Investment Matters

Media law changes & Southern Cross Media

Why the fuss?

Many First Samuel clients have an investment in Southern Cross Media.  And potential changes to media ownership laws have been in the press again this week.

What's going on?

Overview of potential media law changes

Another Senate committee is examining proposed changes to the media laws, after voting was held up with the recent election. Updates to previous submissions are required by today, with the committee due to release its findings in early November.

There are two principal rules under consideration - the 'reach' rule, and the 'two-out-of-three' cross-media ownership rule.  Both have been called into question in relation to their relevance in today's internet driven world.

The reach rule stops an entity owing TV licences in areas totaling more than 75% of the Australian population. 

The ownership rule stops an entity owning more than two of TV, radio and newspapers in a licence area.

The Liberals are likely to support the changes to both rules.  Labor has indicated that it supports changing the reach rule, but is undecided on changes to the ownership rule (but is considered unlikely to support it).  The position of the Senate cross-bench is unknown.

What it means for Southern Cross Media?

The investment in Southern Cross Media is often discussed in the context of these potential changes.

SXL

Firstly, Southern Cross is getting on with business, irrespective of the potential changes.  We have seen this most recently with the new affiliate deals for its regional TV operations (which have mostly changed from WIN to Channel 10). 

Secondly, the company continually works to optimise their business - including creating operational efficiencies and investing in talent.  Therefore, we don't expect that there are significant gains to come from merging Southern Cross with another media player - certainly for radio.

That said, if the media law changes are passed, there are more possible buyers for Southern Cross Media's businesses than there would have otherwise been.  Thus, a takeover (or part takeover, e.g. of the TV side of Southern Cross) would be more likely. 

We do not expect that Southern Cross would instigate any takeovers or mergers - it is more likely that something would happen to it. 

Most significantly, as an equity holding, Southern Cross stands as a sound investment - irrespective of potential changes to the media laws.