Rajiv Garg, head (corporate strategy and finance) of the entire Essel group, says that FY07 cable revenues are seen at Rs 300 crore (Rs 3 billion), and are seen to be doubling for the next 2 years.

He says that they are looking at launching Tamil and Malayalam channels soon.

He further adds that they plan to invest Rs 500 crore (Rs 5 billion) in DTH.

Excerpts from CNBC-TV18's exclusive interview with Rajiv Garg

Can you confirm your plans and by when do you plan to launch these two new regional channels?

The channels have been planned for a very long time. Zee has a growing and developing franchise in the South Indian language market. We launched Kannada sometime ago, and we are now looking at Malayalam and Tamil.

In terms of the time horizon, the channels would be phased in. Malayalam would probably go first and that should happen quite quickly.

Of course the market is quite excited about the new TRAI's recommendations of revenue sharing between channel operators, MSOs (multi system operators) and cable operators. What have you made of that formula? Do you think you would finally derive revenues according to that formula or will there be some kind of interconnect agreement, which will be struck out mutually between the players?

This is actually the first serious regulatory intervention in the cable industry. Cable distribution has been largely unregulated. This is an excellent starting point. Some sort of a formula would be required to bring some sort of an order, in what are fairly chaotic circumstances here. This is a welcome decision to get regulation going in this industry.

From your initial dialogue with all the participants or all the intermediaries, what is your sense, is a 45-30-25 break-up okay with channels, cable operators and with MSOs?

I haven't actually discussed this with anyone other than our own broadcast set up. If you actually speak to the three elements individually, all of them would be dissatisfied. At least privately, they would say that they should have had 5% more.

But on the whole, it's in line with the way the pie breaks up internationally. When it is left free for market forces to determine, the final shape would be fairly close to what we have here.

What happens to your distribution business, both, in terms of how much more money you plan to pump into the business, and how much you are expecting to see in terms of revenues?

We have very substantial plans for cable. There has been a confluence in the market between regulatory impetus and the market forces, moving towards addressability and digitisation and so on.

So as we write this into the next three years or so, we have already said that Zee plans to invest about Rs 500 crore into this and Wire & Wireless India Limited, WWIL, which is a company into which the cable businesses would demerge shortly.

What could be revenue upsides to Zee and Siti cable if the revenue is actually split up from the distribution side anywhere close to the formula, which has been put out by TRAI?

The numbers that we had internally worked out were not very different from what TRAI has put out. The question is how quickly will it pan out to cover all of India.

There would be regulatory assistance required in implementing this. As you know we are initially looking at three metros only. To answer your question specifically in terms of revenue projection, we are projecting pretty close to Rs 300 core for this financial year, FY06-07, and an annual doubling for the next two years.

So in terms of the potential for growth, there is no doubt about where we can take this with some amount of regulatory far sightedness coming in. So this maintains the interest of the consumer and brings order to this industry.

Just to be sure you are saying that this year could be 300, next year 600 and the year after that 1,200 from distribution alone?

Just from cable distribution alone, not counting DTH (direct to home) actually. We are talking of taking this upto Rs 300 this year, Rs 600 next year and Rs 1,000 the following year. It is a three-year Rs 1000 crore target, backed by an investment of about Rs 520 crore.

Switching back to the business for Zee Entertainment etc, have you seen at all any traction in terms of ad rates in the past few months?

We have seen quite a bit actually. As you probably know, in the general entertainment category, we are the only channel, which has grown GRPs (Gross Rating Points), the others have fallen.

So there is a process of readjustment that's taking hold. As the relatively long-term contracts mature, they have to be renewed. That's when the full impact of the re-rating process would come into play.

We have seen a fair traction, which you would also have seen in the quarterly results that we reported last quarter, and that would continue through this quarter as well.

Do you think that you will see implementation and maybe pricing or distribution of revenues along the lines, which are being advocated now or do you think those will get stalled once again?

The market is moving. They want digital quality; they want addressability. The market is actually a little tired of analogue and the way this industry is structured so far.

So I would expect the market actually to exert a pull, which should aid regulation and see it through this time around.

Do you sense any kind of insecurity among the cable operators, as for the first time we are actually seeing DTH edging in?

I use reform in a secular sort of a way. But they would certainly reform the practices that have marked the growth of this industry. I strongly believe that we have a coalition between five partners.

We have the consumer, the cable operator, the MSO, the broadcaster and the government. I really don't think it's a great idea to work on strategies that would leave any one of the five behind. So it's not that the interest of cable operator would not be protected.

I think the amount of revenue that can be generated, if this whole thing works, as a sort of broad cooperative, in a coordinated manner from households, is far greater. And if their percentage of that revenue goes down, it will be a percentage for much larger ARPU (average revenue per user) that would be collected. Therefore, their interest can be reasonably protected. However, some of the practices that they have been used to would probably have to change.

What is the roadmap post these three cities in terms of the cities, which you are going to target? How potentially big will they be for you?

We have been present in each of these cities through Siti Cable. We are planning simultaneous movement into these cities. The presence that we have in Delhi has been traditionally strong. In Calcutta we acquired RPG sometime ago, and we are now giving special attention to Bombay.

So we are moving on all the three fronts simultaneously. The initial moves have already been set loose, including a certain part of the investment that we spoke about.