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18 Feb 2016
More than three years after the publication of Administrative Provisions on Online Publishing Services (Draft for Comments) (“Draft for Comments”, released in December 2012) by the former General Administration of Press and Publication, the State Administration of Press, Publication, Radio, Film and Television (the successor of the General Administration of Press and Publication) and the Ministry of Industry and Information Technology have promulgated the Administrative Provisions on Online Publishing Services (“New Publishing Services Rules”), which take effect on 10 March 2016. The New Publishing Services Rules will replace the Interim Provisions on Internet Publishing Management (“Interim Provisions”, promulgated in 2002). This article will briefly analyze the material provisions of the New Publishing Services Rules and their potential impacts.
1. Expanding Scope of Regulation for Online Publishing
The New Publishing Services Rules include different types of businesses in the scope of defined online publishing services, such as original publication, integrated publication and published works dissemination. In addition, the New Publishing Services Rules expand the regulatory scope to specifically cover games distribution platforms (app stores), animation distribution platforms, audio and video book distribution platforms, online literature databases and online games publication (including online games authorized by foreign copyright holders). The gray area that currently exists in the above-mentioned markets (such as operation of a business without a publishing license) will be explicitly regulated under the New Publishing Services Rules.
Furthermore, after the formulation and publication of the businesses categories for online publishing services (clearly provided by the New Publishing Services Rules), the regulatory system and regulatory scope of online publishing services could be further clarified.
2. Strengthening Regulation of Relevant Licenses
The New Publishing Services Rules prohibit license holders from selling or transferring their online publishing services licenses in any manner. At the same time, the rules specifically mandate that online publishing services providers are forbidden from allowing other Internet information services providers to provide online publishing services under their own names. When the New Publishing Services Rules become effective, cooperating with the license holders or using the names of the license holders to operate online publishing services will be completely prohibited.
Moreover, the New Publishing Services Rules do not alter the regulations of the Interim Provisions on the approval procedures that the license holders should follow when they change permitted registration matters, change capital structure, undergo a merger or division, or set up branches. However, it is still unclear what kind of shareholder or equity change is within the scope of a “capital structure change”. According to the current market practice, a direct shareholder change is considered a “capital structure change”, while an indirect shareholder change normally is not, and the former must undergo approval procedures. This issue requires further clarification from the regulatory authorities or implementation guidance from the New Publishing Services Rules.
3. Strengthening Regulation of Foreign Investment
The New Publishing Services Rules reiterate policies stipulated in laws and regulations related to foreign investment (e.g., the Catalogue for the Guidance of Foreign Investment Industries) and continue to prohibit Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures and wholly foreign owned enterprises from engaging in online publishing services.
The New Publishing Services Rules require that the license holders submit an application to SAPPRFT in advance for approval of cooperative projects with foreign-invested enterprises or overseas organizations and individuals in online publishing service businesses. Although the New Publishing Services Rules use the phrase “prior approval”, as opposed to “safety assessment” proposed by the Draft for Comments, the language still, in essence, embodies a regulatory attitude of strict scrutiny for online publishing services provided via foreign investment. Therefore, the New Publishing Services Rules are sure to cause great uncertainty for foreign investment in online publishing services using a VIE model or through cooperation with domestic partners.
However, specific details have yet to be clarified, such as the scope of Sino-foreign cooperative online publishing projects that must seek approval and related approval procedures and documentation requirements.
4. Strengthening Regulation of Content
The New Publishing Services Rules emphasize regulation of online publishing content and clearly state that online publishing entities must meet a series of requirements, such as number and qualification of full-time professional personnel for editing and publishing, use of content proofreading systems, records retention and coordinated provision. These points are in line with a number of recently promulgated and existing Chinese laws meant to strengthen regulation of the Internet environment.
Moreover, the New Publishing Services Rules clearly state that application entities for online publishing services licenses must promise that relevant servers will be placed within the territory of the PRC. The current practices of some online publishing services providers, who place servers overseas to avoid regulation, will be prohibited.
Overall, promulgation of the New Publishing Services Rules reflects the Chinese government’s goals of promoting development in the online publishing industry while also strengthening the regulation of online publishing services practices. The new rules will likely have a substantial impact on the online publishing market. Varying gray area practices or even illegal practices are certain to be cleaned and regulated.