Impact of FDI in digital news category

FDI in digital news category - The four liner press release lacks clarity and left digital news companies in confusion.

There has been no clarity from the Central Government on the recently announced Foreign Direct Investment (FDI) limit of 26 percent for the digital news category; this is expected to create a negative impact in the category.

The cap for uploading and streaming of news and current affairs through digital media was set at 26 percent, the same implies for print from a long time. The move came as a surprise for many, as there had been no cap on FDI in the digital news space i.e 100% FDI was allowed through the automatic route.

It will be interesting to see the impact it would make on digital news media space. But most importantly, this move will hamper the progress of upcoming or already existing and emerging media startups. The government missed out many other points in the announcement. It had a mere four-five liner press releases, leaving the digital media sector baffled. If a digital media business is looking for funding or investment, the entire process has to be approved by the government. Not even $1 investment can come to digital news media business without the permission of the government.

Did digital media businesses strongly welcome this development? This is the big question. As of our knowledge and research over the last few days, it is a big ‘NO.’ With the announcement, is the government in plans to clip the wings of digital news in India? Is the government trying to gain control over these digital outlets? But, the government observes the announcement to be positive. So, is the government trying to address a very specific niche issue by the existing print media publications?

Naturally, the move, however, has been welcomed by few big traditional media houses, most of them have cited that it would strengthen publishers across the country to produce credible and original content.

However, this will negatively impact existing digital platforms. News Websites, news apps, and news aggregators are the ones to face the heat.

News aggregators such as Dailyhunt, Inshorts have raised large FDI’s in the recent past. Do they have to buy back equity to align with the new FDI capping? Apps such as NewsDog and UC News are primarily China-based, what will happen to them? Facebook, Twitter, and YouTube too publish a lot of news/current affairs content. Do they have to stay away from publishing news? These are a few questions that have been unanswered. Television media is allowed up to 49%, but the same television media publishes news in digital format too, what may happen in their case? And there are many unanswered questions here.

Remember, the traditional print media houses are almost losing their game on digital media with the rise in hyper local news startups such as way2news and aggregators like dailyhunt, inshorts providing quality content. Could this be yet another reason for imposing the cap to restrict their progress? If these big print media houses have welcomed the move, it is so accurate to understand that these digital news media houses are set for a downfall and big print media houses are up for a feast.

As internet penetration is in full swing, especially hyperlocal regional content has great potential to draw larger investments, such a cap is surely going to create a breakdown. It should be noted that these digital media businesses largely rely on funding. Their primary motto is to build the platform and later, monetizing it. If such a cap is imposed on them, very few could survive the move and this limits innovation in taking the content to the interiors of this country.

Incase if the government is concerned about the foreign influence through digital media, the government should have called in for consultations for the same with various stakeholders prior to the announcement or making such a big decision. As of now, to be transparent, this will be a big favor to the traditional print and large TV media organizations. They will be the ones to benefit and no longer will have strong competitors. Sooner, they can take control of the digital news media space too in their style.

With the government being silent on many of the aspects, businesses cannot proceed further unless full details are released. One of the main fallouts of this policy could be in terms of its impact on the news aggregators. If they are also covered in the detailed guidelines, it will be interesting to see how this could impact some players in the digital media space and also the venture investors that invested in these players.

For the time being, all we are left with is for a full report with detailed guidelines. This could possibly instill confidence in digital news media startups.

By VV Raju, Founder, Way2News