| Rupert Murdoch: his control over Star TV and the material it broadcasts has caused a stir in India |
In the high-profile world of satellite broadcast television, foreign ownership and control are usually contentious issues. In India, earlier this year, foreign satellite news broadcasters were given three months to meet a new rule that caps foreign equity investment at 26% for TV news channels that broadcast to the country from home turf.
Media Content and Communication Services (MCCS), an affiliate of Star TV, the pan-Asian satellite TV company controlled by Rupert Murdoch, applied for a licence to send content to Star TV’s news channel. Foreign-owned news channels such as Star News and CNBC began beaming news to Indian viewers almost five years before the new rules came into force.
MCCS’s application came up for close scrutiny by the government after reports appeared in the local press alleging that it was a shell company controlled by Star. Those reports pointed out that MCCS is a content company that will sell its material solely to Star News and that the company’s capital is just Rs100,000 (less than $2,000). Star says it plans to raise this to Rs40 million. Most of Star’s Indian partners in the joint venture have business interests linked to it, they alleged. Star owns 26% of MCCS and its partners are a former movie actor, a newspaper editor and television anchor, an advertising executive, an investment banker and a lawyer.
In full-page advertisements put out in Indian newspapers on July 21, Star hotly disputed the charges that MCCS was foreign-owned. Star alleges that powerful local rivals, threatened by its success, are behind the vilification; it points to the latest figures that rank its Hindi news channel second in market share. The information and broadcasting ministry has asked for details on the owners and business plans of MCCS and other related Star companies, and allowed a limited extension of the deadline for Star News.
The controversy has already forced a change in MCCS’s ownership. Prominent industrialist Kumarmangalam Birla, who had initially agreed to be a partner in MCCS, backed out and his stake was picked up by Suhel Seth, one of the other Indian partners. This makes Seth, an advertising executive, the biggest shareholder in MCCS with a 30% stake and reduces Star to the second-biggest owner.
Clearly powerful Indian media bosses, some of whom lobbied for years against allowing foreign investment into the print media, will gain if MCCS is denied the licence to broadcast through Star TV. In television, Zee TV, a former Star partner in India, lost market share after they parted company.
No bar to domination The government is clearly to blame for the mess. The satellite television industry in India has grown rapidly to serve about 40 million Indian homes over the past decade unfettered by regulation, and foreign companies such as Sony and Star already dominate it. Media analysts point out that the current regulations focus solely on putting limits on foreign investment; they do little to prevent domination by any one media group, Indian or foreign.
Countries such as the US or UK have rules that limit ownership of national viewers in television or restrict cross-ownership between print, television and radio.
Laws that limit foreign direct investment in India are largely ineffectual because “they focus on who owns how much equity in a company and not on who controls the company,” says Siddharth Shah, a corporate lawyer.
“Control can be exercised indirectly through subsidiaries, or by a minority investor who has veto power,” he adds. Where the law is ambiguous, it is open to manipulation, says TV Raghunath, vice-president of investment bank Kotak Bank.
Despite a 49% cap on foreign ownership in telecoms in India, most of the foreign partners in telecoms joint ventures indirectly own and control up to 74%.
In what is known as “pyramiding” investment, the foreign company directly owns 49% in the joint venture, but also 49% in a holding company that owns the other 51% in the venture. Under companies legislation a company is “Indian” if 51% of its equity is owned by Indians. The government, therefore, did not object and effectively killed its own law.
Later, when insurance joint ventures were being set up, it did not allow indirect foreign ownership to exceed the mandated 26%. Even then several foreign investors invested in group companies of their Indian partners – this is in line with the law but could be construed as indirect ownership. As one pragmatic banker puts it: “Telecoms and insurance companies need large amounts of capital, and the government will eventually have to ease those limits as it did for private banks early this year.”
Soft-drinks company Coca-Cola is trying its best to wriggle out of a promise to dilute its holding in its Indian subsidiary, a condition it agreed to meet at the time of its entry into the country. After arguing against a local listing, the company agreed to privately offer part of its equity to its local bottlers and employees.
Now it has proposed to the government that it will issue non-voting shares to them. Critics point out that if Coca-Cola is allowed to bend investment rules in such a way, it might as well be allowed to set up a wholly owned subsidiary. But then that could put lawyers and politicians out of business.
