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Zee Entertainment Enterprises Ltd (ZEEL)’s plans to hive off its recently-launched youth channel Zee Next and to re-enter film production has the potential to improve its earnings prospects. The spin off (expected in the second quarter of the current fiscal) could remove the burden of the new channel launch on ZEEL’s earnings. ZEEL had earmarked Rs 300 crore as expenditure for programming and marketing of Zee Next for FY-09.

Zee Next is the latest channel from the Zee bouquet that had been launched to take on competition from new entrants in the general entertainment category (GEC). Launched in December 2007, the channel is, however, yet to make a significant mark. Losses from the channel launch amounted to Rs 32 crore in 2007-08.

The details of the planned hive off have not yet been disclosed to the stock exchanges. The development was apparently announced at an analyst meet held by the company recently. While concerns on the competition front remain, ZEEL would be able to focus better on consolidating its No 2 position in the GEC category, once the spin off is complete.

Recent disclosures from the company indicate that ZEEL has also firmed up plans to foray into the film production through an existing Mauritius subsidiary, which would hold an 80 per cent stake in Zee Entertainment Studios. The company plans to divest a 20 per cent stake in the company to investors. The subsidiary would be an offshore one, along the lines of UMP (UTV’s motion picture division) and The Indian Film Company (Studio 18). ZEEL claims to have movies already in the pipeline for release in 2008-09 in multiple regional languages.

The foray into film production would add another dimension to the media conglomerate and the movies business will offer some synergies with its broadcasting business. While the business does have the potential for expansion, it is more risky and moves in this space will have to be closely monitored.

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