David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

It may surprise people used to Rupert Murdoch's dominance of the airwaves in North America and Europe that he has a rather marginal broadcast media presence in his native Australia.

He gave up his interests in the country's Network Ten television station in the 1980s to buy the U.S. channels that would become the core of Twenty-First Century Fox. Both nations had rules banning foreigners from owning major TV networks, so Murdoch took U.S. citizenship and dumped his hometown assets to give himself a chance to play in the bigger market.

Those regulations have now gone, but others have kept the remaining players in Australia's media scene small. The ``reach rule" in effect prevents the major television stations Seven, Nine and Ten from operating in rural areas, creating three minnows -- Prime, WIN and Southern Cross -- to rebroadcast their content. The ``two out of three rule" means media companies can't control television, radio and print outlets in the same city. Urban areas must have at least five independent radio networks (the boondocks are allowed to make do with four), and there's even a law listing sporting events which must be broadcast first on free-to-air television.

Hacking away at these rules, which didn't anticipate a world where people read news, listen to radio and even watch television over the Internet, has been a thwarted ambition of Australian governments for years. Finally, change has a chance: Legislation was put to parliament Wednesday to untie the ``reach" and ``two out of three" rules. The opposition Labor party says it's keen to eliminate the former and is keeping an open mind on the latter.

That's enough to set M&A bankers salivating. There are at least 15 businesses fighting over some A$13 billion ($9.4 billion) of revenues in the Australian media landscape. Their combined market capitalization of almost A$19 billion doesn't even include the value of News Corp.'s holdings.

Diverse Voices
There's a lot of money to be made from consolidating Australia's fragmented media scene
Source: Bloomberg data
Note: Revenue figures for year ended June 2015; Ten has an August year-end. Market cap data not shown for News Corp. as Australian assets are consolidated within the global group. Broadcaster WIN Corp. doesn't publish financial data so has been left out.

The value of advertising revenues is slumping on the airwaves and has long been smashed in print, because of competition from online media. Seek, REA Group and -- websites hosting job, real estate and auto advertisements that didn't exist 20 years ago -- make up about 70 percent of the market capitalization in the chart above. Given that environment, one of the few ways that traditional media owners can get some leverage over advertising buyers is to build their audiences, and thanks to the general fragmentation in the industry the best way of doing that is to buy a rival.

The dance steps that ought to follow media reform are fairly well-rehearsed. If the reach rule is dropped, the rural television stations probably will be swallowed up by their metropolitan affiliates, with Seven acquiring Prime, Nine taking WIN and Ten tying up with Southern Cross . Abandon the two-out-of-three rule, and Nine and Fairfax could amalgamate, too.

That doesn't leave much to entice Murdoch, the biggest player on the scene, and his enjoyably indiscreet Twitter feed has so far been pointedly silent on the changes. In theory, dropping the two-out-of-three rule would allow News Corp. to buy Ten, but sports broadcast rules risk getting in the way again. The country's antitrust regulator worries that tie-ups between pay-TV and free-to-air networks threaten competition in the bidding for major broadcast events. As a result, it has been scrutinizing the relationship between Ten and Foxtel, News's pay-TV joint venture with the phone company Telstra, after it took a stake of just under 15 percent in the free-to-air network last year.

A government lawsuit would quickly follow any signs of collusion between the two networks, which makes an outright takeover of the free-to-air channel by Murdoch-controlled companies a non-starter. And Foxtel is, in any case, on the back foot, with Netflix's local offshoot adding subscribers with cheaper pricing and a far larger inventory of shows than Australians are used to.

New Kid on the Block
Subscriber numbers at Netflix's Australian unit are catching up to Foxtel
Source: Roy Morgan, Telstra company reports
Note: Netflix Australia launched in March 2015

The real prize for Murdoch would be to repeat his achievement in the U.K., where Sky's pay-TV network has had a lock on broadcasting Premier League soccer games since the early 1990s. Live sporting events are one of the few ways of guaranteeing a television audience these days.

Don't hold your breath waiting for that. The government has made a point of saying that changes to the sports-rights regime aren't part of this package. At the best of times, only a foolishly brave politician would risk the wrath of voters by handing free sports broadcasts to Foxtel. And this is an election year.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Southern Cross actually has the higher market value so may end up the senior partner in any deal, although it lacks the balance sheet capacity for a cash takeover. An alternative would be for Southern Cross to tie up with Nine, leaving Ten and WIN to create the third group.

  2. A level defined as a non-controlling stake elsewhere in the regulations.

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David Fickling in Sydney at

To contact the editor responsible for this story:
Paul Sillitoe at