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The rise and rise of Subhash Chandra and Zee Telefilms

Nikhil Faleiro in Bombay

The News Corporation-Zee Telefilms deal is likely to result in a company that will not only be a world-class media conglomerate but a corporate blue chip. There is already talk that Zee supremo Subhash Chandra's clout in the new millennium may be reminiscent of Reliance chairman Dhirubhai Ambani's in the '80s and '90s.

The deal, coming as it does after a five-year stormy partnership between the two high-profile media majors, is seen as a victory of sorts for Corporate India over the multinational brigade. Chandra, a one-time rice packer in Hissar, Haryana, is being credited with outwitting News Corp's chairman and global media baron Rupert Murdoch, who is known for his ability to get what he wants.

And Murdoch sure wanted a pre-eminent role in the Indian entertainment and media sweepstakes. On the one hand, he had his own STAR platform, on the other, he became an equal partner in Zee and was at one time tipped to swallow the latter. He was well on his way, until he ran into the entrepreneurial spirit and tenacity of Chandra, whom big names do not seem to sway or intimidate.

Analysts say it is early days yet. For one, it would be foolhardy to write Murdoch off in a jiffy. News Corp has got rid of the partnership that forbade STAR TV from launching channels or programmes which would compete directly with Zee's. In other words, STAR TV is now free to do its own thing. STAR stands to pocket nearly $ 150 million in cash from Zee, and is expected to strengthen itself in the Indian market.

The time-frame for the deal has not been defined; it is still not clear how Zee will fund the $300 million deal without harming its other projects.

Chandra, who shuns personal publicity and the public glare, is not telling.

However, raising high finance may not be difficult for a man who has nurtured Zee into India's most popular satellite television network in less than seven years, and positioned it as a global brand with visibility in the US, UK and South Africa. His ambitious satellite communications project entails bigger investments. There is talk that Zee Telefilms may offload up to ten per cent of its equity to global media companies with high net worth, in order to pay News Corp.

With more than 200 million viewers, Zee Network would be the envy of any broadcaster. It commands 50 per cent of advertising revenues in a highly competitive environment. Chandra was listed by The Sunday Times of London as Britain's fourth richest Asian with a personal wealth of pound sterling 450 million. Chandra's interests range from a 65 per cent post-deal stake in Zee Telefilms to amusement parks, education, packaging, exports, publishing.

With Zee Telefilms firmly under his belt post-deal, Chandra will preside over what any media magnate would give his right arm for: software production (Zee Telefilms), broadcast (Patco) and ground distribution (SitiCable).

There was a time, not very long ago, when stories, within the realm of speculation, were in circulation that Murdoch dictates terms to Chandra. Today, Murdoch needs Chandra like never before, according to some analysts.

So far, Murdoch has pumped over $300 million in his Indian operation (Star Plus, Star Movies, Star World and Star News). But viewership has been low. An experiment to 'Indianise' the channels has yielded less-than-satisfactory results. There have been no decent returns on investment. All this at a time when Zee's bouquet of channels -- Zee Cinema, Zee TV and Zee India TV / Zee News which Chandra owns jointly with Murdoch through Asia Today Limited -- were proving money-spinners.

Though Sony Entertainment Television is still a challenger, the post-deal field is open for Chandra to emerge as India's undisputed media mogul. In the coming months, he expects to launch channels in Bengali, Punjabi, Malayalam, Gujarati and Telugu. At the launch of the Marathi channel on August 14, 1999, Chandra had said: "There should be something for everyone. Everyone in each corner of the country should enjoy television in a language they understand comfortably."

Zee insiders admire his commitment to make India a power to reckon with in animation films. "His conviction is that our folklore, legends, mythology, history are full of useful tales and moral stories. He wants these to be told to children in the new millennium through animation films. How many film-makers would dare to invest over Rs 50 million to make a full-length animation feature film (Bhagmati, on the legend of Golconda) in the mould of Lion King? His efforts at setting up infrastructure necessary for making animation films has inspired several other entrepreneurs," says a source.

Media reports indicate that ground distributors include Chandra's satellite channels on their cable networks without any qualms.

This has meant only one thing for Zee Telefilms's share: ascent. The share price was Rs 500 when the year began. On Friday, as the markets factored in the sensational Rs 13 billion deal, it closed at Rs 4,739 on the Bombay Stock Exchange!

Several marketmen feel there is ample room for appreciation. In fact, unconfirmed reports said the price soared to Rs 5,200 in unofficial trades in Calcutta on Saturday.

With a market capitalisation of around Rs 73 billion (Rs 1.86 billion in 1998), Zee Telefilms remains the bourses' only darling among the media shares. Analysts say the market cap may steadily rise to Rs 150 billion, placing it among the ten most valuable companies in the country.

Zee's growth is remarkable in an industry where the death rate is high, agree analysts.

Gul Teckchandani, chief investment officer, Sun F&C Asset Management Fund, says, "In markets abroad, media stocks are the most-sought-after ones because their growth rate is amazing." Zee Telefilms, he says, is the only media stock to display global potential, one of the reasons it attracts FII interest.

FII holdings have already touched the 28 per cent threshold and are expected to shrink, post-deal, to 13 per cent. But Zee is bound to remain on every broker's buying list. According to Vijay Jindal, managing director, Zee Telefilms, "The Zee brand is worth at least $2 billion."

Launched in 1992, Zee Telefilms's income quadrupled to Rs 259 million in 1993 and doubled further in 1994-95 to Rs 532 million. In 1997-98, it was Rs 1.73 billion with the prospect of earning Rs 2.20 billion in 1998-99.

It is sound financials that have helped Zee to withstand an aggressive competitor like Sony. Although Zee had a four-year headstart, Sony has made rapid progress, helped by a parent with deep pockets. Sony's revenue has grown at a faster pace, indicating a rising market-share (read ad revenues and viewership).

That Sony is attracting a larger slice of the ad-spend cannot but be of concern to Zee. Although there are mixed reactions to the Zee-Star deal, the general impression is that Chandra has done the right thing by taking control of all his companies. This way, he is expected to be in a better position to control and guide his companies.

Analysts are also impressed with Chandra's vision. He was the first in India who sought to harness the huge business potential of satellite television channels. That was in 1991, when viewers in India were under the firm grip of Doordarshan, the state-controlled terrestrial network.

Sure, there were many hurdles in the nascent cable television industry. There were no clearcut broadcast laws and rules to govern private networks. Clouds of uncertainty hung over the industry. Yet Chandra had the vision that if Zee succeeds in sustaining its headstart, it would shape up as a media giant sooner than later.

In this context, analysts point to Chandra's desire to hire media company managers with proven ability. Zee Telefilms MD Vijay Jindal, Zee Publishing's publisher and operating partner Deepak Shourie, Zee Telefilms new CEO R K Singh have all had well-documented stints in major media operations in India.

On the one hand, Zee had sacked some of its senior employees against whom programme producers levelled corruption charges; on the other, it announced employee stock options for those who have held the company in good stead. Some 70 employees were reported to have become millionaires overnight by virtue of their stake in Zee.

Zee is keen on brushing aside the challenges. It has drawn up a plan envisaging a super holding company called Winterhealth, a mega Zee Telefilms, a single media vehicle which will raise funds from the US through the American Depository Receipt route to fund its growth.

Marketmen and investors will no doubt await the outcome of the Zee Telefilms board meeting scheduled for September 27. The deal still remains on paper, and will become good only upon shareholders' approval and nods from the Reserve Bank of India and other authorities. Considering that the deal was in the making for two years, these may have been calculated as motions to be gone through.

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