The growth of the M&E industry in India:

The Media & Entertainment (M&E) industry in India has experienced robust growth over the last few years and as per the FICCI-KPMG report1 on the Indian Media & Entertainment Industry, this industry is expected to grow further at a compounded annual growth rate of 15 % per annum over the next five years, to reach INR 1.4 trillion in 20162.

By opening up and relaxing the entry barriers for foreign investments in certain key areas of this industry, including the recent relaxation norms for the broadcasting sector (DTH, cable networks etc.), the Government of India has provided the sector much needed impetus for growth. Several segments of the industry (such as broadcasting, films, sports and gaming) have especially undergone unprecedented advancements on multiple dimensions. The use of the latest technology in all phases of production, digitization and globalization of content, the availability of multiple revenue streams, financial transparency and corporatization have contributed towards the paradigm shift that the M&E industry in India has witnessed over the last decade or so.

Globally, the potential of this industry in India has been recognised and has attracted foreign players who are keen to tap this industry. This is evident from the fact that in spite of the economic slowdown, the Foreign Direct Investment (FDI) received in this industry in the year 2011 was approx. INR 32.64 billion, which is 72% more than the FDI received in 2010-113. Some of the noteworthy transactions during 2011 included Walt Disney Company's acquisition of an additional 41% stake at a value estimated to be over USD 300 million in UTV Software (which took its shareholding in UTV to approximately 90%), Providence Equity Partners' private equity investment in UFO Moviez India ($58 million), and HSBC's private equity investment in Avitel Post Studioz ($60 million).

Changing trends in the industry

Growing need for documentation & awareness of Intellectual Property

Traditionally, the Indian film industry has been relationship based. The arrangements / agreements were either oral or scantily documented. This, however, meant the absence of a proper chain of title documentation leading to uncertainty in the flow of rights. In the past few years, the Indian film industry has woken up to the need of written contracts and protection of intellectual property rights ("IPR"). Banks, Indian corporations and foreign investors insisted on written contracts with producers and required them to have water tight contracts with the cast and the crew including appropriate chain of title documentation. With the increase in commercialization opportunities, even the talent that hesitated to sign a one-page contract until early 2000 has started presenting detailed written contracts to preserve their commercialization rights.

Losing inhibitions to approach the court to protect IPR and contractual rights

The M&E industry never gave much importance to the protection of IPR or contractual rights in general. The disputes were also usually resolved without going to arbitration or litigation. Moreover, the lack of documenting arrangements meant less opportunities of initiating legal proceedings. The scenario, however, has changed drastically over the past few years. Recent trends also reveal that the rights holders have become extremely proactive in taking disputes to courts for a multitude of reasons including infringement of intellectual property rights, breach of contract e.g. non-payment and non-fulfillment of commitments by talents and the like. The courts in India have also been supportive of the need to safeguard intellectual property rights, which has given further impetus to the faith of the right holders in the fair justice system of the country.

New monetization streams owing to technology & advent of New Media

The M & E industry has also expanded dynamically as it is not confined its contours to the traditional sectors of radio, print, films and television. The past decade saw the market players experimenting with the new technologies (such as internet 3G, 4G, etc.) for providing a better and innovative source of entertainment and in turn increasing the monetization streams. This led to the development of new segments of the industry such as gaming, animation and VFX, social networking and the like.

Role of the industry associations in standardizing the industry norms

The last few years have not only witnessed a flurry of changes in the legal and regulatory framework governing the M&E industry but has also seen an upsurge in proactive efforts being made by the industry bodies representing the stakeholders fervently taking up issues with the government on contentious matters affecting the industry. Industry bodies like the Federation of Indian Chambers of Commerce and Industry (FICCI), Associated Chambers of Commerce and Industry of India (ASSOCHAM), Association of Motion Pictures and TV Programme Producers (AMPTPP), Indian Motion Pictures' Producers Association (IMPPA), Film Writer's Association and the like have played a pivotal role in standardizing the practices of the industry. These industry bodies not only work towards the protection of IPRs, but also act as bodies of self-regulation, which have set out the norms followed by the industry players in general.

