

General Regulation of Foreign Investment in India  FIIs include asset management companies, pension funds, mutual funds, investment trusts as nominee companies, incorporated/institutional portfolio managers, university funds, endowment foundations, charitable trusts and charitable societies.  FIIs can buy and sell securities on Indian stock exchanges and can invest in unlisted securities where the price has been approved by RBI. So long as an FII buys and sells securities on a recognized stock exchange, permission from RBI is not required. Additionally, FIIs can invest in exchange traded derivative contracts.

 In June 2005, the Indian government introduced a number of reforms designed to liberalize the regime for foreign investment in print media. While the cap on total foreign investment in news and current affairs publications was left at 26%, the government permitted FIIs and others to invest in print media, thereby broadening investment beyond simply FDI, and the syndication limit for foreign content was increased to 20%.  The government also allowed publication of facsimile editions of foreign newspapers and journals in India, although such publications remain barred from access to Indian content or advertisements. Additionally, facsimile editions of foreign publications must be approved in advance by the Ministry of Information and Broadcasting.

17.Broadcasting a.FM Radio FDI +FII investment up to 20% FIPB Subject to Guidelines notified by Ministry of Information & Broadcasting. b.Cable network49% (FDI+FII)FIPB Subject to Cable Television Network Rules (1994) Notified by Ministry of Information & Broadcasting. c.Direct-To-Home 49% (FDI+FII). Within this limit, FDI componentnot to exceed 20% FIPB Subject to guidelines issued by Ministry of Information & Broadcasting. d. Setting up hardware facilities such as up-linking, HUB, etc 49% (FDI+FII)FIPB Subject to Up-linking Policy notified by Ministry of Information & Broadcasting. e. Up-linking a News & Current Affairs TV Channel 26% FDI+FIIFIPB Subject to guidelines issued by Ministry of Information & Broadcasting. f. Up-linking a Non- news & Current Affairs TV Channel 100%FIPB Subject to guidelines issued by Ministry of Information & Broadcasting Print Media a. Publishing of newspaper and periodicals dealing with news and current affairs* 26%FIPB Subject to Guidelines notified by Ministry of Information & Broadcasting. b. Publishing of scientific magazines/ specialty journals/ periodicals 100%FIPB Subject to guidelines issued by Ministry of Information & Broadcasting.