Communications Minister Stephen Conroy has given backing to media ownership reforms that pave the way for a round of mergers in the broadcast sector.
Fairfax Media revealed earlier this month that Nine Entertainment and Southern Cross were in negotiations that could result in the two companies dumping their broadcast partners and merging to create a media powerhouse.
But it will only be possible if Senator Conroy succeeds in getting the 75 per cent audience reach rule changed. This would allow metro television stations and their regional partners to merge.
Channel Ten joined Seven in opposing the proposed reforms.
A statement from Seven West Media said it is clear there had "not been sufficient public engagement" on the implications of the changes to the reach rule.
"The interests of individual media groups in securing a deal should not be placed above the interests of regional viewers in ongoing provision of quality local content," it said.
The public interest test was also condemned by Seven West, the owner of the Seven network and The West Australian, as well as News Corp and the pay TV provider it half owns, Foxtel.
Ten Network's incoming chief executive, Hamish McLennan, welcomed the permanent cuts to broadcaster licence fees but described the one-day deadline for the review of the reach rule as "ill-conceived" and said it "does not follow appropriate due process".
"The removal of the reach rule needs to be part of a sensible, comprehensive media ownership reform package, not an ad hoc change," he said.
"The only possible outcome of ditching the 75 per cent reach rule - in isolation - will be a reduction in media diversity and a further reduction in news services in regional Australia."
Senator Conroy has referred the reach rule proposal to a subcommittee due to the concerns raised but made it clear he felt the "issues were dealt with in the legislation".
A Nine spokesman said: "Nine anticipates that Seven and Ten will unconditionally restore their previous long-term support for the removal of existing reach rules now that the minister has brought forward his complete media reform package, thus satisfying their concerns expressed for the first time only in recent days that consideration of the reach measure might somehow jeopardise the approval of other reforms. No such potential for jeopardy now exists."
If Nine signs Southern Cross as an affiliate, or succeeds with a merger, this would force Nine's current regional affiliate, WIN Television, to partner with the embattled Ten Network.
Senator Conroy declined to comment on the potential merger between Nine and Southern Cross if the reforms are passed.
"It's not for me to comment on the commercial manoeuvrings of any of the organisations involved," he said.
The most logical deal - if the reach rules are changed - lies with Seven's controlling shareholder, Kerry Stokes. His investment company, Seven Group Holdings, owns 35 per cent of Seven West Media and 11 per cent of its regional affiliate, Prime Media.
Not everyone thinks the changes will be good for media deals.
Foxtel chief executive Richard Freudenstein criticised the introduction of a public-interest test for media mergers and acquisitions.
"Foxtel regrets the decision by the government to introduce cumbersome and unnecessary media-specific regulation that will hinder investment in the media sector," he said. "Under the proposed regime, a transaction in the media space could be subject to review by up to four different regulators. This will add delay and complexity to any transaction."
RBS Morgans has said a merger between Nine and Southern Cross could generate $50 million a year extra in earnings before interest, tax, depreciation and amortisation (EBITDA) from switching affiliations and cast savings from merging the TV operations.
This would represent an additional $400 million in value for Nine and Southern Cross shareholders if the government succeeds in lifting the reach rules and the merger goes ahead.
But analysts expressed scepticism about whether this is the end game for Nine and Southern Cross.
Steve Allen, chief executive of the media consultants Fusion Strategy, said that both parties might be using the talks as "leverage" against their current affiliate partners.
"Both can gain even if they never get together," Mr Allen said.