Asianet to be out of Zee Telugu venture too

Zee has kept its options open. There is a rethinking on whether the company should promote the Alpha as a pan-national regional brand or go ahead with Asianet in the South. With no equity alliance, it does not make sense for Zee to invest in a brand that it does not own.

Asianet Communication will not be involved in the Telugu channel which Zee Telefilms plans to launch through its wholly-owned subsidiary.

Zee will take care of the Telugu channel’s content and may set up production facilities in the state. Zee Telefilms’ subsidiary will also handle content and the entire operations of the Kannada and Tamil channels, after buying out Asianet’s assets, including software in these two language channels.

Though Zee will have a right to use the Asianet brand at a licence fee, Zee Network chairman Subhash Chandra and Asianet promoter Raji Menon are yet to agree on the contract period. While Asianet wants to lend the rights initially for three years, Zee wants to have a minimum five-year usage period.

The two parties have also not decided on whether Asianet should be given a flat licence fee or have a revenue-sharing mechanism. “The modalities of the agreement are being worked out,” a source said.

Asianet is exploring the possibilities of using Zee’s platform in international pay-TV markets. The channel is already available in the Gulf as a free-to-air service and there woud be no change in that arrangement, a source in the company said. “We will only need Zee in pay-TV markets,” he added.

But it remains to be seen if the revised deal gives Menon enough to keep him satisfied. He gets access to Zee’s distribution strength and digital expertise. More importantly, he will not have Zee to compete with in Kerala. And he can hope to consolidate his position in the state through the strategic alliance with Zee. He is already planning to launch a digital, 24-hour Malayalam news and current affairs channel in a month.

But there is a big drawback for Menon: Will he agree to a stunted growth? He gets Kerala but is kept away from the other southern states. Even the usage of the Asianet brand is not mandatory on Zee.

“Zee will be allowed to use the Asianet brand for the three languages at an agreed licence fee,” the company has said. The statement does not say that Zee will use the brand. “Zee has kept its options open. There is a rethinking on whether the company should promote the Alpha as a pan-national regional brand or go ahead with Asianet in the South. With no equity alliance, it does not make sense for Zee to invest in a brand that it does not own,” said Subhabrata Majumder, an analyst at First Global.

Chandra has made Asianet agree not to part with a majority stake. He has also made Menon agree on whom to sell: He can bring in minority financial investors but no broadcaster.

Clearly, Menon loses more than he gains. And he does not even get money from Zee, except for the Kannada and Tamil assets. So why did he agree? Analysts say Menon’s first objective was to get out of the earlier MoU with Zee. By agreeing to sell 61 per cent stake in Asianet in an all-stock deal, Menon had not factored the downslide of the Zee scrip. Said Majumder, “The main reason for the withdrawal from the earlier arrangement is the decline in the Zee price from the Rs 900 levels to Rs 450 levels. Since it was an equity deal, the value of the holding of Asianet promoters have come down substantially which would have acted as a trigger for the decision.”

Zee also wanted to be out of the deal as Asianet had signed a non-compete agreement with Raheja’s cable network in Kerala. This would have kept Zee out of its cable business in the state. “The potential value of our cable business would have been much higher than our earnings from the satellite channel activities,” a Zee official said.

The non-compete clause, signed in May, 1999, is valid for five years. As Zee can’t wait that long, analysts said Chandra and Menon agreed on a patch up deal. “It meets the defensive needs of both the parties,” an analyst said. Will the deal be broken? “It will last till the goodwill between the two partners lasts. They may not look beyond the MoU which they have signed. Even if they enter into an agreement, there will be too many exit clauses. Menon may be waiting for an opportunity to come his way,” a source said.

Sibabrata Das

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