More frames are being added to the ever-expanding Zee picture. Zee Telefilms announced today that it had signed a memorandum of understanding with ETC Networks to buy out the major chunk of the stake of promoters Yogesh Radhakrishnan, Yogesh Shah and Jagjit Singh Kohli in the company.

For a relatively small sum - Rs 178.40 million to be exact for 5.66 million equity shares representing 48.38 per cent of ETC's paid up share capital - chairman Subhash Chandra and group broadcast CEO Sandeep Goyal have added another two channels to the Zee bouquet.

Goyal proposes to mop up an additional Rs 70 million worth of shares through an open offer to etc shareholders and Zee Telefilms is likely to end up controlling 56 per cent of the ETC at the end of it all.

If this deal goes through it will be a follow-through of the Zee Turner JV that was initialled at the end of last year which added English movie channel HBO, CNN and Cartoon Network to the Zee bouquet.

It indicates that Zee Telefilms promoter Subhash Chandra is extremely serious about getting in a strategic partner. He is building an armoury which makes his Zee TV group look attractive to the two media groups he is talking to to become his strategic partner. The market has been abuzz about this possibility ever since Chandra spoke about it at the Merrill Lynch investment seminar in the southern state of Kerala earlier this month. This has led to the runup in its share price, says an investment analyst.

The immediate advantage of course is what the two channels add to the Zee platform. In the music channel segment where Zee Music was struggling, its position improves as compared to rivals B4U Music, MTV, Channel V. Etc, predominantly a music channel, has run very successfully by operating on the model of extremely low overheads and by offering space on the channel for music companies to air promos.

As far as etc Punjabi goes, it is the current leader in its language segment largely because of the exclusive rights it holds for the twice-daily airing of the Gurbani - verses from the Holy Book of the Sikh saints broadcast from the Golden Temple, Sikhism's holiest shrine. Alpha Punjabi too has some cachet with audiences thanks to its own telecast of local Gurbanis.

What Goyal will have to work through is how to make sure that the four channels effectively complement rather than cannibalise each other.

Asked to comment on the new deal that Zee was in the process of stitching together, a financial analyst said it was a reasonable value proposition. There is however, a greater value add in the four channels being morphed into two channels - something like an Alpha etc Punjabi for example, was the analyst's view.

The key issue is still whether a foreign partner would finally come on board and whether there would be a visible turnaround in the fortunes of the main channel Zee TV, the analyst said. "While these deals are fine, we would also like to see an improvement in Zee TV's programming hold over viewers," she says.

Coming back to the deal itself, what is likely to take place is a major rationalisation exercise which will probably see significant staff offload.

There is another possibility which has not got much attention though. The two new channels present a value add to the Zee bouquet in the kind of subscriber package that can be offered. This is relevant in the light of the increasing friction between broadcasters and the cable industry over both higher pay subscription rates and the demand that declared connectivity be significantly increased.

Zee is steadily increasing the bandwidth it occupies on the available prime band in cable TV networks and more channels offer it a greater manoevering capacity as to the subscription packages that it can offer. That the channels are both free to air adds to the possibility of them getting carriage and a favourable band on cable TV systems.

For Zee, the further down on the cable feed the channels of rival networks like Star and Sony are pushed the better. It also needs mention that the etc channels will now possibly get carriage on the Hinduja-promoted InCable Network, an absolute no-no at the moment. This is because the three ETC promoters Kohli, Radhakrishnan and Shah set up their network after breaking away from IN Cable.

For the etc trio, the cash injection will come in handy. The network has been in need of a cash injection to achieve the vision each of them has planned for it. The etc board meeting on 25 February is all but a formality, it appears from the confident manner that Goyal has been speaking about the transaction.

Click here for shareholding pattern of ETC Networks as declared to the Bombay Stock Exchange on 31 December 2001.