The beaten down free-to-air TV industry got a boost yesterday thanks to a joint parliamentary select committee on broadcasting legislation recommendation to abolish the controversial TV 'reach rule'. Abolition of the rule means a potential green light for a round of future mergers between large metropolitan broadcasters and regional networks. This would allow free-to-air broadcasters to potentially reach greater audiences.
The current 'reach rule' prevents city broadcasters such as Ten Network Holdings (ASX: TEN) and Seven West Media (ASX: SWM) from 'reaching' more than 75% of the population through mergers with regional broadcasters. The rule is designed to ensure that country or regional broadcasters produce sufficient programming relevant to regional Australia. However, the rule is now widely considered redundant, given the emergence of the 'digital age' and the general move of consumers away from free-to-air TV.
Australia's other major free-to-air commercial broadcaster, the Nine Entertainment Company, currently has a regional programming affiliation with the unlisted WIN Corporation. Although, earlier in the year, Nine was in talks with Southern Cross Media (ASX: SXL) about a potential $4 billion match-up. A full merger with either would see Nine broadcasting from all five capital cities on the mainland on television, radio and online.
This would be significant — as it is likely to precede the prospect of any initial public offering of Nine. A continued weak advertising market is said to be putting the group off the prospect of a float for now, but if advertising revenues and other factors were to change, the prospect of an IPO comes firmer on the horizon. The 'reach rule' is thought likely to be legislated for removal in the first parliamentary session after the federal election in September.
Nine Entertainment's free-to-air competitors, the Ten Network and Seven West Media, have both seen their share prices slide dramatically in recent years. The Ten Network has suffered the most, with its share of advertising revenue continuing to fall, as it struggles to find programs viewers want.
Ten is currently in the process of renegotiating its regional affiliation deal with Southern Cross and is said to want a shorter deal than Southern Cross. This is maybe to give itself room for maneuver should the scrapping of the 'reach rule' open up the possibility of other mergers for Ten in the future. At the same time Ten's disappointing recent performance may have driven Southern Cross's recent flirtation with Nine, neatly demonstrating the competing world of Australian media alliances.
Foolish takeaway
Uncertainty over the 'reach rule' has overshadowed recent talks between Australia's leading free-to-air broadcasters and their regional affiliates. Removal of this uncertainty opens the door to some significant future mergers as the sector reinvents itself in the quest for market share. Critics have described free-to-air TV as being dead in the water as a business model, however this relaxation of the rules may be the shot in the arm the industry needs. In light of this, making the right strategic moves in the near future will be critical to the success of free-to-air TV channels.
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More reading
- Is this the end for Ten?
- Ten's bid to stump Nine
- Why Seven West Media shares surged
- More Aussie content for TV networks?
Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.
