Media upheaval

The media sector could be set for its biggest upheaval since 2006, when foreign ownership rules were relaxed.

Recent media reports have speculated that Southern Cross could be considering a tie-up with Nine Entertainment, should current media legislation be relaxed. Currently, metropolitan TV stations, such as Nine, Seven and Ten are prohibited from merging with regional broadcasters, but the federal government has flagged changes to existing media laws.

Regional free-to-air TV broadcaster and radio station owner, Southern Cross Media (ASX: SXL) has confirmed that it is reviewing its options – with its agreement with Ten Network Holdings (ASX: TEN) set to expire in mid-2013.

Southern Cross currently broadcasts Ten’s signal in regional Australia, but may have become disillusioned with Ten’s programming, and sliding market share. The Australian reports that a combined Nine and Southern Cross group could then list the TV operations on the stock market – with a value estimated at around $4 billion.

The potential switch to Nine Entertainment also raises questions about the future of Nine’s current affiliate, WIN Corporation, which is currently on a month-to-month contract with Nine. WIN’s options include switching to Ten, or go it alone and source its own content locally and offshore.

But it’s not only Nine and Southern Cross that could consider pairing-up. Seven West Media (ASX: SWM), may gobble up its regional affiliate, Prime Media Group (ASX: PRT), in which it already owns 11% and a long standing broadcasting agreement.

Should Southern Cross switch to Nine, Channel Ten would be left without a regional broadcaster, and its options could include setting up its own affiliate – if proposed changes to media rules go ahead –  or entering discussions with WIN Group.

Foolish takeaway

Things are certainly hotting up in the media space, with news last week that Kerry Stokes’ Seven Group Holdings (ASX: SVW) had taken a 5% holding in Ten, alongside other billionaires including James Packer, Gina Rinehart and WIN Group’s Bruce Gordon. The media landscape could see major changes in the months ahead.

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