In today’s fast paced lifestyle, it is difficult to catch shows at their scheduled timings on cable television. But over the top video (OTT) platforms have drastically changed the way we consume content. An OTT platform essentially provides direct media streaming services over the internet, skirting traditional cable providers. All you need is a stable internet connection and an electronic device – both easily accessible today.
The COVID-19 pandemic has only accelerated the rate at which OTT platforms have been progressing. OTT platforms are giving a tough competition to other mediums of entertainment like, traditional television and the cinemas. With the increase in internet accessibility, cricket-frenzied masses can now catch their heroes batting a six, on their mobile phones via OTT platforms. What’s interesting is that users from all age groups are now “binging shows” on streaming platforms, and that too in various local languages. This article analyses the regulatory regime that applies to OTT platforms in India and its impact for investors in the sector.
The 1st OTT platform in India was started by Reliance Entertainment in 2008. Since then it has rapidly gained traction, especially in the recent months due to the pandemic. There are various favorites such as Disney+ Hotstar, Amazon Prime Video and Netflix; along with a plethora of regional players like SonyLIV, Voot, Zee5, Eros Now, ALTBalaji etc. As per the Report released by RBSA Advisors titled ‘OTT – A Paradigm Shift in Media & Entertainment’ (July 2021), Netflix and Amazon Prime Video alone owned an astounding cumulative 40% of the OTT market share as of 2020. The size of OTT market in FY 2020 was in the range of US$ 1.7 billion (video and audio). This Report estimates that the market in India is expected to grow at a CAGR of 28.6% over the next 4 years and could even grow to become a US$ 15 billion industry over the next 9 to 10 years.
This projected growth can be attributed to the various advantages of OTT platforms: availability of diverse and regional content, ease of viewing from any location or device, no frustrating advertisement breaks at cliff hangers, instant playbacks, various subscription models etc. But on the other hand, there are disadvantages as well, such as: high internet and subscription charges, requirement of stable high-speed internet, lack of censorship, addictiveness among users etc. Additionally, OTT platforms also lack regulation of content which has led to its own myriad of drawbacks, as discussed below.
Unlike other media providers like television or print, OTT platforms are relatively new. Therefore, there has been slow development of the rules governing this space. The lack of clear guidelines forced the platforms to resort to self-regulation. The Internet and Mobile Association of India (IAMAI), the representative body of the OTT platform, released the ‘Universal Self-Regulation Code for Online Curated Content Providers’ (September 2020) (Code). In November 2020 the Government finally took some steps and empowered the Ministry of Information and Broadcasting to regulate OTT platforms. Thereafter, in February 2021, the IAMAI released a “toolkit” to set out the guiding principles and code of ethics for the reference of all the signatories (Toolkit). Interestingly, the Toolkit mentioned that signatories would “adhere to all applicable laws of the land” and a comprehensive list of such laws was provided, such as – The Information Technology Act, 2000 (IT Act); Indian Penal Code, 1860; Unlawful Activities (Prevention) Act, 1967; laws protecting women and children etc. However, there were no official robust regulations in place yet.
Subsequently, in February 2021, the Government finally announced the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 which now regulates OTT platforms (IT Rules). The IT Rules lay down a detailed code of ethics to be followed by the platforms – which includes taking precaution while streaming any show concerning beliefs, practices or views of any racial or religious groups, and content classification. Further, the OTT platforms are subjected to a 3-tiered redressal system for ensuring observance and adherence to the code of ethics and for addressing grievances: (a) Level I – self-regulation by the publishers; (b) Level II – self-regulation by the self-regulating bodies of the publishers; and (c) Level III – oversight mechanism by the Central Government.
The OTT platforms must comply with multiple due diligences and also set up a grievance redressal mechanism; complaints received should be disposed of under 15 days. The Government may even call for such additional information from the platform “as it may consider necessary” for regulating such compliances. Lastly, if the platform fails to observe these rules, the protection accorded to intermediaries under the IT Act shall be withdrawn and the intermediary can be punished under any law, including the IT Act and the IPC, which could have broad and grave criminal consequences. The IT Act covers various offences and even stipulates criminal liability upon directors, key managerial personnel and officers of an entity accused for commission of an offence under the Act.
Naturally, the robust IT Rules irked off a lot of stakeholders and multiple court proceedings were filed challenging the rules on grounds of fundamental rights. The government has even released FAQs to clarify certain provisions under the IT Rules to address the queries. Therefore, as is evident, the uncertain regulatory regime has its own nuances which may impact potential investors. All said and done, in spite of the number of people who could be offended by OTT platforms, the industry has done rather well for itself.
Growth potential / Covid impact
Despite the regulatory grey areas, the impact of COVID-19 on television and OTT platform viewership has been positive. There are various films released on OTT platforms during the pandemic that have done well. There are multiple reports stating that users have been spending more time on OTT platforms due to the flexibility of working-from-home. A Report released by the Boston Consulting Group titled ‘Entertainment Goes Online’ states that the Indian OTT market is set to reach an astounding $5 billion by 2023. This reflects the rapid growth in this industry which investors should definitely keep an eye on.
Authors: Ajay Joseph, Partner and Pooja Agarwal, Associate | Veyrah Law
Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.