The 75% reach rule for TV and the “two voices out of three” rule for media competition are being scrapped under changes to the media laws agreed to by the federal government and the media industry, opening the way for another round of value-destroying mergers and acquisitions.
Agreement has been reached within federal cabinet and with the industry, and the proposed changes have been conveyed to key stakeholders.
The 75% reach rule limits the share of the national audience any one TV network can own, and the “two voices out of three” rule stops media groups from owning a radio station, TV station and newspaper in any one market, such as Sydney. Driving the change has been the upsurge in streaming video on demand services offered by Netflix, Presto (Foxtel and Seven) and Stan (Nine and Fairfax Media). But the final nail was the decision by Seven to start streaming its channels from Melbourne Cup Day (the streaming hits full stride later this month) and then Nine being forced into matching what Seven is doing. Seven and other media companies have legal advice saying streaming is not covered by the central piece of legislation controlling TV broadcasting in Australia — the Broadcasting Services Act. The act does mention the internet, but not live video streaming to a second or third screen, such as a laptop, internet-enabled TV or mobile phone. That means Netflix can stream into Australia without any hindrance or control, as can HBO’s new streaming service. It also means Seven and Nine have been able to effectively bypass the 75% reach rule, while a newspaper (Fairfax is effectively doing that with its 50% of Stan, its newspapers and 54% of Macquarie Radio) or radio group (Macquarie Radio) would be able to bypass the two voices rule in a similar fashion.
So the proposed changes are nothing more than catch up to the tech changes wrought by Apple et al. The federal government doesn’t want to amend the act to try to control streaming (it is doubtful anyone would agree to such a move) because Netflix, HBO and other foreign services would not be covered. So the solution is to get rid of the reach rule and the voices rule by regulation if necessary. The announcement will also cover the future of licence fees for commercial TV broadcasters (which want them cut). The future of regional news services on commercial TV will also have to be clarified, with the Seven Queensland model thought as the best template for the future.
Prime Minister Malcolm Turnbull is back from his overseas jaunt on November 23, so expect an announcement soon after with Communications Minister Mitch Fifield.
The urgers in the markets and media are naturally focused on the possible takeover deals in the offing. But any takeovers or merger based on these changes will destroy value, as every media deal in the past decade or more has lost money. Any deal will be merely shuffling deck chairs on the Titanic that is the old-line media in this country, especially dead trees.
Seven West Media is the best example of a merger gone bad, valued at $4.1 billion at its creation in 2011, just $1.06 billion yesterday. The Ten Network is another top example of supposedly smart billionaires (Lachlan Murdoch, Bruce Gordon, Gina Rinehart and James Packer) blowing up a billion dollars of value in an unprecedented fashion. News Corp is smaller (the newspaper side) than it was and News itself is the result of a de-merger, not a merger, being spun out of the Murdoch empire in June 2013. Reports this morning that Nine and Southern Cross Media Austereo (itself a product of a value-destroying merger) are talking about joining together won’t inspire confidence. That is more to do with the presence of Bruce Gordon’s Win Corp on the Nine share register (and talk he has bought a stake in Southern Cross). Gordon is losing hundreds of millions on his Ten adventures.