FEATURE 

Publishing where you are not allowed to

Your competitors are in a fast-growing overseas market. Your lawyers tell you that the laws of the land prohibit or severely restrict foreign ownership of media. You want to stay legal but don’t want to miss the boat. What to do? Business Strategies Group’s Paul Woodward surveys the legal landscape.

By Paul Woodward

Publishers moving offshore often have to work in uncertain legal environments. There are a few key issues which are common to a number of the most interesting markets, most notably China and India: firstly, publishing has traditionally been restricted to domestic companies in many markets. Print media content is considered politically sensitive. Countries have different views on what is acceptable in terms of content and wish to control this. The relatively clear-cut legal environment in which most publishers operate in Europe and North America is replaced, in many countries, by a hazy series of ‘grey areas’ of legality where the deal you strike may have more to do with how brave you are, the goodwill of local officials and good old-fashioned luck.

The most obvious examples to quote are China and India. Both markets are growing very quickly and attract huge amounts of media attention. They are quite different but, while things are gradually changing in India, the truth remains in both markets that you are not allowed to own your own titles completely.

China

China attracts much interest and excitement among the world’s publishers and yet the legal regime remains highly restrictive. See table 1 below for a basic checklist.

Table 1: Legal Dos and Don’ts for China media
Content & trademark licensingYes
Foreign ownership of titlesNo
Foreign employment of editorial staffNo
Foreign ownership of advertising companyYes
Foreign ownership of publications distribution businessYes

To complicate the picture, there are ‘special cases’ such as IDG which has been in China since the early 1980s, well before the current legal regime existed. It has been made clear on a number of occasions that their special terms of business are unlikely to be replicated for other publishers.

The simplest, and usually most clearly legal, solution is the content/trademark licensing route. This approach is effective when at least some of the following criteria can be met – see table 2 below.

Table 2: When content licensing makes sense
Your company is very risk averseYes
You have unique and internationally-relevant contentYes
Your brand has powerful appeal to international advertisers and they will follow it into new marketsYes

There are some restrictions on this approach in India but it has been used with some success in China. Chinese publishers may be suspicious of it with some having been caught out by discontinued titles in which they had recently invested significant start-up funds.

But most foreign publishers are looking for more involvement and more control in a market like China where they see huge potential in the future. This is where they run up against the legal restrictions. If you can’t own your title, how can you control it?

Grey areas

This is where we come up against the ‘grey areas’. In China this is closely related to the extent to which officials prefer only to change the law once it has been proven that a new system will work; legitimising changes that have already been made in the market.

The diagram below gives a graphic representation of how this works in practise. There is a clearly legal area of operations (green in this diagram). Anybody can operate there, many people do, and, as a result, it is almost impossible to make money there. There is an area where operations are clearly illegal. A few operate there. They can make a lot of money but will almost certainly be stopped from doing so sooner or later. In the middle is a grey area; companies operating somewhat beyond what appears to be permissible. The extent of this grey area varies from industry to industry. Usually, both the ‘law’ and the ‘cutting edge’ move gradually to the right as set out in this diagram. Just occasionally, the government moves the outer limit, the ‘cutting edge’, back to the left as it did a few years ago with the telecoms industry, invalidating over $1 billion worth of international investment.

Different companies feel comfortable in different parts of the ‘grey area’. Each has to make its own decisions on how near it wishes to be to the ‘law’ and how near to the ‘cutting edge’.

‘Advertising company’

The most standard ‘work around’ to China’s publishing restrictions operates pretty close to the law although, in practise, it is clearly in the ‘grey area’. Companies find a Chinese partner who takes a license for their title. That Chinese company technically ‘owns’ the magazine in China. It is probably also the official employer of the editorial staff. However, those editors may actually sit in the offices of, and have their salaries paid by, an advertising company which can be a China / foreign joint venture. That company assumes all business activities (and risks) of the publication, paying the Chinese brand ‘owner’ a royalty fee of some sort for its troubles. Even Chinese publishers have used this approach with companies like SEEC Media, an advertising company which controls business for Caijing magazine, listed on the Hong Kong stock exchange.

