New FDI rules prompt Yahoo News to exit India

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New FDI rules prompt Yahoo News to exit India

Yahoo brought down the shutters on its news websites on 26 August as a result of recently updated foreign direct investment rules that limit foreign ownership of digital media.

“The decision did not come lightly” for Yahoo, which has been in India for the past 20 years. The company has shut Yahoo News, Yahoo Cricket, Finance, Entertainment and Makers India websites in the country. However, Yahoo Mail and Search will continue to function as normal.

Stating concerns over national security and fear of cyberattacks, spying and fake news, the government introduced a 26% FDI cap on companies engaged in uploading and streaming news and current affairs on digital platforms. Any fresh foreign investment requires government approval.

Existing companies had until 15 October 2021 to dilute foreign shareholding to 26% as per a clarification issued in October 2020.

Forced to play by the new rules, foreign-owned digital media in India are assessing their options, which include looking for local joint venture partners or entering into brand licensing arrangements. For many there are no options but to reboot the current shareholding structure, or exit the Indian market.

HuffPost India was the first casualty, but certainly not the last and the impact on news aggregators does not stop there.

“DailyHunt, for instance, restructured its operations by carving out the news aggregation service to comply with the foreign investment rules,” says Sridhar Gorthi, the Mumbai-based founding partner at Trilegal.

“Yahoo may not have been able to consider such an option, since Yahoo India was a subsidiary of the US entity,” he says.

Kanika Chaudhary Nayar, the New Delhi-based senior partner at L&L Partners, says the foreign direct investment policy for digital media “may not apply to tech companies like Facebook and Google, which are not exclusively news aggregators, but social media platforms that have operations in news aggregation”.

Until September 2019, the government did not regulate digital media. This gave rise to a plethora of digital news sites – HuffPost, Quartz, Vice, Newslaundry, Scroll.in, and The Ken – in addition to news aggregators such as Inshorts and DailyHunt, and China-based aggregators UC News and NewsDog.

Nayar says the government will need to provide a more “clear-cut definition” of which entities qualify as news aggregators, and whether those with multi-vertical platforms, such as Google and Facebook, fall into that category. Should they do so, they will then have to discontinue aggregation of Indian news, or alternatively set up a news agency in India that licenses its content to Google and Facebook’s foreign subsidiaries, which would then upload the content on their respective websites, she says.

However, aggregators such as Google News are unlikely to be impacted as aggregation is carried out by a US entity. There are mixed views on what the real purpose is behind restricting foreign investment in digital media, given the nature of the beast.

The manner in which news is distributed and consumed on the internet and the overall impact of restricting foreign investment “might be limited,” says Gorthi.

The Briefing is prepared by Freny Patel