ZTL supremo Subhash Chandra: Restructuring is on his mind

It was long overdue. So it surprised few when Zee Telefilms Ltd (ZTL) Chairman Subhash Chandra recently announced plans to restructure his Rs 2,000-crore media conglomerate. ZTL and its associate companies have historically had a complex corporate architecture. But that now looks set to change.

Chandra plans to rejig his media empire into four independent, and listed, business units. ZTL will retain its bread and butter global content business, which includes flagship channel Zee TV, Zee Cinema, Zee Music, Zee Smile and Zee Sports, along with international business and a 74 per cent stake in Zee Turner and 54 per cent in etc Network. Zee News Ltd (ZNL) will own all news and regional channels-Zee News, Zee Business, Zee Marathi, Zee Kannada, Zee Bangla and Zee Punjabi. Similarly, the cable-related business of Siticable (which has 6.7 million subscribers and is a 100 per cent-owned cable distribution arm of ZTL) and ZTL will be hived off into Wire & Wireless India (WWIL). And, ASC Enterprise Ltd, which has a licence for Direct-To-Home (DTH) broadcasting, will get all related businesses now under ZTL and Siticable. ASC's DTH service, called Dish TV, has 900,000 subscribers.

Currently, only ZTL is listed; it has reserves and surpluses of Rs 2,096 crore. How this amount will be divided between the companies is not known. The management teams of the new companies have also not been finalised yet. Rajiv Garg, CEO, Corporate Strategy, Essel Group, as the Subhash Chandra empire is called, says: "The separation of businesses and accounts will take five-to-six months. The new companies will be listed only after that." There have been rumours that the restructuring is a fallout of differences between Chandra and his two brothers, Laxmi Goel and Jawahar Goel, who are at the helm of the news and cable businesses, respectively. Chandra, however, says: "The idea behind restructuring is to allow each business to grow to its fullest potential and to take on competition effectively."

Is the restructuring aimed at cashing in on the bull run in the stock market, then? Media analysts don't think so. They are unanimous that Zee was crying to be restructured for a long time. Says Ravi Sardana, Vice President, ICICI Securities: "Every segment of the broadcast business-news, entertainment, sports and distribution (cable, CAS or conditional access system and DTH)-is growing at a furious pace. Zee, therefore, stands to gain a lot by disintegrating different divisions." The new arrangement will give every division a clear focus and boost growth, he adds.

Besides, the new structure will also address concerns raised by investors regarding lack of transparency in the company. Then, it will also take care of different regulatory norms for different businesses. Says Jigar Shah, Director, KR Choksey Shares & Securities: "Segregating the businesses will unlock value for investors, give each division a healthy valuation and also increase tax efficiency which is an issue now."

Under the restructuring scheme, shareholders will get 137 shares in ZNL for every 100 shares held in ZTL, and one share in WWIL for two shares held in ZTL. No swap ratio has been announced for ASC yet. The stock price of ZTL has been rangebound, rising from Rs 239.55 on March 29 when the revamp proposal was announced, to Rs 250.10 on April 7. It ended at 253.35 on April 17.

Meanwhile, Zee channels are looking up after quite some time. Zee TV, the flagship entertainment channel, is back in the reckoning in the TRP (television rating point) game. After being the #1 cable and satellite broadcast network in the early 90s, it slipped to second position in the late 90s; it slid further to #3 behind the star Network and Sony Entertainment Television (set) by the beginning of the 2000s; Zee TV had a channel share of only 15 per cent in 2005 against star plus' 64 per cent and set's 21 per cent. This year, however, it has reclaimed the Numero Dos spot. According to Television Audience Measurement (tam) figures, star Plus' share in the first three months of 2006 has dropped to 55 per cent, set is also down to 14 per cent while Zee's share is up to 19 per cent. Similarly, in movies, Zee Cinema has a 37.3 per cent channel share against set max' 35.5 per cent, while Zee News is either #3 or #4. Then, the recently launched Zee Sports has acquired the global media rights for all cricket matches that Team India will play in neutral venues over the next five years. The tab: $219 million (Rs 985.5 crore). This is expected to generate substantial advertising revenues as a majority of these matches will involve arch rival Pakistan and top teams like Australia and England. Says Himanshu Modi, Business Head, Zee Sports: "Most of these matches will be telecast during prime time; so the opportunity is huge." It also has radio and internet rights for the property and is in talks with operators in Pakistan, the UK and the US to broadcast them there.

All this means media buyers are looking at Zee channels in a new light. Says Sunder Raman, General Manager, Mindshare: "The Zee network is now in every media buyer's Plan A as it is consistently providing a loud bang for advertising bucks." There is, however, still a lot of disparity between the ad rates charged by star and Zee. Media buyers says a 10-second prime time slot on star Plus costs Rs 1.5-2 lakh; the comparative rate on Zee TV: Rs 30,000-50,000.

But if the revamp delivers results along expected lines, these could well head north.