When a website?s paid subscriber listens to music, without downloading/ storing it, does it constitute an act of retail sale?

The government is likely to pronounce its verdict on the issue shortly, in the light of Worldspace India?s proposed webcast service.

WorldSpace India seeks launch paid webcasting services for international listeners through its website http://www.worldspace.in. Through this venture, the satellite radio company hopes to earn revenue in foreign exchange. It is, however, feared that the existing FDI policy in the information technology sector may foil its plans.

This, since the department of information technology (DIT) has raised objections to WorldSpace India?s proposal, citing prevalent foreign investment regime in e-commerce.

Two executives of WorldSpace India, whom FE spoke to, said that the application is lying with the Foreign Investment Promotion Board (FIBP), and they were positive about the regulatory approval being granted soon. WorldSpace officials argue that the activity on the website will involve continuous streaming of music, and will not allow playback, download, recording or storage of music by the subscriber. Hence, the activity should not be construed as transfer or retail sale of music, as music as a commodity would not be sold in any manner.

The DIT, on the other hand, feels that since the end-consumer will have to pay (subscribe) to listen to the music, WorldSpace will be selling an online service, if not the music itself directly. In this regard, DIT has classified WorldSpace India?s proposed webcasting service as business to consumer (B2C).

As per the present FDI guidelines, B2C e-commerce is not allowed. Also, even though, in the case of e-commerce, FDI up to 100% is permitted, it is subject to the condition that such a company will have divest 26% of its equity in favour of the Indian public within five years, if the company is listed in any other part of the world.

WorldSpace Inc, incidentally, used to be listed in the Nasdaq Stock Exchange in New York. Last November, the exchange announced the delisting of the common stock of WorldSpace Inc.

The present FDI policy framework in case of e-commerce allows companies to engage only in business to business (B2B) activities and not in retail trading, or B2C activities.

WorldSpace?s application, requesting permission to launch webcast services, has been forwarded by FIPB to Department of Industrial Policy and Promotion (DIPP). Till the DIPP examines the proposal, the decision on whether WorldSpace India will be allowed offer paid streaming music services on its website stands postponed.

WorldSpace India claims a subscriber base of 1,75,000 in India. It already has the Indian government?s permission to carry out activities like producing and commissioning digital audio and multimedia software programmes for the international and domestic market, setting up state-of-the-art studios, providing research and consultancy services, importing and selling satellite receivers, data adaptors, PC-add on cards.

It is also permitted to carry out services for its parent company and establish a call center and customer care services.

Late last year, Worldspace India?s parent company, Maryland-based WorldSpace Inc, filed for Chapter 11 bankruptcy protection in the US.