Rushed changes lose support
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Seven West Media controlling shareholder Kerry Stokes has reportedly withdrawn support for all of Labor's reforms, including cuts to broadcast licence fees, saying the price is too high given the increased regulation of print media and a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.
Frequently Asked Questions about this Article…
The "reach" rule prevents commercial broadcasters from reaching more than 75% of the Australian population. Removing it would make larger national mergers more feasible, which industry voices say could lead to cost-cutting, consolidation and changes to how regional services are delivered.
Southern Cross shares fell — at one point down about 8% — as markets began discounting the chances the government would pass reforms that could enable mergers. Southern Cross is Ten’s regional partner, has an affiliate deal expiring in June, and has been in talks with Nine about a potential merger if the reach rule is lifted.
Seven and Ten defected from a previously unanimous industry position. Seven West Media controlling shareholder Kerry Stokes reportedly withdrew support for the reforms, saying proposed benefits like licence-fee cuts aren’t worth increased regulation and a new public interest test. Ten’s incoming CEO Hamish McLennan warned removing the reach rule would likely lead to mergers and could harm regional Australia.
Senator Stephen Conroy has proposed a more subjective public interest test intended to prevent excessive concentration of media influence. Analysts say such a test could reduce the scope for horizontal mergers (for example between newspapers and TV) and might even block acquisitions of broadcast assets by major players like News Ltd.
The "two out of three" test requires that a media company cannot have an interest across all three traditional platforms — print, radio and television. It is already used to limit cross‑media ownership and remains part of how mergers would be assessed under the reforms.
Communications Minister Stephen Conroy referred the reach rule bill to a subcommittee and a joint select committee was appointed. That committee is not obliged to report until June 17, which makes a speedy resolution less likely than initially hoped.
Merrill Lynch analyst Sameer Chopra warned that opposition in the sector means passage cannot be assumed. Credit Suisse analyst Samantha Carleton expects the reach rule to be removed eventually but thinks it won’t happen quickly enough to be part of the current reform package. Credit Suisse also estimated a Nine–Southern Cross merger could deliver about $50 million in synergies.
Industry leaders have cautioned that mergers enabled by lifting the reach rule could lead to cost-cutting that harms regional Australia. News Ltd CEO Kim Williams also urged Parliament to take time to consider changes that could affect billions of dollars of investment and thousands of jobs, highlighting the potential economic and community impacts.
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