IT Rules 2021 – Let healthy competition drive India’s OTT market

The OTT or Over-The-Top (a sad misnomer for the popular Rich Interactive applications) industry in India is booming. The sector, along with its adjacent markets – advertising and marketing, is expected to hit USD 4 billion by 2025 (Media Partners Asia Report). The country is not just attractive because of the massive consumer pool but also as a worldwide production house for content, marketing and advertising. Until recently, the OTT industry operated with a great level of creative freedom. But as is typical for a growing industry, regulations are being introduced. The Central Government released a new set of IT Rules 2021 on February 25th 2021, under the IT Act 2000, which require OTT players operating in India to implement a three-tier grievance addressal system. However, light-touch regulation focused on industry self-regulation is the need of the hour. Isn’t a three-tier system, one of them government-led, a possible overkill for such a new market where growth is key?

Industries that manage sensitive information, or ones where even a slight error has far-reaching consequences need strict regulations from the start. These include finance, healthcare, military, and anyone working with classified government data. However, for online streaming services, adding cumbersome regulations will just create a penalty-heavy environment while curbing market growth.

The IT Rules 2021 state that OTT players need a three-tier system to address complaints, where the first tier is for the OTT player to self-regulate. The second tier is for the industry as a whole to self-regulate. These two tiers are sufficient for this very early-stage industry, especially because the rules already demand that each OTT player hires a Chief Compliance Officer, a nodal contact person, and a resident grievance officer in India. Also, there are several new processes to be implemented including proactively monitoring and removing content considered improper.

Adding the third tier – a government-based, inter-departmental committee to oversee grievances – is ext­remely cumbersome. It will make the sector susceptible to increased litigation, red-tape, and expensive production delays due to multiple layers of reviews and approvals. The third tier may also be redundant considering that, in India, the regulator and/or government are fully empowered to step in at any time when there is any issue – any sign of market failure. Ex-poste intervention rather than stifling ex-ante rules.

India has proved to be a formidable force in the OTT space and attracted heavy foreign investment in talent and audiences. Amazon, Netflix, Disney, and over 40 OTT players are vying for Indian viewers in a highly competitive market. With higher competition comes better investment in the quality of content, advertising, and lower prices. However, to handle the deluge of complaints and grievances in a bureaucratic three-tier addressal system, OTT players will have to bulk up their administrative, regulatory, and legal resources. This will result in heavy costs that will eventually have to be transferred to the customer in order to stay afloat. Mega-corporations may survive since they may be able to afford such investments. Unfortunately, smaller OTT players may be winnowed out under the burden of intense regulations.

Eventually, when the industry becomes more mature, there will be more consolidations, mergers and acquisitions, and a fewer number of players. At that point, more heavy regulations might be justifiable to prevent monopolies or collusion. But at this point, the very nature of the competitive market will keep OTT players in check. The market decides with their purchasing power. Let healthy competition drive India’s OTT market growth to greater heights.

The new IT Rules require OTT platforms to importantly self-classify content based on a viewer’s age. Adding parental locks and age-specific content categorization will help viewers self-select a show or platform. This is a good development and empowers Indian consumers to make better choices without big-brother type censorship that may affect growth rates and eventually our economy.

There is a high market demand in India for original content. A report by KPMG predicts that India will have 500 million online video subscribers by 2023, making us the world’s second-largest market after China! The opportunities are tremendous, and this is the time for Indian OTT players to shine. Let us not lose the momentum this industry has achieved in a short period. Self-Regulation and Ex-Post imposed regulations are vital to drive growth.

Research inputs by Chandana Bala.