Implications Of Proposed Media Reforms

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– Media reform proposal up for battle
-Two key proposals rejected by media, Opposition
– Likely most hostile for News Corp and print
 

By Eva Brocklehurst

The mulling over what to do with the fractious media has reached a pivot point in political circles with the Commonwealth Government's reform package to front parliament in the next two weeks. While there is a fair amount of water to go under the bridge beforehand, media analysts have scrutinised the proposals for the likely impact on key stocks, should the reforms get up. Citi finds that, if they go ahead, the reforms are only minor regarding the status quo but represent implication for the sustainability of traditional media companies in the medium term.

Some of the more contentious reforms are before a new parliamentary committee which has two weeks to consider before the bills are presented to parliament. The 75% TV reach rule is on hold, for now. The joint parliamentary committee is to review the merits of abolishing the rule. If agreement can be reached by interested parties, an amendment will be made to include this reform. In the end, the Opposition may approve some of the reforms but not all. Given the potential for a change in government after the election in September, of note is Opposition spokesman, Malcolm Turnbull's, remarks. He said a Coalition government would seek to repeal any legislation enacted in response to proposals for a public interest test and statutory press watchdog.

The basics, with which no one has much problem, include a permanent 50% reduction in television licence fees, setting the licence fee for the metro networks at 4.5% of revenue and 3.3% for the regionals, and Australian content quotas for multi-channels. Note that all three commercial free-to-air networks currently show more than the required amount of local content.

What is contentious? A public interest media advocate is proposed, tasked with overseeing statutory press standards and media mergers. A statutory press standards body is to be legislated, self-regulated and not funded or overseen directly by the government. These proposals have encountered much industry opposition. A public interest test is to be used in relation to media mergers. This will be opposed by the Opposition as well as the industry.

Credit Suisse suspects the argument will likely be made for existing cross-media ownership and competition rules being sufficient to ensure media diversity. Moreover, according to the broker, the move will likely be seen as an attempt to prevent any further acquisitions by News Corp ((NWS)) in Australia. Such a test could also, in Credit Suisse's view, have negative implications for the chances of a Lachlan Murdoch acquisition of Ten Network ((TEN)) succeeding, because of his links with News Corp.

For Citi, the adoption of a public interest test could potentially limit merger and acquisition in the media sector, by adding subjectivity to deals. The exclusion of reforming the 75% reach rule, at this stage, is against consensus expectations, as the TV broadcasters supported the reform. This could halt mergers of FTA broadcasters with affiliate stations. On the other hand, Credit Suisse notes Southern Cross Media ((SXL)) stands to gain if the reach rule is abolished as it would enable a merger with Nine Network or TEN. The same goes for Prime Media ((PRT)) and Seven West Media ((SWM)) as, if it's abolished, SWM could take over Prime.

The introduction of a public interest test would be negative for TEN. TEN has formally stated that it does not support the proposed public interest test. The broadcaster believes it would create uncertainty and confusion in relation to other regulatory regimes, citing public interest tests introduced overseas, which, TEN believes, have proved complicated and impractical.

Where most of the negative potential impact lies is with the traditional press. Credit Suisse notes most of the proposals are negative for NWS. A public interest test would likely prohibit NWS from acquiring broadcasting assets such as a free-to-air television network or radio in Australia. It may also prevent NWS from acquiring more newspaper assets in regional Australia. The creation of a statutory press standards body would also be negative for the company's Australian newspaper businesses. Credit Suisse maintains, as the largest newspaper proprietor in Australia, NWS would be adversely affected by any increase in press regulation and perceived political interference. The Australian Communications and Media Authority is to consider program supply agreements in determining control of free-to-air television. Again, a negative for NWS as it could limit the ability to provide content to the free-to-air television networks. The proposed corporate split of NWS may provide some offset, given the new Fox Group may be then able to provide content to Australian television.

Others in traditional media such as Fairfax ((FXJ)) and APN News ((APN)) would also find a public interest test a negative. Credit Suisse suggests it may limit the number of potential buyers for both companies' radio assets. The creation of a statutory press standards body could also adversely affect these two struggling print businesses by any increase in press regulation and perceived political interference.

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