The Hindu : Star of India

Online edition of India's National Newspaper
Tuesday, Jul 22, 2003

Opinion

Opinion - Leader Page Articles

Star of India

By Mukund Padmanabhan

It is nobody's case that Star News should be blacked out. The issue is about ensuring that it complies with the guidelines not merely in a technical sense, but also in a substantial and meaningful manner.

YOU MIGHT be forgiven for thinking that of late television has been making more news than it actually broadcasts. First, it was the seemingly interminable soap opera over the Conditional Access System (CAS) that consumed reams of newsprint and provided for an unbroken rush of sound bites. Now, the fracas over Star News' uplinking application has taken centrestage. Strictly speaking, the two issues are unrelated. But the Rupert Murdoch-owned Star group is at the centre of both controversies. On the CAS matter, it is accused of running a high-voltage campaign to defer, if not scupper, the introduction of the new cabling regime. As for Star News, the charge is considerably more serious. The Australian-American media tycoon is accused of some cunning financial engineering in order to get around the country's foreign equity rules.

It was in March 2003 that the Union Cabinet imposed a 26 per cent cap on foreign investment for television news channels. Since pure entertainment channels are allowed to have up to 100 per cent foreign equity, the 26 per cent cap on news channels was the Government's way of treating it on a par with the print media. The objective of having such a limit was clearly to keep control — both proprietorial and editorial — in Indian hands. Attendant guidelines reinforced this aim; for instance, resident Indians must form the majority of the board of directors and occupy key slots such as chief executive officer.

Guidelines for uplinking television channels that dish out news or current affairs were issued just days before Star News was to undergo a seamless transition into a 24-hour Hindi news channel. (This transition came about the moment NDTV's contract with the Star group ended on March 31.) Star News, then a fully Rupert Murdoch-owned operation, was given three months time to comply with the guidelines. Zee TV, in which Subash Chandra's foreign-registered Zee Telefilms had a majority stake, was given a year to don its new foreign equity cap.

The controversy erupted soon after Star News moved its application for uplinking just days before the deadline expired. It was done via a curious entity with a paid up equity capital of a laughable Rs. 1 lakh called Media Content and Communication Services. In a purely technical sense, the company satisfied the key stipulation — foreign investment comprised 26 per cent and was either held or retained by a Star company registered in the British Virgin Islands. The rest was parcelled out, in a clubby manner, to a close group of Indian businessmen and friends, many of who are not even connected with the media. The fundamental question raised by Star's uplinking application was simple. Although it complied with the bare letter of the `law', was it not a complete violation of the very purpose for which the guidelines were enforced? The guidelines, after all, were meant to keep control of news channel operations in Indian hands. By using the hollow front of a shell company to secure uplinking permission, was not Mr. Murdoch resorting to a subterfuge, a deception that allowed him to own and control the real news operations?

Another way of approaching this question is to ask why anybody who runs something as large and investment-intensive as a news channel would want to dilute equity in the manner Star did. Clearly, there could have been no economic logic for diluting the ownership, control and the assets of a venture as extensive as the Star News channel to a company at such an insignificant price. The Star group has since clarified that MCCS' equity will be raised to Rs. 4 crores once sanction from the Foreign Investment Promotion Board is received. But all this means is that anyone buying 76 per cent of the channel's equity will end up spending a little upwards of Rs. 3 crores. It will still be a throwaway price. Obviously, diluting equity in such a manner can make sense only if there is a mechanism to ensure that the real control of the operations lies elsewhere.

Theoretically, Star's cosy club of Indian investors, who together own more than three-fourths of the shares, can effect a takeover. But can they? Star insists that the directors have voting shares and that, by implication, its arrangement rests on trust that its Indian investors will not turn against it. However, the issue that needs to be determined is whether the shares have been sold with specific conditions attached such as call options — in other words, restrictions that give Star an indirect control over them. Not so long ago, Coca Cola fulfilled its commitment to divest a portion of its equity to the Indian public by persuading the Government to allow it to make a private placement to its bottlers. The share transfer came with a number of restrictions; in effect, the soft drink multinational remained in full control and the very purpose of dilution was lost.

Now it has transpired that the corporate structure of the Star News channel is made up of multiple entities that include companies such as Touch Telecontent, which reportedly owns the core infrastructural assets, and Hughes Electronics, which controls the news gathering activity. To get at the bottom of the issue of where proprietorial and editorial control of the news channel really lies, it is necessary to peel the layers or pierce the corporate veil.

The Information and Broadcasting Ministry has sent out a long list of questions that is intended to do exactly this, and is reportedly far from satisfied with the clarifications provided by Star. The Ministry has sought more time to decide whether the channel's application falls within the purview of the guidelines and has informed the FIPB accordingly. Meanwhile, the channel continues to receive extensions on an ad hoc basis, but has circumvented the possibility of the plug being pulled on it by securing an anticipatory stay order against its transmission being suddenly disconnected.

The choices before the Government are simple. It can insist on the guidelines being followed in both letter and spirit and reject the uplinking application on the ground that it has fallen foul of the latter. In this case, Star will have to apply afresh. It will also mean that clearance will depend on whether its corporate structure clearly reveals that Mr. Murdoch is a minority shareholder in what is essentially an Indian enterprise. The other option is to clear the application as it is. This will have far-reaching consequences, which go beyond the fate of Star News itself. If the existing uplinking application receives the nod, there is no reason why other foreign media barons cannot set up similar shell companies and exercise control through the facade of limiting foreign equity to 26 per cent. Such a ploy has enormous implications for the Indian print media, which are also governed by a 26 per cent foreign equity cap. A large section of the print media, which was strongly opposed to any foreign investment, is now apprehensive that the Star stratagem can be deployed to start newspapers and news magazines.

In arriving at such a decision, the Centre will have to factor in something else. Complaints that the Star group has used shell companies for other ventures in the country has resulted in the matter being dragged to court via public interest litigation. Under challenge is Star-affiliate Space TV's conditional letter of intent for Direct To Home services; so is the licence to Radio city, a FM radio venture for which Star provides content. Given that the matter is under judicial scrutiny, the Government may not be able to afford to give the uplinking application a quick and unqualified green signal.

A clear media policy that includes a regulatory framework for broadcasting that is backed by statute would have prevented a controversy like this from erupting. Such a framework, however, cannot be created overnight. In the meantime, the I & B Ministry would do well to revise the guidelines in a manner that makes the approval process look beyond numbers and towards the real issues: ownership and control. It is nobody's case that Star News should be blacked out. The issue here is about ensuring that it complies with the guidelines not merely in a technical sense, but also in a substantial and meaningful manner.

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