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TMCNet:  Apple skips FDI rule with third-party content

[December 11, 2012]

Apple skips FDI rule with third-party content

Dec 11, 2012 (Mint - McClatchy-Tribune Information Services via COMTEX) -- NEW DELHI/MUMBAI -- India doesn't allow companies with foreign direct investment (FDI) to sell products on the Internet. But that rule has no bearing on Apple Inc. selling songs, music and apps through iTunes in India for several reasons, experts said.

The company recently began offering songs and movies for download through iTunes.

Apple offers third-party content and isn't retailing its own products, such as phones and computers, online. Any local content it offers is through revenue-sharing contracts with developers.

An industry official said iTunes is a "virtual storefront" or a platform on which third-party copyrighted content is being sold. The person, who did not want to be identified, said the timing of the start of song and movie sales on iTunes had nothing to do with the vote on FDI in retail in Parliament last week. The iTunes launch was part of an exercise that saw the service being rolled out in 56 countries on 4 December.

Amazon.com Inc. is already selling products online in India, said Akash Gupt, executive director of consultancy firm PricewaterhouseCoopers. Apple itself has been selling apps through iTunes prior to its latest move.

The companies import and sell to a buyer who pays the duty and shipping charges.

"The model adopted by mobile application stores or something like iTunes seems to be that of trading or of a service where they are a marketplace offering products of other developers or content providers and there is no policy required for such trading," Gupt said.

Such websites aren't registered in India and the content on them is hosted on servers overseas.

Payments are also not processed in India and hence don't come under the FDI policy, added Nitish Asthana, commercial director, First Data India.

The digital downloads market, which includes books, music, videos, wallpapers and ring tones, was Rs.1,000 crore in 2011 and is growing at 50% per year, according to First Data, the ICICI Merchant Services representative. Of this, music and video downloads accounted for just Rs.80 crore.

"Selling services and intangibles online is not something new," said Paresh Parekh, tax partner, retail and consumer products, Ernst and Young.

"Even before iTunes or (Amazon's) Kindle store launched, we have been buying apps for our Android or Apple products. This is import of services and intangibles and the server is hosted outside the country." A department of industrial policy and promotion official said the subject didn't come under the department as there is no FDI investment involved and it is more of a trade issue.

___ (c)2012 the Mint (New Delhi) Visit the Mint (New Delhi) at www.livemint.com Distributed by MCT Information Services

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