The media consolidation is coming – and the deals have probably already been done

tim burrowes landscapeThe coming wave of media consolidation could push Ten into the arms of News Corp, Seven into bed with Fairfax Media and Nine with WIN, predicts Mumbrella’s Tim Burrowes

A long while back, I had lunch with the father of an English Premier League footballer. He confided that his son would be replacing my club’s top striker.

None of this had appeared in the transfer-obsessed tabloid sports pages. And nor did it for several months. But the transfer eventually unfolded in exactly the way he told me it would.

It was eye-opening to realise just how far in advance top level deals are stitched up.

I’ve a hunch that a similar process has been occurring in relation to Australian media ownership. The landscape is about to see some radical change. And I suspect that hands have already been shaken on many of the deals.

It’s starting to seem likely that communications minister Malcolm Turnbull will do away with the key rules around media ownership, covering the percentage of the population any individual TV network can reach, and the rule that in any given city, media owners can hold no more than two out of three of newspapers, TV stations and radio stations. Instead, it will be a simpler test from the Australian Competition and Consumer Commission on whether a deal reduces competition.

The signals from Turnbull and PM Tony Abbott got louder over the weekend.

Several people in this picture of the media bosses’ summit tweeted by Turnbull on Friday may well be colleagues before the year is out

Turnbull media bosses

So let’s speculate on where the consolidation will happen. And yes, this is all speculation.

1. News Corp buys Network Ten. (And maybe Nova)

news corp nova ten

Why does this makes sense?

First, the people and the history.

Ten’s chairman is Lachlan Murdoch, who also owns about 9% of the broadcaster.

He is, as most readers will be aware, the son of News Corp’s executive chairman Rupert Murdoch and is himself on the board of News Corp.

Ten’s CEO is Hamish McLennan, who moved into the job after the firing of James Warburton. McLennan previously worked directly for Rupert Murdoch in New York in the role of executive vice president of the Office of the Chairman.

Ten is a solid customer of News Corp’s sibling 21st Century Fox (the chairman and CEO is Rupert Murdoch, and Lachlan Murdoch is also on the board of this company too.)

Among 21st Century Fox’s assets airing on Ten are The Simpsons plus the output of Shine Australia including Masterchef, The Biggest Loser, The Bachelor and So You Think You Can Dance.

Speaking of Shine, a habit begins to emerge when it comes to Rupert Murdoch’s children and their businesses.

Back in 1995, Paul Barry reports in his book Breaking News, James Murdoch worked with friends on hip hop record label Rawkus Records. According to Barry, News Corp bought a half share for $20m, bringing James back into the family business.

Then there’s Shine, the extremely successful TV production house created by Elisabeth Murdoch. She was brought back into the family business when News Corp bought Shine for a reported $675m in 2011.

So Murdoch conspiracists would certainly be able to point to the purchase of Ten as a means for Rupert Murdoch to bring Lachlan back into the fold – if Lachlan is willing to allow that to happen.

Some sensible heads within News Corp point out that if Lachlan wanted to return then it wouldn’t need to be on the back of a complex media deal. More important would be whether he wanted to – he suddenly left the organisation in 2005 over what has since been characterised as losing a power battle with US TV execs. He reportedly told his father that he needed to “be my own man”.

So a question could be whether he feels he has achieved that.

And while Ten is currently a ratings mess, the picture is more complex that Lachlan Murdoch’s critics draw. His radio company (recently rebranded from DMG to Nova Entertainment) is unquestionably a success. Nova can claim to be the top ratings national commercial network and its second network smoothfm is also doing well. (The only woman in the picture above is Cathy O’Connor, CEO of Nova Entertainment.)

There’s more history too. Rupert Murdoch was behind the creation of the Ten Network as it is today. He had to sell in the mid 1980s when he became a US citizen.

Should a deal happen which saw Ten become part of News Corp, it would also help answer a question which has been hanging since last year.

When Kim Williams was axed as CEO of News Corp Australia, his replacement was the previously retired Julian Clarke. It felt like a caretaker appointment. With the exception of Hamish McLennan, or indeed Lachlan Murdoch himself, no obvious successor for Clarke has emerged since.

Other clues come from the News Corp newspapers themselves. You wouldn’t, for example, know just how badly Ten has been performing based on the coverage in The Australian and the tabloids (last week was one of its worst for ratings share in its history). They’ve been supportive of Ten, to say the least.

