Indias Zee, Star Call Off Merger

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New Delhi, India -- A cryptic statement issued last week by
one of India's dominant pay TV programmers, Zee Telefilms, announced that Zee and
Star TV have halted their merger talks.

Rupert Murdoch -- chairman of the company that controls
Star, News Corp. -- is apparently unwilling to fork over the asking price of Zee's
chairman, Subash Chandra.

"[Star's] valuation of Zee's business is a
stumbling block in talks with Star TV. Negotiations will be restarted only when they offer
us a true and fair valuation," said Rajhi Bakshi, vice president of corporate
communications at Zee Telefilms subsidiary Zee Network.

Star TV, the Hong Kong-based programming group, has had
strong ties with Zee Telefilms in recent years, as News Corp. and Chandra are partnered in
Asia Television Ltd., a Hong Kong company that supplies programming to Zee.

The deal that was called off would have effectively merged
the two companies' separate plans for direct-to-home platforms in India.

News Corp. was expected to take a stake in some other
properties owned by Chandra, while Chandra was expected to take managerial control of
Star's India-focused program networks.

The rift between the two companies was compounded by word
early this month from Pramod Mahajan, India's new minister of information and
broadcasting, who said he had decided to begin the long-delayed process of licensing DTH
platforms for the country.

Star immediately announced that it would partner in India
with Hughes Electronics Corp.'s local subsidiary, Hughes Ispat, on a DTH platform.
And Zee, in turn, said it is seeking a joint-venture partner for its DTH platform, and it
is negotiating with DTH providers in the United States and Australia.

Sources within Zee admitted that they weren't happy to
learn of Star's tie-in with Hughes Ispat, because Zee and Star were still in
negotiations at the time of the announcement.

Senior sources within the Ministry of Information and
Broadcasting said they have already prepared a list of dos and don'ts for the DTH
platforms.

A 60 percent equity cap on foreign ownership is part of the
plan. Other requirements include a license fee based on a percentage of revenue, adherence
to program-content restrictions and a must-carry provision requiring the platforms to
carry all 14 state-run Doordarshan channels.

Media analysts believe that the final curtain has not come
down on the turbulent talks between Star and Zee. "Star needs Zee, because the latter
is a financially sound company," said Kunal Dasgupta, CEO of Sony Entertainment
Television in India. "Together, both companies could be in a position to tap the
stock markets in a much better way. Star will find it difficult to go alone."

Urmilla Gupta, who heads Star's DTH activities in
India, said a merger would create a formidable media player in India, but he added that
DTH must be kept separate from any possible discussion.

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