The extent to which the ‘advertising company’ in reality takes all responsibility for the business determines the extent to which it is operating in the ‘grey area’. So far, this arrangement has been tolerated by Chinese authorities particularly for non-controversial B2B titles. It would not be tolerated for any more controversial news titles.

India

India, since independence, has fiercely protected national ownership of print media as crucial to the establishment of an independent Indian voice. Under the previous government, limited liberalisation began although foreign ownership is still restricted to 26% for news publications (including newspapers) and 74% for general interest titles. There is some dispute over what constitutes a news publication as McGraw Hill has discovered to its cost with an application for a joint venture edition of BusinessWeek stuck in bureaucrats’ offices for a year or so now.

This highlights an important difference between China and India and reminds us that there is absolutely no ‘one size fits all’ solution to the challenges involved in dealing with the legal challenges of working overseas. The ‘grey area’ is much less of an issue in India where the legal system is enforced more according to the letter of the law. However, in India, this greater legal clarity and the desire to move towards greater integration with the international business world, including that of publishers, often butts up against the conflicting interests of politicians and bureaucrats. It is safe to say that virtually no one has ever been elected to the Indian parliament on a platform of welcoming foreign media into the country with open arms. It is not a vote winner. The bureaucrats’ most powerful weapons against things they don’t care for are uncertainty and delay, both anathema to business.

Other work-arounds

Entrepreneurial publishers are nothing if not innovative in finding their way around the road blocks that history and different legal systems put in their path. A number of interesting strategies are currently being employed to build brands in new markets.

Perhaps the most interesting of these is e-Media. Most laws written to restrict foreign entry into media markets were conceived and drafted when print media was the prime vehicle for international expansion. The fact that foreign-owned satellite television has made far greater inroads into both China and India is clear evidence of how this principle applies in practise.

The internet, by its nature, is difficult to control and bureaucrats, even where inclined towards a hard line, struggle to find the mechanisms to do so. A number of publishers, unwilling to make the compromises required to operate their titles in a market like China or India, have entered the market with magazines or newsletters distributed 100% electronically. Internet and broadband penetration rates are increasing rapidly among the well-educated business elites that these publishers covet. This doesn’t work particularly well for consumer titles which need newsstand exposure but can be very effective for B2B titles.

Import / export options

For print titles, of course, there is the related and simple alternative of the ‘import’ magazine. A magazine can be produced offshore and simply imported into the country. If newsstand sales are not required, it can be mailed in to a controlled circulation. Fortune magazine has used this approach with great success in its China edition.

A variation on that is ‘export’ magazine. Using bonded free-trade zones as a ‘turn around’ in which magazines never actually leave the country, some publishers produce a magazine in China which is technically exported. Once in the FTZ, it is re-imported back into China. This is definitely life in the ‘grey area’ as officials could be forgiven for suggesting that the export process was not entirely genuine when no copies actually ever leave the country. If the title is a non-controversial one and has no important local competitors who may wish to capitalise on its hazy legal status, the truth is that officials usually have other things on their minds and will leave be.

In India there is currently some uncertainty over whether scientific and technical journals can be 100% owned by foreign companies. It appears that this may be the case although many government officials continue to speak of maintaining restrictions on foreign ownership.

The environment described in this article makes life very difficult for companies, often from North America, who ‘lead with their lawyers’. The clear-cut certainty which legal experts strive for is often not available. For larger companies and particularly for those which are publicly listed, the option of pushing towards what we have called the ‘cutting edge’ of legal practise usually doesn’t exist. They may have to rely on allowing smaller, local and private companies to do that, wait for the law to be changed and then acquire those businesses.

If it was easy, everybody would be making a lot of money in these markets. And, as is well reported, most are not!