Review of Media Ownership Laws Signals Dawn Of A New Era

Review of Media Ownership Laws Signals Dawn Of A New Era
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With the media ownership laws undergoing a review by Communications Minister Malcolm Turnbull, OMD’s Adam O’Neill looks at how this will affect brands playing in the Aussie media landscape.

Newsrooms across the country are running hot, private equity is circling and commentators are banging out notes speculating how the cards will fall as the media sector in Australia prepares for a wave of merger and acquisition (M&A) activity. It is somewhat surprising then that brands and those responsible for allocating advertising dollars have been relatively quiet on how this may play out.

Medieval Madness

To give context, the current media ownership laws were put in place by the Keating Government 27 years ago and are currently undergoing a review by the Communications Minister Malcolm Turnbull with the objective to unshackle the media industry and take us into the 21st Century.

Back in 1997, a number of regulations were put in place to restrict the ownership of commercial television, newspaper and radio licenses so that no more than two licences could be held by the same party, in any given city, around the country. Badged the “Two out of Three” rule, this legislation aimed to establish a balance of opinion of at least two voices in each city across the major media channels. To date, these laws have ensured Australians a balanced point of view, however, today with prevalent access to content in many shapes and sizes, this type of regulation is no longer necessary.

The other piece of legislation, the 75% reach rule, stipulated that an individual media owner could not reach more than three quarters of the national population. Today, this unfairly imposes restrictions on television, newspaper and radio operations whilst allowing digital media companies, such as Google, Twitter, Facebook and other media behemoths such as The Huff Post, The Daily Mail Online and The Guardian, to enter, access and profit in Australia without hindrance.

Certainly, the introduction of digital media businesses has had a profound influence on how Australians consume their entertainment, news and sporting content. The list of benefits is a long one. Australians should have a right of access to information from national or international sources, regardless of which Australian town or city they reside in. In its own evolution, the internet has granted Australians this access. So why then, should established television, newspaper and radio companies be restricted by such an antiquated and unequitable piece of legislation?

As a media agency, and on behalf of our clients, our organisation has been focusing efforts on rebalancing advertising investment to follow the growing audience trends of digital media and to consider new digital media business models such as Buzzfeed, The Guardian and The Huff Post. It follows that we, and on behalf of our clients brands, should also be able to rebalance investment on a larger scale, by partnering with multi-channel media companies who have a national presence across the country.

The first step in creating an equitable regulatory landscape would be to abolish the 75% reach rule so that Metropolitan Media owners could acquire or merge with their Regional affiliates allowing national brands and their agencies to access audiences without the need to operate via several different operating companies. A true national media partner with a single point of contact could not only unlock value of resource efficiency, but give Australians access to a national standard in quality of entertainment, news and sporting content regardless of where they live.

Whilst this goal appears to be simple enough in vision, it is significantly more difficult to execute with a number of M&A transactions needing to take place.

Possible M&A Transactions without deregulation

The good news is that a handful of M&A transactions can actually take place without the need for changes to the ownership laws. The Communications Minister raised the prospect of media deregulation for the second time a few months ago, however the government has been unable to draw a consensus on the topic and has subsequently delayed further action. Meanwhile, the trading environment for media companies hasn’t changed. Most still face a growing list of commercial pressures; fragmentation of audiences, added competition of digital media and the harsh reality of operating in a relatively small, mature advertising market with single digit growth year on year. So, something has to give.

These factors are forcing media owners into M&A transactions not only to defend their territory but also to secure their balance sheets as the Australian economy doesn’t look to be serving up anything spectacular in the next 12 months.

Device convergence is adding additional pressure on some subscription based media companies, telecoms and online media companies who are now all effectively operating in the same space, competing for the same lucrative advertising dollars and thus competing for viewer’s attention.

Whilst difficult to speculate who will move first, when the M&A does start, the changes will be made rapidly and it will all end swiftly as the first to move will potentially lock out other transactions. Just looking at the sheer number of headlines in recent months this indicates the ground swell is increasing. Television broadcasters will be buying radio stations, newspaper groups will merge with television broadcasters, outdoor networks will start selling assets to reduce debt and so on. Media companies with strong balance sheets, such as News Corp, Seven West Group and Fairfax are likely to be the first movers.

Earlier this month Lachlan Murdoch, ex-chairman of the financially challenged Network Ten, had openly stated that he is open for conversations to offload his interests in DMG Nova. There is more to this move than what appears to be the initial motivation, given such a sale could allow News Corp or Foxtel to partner up with Network Ten, a deal offering financial and structural synergies in both securing sports rights on the front end and shared resources such as sales, management and operations in the back end. Given the current debt levels some media companies such as Network Ten are operating at the prospect of M&A could offer them a much needed lifeline.

What’s in it for brands?

This is a positive development for clients and their agencies who will soon be able to secure national entertainment, news and sporting content across platforms and devices with a reduced need to combine multiple media owner contracts. This should also allow advertiser with simplified terms such as IP rights, production and distribution costs.

Working through this thought with a specific example, consider if Foxtel and their majority owners, Telstra and News Corp, started opening up consumer based media packages so you could combine your broadband subscription, with selected Foxtel content, with a mobile contract, with a digital subscription to the daily newspaper. Allowing you to watch your favourite entertainment, news or sporting events across any device, at any time, with one-single monthly subscription.

The current regulations mean that for a consumer trying to watch this content or for arguments sake a brand trying to secure this inventory, you would need to plan, negotiate and execute at least three separate contractual agreements.

When these mergers settle, the benefits for brands and ultimately consumers will quickly add up. Firstly, it will be easier than ever to access personalised and interesting content from a single source regardless of platform or device. Digital companies have been doing this since their inception, and hence with rumours of over the top services such as Netflix rumoured to be planning a market entry in Australia one can start to see their unfair advantage.  Secondly, with the ability to negotiate and execute national campaigns through a single source perhaps brands and agencies can see the advantages in freeing up time to focus on the content creation and distribution itself.

Whether the ownership laws change today or several months into the future is debatable. However, with this in mind, the imminent wave of M&A activity not only looks more interesting for brands and consumers, but for media companies has become a business necessity.

Adam O’Neill is the business director at OMD

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