NINE Entertainment is in talks with Southern Cross Media about a deal that could redraw the relationship between Australia's major broadcasters and their regional affiliates.
Sources close to the two media companies confirmed that Nine and Southern Cross recently began talks on a potential affiliate deal that would see Nine dump long-term regional partner, Bruce Gordon's WIN Corp, and Southern Cross drop its embattled partner, Ten.
Such a deal is possible as Southern Cross' rights with Ten expire in June, while Nine has been on a rolling contract with WIN since their deal expired last year. Nine and WIN began talks only recently after Nine's new owners formally took control this month.
Sources denied that a closer relationship was planned between Nine and Southern Cross, despite the latter's share price rocketing 35 per cent in a matter of weeks on takeover speculation.
"I don't comment on speculation," Southern Cross chairman Max Moore-Wilton told BusinessDay on Thursday in response to the rumours. "If we've got something to say we'll put out a release."
Nine also declined to comment.
A merger between the two would not be possible at the moment due to the 75 per cent audience reach rule, although this is now under review.
Analysts have said mergers between TV networks and regional affiliates would make sense - if the audience reach rule was changed - due to the cost savings that could be extracted from combined operations.
Nine would still need a deal with WIN unless it was prepared to abandon the Perth and Adelaide markets where WIN owns the Nine Network stations.
Industry observers said this raised the prospect that talks could serve to extract better terms for Nine and Southern Cross as they negotiated with their partners.
Southern Cross, which sources the bulk of its programming from Ten under the affiliate deal, has suffered from Ten's poor ratings performance over the past year and reported television revenue was down 16.5 per cent to $113 million for the December half-year.
Southern Cross hands over 30 per cent of its television revenue to Ten as part of the deal, while Seven and Nine's regional affiliates pay fees of about 33 to 34 per cent.
Speaking at the company's first-half results last week, Southern Cross chief executive Rhys Holleran said he remained supportive of Ten.
"TV ratings are challenging, but we believe we are turning the corner and we remain supportive of our supply partner Network Ten," Mr Holleran said.
Late last week Ten sacked chief executive James Warburton and replaced him with the News Corp executive Hamish McLennan.
"Network Ten is in talks with Southern Cross Media about extending our current program supply agreement," a network spokesman said. "Those talks are, of course, confidential and we are not in a position to discuss them publicly."