SEBI Turns The Heat on Media Private Treaties

Media companies must disclose their share holdings in companies with which they have deals like “ private treaties,” the Securities & Exchange Board of India said on Friday.

The remarks came in a statement titled “ Mandatory disclosures by the media of its stake in corporate sector.” “ Private treaties” are thriving business areas in large media houses, which sign up chosen corporate sector clients for media exposure in return for shares in the companies and seek to cash in on these with share price appreciation over time.

SEBI has been uncomfortable with these arrangements which “ entail a company giving a stake ( shares, warrants, bonds etc.) in return for media coverage through advertisements, news reports, advertorials etc. in the print or electronic media.” SEBI said such arrangements are typically with companies which are listed or which propose to come out with public offerings.

“ It was felt that such agreements may give rise to conflict of interest and may, therefore, result in dilution of the independence of press. This may consequently compromise the nature, quality and content of the news/ editorials relating to such companies,” SEBI said.

“ Needless to say, biased and motivated dissemination of information, guided by commercial considerations can potentially mislead investors in the securities market. Such journalism would not be in the interest of securities market,” the regulator added.

The strong language against such deals first came in a reference to the Press Council of India, with suggestions that disclosures on these arrangements be made mandatory by the media houses.

The Press Council accepted the suggestions of SEBI at a meeting on February 22 but announced them five months later on August 2. Though the word “ mandatory” has been used by SEBI in its release of today, SEBI’s prescription draws on the power of the Press Council, which has called these “ guidelines” and ended them with the words: “ the above suggestions may be kept in mind by the media.” The three specific suggestions accepted by the Press Council are: media houses must disclose their stakes in companies when reporting or commenting on them; a disclosure of the percentage holding must be made on the web site of the media houses; and other agreements, which may be a potential conflict of interest, should mandatorily be disclosed.