If India goes the China way, what will happen to social media companies?

Yahoo News

By Sumeet Mehta

Prime Minister Narendra Modi, late on Monday, announced in a cryptic tweet and a Facebook post that he was thinking of giving up his social media accounts on Facebook, Twitter, Instagram and YouTube. 

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PM Modi ranks 18th in the world with 53.3 mn followers on Twitter. He is the third most followed global leader  preceded only by former US President Barack Obama (113 mn followers) and US President Donald Trump (73 mn followers). PM Modi has 44.7 mn followers on Facebook, 35 mn followers on Instagram and 4.51 mn followers on YouTube. 

The prime minister however today clarified that he would give away his ‘social media accounts to women whose life and work inspire us’.

Nonetheless, Indian social media circles have been rife with grievances of social media platforms being biased against the users with a particular political and ideological leaning. 

Lately, the controversy erupted when R Jagannathan, the Editorial Director of Swarajyamag (believed to be a pro-Bharatiya Janata Party publication), was suspended by Twitter for hosting a video clip from a Hindi serial named Chanakya that was broadcast by Doordarshan in 1980s and is now hosted on YouTube.

Twitter reasoned that the said video clip violated community standards, when the said video clip neither spread any hate nor called for any violence against any community. 

At the same time, Twitter allowed fake news peddled by former Tehelka journalist and now a columnist with Washington Post – Rana Ayyub, who has a virulent view against the Hindu right wing. It is pertinent to note that the Supreme Court stated in its order that Rana Ayyub’s book Gujarat Files is based upon surmises, conjectures, and suppositions. 

The Supreme Court further stated that the opinion of a person is not in the realm of evidence. This has antagonized supporters of the BJP. This created ripples of inherent bias against BJP practiced by Twitter amongst people who espouse that ideology. 

PM Modi’s cryptic message was interpreted as if he was  planning to announce a digital or social media demonetisation? It generated enormous levels of speculation on social media and has left people guessing what he is up to. 

Speculation spanned from whether India plans to follow the China way and ban foreign-owned social media platforms and launch its own platform to whether this is a subtle and sly arms-twisting tactic to ensure social media platforms soften their bias against the ruling dispensation and its supporters on social media. 

Congress leader Shashi Tharoor and columnist Sudheendra Kulkarni, too, raised similar concerns about a possible ban on social media websites.

It is important to understand the strategic importance of Indian digital media markets for these global social media platforms to get a holistic perspective of what any kind of plausible ban on these platforms in India means to them and their financials. 

The said data is summarized in the Table hereunder:

Table: India’s share in Global Performance of Social Media Platforms

 

Facebook

Twitter

YouTube

Users (mn)

Global

2,500

275

2,000

Indian

313.6

7.6

265

Share

12.5%

2.8%

13.3%

Revenues (US$ mn)

Global

70,697

3,460

15,000

Indian

127.43+

8.13+

285.71*

Share

0.2%

0.2%

1.9%

Revenue Growth

Global

26.61%

13.74%

34.53%

Indian

71.00%+

31.10%+

NA

Profits (US$ mn)

Global

18,485

1,466

NA

Indian

15.00+

0.80+

NA

Share

0.1%

0.1%

NA

Profit Growth

Global

-16.40%

22%

NA

Indian

84%+

108%+

NA

  • Source: Yahoo Finance and Media Reports

  • * Financials of YouTube are for FY2018

  • + These Financials are for FY 2019 ending in March

Before we dwell on these numbers, we need to understand the significance of India in the global digital market. 

As per Internet and Mobile Association of India (IAMAI), India has 451 million active Internet users, next only to China. This makes India the second largest Internet and digital media market in the world. 

The Internet penetration in India is around 36%. This means that only 36% of the population has access to the  Internet. 

Internet penetration has rapidly risen in India on the back of cheap mobile Internet data cost and reduction in prices of smartphones. The younger generation is the largest consumers of mobile Internet. 

It is believed that Internet penetration will rapidly increase to touch 666 million users by 2023. Digital media market is expected to grow by 32% to Rs 144 billion (US$ 200 billion) in 2019 as per Dentsu Aegis Network report. The Dentsu report estimates that the digital advertising industry will grow to Rs 249 billion (US$ 345 billion) by 2021. 

Naturally these social media platforms are the largest beneficiaries of ad spends. This shows how attractive the digital media market is.

In the wake of these facts, if numbers in Table above are analysed, they show the significance of the Indian market for these social media companies. India is the largest market for Facebook and YouTube and the total number of active Indian users on Facebook and YouTube are only slightly lesser than the population of the United States.

On Twitter India lags at a distant 7th and active users have declined on Twitter in India. 

Per se, India may appear to be an insignificant market for Facebook, Twitter and YouTube as India’s share in global revenues of Facebook and Twitter is hardly 0.2%, while YouTube is only a bit better at 1.9%. 

However, if we delve deeper, we realise that India is slowly becoming a big market for them. Revenue growth from Indian arms of Facebook and Twitter stood at 71% and 31.1%, respectively. 

At the same time, profits grew at a faster pace with Indian operations of Facebook and Twitter, posting a profit growth of 84% and 108%, respectively. YouTube’s financial performance in India is not separately available for comparative analysis. Facebook’s global revenue includes revenue from Instagram. 

Developed markets like the US and the European Union have reached their full potential and nearly the whole area has Internet connectivity. These markets would continue to grow at a steady pace with allocations for digital advertising growing faster and at the cost of print and electronic media. 

At the same time, India offers a bigger opportunity being the world’s largest market in terms of population. It is also the fastest growing market in terms of Internet penetration. With China out of bounds for these global social media companies, India remains a vital market for growth in companies’ revenues and earnings. 

Whether PM Modi bans social media platforms as is being speculated by his supporters and opponents or does something else, is in the realm of conjecture. Only time will tell. 

However, if India bans global social media platforms, it would have a significant impact on the future of these companies. If PM Modi leverages on the impact that the plausible ban could have on the prospects of these companies, can he succeed in reining these companies?

CA Sumeet Mehta is a Chartered Accountant and Financial Consultant, author of ‘Diagnosing GST for Doctors’, published by CNBC Books18, and a commentator on economic and financial matters. He tweets from @sumeetnmehta

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