Major players in India

  • Leading production houses: Yash Raj Films, Viacom18, UTV Motion Pictures, Dharma Productions, Reliance Entertainment
  • Leading television channels houses: Viacom18, Star TV, Sony, Reliance Broadcasting, Bennett Coleman & Co. Ltd., Sahara

Important laws affecting the industry

The Copyright Act, 1957

  • Recognizes the copyright in relation to original literary, dramatic, musical and artistic work for a specified duration; and cinematograph films and sound recording
  • Provides exceptions to protection such as 'fair use' and 'compulsory license'
  • Provides protection from unauthorized copying / use of copyrighted works and for remedies in case of infringement of copyright

The Trade Marks Act, 1999

  • Provides protection to names, titles, word, letter, graphic artwork, shape of products, words and combination of colors
  • Provides for remedies in case of infringement of trade mark

Cable Television Network (Regulation) Act, 1994

  • Regulates functioning of cable operators by requiring mandatory registration subject to fulfillment of certain conditions
  • Program and Advertising Code under the Cable Television Network Rules, 1994 regulates content of any program or advertisement transmitted through cable television
  • Violation of the Code may lead to penalties

Policy Guidelines for Uplinking of Television Channels from India

  • Regulates the business of uplinking of television channels from India by requiring the applicant to avail an uplinking license
  • Prescribes minimum requirements for availing the license
  • Violation of the Guidelines may lead to penalties including revocation of the license

Policy Guidelines for Downlinking of Television Channels from India

  • Regulates the business of downlinking of television channels from India by requiring the applicant to avail a downlinking license
  • Prescribes minimum requirements for availing the license
  • Violation of the Guidelines may lead to penalties including revocation of the license

Direct-To-Home Guidelines

  • Provide for eligibility criteria, requirements and procedure for obtaining the license to set up and operate DTH services in India
  • Violation of the Guidelines may lead to penalties including revocation of the license and penalties

Telecommunications (Broadcasting and Cable Services) Interconnection Regulations

  • These Regulations fix tariff for television channels, regulate carriage fees, lay framework for arrangements between broadcasters and cable network providers/DTH service providers etc. and regulates revenue sharing arrangement between them
  • 2012 Regulations will apply to digital addressable Cable TV systems once digitization is implemented, whereas 2004 Regulations apply to analogue Cable TV systems.

Co- production treaties

  • Co- production treaties between India and other countries to give incentive to co-production and collaboration between Indian and foreign film makers
  • These treaties permit the use of other countries for optimum use of locations, studies, equipment etc., exemption from import duty and taxes in certain cases, easier entry for foreign artists and crew etc.
  • India has entered into co-production treaties with Italy, UK, Northern Ireland, Federal Republic of Germany, Brazil, France, New Zealand and Poland

Regulatory agencies overseeing the industry:

Ministry of Information and Broadcasting

  • It is a nodal agency responsible for formulation and implementation of polices, framework, laws and regulations concerning broadcasting, information, films and press industry in India
  • Some of the functions are – development of broadcasting and television, development and promotion of the film industry, sanctioning of film for public exhibition and administration of the Cinematograph Act, 1952

Telecom Regulatory Authority of India (TRAI)

  • Regulates, among other things, tariffs payable by subscribers of television channels and service providers in broadcasting sector
  • Functions are diverse - recommendatory (in respect of licensing), mandatory (fixation of tariffs) and judicial (disputes arising under Regulations between parties or against TRAI, heard by the Telecom Disputes Settlement and Appellate Tribunal)

Central Board of Film Certification (CBFC or Censor Board)

  • Examines films (Indian and foreign) to determine whether a film is fit for public display. If found fit, then a certificate of exhibition is provided
  • A certificate of exhibition is coupled with a rating described in the Cinematograph Act, 1952 (U, UA, A and S) which restricts the scope of its exhibition
  • All films, film songs, film promos, film trailers, music videos, music albums and their promos, whether produced in India or abroad, need to be certified by the CBFC as suitable for unrestricted public exhibition in India prior to its telecast on television

Tax laws affecting the industry:

Income Tax Act, 1961

  • Applicable to income arising in connection with license, transfer or assignment of IPR and satellite rights
  • Applicable to both Indian and foreign artists and film production companies as per facts and circumstances

Sales Tax / Value Added Tax

  • Copyright is an intangible good, and therefore transactions involving transfer of copyright may fall within the purview of Sales Tax / Value Added Tax
  • Transfer of the right to use a good is considered a 'sale', and therefore transfer of the right to use a copyright may result in Sales Tax Liability.
  • Sale of rights in music, films and videos are liable to VAT

Service Tax (Under Finance Act, 1994 as modified by Finance Act, 2012)

  • Under the current scheme of service tax, all services are taxable unless exempt (negative list)
  • Several services which are provided by the media industry are liable to service tax - for example, services provided by actors and technicians, even the licensing of the IPR may give rise to service tax
  • Some exceptions are a performance of an artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador; and temporary transfer or permitting the use or enjoyment of a copyright covered under clauses (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical, artistic works or cinematograph film

Entertainment Tax

  • Entertainment tax is tax on 'entertainment'. 'Entertainment' means any exhibition, performance, amusement, game, sport or race, (including horse race) and cinematographic exhibitions (as defined under relevant State Legislation)
  • Exhibition of Cinematographic film falls under the purview of entertainment tax. It is usually reflected in the ticket prices
  • Cable operators are also liable to pay entertainment tax

Nishith Desai Associates 2013. All rights reserved.