Why the media sector is now ripe for mergers and acquisitions

Media ownership rule changes have passed through the lower house of parliament, suggesting the sector could be about to see plenty of mergers and acquisitions.

Previous rules meant media companies were restricted from owning more than two out of three types of media – television, newspapers and radio – in one geographical area – like metropolitan Sydney.

That rule has now been abolished, meaning media companies can own several types of media in the same region.

The government has also removed the reach rule, which prevents a company controlling commercial TV licences that reach more than 75% of the population. That has led to metropolitan broadcasters like Nine Entertainment Co Holdings Ltd (ASX: NEC), Ten Network Holdings Limited (ASX: TEN) and Seven West Media Ltd (ASX: SWM) signing affiliate deals with regional broadcasters Prime Media Group Limited (ASX: PRT) and Southern Cross Media Group Ltd (ASX: SXL).

In fact, Prime and Southern Cross are likely to be two companies in the front line, targeted by Nine, Ten and Seven.

Once the new media laws are passed, we could also see the likes of newspaper owners News Corp (ASX: NWS) and Fairfax Media Limited (ASX: FXJ) merging or acquiring commercial TV broadcasters, as well as radio station companies like Macquarie Media Ltd (ASX: MRN) – of which Fairfax owns 54.5%.

Telstra Corporation Ltd (ASX: TLS) could also see the relaxed media laws as a way of either divesting its 50% share of Foxtel, or move further into the media sector to acquire growth. The new rules may allow partner News Corp to acquire Telstra’ share, or for Foxtel to be demerged into a separate company.

The giant telco has struggled to generate top-line revenue growth but also appears to like the idea of becoming a media/content provider.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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