The sale of Southern Star by Fairfax Media is being threatened by the emergence of a rumoured veto from one of the three free to air networks, believed to be the Seven Network.

Without this veto, the sale could happen any day, but this last minute development could scuttle the whole deal.

Fremantlemedia Australia’s arm, already the largest TV production house, is the frontrunner, but Seven, Ten and Nine TV Networks have all voiced objections to the possible deal.

Other interested groups have dropped out as they didn’t want to pay the near $100 million Fairfax has been insisting on. It paid $150 million for Southern Star last year in the break up of Southern Cross Broadcasting and then some UK businesses were sold recently by Southern Star for $44 million. That reduced Fairfax’s asking price to around $96 million.

In discussions with the three networks, opposition was voiced to the idea of Southern Star being acquired by Fremantle and a near “monopoly” created.

Nine was especially vocal and it was thought any real opposition might come from them.

But network sources say its Seven that has surprised with a threat to terminate a distribution deal that it has with Southern Star. If that was to happen, the price for Southern Star would be slashed and the deal wouldn’t happen.

Sources say the lever that Leckie is using is the extensive distribution agreement Southern Star has to sell Seven product offshore. Home And Away, City Homicide and Packed To The Rafters are just some of the programs involved.

The core of this deal though is Home and Away, the teenage soap, which is sold in dozens of countries overseas and generates more than $20 million a year in fees for Seven, of which Southern Star takes its share.

It is understood this contract can be terminated on very short notice: less than a month, according to Seven sources. If Seven was to act, Southern Star would be crippled because the merger with Fremantle could be completed. The deal covering Home and Away is believed to contain a three month termination notice period.

A network source reckons Seven is upset at not being consulted before the talks got serious, and is determined not to allow the creation of a major production house. The three networks love having a number of smaller producers that they can play off against each other to lower costs and keep in control.

Fremantle is part of a major global media group: Its controlled ultimately by the Bertelsmann Group of Germany via the RTL media business which has Channel 5 in the UK and TV networks in continental Europe.

Fremantle best known Australian production deal is with the Ten Network is Neighbours, which RTL’s Channel 5 in the UK last year snatched from the BBC.

Complicating the matter for Seven and other networks is that FremantleMedia now owns 20% of a third large producer, Beyond International (Mythbusters). That means it will be a local giant if it can buy Southern Star, which will give it real negotiating clout with the Networks and with Foxtel.

That near $100 million figure for Fairfax is optimistic because Southern Star lost around $22 million in revenues generated by the Endemol joint venture that produced Big Brother, after the Ten Network cancelled the show. In August, Southern Star revealed it had sold its UK subsidiary, Carnival Films to NBC Universal for $44 million.

Peter Fray

Get your first 12 weeks of Crikey for $12.

Without subscribers, Crikey can’t do what it does. Fortunately, our support base is growing.

Every day, Crikey aims to bring new and challenging insights into politics, business, national affairs, media and society. We lift up the rocks that other news media largely ignore. Without your support, more of those rocks – and the secrets beneath them — will remain lodged in the dirt.

Join today and get your first 12 weeks of Crikey for just $12.

 

Peter Fray
Editor-in-chief of Crikey

JOIN NOW