Media Reform: Will the mega-mergers actually happen?

With the much-hyped “media summit” taking place in Canberra tonight, the most likely outcome – if you look closely at the numbers – appears to be that the ‘reach rule’ could be removed.

As media bosses descend on parliament house in a concerted effort to push for media reform, it’s possible that the ‘two out of three rule’ could disappear – it doesn’t have full support from independents, Labor or the Greens; the latter of which are attempting to “split” the proposed changes.

If the media laws were to change, will a sudden rush of deals take place between the big media companies?

There has been much speculation that Seven, with a market cap of about $1 billion, may acquire HTE (formally APN) – a radio and outdoor business valued at about $760 million.

Seven are said to be keen on HTE-owned radio assets, ARN. It’s not clear of their interest, if any, in their outdoor assets.

A deal like this could allow a newly merged group to sell television, radio and outdoor as one package, as well as other potential synergies, including digital.

Another rumoured merger is between Nine, valued at about $900 million, and Southern Cross Austereo, worth about $1 billion.

It appears Nine may be courting two suitors; SCA and Fairfax. Although as Nine have stated, they are not interested in newspapers but are interested in radio.

Fairfax is a majority shareholder in the Macquarie Radio Network, which includes 3AW and 2GB; this would give Nine a healthy and strategic mix of television and radio assets.

The other player in all this, and undeniably the most notable, is Lachlan and the Murdoch family. Lachlan already owns the NOVA Entertainment radio company, and Murdoch’s News Corp owns a share of Ten and Foxtel.

They already have a tie up and pseudo control via MCN, which sells advertising on both Foxtel and Ten. News also owns newspapers including The Australian, The Daily Telegraph and The Herald Sun, giving News a compelling mix of newspapers, radio and television.

First, though, the laws have to be changed. If that happens – and it is still an “if” – the much talked about mergers may not proceed anyway.

While it’s an attractive proposition to build scale, there are questions on wether real synergies can be extracted. Owners, CEO’s and their boards have to agree on the value and have to want to do a deal.

Will these potential mergers be good for listeners, viewers and readers? Could they be good for shareholders over the longer term? How will they affect employees?

One thing is for certain: If the laws don’t change now, they likely will in the future. It’s just a matter of when.

The world has changed and will change even further with the continued growth of international media companies like Facebook and Google.

Australian media operators are arguing for a more even playing field. That seems fair, although part of their problem is that they are laden down with so much debt.

While revenues (and profits) have declined at some companies, revenues and profits have risen for others.

Looking at the debt levels, SCA has the biggest debt at around $340 million, Nine about $170 million, Fairfax about $180 million and APN about $160 million.

Then there is the Network Ten with a $200 million loan facility through the Commonwealth Bank – backed by Lachlan Murdoch, James Packer and Bruce Gordon – which falls due 23 December.

Those levels of debt don’t help the companies’ financial performance. And there may be some correlation with those debt levels and which companies are pushing hardest, and talking up media law reform.

If the laws do change, one thing is almost certain: The Turnbull Liberal Government will almost certainly return to power at the next federal election.

Delivering the much sought after media law changes to current media operators would surely ensure favourable coverage, you would have thought?