The media merger fever has come to an abrupt halt on reports that the federal government is scrapping plans to loosen ownership restrictions.
Free-to-air television companies are the worst hit by the news this morning with shares in Ten Network Holdings Limited (ASX: TEN) tumbling 4.3% to 22.5 cents, Nine Entertainment Co Holdings Ltd (ASX: NEC) falling 1.6% to $1.59 and Southern Cross Media Group Ltd (ASX: SXL) losing 3.6% to 94.5 cents.
Without corporate activity, it's hard to see any real value in these stocks as they are quickly losing viewers to on-demand internet streaming videos.
But the federal government has poured cold water on the sector by backing away from plans to remove cross-media ownership restrictions because of the lack of "high level consensus" in the industry, according to The Australian.
Television operators are the most impacted by the setback because news publishers like Fairfax Media Limited (ASX: FXJ) have already gone through their baptism of fire a few years back as advertisers abandoned the medium for online alternatives.
These companies have been forced to make painful restructures and now its TV's turn.
Allowing media operators to own multiple assets across metropolitan markets will give these companies a better chance at building a sustainable business but without reforms TV companies will face a much tougher time turning around their operations.
Is the show over for TV stocks?
These stocks are already among the worst performing in the sector, as I wrote yesterday, and speculation around the takeover of Ten Network and asset divestments from Southern Cross to pay down debt appear to be off the table.
Interestingly, Seven West Media Ltd (ASX: SWM) has bucked the trend this morning as it gained 1% to $1.045 after I suggested that it is the only listed TV stock that seems to be in value territory.
However, I suspect this isn't the end of media ownership reforms. There's just too much at stake for the industry not to get together to collaborate with stakeholders to find the way forward.
The Coalition's decision appears to be more about political expediency than anything else as the government has essentially pushed the difficult task back to the sector to sort out.
This strategy carries lower risk to the government should something go wrong with the reforms. If the industry can reach consensus and goes back to the government to push through these big changes, and something goes wrong, the Abbott government can at least then turnaround and put the blame back on the media sector.
Hunting for bargains in the sector can bring big rewards but its only for the brave given the political uncertainties and the difficulty in predicting mergers and acquisitions.
If you are looking for stocks with a big upside but with less risk, sign up for free below to see some of the gems the experts at the Motley Fool have found.
