A channel at a dead end

Published : Sep 26, 2003 00:00 IST

The revision of the norms for foreign news channels uplinking from India may put effective checks on Star News, which flouted the earlier regulations.

AFTER months of dithering, the Union government issued a notification on August 28 introducing revised norms for foreign news channels uplinking from India. The government's action has been widely interpreted as an effort to mend a faulty piece of legislation, which enabled the Rupert Murdoch-owned Star News to violate, in letter and spirit, regulations aimed at limiting the extent of foreign ownership in news channels uplinking from India. Although the revised regulations appear to suggest the end of the road for Star News, there is speculation that the seasoned media baron may yet have a trick or two up his sleeve.

Star News initiated a complex restructuring exercise to overcome the limits on the extent of foreign ownership of news channels uplinking from India, which were first announced in March. It sold its stake to what was widely believed to be dummy investors, in order to comply with the letter of the law. In particular, the agreements limited the role of the Indian entities in terms of both financial and editorial control. In effect, the foreign owners of Star News were firmly in control of the channel.

The government soon came under pressure from various media groups, which organised themselves under the banner of the newly formed Indian Media Group (IMG), to bring Star to book. The revised norms are clearly the government's response to that pressure. Crucially, the revised norms stipulate that a single Indian entity must control companies that apply for an uplinking licence, although foreign partners could hold up to 26 per cent stake in the Indian company.

The regulations announced in March merely stipulated that foreign owners of news channels could hold not more than 26 per cent of the equity in companies with uplinking licences. Star News therefore restructured itself by offloading 76 per cent of the foreign entity stake in its uplinking arm, Media Content and Communication Services (MCCS), to several Indian entities (Frontline, August 15, 2003). The move sparked off allegations that Star had merely entered into alliances of convenience with its Indian partners, while ensuring that it retained financial and editorial control over MCCS. The criticism centred on the allegation that Star had managed to keep to the right side of the flawed regulation, while violating its spirit.

Forced into a corner by criticism from all sides, and under pressure from Indian media companies, the government set up a Group of Ministers (GoM) to examine the issue. The GoM, comprising the Minister of State for Information and Broadcasting Ravi Shankar Prasad, Finance Minister Jaswant Singh and Law Minister Arun Jaitley, has now ruled that the uplinking norms for foreign news channels be brought on a par with the norms governing the extent of foreign ownership in the newspaper industry. While the 26 per cent cap on foreign entities' holdings in new channels remains, the new prescription stipulates that controlling interest in uplinking companies must rest with a single resident Indian entity. The crucial element of the revised guidelines is that it stipulates that the controlling Indian entity must hold at least 51 per cent stake in the company.

Several safeguards in the revised regulations strengthen this stipulation. The holdings of banks and financial institutions will not be considered as a part of the Indian controlling entity's stake in the venture. Moreover, the terms "Indian company", "family" and "relatives' are tightly defined, ensuring that the shares are not dispersed. This is clearly aimed to prevent control from slipping out of Indian hands.

The new norms also plug the loopholes in the regulations governing foreign direct investment (FDI) in news channels uplinking from India, by stipulating that editorial control vests in Indian hands. They stipulate that the entity applying for the uplinking licence must make all key appointments of executive and editorial personnel without reference to a foreign company. This is strengthened by the additional stipulation that three-fourths of the directors on the board and "key" executives, editorial staff and the chief executive officer (CEO) of the uplinking company must be resident Indians. The regulations also demand that foreign holdings cannot be altered without the approval of the Union Ministry for Information and Broadcasting.

At the height of the controversy, there were allegations that the agreement between MCCS and the Indian entities prevented the latter from making such appointments without consulting the foreign owner of Star News. The revised norms also prescribe that the Indian owners would enjoy independence from the foreign partner and have "complete operational control" over the entity uplinking from India. The norms also prescribe that the Indian entity has "adequate" financial strength to run its operations. However, Minister Ravi Shankar Prasad, while making the announcement to the media on August 22, did not specify how "adequate" is defined according to the new norms. He claimed that the revised norms for uplinking channels were so stringent that they offered Indian owners of Indian news channels a level of protection that was even greater than that enjoyed by Indian newspaper owners. Star News has been given one month to comply with the new norms.

SO, is this the end of the road for Star News? Although the government has revised the norms for uplinking, a comprehensive Indian media policy remains elusive. It appears that the government has chosen ad hocism as a means of getting out of a tight situation. In particular, the failure to evolve a policy which takes into account cross holdings in the media appears glaring.

At the height of the Star News controversy, when Star sold part of its stake to Vir Sanghvi, executive editor of The Hindustan Times, there was speculation about whether there was quid pro quo between the two parties.

On September 1, Sobhana Bhartiya, executive chairman of The Hindustan Times, announced that Henderson Global Investment had gathered a 20 per cent stake in HT Media, a subsidiary floated to take care of The Hindustan Times' operations in Mumbai. Asked by the media whether HT was in the process of forming an alliance with the Star Group, Sobhana Bhartiya merely said that "no conclusions have been reached". She also refused to clarify whether the foreign investment, the first instance of FDI in the print media in the news and current affairs segment, was to fund HT's operations in Mumbai or all over India. Sobhana Bhartiya declined to comment when asked whether The Hindustan Times group was planning to pick up stakes in the Star News channel. Incidentally, Henderson is an Australian private equity fund, which manages funds of about $150 billion in assets. It is the subsidiary of AMP, an international financial services group.

Faced with the revised norms, most companies will have no option but to quit. But there is speculation that Star has other options. It would appear that the absence of cross-holding norms in the media business provides the Star group with a lifeline to remain in business. By entering into an alliance with a company such as The Hindustan Times, it would be able not only to keep its news channel alive, but to make a foray into the print media segment. For The Hindustan Times, which is engaged in a bitter battle with The Times of India in the Delhi newspaper market, an alliance with Star will provide it with the financial wherewithal to attack The Times of India. While Star would hand over its controlling stake in the news channel to The Hindustan Times, the newspaper will be provided the financial muscle to enter into the Mumbai market where The Times remains virtually unchallenged.

Meanwhile, representatives of IMG demanded a level playing field with foreign broadcasters operating from India in terms of a uniform tax policy. In separate meetings with Deputy Prime Minister L.K. Advani and Ravi Shankar Prasad on September 1, they pointed out that while Indian companies paid 33 per cent of their revenues as tax foreign companies paid only 7 per cent and repatriated the rest overseas.

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