Indian entertainment's biggest takeover play, a proposed acquisition of Adlabs Films by Anil Ambani's Reliance, may be just the first move in a larger media strategy by the colourful tycoon.

Ambani, who has been a fixture along with his ex-actress wife on the Bollywood party circuit, has not yet made clear what he plans to do with a formal stake in the world's most prolific popular film industry, a business that has long been dogged by family fiefdoms and underworld links.

Reliance Capital Ltd., the financial services unit of his new Anil Dhirubhai Ambani Enterprises group, said last week it would buy a majority of the film processing firm and mutliplex owner Adlabs for nearly $83 million.

"Reliance seems fairly focused on building content assets first, so Adlabs seems a natural target, though I suspect there will be a couple more in the content space," said Vivek Couto, executive director at research firm Media Partners Asia.

"How they link these assets to distribution will be key: will they go the cable route and offer broadband phone, Internet and TV services, or will they go through the mobile route and start TV broadcasting via mobile? Or will they do both?"

The deal came just two weeks after Anil and older brother Mukesh, after months of acrimony, reached a settlement to divide India's largest private conglomerate between them.

While Mukesh keeps hold of Reliance Industries' traditional powerhouses in petrochemicals and oil, Anil will now steward the consumer-facing operations, utility Reliance Energy Ltd. and mobile services provider Reliance Infocomm.

Anil, out of his older brother's shadow, said he wanted to explore opportunities "in exciting new growth areas of the future".

Vikram Nirula, a director at private equity firm GW Capital, said the Adlabs bid is a sign the entertainment industry, while maturing, still has growth potential.

"It is the largest investment in the industry from a single source and brings a large Indian corporate into the space," he said.

MOBILES, MULTIPLEXES

For Anil Ambani, Adlabs could be a springboard for larger ambitions in entertainment, analysts say, speculating on what his next moves might be.

He could go for direct-to-home (DTH) satellite or TV over mobiles. Reliance Energy has applied to offer DTH while Infocomm, with 12 million users, did a deal with Microsoft in 2003 to create, test and deliver Internet TV, enabling phone and cable companies to deliver high-quality video over broadband networks.

India is the world's fastest-growing major mobile market and service operators are actively peddling video games, ringtones, movie clips and other services to its 56 million users.

"There hasn't been a serious attempt to synergise mobile and movies so far, but Reliance already has some infrastructure on the ground, which can enable digital distribution," Nirula said.

Adlabs has shown it can expand, starting as a film processor in 1978 and moving into exhibition and production, launching India's first multiplex cinema and the first IMAX dome theatre.

Reliance's money may fund existing businesses or entry into distribution and home video, covering the whole film value chain, analysts say.

Adlabs Chairman Manmohan Shetty and his daughter, who own about 27 per cent of the company, will see their holding fall to about 16 per cent, but will continue to lead operations.

"This is a significant change in the mindset of founders, who have typically not been prepared to give up more than half their holding," said Sunir Kheterpal, an analyst at Yes Bank.

India's family-owned entertainment firms have moved toward a more corporate structure since banks were first allowed to fund films in 2001. The huge Tata and Aditya Birla groups have entered the industry, which remains fragmented and largely opaque, with formal funding still limited and profits and innovation rare. The theatre business has seen the most sweeping changes. Only 2 per cent of nearly 12,000 screens in India are in multiplexes, but they have helped draw urban audiences back to the movies.

Multiplexes account for more than half the box office revenue of Hollywood releases in India and more than a third of collections for Hindi films, according to Yes Bank research.

They have also attracted investments. Private equity fund ICICI Venture invested 380 million rupees ($8.7 million) in PVR Cinemas, and GW Capital put in more than 150 million rupees in Shringar Cinemas Ltd.