Tuesday, 17 November 2015

Broadcasting and Film Production - Review of FDI Policy

In an attempt to further promote ease of doing business and increase investment India, the Government of India has issued a draft press note for liberalising the Foreign Direct Investment (FDI) policy in 15 major sectors of the economy, including the media and entertainment sector (more specifically the broadcasting sector). Changes to be introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment.
We set out below a summary of proposed changes, including the potential benefits to the broadcasting and film production segment.

1. 100% foreign ownership in broadcast carriage

The Government has finally accepted the recommendation of TRAI and has increased the FDI limit from 74% to 100% in the broadcasting carriage sector. The broadcasting carriage sector includes the following:

· Setting up of up-linking HUBs and teleports;
· Direct to Home (‘DTH’);
· Cable networks – both multi system operators and local cable operators;
· Mobile TV;
· Head end in the Sky Broadcasting service

FDI up to 49% will continue to be under automatic route and beyond 49% will require a prior Government approval. This will bring the FDI policy in broadcasting carriage services on par with telecom services. Further, this change will provide impetus to digitization by the multi system operators since the process is capital intensive. It will also contribute to overall productivity and aid the cause of competition as domestic players will replicate and adopt the best practices institutionalized by such foreign investors. Further, the enhancement of FDI limit to 100% i.e. complete ownership, may also attract investors who wish to bring in state-of-the-art proprietary technology in broadcasting carriage. The cross holding restriction of a ‘broadcasters’ holding in a DTH distributor continues to remain at 20%; the rationale for continuation of such a limit could be reconsidered in light of the overall increase in the FDI limits.

2. Simplified processes and enhanced foreign ownership in content services

In respect of broadcasting content services, FDI has been increased from 26% to 49% with a prior Government approval in Terrestrial Broadcasting FM Radio and Uplinking of news & current affairs TV channels. With respect to the increase in the Terrestrial Broadcasting FM Radio services, such increase will provide the boost for building up of infrastructure required for providing the varied nature of services such as carriage of information pertaining to sporting events, live commentaries of sporting events of a local nature, traffic and weather etc permitted under Phase III of expansion of FM Radio. The increase in the FDI limit for Uplinking of news and current affairs TV channels will provide the channels the necessary resources for upgrading the news collection infrastructure and quality of content and presentation.

100% FDI in uplinking of non-news & current affairs TV channels and downlinking of TV channels has been brought under automatic route.

3. LLP - now an ideal vehicle for film production - easy to set - easy to maintain - easy to close

100% FDI in Limited Liability Partnerships (‘LLP’) under the automatic route has been permitted where the LLP will be operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions. Additionally, LLP’s having foreign investment are now permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under automatic route and there are no FDI- linked performance conditions. This change will provide a boost to the foreign film production houses which can use a LLP for investing in Indian films, which will provide the foreign film production houses and film investors an easier access to participate in film production and financing. The LLP structure can however still not be used for other sectors of the broadcasting industry which are license driven such as uplinking / downlinking, radio broadcasting, DTH etc since the licensing regime only recognizes a corporate entity. These amendments will further ease, rationalise and simplify the process of foreign investments in the country, thereby encouraging minimum government and maximum governance

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