FDI AND OTT CONUNDRUM

 ARE OTT PLATFORMS COVERED UNDERECOMMERCE SECTORS?

Over The Top (OTT) platforms are are services which render internet based services
through telecom and internet service providers(s) networks. A few prominent examples
are Netflix, Spotify, Pandora, Tinder, Amazon, and Flipkart. Under the Consolidated
FDI Policy, 2017 (“FDI Policy”), E-commerce is defined as:

“E-commerce means buying and selling of goods and services including digital
products over digital & electronic network.”

It is evident that OTT services fall under the definition of the E-commerce sector as
defined hereinabove, as OTT services sell their goods and services on a digital and
electronic network, i.e., the TSP and ISP networks. OTT Content Services are in the
business of providing audio and video content to consumers through internet-based
broadcasts. Typically speaking, these Platforms do not produce the content they
broadcast. Entities such as Gamma Gaana Limited, Saavn LLC, Netflix, etc., enter into
a license agreement with owners of content, thereby procuring a license to, inter-alia,
stream, sell and communicate to the public through paid subscription (free services
excluded), the licensed contents, Accordingly, after a license is procured, the Platform
performs the following:

1. Catalogues and hosts the licensed content on the Platform;

2. Sells the catalogue as part of a subscription under set terms.

This amounts to hosting an inventory on the Platform which is further offered to the
consumer under certain terms and conditions of use, thereby effecting a sale.

The nature of OTT services is such that they offer digital products which may or may
not convert into tangible form. For instance, the purchase of an Apple Music
subscription which allows one to stream music, will not translate into tangible form.
The FDI Policy now expressly declares digital products as a specie of goods and
services covered under the definition of E-commerce:

“…. buying and selling of goods and services including digital products…”

OTT AND ECOMMERCE CONUNDRUM: SOLUTION

 Content consumption and buying products online does not make it it to be fair
comparison between OTT and ecommerce platforms.

 There is no fixed delivery period when it comes to OTT, additionally OTT

platforms cannot swiftly change their inventory model to marketplace like Amazon,
FlipKart.

 OTT platforms don’t facilitate replacing of physical digital goods as there is no

option for permanent downloading of digital goods.

 Technically, the term "inventory" does not seem appropriate in relation to

e-commerce platform offering services, whether on their own or as a marketplace.
Keeping wording aside, in any event, it is very clear that for OTT subscription
services, 100 per cent FDI is permitted. They are not marketplaces; hence, the
question of restrictions that apply to marketplaces does not arise. In short, they
can distribute original content without any restriction.

 A solution to the ‘OTT Content Platforms – FDI’ conundrum could be that the
Platform be hosted and the respective services be provided by an entity situated
and incorporated outside of India and an Indian entity be incorporated to merely
provide deal making, liaison, payment and related activities. A similar trend
appears to be emerging with the existing foreign players in the Indian market.
The objectives of the Indian entity Saavn Media Private Ltd do not purport it to
be a marketplace or any other type of online platform.

 Department of Industrial Policy and Promotion (DIPP) should seek to define

‘digital products’ and clarify whether digital files containing audio and video
would fall under such definition that would bring about some clarity to investors.
 In the case of e-commerce, the government has often been guided by the Indian
traders’ lobby protesting the deep discounts offered by the foreign-owned online
firms. If a similar stance is taken for the digital content streamed by OTTs, it will
be a retrograde step.

 OTT services can be defined as communications and content delivery services

and applications that end users access using their own internet connections.

 OTTs are distinct from network providers like TSPs and ISPs, though some of the
services by OTTs such as VoIP, video calls, text messaging, etc may overlap with
TSPs.

 A video streaming service like Netflix which charges money for access
technically falls within this definition since it is “selling” a “digital product” to
the viewer, ie, the shows/movies you can watch after paying your subscription.

 A thorough reading of the draft policy demonstrates that Govt. officials have
used e-commerce, electronic communications and digital economy in the same
breathe, all across the document. However, Information and Broadcasting
Ministry, the Ministry of Electronics and Information Technology, and the
Telecom Regulatory Authority of India are still not clear about the difference
between ecommerce and a digital company like Netflix and Amazon Prime.

 Digital content in the form of TV shows, films and documentaries can be

classified as the inventory of these OTTs and we have been informed that these
businesses often own what they stream,

 The suggested implementation of “same service, same rules” with regard to

ecommerce and OTT platforms approach is highly regressive. It is best to steer
clear of this approach.

 OTTs are distinct from network providers like TSPs and ISPs, though some
of the services by OTTs such as VoIP, video calls, text messaging, etc may
overlap with TSPs.
  Any OTT platform/application cannot be offered to consumers without
access to physical infrastructures that TSPs and ISPs deploy

 The following services by the OTT providers may be regarded as the same or
similar to services provided by TSPs –

1. Personal Messaging – Messages among individuals

2. Messages from Businesses – Messages from businesses to Individuals

3. Video and voice calling

 OTT players have developed apps with various features, and they use the existing
infrastructure of traditional TSPs, they don’t have their own extensive
infrastructure to reach to their customers.