Overview of Sector in view of COVID-19
As per FICCI report, the Indian Media and Entertainment (M&E) sector reached Rs 1.82 trillion (US$25.7 billion) in 2019 (a growth of 9% over 2018). Further as per the report, the M&E sector in India is expected to cross Rs 2.4 trillion (US$34 billion) by 2022, at a CAGR of 10%. However, these projections were pre Covid-19 impact and now a study by CRISIL expects that the Indian M&E industry’s revenue will reduce by 16% or Rs 25,000 crore to Rs 1.3 lakh crore in the current financial year. This overall reduction in revenue is expected to severely impact the profitability of the M&E sector.
It has already led to almost zero content creation due to cancellation of shootings; postponement of Indian Premier League which is one of the marquee media event of the year. Further Covid-19 has already led to closure of iconic Cirque Du Soleil in US due to mass cancellation of shows in China and Italy. As people in India have been homebound since March 24th coupled with rock bottom data prices, the consumption of media through digital and OTT means has increased significantly.
The Events and Experiential Management Association (EEMA) survey suggests that over 50% of the media companies have lost 90% of their business since March 2020; over 63% of the companies have suffered a revenue loss of up to Rs. 1 crore with several companies envisaging retrenchment of about 50% of their workforce.
It is expected that Covid-19 will fundamentally alter the landscape of the M&E sector. Covid-19 related circumstances will have profound legal impact as well. We have analyzed various laws and regulations that will have major impact on the M&E sector during the lockdown and after:
Employment Issues
The workforce of the M&E sector can be divided into two parts. One group is the employees who are on the rolls of the broadcasters, production houses, even management companies etc. and are employed on a permanent basis. The other group is the temporary workers and freelancers who are kept on contractual basis for specific projects. Both of them have different regulations and as such are impacted differently due to the Covid-19 pandemic.
- Permanent Employees
Such type of employment attracts the general laws such as Payment of Wages Act, 1937, Equal Remuneration Act, 1952, the Employees Provident Fund Act, 1952, etc. Even though these statutes govern the workforce, they haven’t envisaged any situation such as a pandemic, being an unprecedented event. As such, the compliances under these general laws do not automatically suspend in such situations. Further, the Ministry of Home Affairs through its order dated March 29, 2020 directed the states and union territories to take measures to ensure that all employers must pay wages to their workers without any deduction for the period their establishments are under closure during the lockdown.
2. Contractual Workers
Contractual workers are mostly freelance workers and typically include the cast & crew of the project for which they are engaged. Their employment is governed by the agreement signed between employee and employer. Usually they are paid on daily basis or on achieving certain milestones with respect to the progress of project or their deliverables. The said contract is governed by the Indian Contract Act, 1872. Majority of the workforce in the M&E sector belongs to this group and is most adversely affected due to cancellation of shoots and events. The advisory of the home ministry regarding payment of wages would be applicable to these workers as well. These agreements usually have a termination clause and as such these agreements can be terminated. However, issues with respect to payments, deliverables of incomplete projects will remain. Being a creative industry it is important that in case of termination of such agreements Intellectual Property assignments and licenses are carefully looked. It is advisable that parties work towards mutually beneficial changes to the agreements.
There are specific welfare legislations that cover workers specifically in the M&E as well, these are the Working Journalist and other Newspapers Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955; and the Cine-workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981. The obligations under these legislations will persist.
Contractual Issues
The emergency lockdown measures have impacted contractual obligations between parties. The main impact being that of non-performance of obligations under the contracts. Since M&E sector largely relies upon the contracts, the non-performance of contractual obligations due to the lockdown is bound to have a greater impact on the sector. Non-performance of contract is subject to principles of Force Majeure and Doctrine of Frustration:
1.Force Majeure
Force majeure strictly translates to ‘superior or irresistible force’. This concept implies that the parties can avoid the performance of their obligations in case a certain force beyond the control of the parties prevents the performance of the contract. The concept is not incorporated in the Indian legislations but it is nonetheless accepted in the courts of law. Most contracts contain a boilerplate clause dealing with Force Majeure.
For this pandemic to be covered under the force majeure clause, it should either specifically mention the pandemic as an event of force majeure or have a statement that a force majeure event is any event “beyond the reasonable control of affected party”. In most situations the clause would either suspend the performance for duration of the event and if it extends beyond a certain period of days, the same would provide the option for termination of contract to the parties.
