**OT** The Sky's No Limit --> ZEE
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The founder of India's biggest media company, Zee Telefilms, wants to go global. He's starting with a huge U.S. share offering.
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By Sadanand Dhume in Bombay
The Fareastern Economic Review
Issue cover-dated March 16, 2000
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From his 35th-floor office, Subhash Chandra has a stunning view of Bombay's skyline and, for as far as the eye can see, the Indian Ocean. It's a fitting perch for an entrepreneur poised atop India's booming satellite and cable-television business--one whose sights are now set on expanding into cyberspace by providing Internet service and content, and into outer space by launching India's first private communications satellite.
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To help finance his ambitions, Chandra plans to raise up to $1.5 billion by listing his flagship company, Zee Telefilms, on a U.S. stock exchange this year. Which exchange is yet to be decided by Zee's board, but it would be the largest-ever international share offering by an Indian firm. Zee, India's biggest private media company, makes and buys TV programmes, distributes them via satellite and cable, and produces entertainment and educational content for the Internet. Thanks to his 70% holding in Zee, one of the best-performing stocks on the Bombay exchange, Chandra's net worth is estimated at $9 billion, making him the world's second-richest Indian after software tycoon Azim Premji of Wipro.
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In a February 28 interview with the REVIEW, Chandra said his goal now is to make Zee's television and Internet content available to anyone, anywhere, at any time. The company's plans include delivering Internet content using high-speed cable-TV lines, adapting TV content for Web sites and creating educational Web sites about South Asia. With Goldman Sachs predicting that India's population of Internet users will soar to 70 million by 2003 from just three million today, Zee hopes to use its brand recognition from TV to vault into a dominant role in new media too.
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Anand Vasudevan, an analyst at SG Asia Securities in Bombay, reckons Zee can do it. "It is at the top of the country's media universe. It is the country's only media company with software production, and worldwide broadcasting and distribution through cable and satellite." Bharat Shah, chief investment officer at Birla Mutual Fund in Bombay, says Zee's acquisition last year of full control of India's No. 1 cable-TV distribution network, SitiCable, gives it a head start because it's able to offer faster Internet access through fibre-optic cables than is available through India's slow, unreliable phone lines. Zee has also acquired a licence to set up Internet service providers all over India.
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In the same breath, though, analysts warn that Chandra faces serious challenges. They say Zee will need to hire top-flight talent to oversee the expansion and to run the company more professionally. It also needs to stay ahead of aggressive competitors such as Sony and Rupert Murdoch's StarTV, while tightening control over its cable-distribution business. And Chandra must ensure that concerns over his plans to acquire a foundering satellite-phone company don't cool investors' ardour for Zee.
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But then Chandra's journey from small-town north Indian rice trader to media tsar is the story of a willingness to take dramatic risks. He set up India's first plant to make plastic tubes and founded one of the country's first amusement parks, both of which he still owns. In 1992, he ventured into the TV industry with Zee.
An early grasp of the potential of cable and satellite, an instinct for gauging Indian tastes and a no-frills operation have been key to the 49-year-old's success in building Zee from a single channel in 1992 to a network of seven. During prime time, one-third of the 25 million Indian homes that have cable TV tune in to a Zee channel to watch its dramas, music shows, movies and news. Outside the Subcontinent, Zee has about a million subscribers, mainly among the Indian diaspora in Britain and America. The company's profits have grown--they're estimated at $14 million for the nine months ending December 31, about the same as in the whole of the previous fiscal year--and its share price multiplied 17 times in 1999.
Unlike rivals such as StarTV, Zee has virtually ignored India's English-speaking elite. Instead, it provides Hindi entertainment to "the masses, not the classes," in the words of its executives, while keeping staff to a minimum and salaries and perks low. "We have the nose to smell this earth," says Chandra of the popular appeal of Zee's programmes. The company has recently launched channels in the Bengali, Marathi and Punjabi languages. It also plans to start two English-language channels in March and a sports channel is likely this year. SG Asia Securities forecasts that India's cable-TV audience will rise to about 300 million by 2005 from 125 million today.
The $1.5 billion expected to be raised by Zee's U.S. share offering will be used to fund the expansion of its television empire and its Internet plans. Chandra says the listing not only aims to raise capital but also to "benchmark Zee's stock against other global players'." Vasudevan says the U.S. listing will enable Zee to build partnerships with other media companies through share swaps and strategic investments.
However, analysts caution that Chandra's ambitions will require much more than money. First, they say, Zee's top managers, while competent, lack the marketing skills and grasp of fast-changing technology needed to build a multinational company. Chandra says he's aware of the need for high-calibre, professional management. He has hired a headhunter to recruit up to 20 senior managers who will be groomed as future chief executives of his TV and Internet businesses.
Analysts also say Zee must stay ahead of arch-rival Sony Entertainment Television. In two years, Sony's flagship channel has claimed a quarter of India's prime-time cable-TV viewers, largely by copying Zee's success with Hindi shows. Kunal Dasgupta, chief executive of Sony's Indian television unit, says his company has what Zee lacks--international backing, which gives it access to cutting-edge technology, expertise and global partnerships.
Moreover, Chandra acknowledges that Zee must tighten control over its cable-TV distribution: Local cable operators, which collect monthly subscriptions, often report only one in five customers. Zee plans to deal directly with customers in areas where cable operators are short-changing it.
One venture that may not go down well with investors is Chandra's purchase in November of a 26% stake in ICO Global Communications, a yet-to-be-launched global satellite-phone service under bankruptcy protection. He is teaming up with U.S. investor Craig McCaw to pump $1.2 billion into rescuing ICO. Chandra sees ICO's troubles as an opportunity to buy it cheap. Besides, it's part of his strategic vision: For countries like India with poor telephone infrastructure, he says, satellites will play a much more important role in delivering data, voice and multimedia than in developed countries.
In 2002, ASC Enterprises, another company he owns, is due to launch a $869 million satellite called Agrani that is being built by Lockheed Martin. Chandra says Agrani will provide low-cost satellite-phone services in India. With a pan-Asian "footprint," Agrani will also lease its transponders to Zee and other TV companies. That will reduce Zee's dependence on Asiasat. It seems the sky's no limit for Chandra: "Nothing is impossible if there is enough desire and conviction to achieve it." |
