Southern Cross Media shares fell on Wednesday as markets started discounting the chances of the government passing media reforms that would ease mergers and acquisitions in the sector.
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 the previously unanimous industry position.
"Removing the reach rule is likely to lead to mergers," said Ten Network chief executive Hugh McLennan on Wednesday. "The way to make mergers work is to strip out costs. The people of regional Australia would suffer as a result."
Seven West Media's controlling shareholder, Kerry Stokes, has reportedly withdrawn support for all Labor's reforms - including cuts to broadcast licence fees - saying the price is too high given the increased regulation of print media and the public interest test for mergers.
The prospect of the bill's failure punched a hole in the share price of Southern Cross, which was 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. But his haste has also come in for criticism.
"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 Kim Williamssaid in a speech to the Australia-Israel Chamber of Commerce.
Merrill Lynch's Sameer Chopra said the 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."
Currently the "two out of three" test prevents a media company from having an interest in all of print, radio and television. Senator Conroy is also proposing a more subjective public-interest test which seeks to prevent media outlets that are deemed significant from concentrating their influence.
Credit Suisse believes this rule may prevent News Ltd from acquiring broadcast assets in Australia like Ten, or radio stations.
HOW THE REFORMS IMPACT THE MEDIA PLAYERS
News Corp: Public interest test; press standards body and supply agreement regulation
Fairfax Media: Public interest test and the creation of a press standards body
APN News Media: Public interest test and the creation of a press standards body
Ten: Licence fee cut; increased regulation of supply agreements
Seven West: Licence fee cut; faces public interest test
Southern Cross: Licence fee cut; potential merger with Nine or Ten
Prime Television: Licence fee cut; potential merger with Seven West
SOURCE: CREDIT SUISSE