Southern Cross Media shares deflated on Wednesday as markets started discounting the chances of the government passing media reforms governing potential mergers and acquisitions.
What was presumed to be an easy passage for abolishing the "reach" rule, which prevents commercial broadcasters from reaching more than 75 per cent of the Australian population, has turned into a dogfight with Seven and Ten defecting from a previously unanimous industry position.
"Removing the reach rule is likely to lead to mergers," Ten Network incoming chief executive Hamish McLennan said. "The way to make mergers work is to strip out costs. The people of regional Australia would suffer as a result."
Seven West Media controlling shareholder Kerry Stokes has reportedly withdrawn support for all of Labor's reforms, including cuts to broadcast licence fees, saying the price is too high given the increased regulation of print media and a public interest test for mergers.
The prospect of the bill's failure punched a hole in the share price of Southern Cross, down as much as 8 per cent on Wednesday. Southern Cross is Ten's regional partner but the affiliate deal expires in June and it is in talks with Nine about a merger if the reach rule is lifted.
According to Credit Suisse, a merger between Nine and Southern Cross could yield $50 million in synergies.
The reach rule bill has been referred to a subcommittee by Communications Minister Stephen Conroy, who unveiled the reforms on Tuesday and is pushing for a speedy resolution. This is appearing less likely with the joint select committe appointed on Wednesday evening not obliged to make a final report until June 17.
"The Parliament needs time to consider in detail changes that affect billions of dollars of investment, thousands of jobs and the future of entire business frameworks," News Ltd chief executive Kim Williams said in a speech to the Australia-Israel Chamber of Commerce.
Merrill Lynch analyst Sameer Chopra said opposition to the bills suggested "there is significant debate in the sector and passage of the bills cannot be automatically assumed". Credit Suisse analyst Samantha Carleton said: "We expect the reach rule to eventually be removed, however, we see little prospect of this occurring swiftly enough for it to form part of the current reform package."
Mr Chopra said the public interest test - which has met with the strongest opposition - "would see reduced scope for horizontal mergers, for example between newspaper and television companies".
Media mergers now must pass the "two out of three" test, which prevents a media company from having an interest across the three traditional platforms of print, radio and television. Senator Conroy is now also proposing a more subjective public interest test which seeks to prevent media outlets from concentrating their influence.
According to Credit Suisse, this rule could prevent News Ltd acquiring broadcasts assets in Australia such as Ten, or radio stations.
Media groups are not the only ones criticising the proposed law.
"While the detail ... is yet to be provided, a public interest test on media mergers has the potential to impose a significant level of political influence ... [on] media transactions," law firm Norton Rose said.