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Indian TV tie-up could bring AOL to Zee

Zee Telefilms Ltd's plan to form a joint venture with AOL Time Warner's Indian unit to distribute each other's channels in India could be a prelude to AOL taking a stake in Zee, analysts said.

Directors of Zee, India's largest private television network, are meeting on Thursday to approve a possible joint venture with Turner International India.

The move comes amid long-running speculation that Zee, which has said it wants to sell a stake to an international partner, is close to choosing AOL as an investor.

Talk of the stake sale, which would enhance Zee's content and global reach, has lifted Zee's share price 47 per cent in the past month. The shares were down 2.8 per cent on Wednesday afternoon, despite a 0.3 per cent rise in the main stock index.

Zee has confirmed that AOL is among the companies it is talking to for the stake sale, according to newspaper reports.

"They are in talks, their plans for a distribution joint venture means they have a relationship and they could very well be heading for something bigger," said an analyst with a foreign brokerage, who did not want to be named.

Other potential investors mentioned in media reports were France's Vivendi Universal and Viacom of the United States.

AOL chairman Steve Chase last week mentioned China and India when he said the company will look to buy businesses abroad to spur growth.

Zee operates 14 channels in India, a mixture of general entertainment, movies, news, music and regional language offerings. Turner International operates three -- news network CNN, English movie channel HBO and Cartoon Network.

Zee already has a content sharing agreement with CNN for its Zee News channel.

PLUS POINTS FOR AOL

Analysts said combining distribution would be of greater advantage to AOL than to Zee, though it could improve Zee's content offering on the margin.

Combining popular channels gives broadcasters greater clout in securing distribution deals with cable operators in India's hugely fragmented cable industry, which reaches about 35 million homes.

"Turner currently reaches out to only some nine million viewers (in India) compared to over 200 million that Zee reaches," said Subhabrata Majumder of Inquire Indian Equity Research. "So a joint distribution with Zee will naturally mean a stronger platform for AOL in India."

Cartoon Network, which airs English cartoons mostly dubbed in Hindi, is likely to be the most valuable addition to Zee's bouquet, analysts said.

"There are definitely areas of overlap in this arrangement because Zee already has an English movie channel -- Zee MGM -- in a tie-up with Metro-Goldwyn-Mayer and also a content sharing arrangement with CNN for its Zee News channel," Majumder said.

Analysts do not see much financial gain from the venture for Zee.

"It is not as though Zee can dramatically increase subscription charges for its bouquets after this," said another analyst with a domestic brokerage.

Zee has been trying to increase subscription rates to offset pressure on advertising revenues, making its flagship general entertainment Zee TV channel a pay channel in June.

Another analyst said a deal with AOL will eliminate a threat from Zee's rival Sony Entertainment Television India, which has also reportedly been in talks to combine distribution with AOL in India.

Zee has been fighting hard in recent months to regain the most popular broadcaster position it held for eight years before losing it to Rupert Murdoch's Star TV last year.

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