And just as intriguing has been the treatment of former Murdoch family rival James Packer. The papers have been very positive about his Barangaroo Sydney casino proposals. Packer left the Ten board over Murdoch’s poaching from Seven of James Warburton. But he still has a stake of about 9% that he’d need to agree to sell. It’s helpful that News Corp have been so good to him recently.

If it does happen – and personally I now think it more likely than not – it will raise a couple more questions.

What of Nova Entertainment? That would depend on the new ownership rules of course. I’m sure News Corp would want it to become part of the stable too. But given the relatively small revenues of radio compared to TV, it might be treated as a battle not worth dying in a ditch for.

And how about News Corp’s half share (with Telstra) in Foxtel? You could make an argument that a merged sales operation (as has already been speculated upon) between Foxtel’s sales house MCN and ten could actually create more competition in the TV market because it would create a third giant to stand up to Seven and Nine.

But would the ownership of Foxtel change? Telstra’s probably not a seller. So would News sell to Telstra at the right price, particularly if it was back in the free-to-air game? That one’s a big call given that 21st century Fox has pay TV investments in other parts of the world, even if there is speculation that it could sell down its BSkyB stake in the UK, pssibly to Vodafone.

2. Seven West Media buys Fairfax Media (And Prime)

sevenwestmediaprimefairfax logo

I’m not the first one to call this. Credit goes to former ACP boss Colin Morrison, who blogged about the possibility earlier this year.

The fit would be a good one. Putting The West Australian (which remains profitable) into the same newspaper family as The Age, The Sydney Morning Herald and the Australian Financial Review makes sense. So does sharing news gathering for Fairfax’s network of talk radio stations including 3AW in Melbourne and 2UE in Sydney with Seven News. Suddenly Yahoo!7 would have much more of an offering.

Morrison argues:

“Many Australian media observers expect a change in the ownership of Fairfax. And who better to co-operate with the feisty [Fairfax shareholder] Gina Rinehart than fellow Perth billionaire Kerry Stokes? The possibility gains traction with Seven West’s newest non-executive director who was formerly CEO of PBL and a director of Fairfax. A Seven West-Fairfax combination could become a formidable multimedia player on the domestic and global stage.”

There’s a little more to fuel this. Fairfax boss Greg Hywood has urged changes in the ownership laws.

And there was a fascinating paragraph in this weekend’s lengthy piece in the AFR on the Fairfax turnaround story.

Having clearly spent some time with Fairfax CEO Greg Hywood, the authors James Chessell and Jake Mitchell wrote: “Amid the change brought about by an increasingly digital world, relationships will be critical for traditional media companies. News Corp’s mastheads have strong links with not just Foxtel but Ten Network Holdings, whose chairman is Lachlan Murdoch. Fairfax has made no secret of the fact it would be willing to join forces with the right partner. With much of the hard work done, Hywood, along with other media bosses and Minister for Communications, Malcolm ­Turnbull, is pushing for ownership laws to be relaxed. ” As I read it, I couldn’t help think that I was seeing Hywood’s own thinking leaking through.

Then there’s Prime, whose regional NSW, Victorian and ACT stations are already Seven affiliates. Once the population reach rules change, it seems an obvious move, given that Seven already has a stake.

The only slightly weird thing in recent days has been the sudden exit by Prime shareholder Paul Ramsay. There seems to not have yet been an obvious explanation for why he would exit now, just before the ownership rules change which would inevitably have made his shares more valuable.

Again it feels like an unannounced deal might already have been in place.

3. Nine buys WIN 

Will it retain cricket rights?

WIN logoIn many ways, this is the most obvious of the lot. WIN recently sold its metro stations in Perth and Adelaide to Nine.

Already, there are signs that the direct ownership is making the network more competitive with Seven in the two states.

There are indications that the networks are beginning to shift from a metro audience sales message to a national one. Increasingly, it would be strategically sensible for the big three networks (or at the very least Seven and Nine) to directly own the regional stations too.

Last year, the possibility emerged that Nine could buy or merge with Southern Cross Media Group’s TV assets. But this faded when the Labor government fell without changing the ownership laws.

In June, Southern Cross re-signed affiliation agreements with Ten for a further three years, which also makes any imminent deal seem less of a goer.

All of this is of course speculation. But a handful of people already know what’s probably going to happen. Now we’ve just got to wait for them to tell us.

Tim Burrowes is content director of Mumbrella


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