2. Doctrine of Frustration
The doctrine of frustration is covered under Section 56 of Indian Contract Act, 1872. The section states that if any contractual obligation becomes impossible or unlawful due to some event which could not be prevented, then the contract itself becomes void. The Supreme Court of India has interpreted this doctrine to mean that the impossibility does not refer to the physical or literally impossibility only but also the mere impracticality in the eyes of the parties. The courts usually see the nature of the contract and surrounding circumstances which make obligations under the contract impossible. Section 56 does not allow for suspension of contract and if recourse to section 56 is taken then the contract is deemed void. The statutory relief of doctrine of frustration is only available to parties if the relief by way of force majeure event is unavailable under their contracts. It has to be kept in mind that the above two principles do not cover all contracts and each contract has to be analysed to see the options which the stakeholder has under the contract. Parties can also come to mutual understanding and suspend the obligations under the contracts till the normal situation is restored or parties could negotiate and revise the existing contract to cover new social and economic reality which could beneficial to all parties.
Insurance
Considering the nature of the M&E sector, the sector bound to require insurance to protect itself against financial losses due to unforeseen events. There are multiple variants of insurance available for the M&E, the few which are essential for the current pandemic situation are:
1. General Liability Insurance
This is the most commonly obtained insurance in the Indian M&E. It protects the businesses from all sorts of liabilities including third party liabilities. This insurance is of utmost importance as it can cover delay in the projects due to unforeseen circumstances. It is important to note that not all such insurance policies cover pandemics, in fact it is a general practice to exclude pandemics.
2. Cast Insurance
This covers any extra expenses incurred when illness, death or disability of a cast member delays, interrupts or cancels the film. This is highly useful for the current pandemic as it might happen that some of the cast may be exposed to the virus causing cancellation or delay in the film even after lockdown ends.
3. Workers Compensation Insurance
Workers compensation insurance is helpful when a business is unable to earn enough revenue to pay its workers. This is mostly for backstage crew workers such as lighting workers, sound workers, etc on scene.
The above are some examples of the insurances which could cover M&E sector against unforeseen events however, policies need to be carefully reviewed to make sure they cover the present scenario.
Intellectual Property
M&E sector being creative industry at its core, is intellectual property (IP) intensive and it is likely that IP issues and disputes may arise during lockdown which may require injunction against third parties from doing certain acts.
Due to the lockdown, the Courts in India have restricted their functioning to hearing only urgent matters. However, the nature of urgency generally is limited to matters of life and liberty or demolition of properties. Regardless, if the applicant in a case can persuade the court on the matter of urgency, the same may be taken up. Various courts have prescribed methods on how the filing and mentioning can be done.
Further, most M&E contracts have significant IP related obligations for both parties. Any termination or revision of contracts has to critically analyse the impact on IP rights as this may have long term implications which could outlive pandemic.
Pending Litigation
All courts in India are functioning in limited capacity and through video conferencing in order tackle the pandemic. The Supreme Court, by its order dated March 23, 2020 had extended all the limitations for all matters whether under general or special law, from 15.03.2020 onward and until further order.
Future
As the world is adjusts to a new normal, consumer behavior is also expected to change rapidly. Lockdown has fueled demand for at-home entertainment and consequently television and streaming platforms have seen significant growth which is likely to persist in future as well. Even after the lockdown ends and at least till the pandemic persists social distancing norms will remain and this will impact how M&E sector operates. Few things which may happen in short run and long run include:
a) Manner and method of content creation changes as the production houses and content creators will have to factor in social distancing norms while shooting;
b) Many elements of content could be created digitally so as to minimise the requirement of human contact;
c) Type of content which is created will change as it will cater to audience which is consuming it via internet on different devices;
d) Live events and event management business are likely to be the biggest casualty as regulations will not permit large gatherings. It is likely that large sporting events are played in empty stadiums catering only to TV and mobile audience. People on ground may be replaced by big screens showing viewers watching the game at their homes;
e) Large concerts may be replaced by live streaming by performer on YouTube or Instagram Live and consequent revenue models will change;
f) Movies, both big and small, may have to be released on streaming platforms as people will be apprehensive of going to cinema halls. Streaming service would replace cinemas as primary revenue source for cinema.
g) Advertising will significantly move online altering the manner of advertising.
Overall, the M&E businesses will have to adapt to the new trends post Covid-19 which will have profound impact on the way business is conducted and revenue is generated. This will have great impact on how future agreements and revenue streams are structured.
By Siddharth Mahajan, Partner, Ramanpreet Singh, Associate & Rudrakshi Deo, Associate at Athena Legal