The secret plan to merge regional TV

When a media mogul reaches a certain age and net worth, such as 92-year-old billionaire Bruce Gordon, there are imperatives besides making more money and exercising power that come into play. For Gordon, who left school at 13, it’s the future of his regional television network WIN Corporation, which he’s controlled for more than four decades.

The future of WIN has been on Gordon’s mind for some years, as has the future of the entire regional television sector for the management teams of WIN, Prime Media and Southern Cross, who are understood to have approached the government with a proposal for consolidation of the sector about two years ago.

Billionaire Bruce Gordon’s multiple investments across the media landscape means he has a seat at the table if consolidation occurs in the regional media sector. Credit: Rob Homer

When Paul Fletcher became the federal Communications Minister in May 2019, the department commissioned two independent reviews, according to several sources, in light of that proposal.

The proposal was that the television assets of the regional networks would be merged or one network would act as the acquirer. There was a view that WIN would be best placed of the three to be that acquirer, or at least Gordon and WIN’s management held that view. WIN did not respond to a request for an interview.

Merging the television assets of the three networks was expected to release about $20 to $30 million in capital for the new entity to invest in regional television’s future, and to find new areas of revenue growth, such as providing marketing services to regional businesses.

The new entity would give a commitment, through legislation, to carry all the channels of metropolitan television networks Nine, Seven and Ten, which are currently broadcast into regional Australia, through affiliation agreements, and an undertaking that each market would have its own local news service. Nine is the owner of The Sydney Morning Herald and The Age.

An argument was also put forward that if the Foxtel and Austar merger was permitted in 2012, then this transaction should be considered on similar merits, as scale was necessary to ensure a sustainable and viable regional television sector.

The proposal acknowledged the transaction would create job losses but given the regional television sector’s profitability had been challenged ever since advertising revenue began migrating to digital platforms, jobs were already at risk.

And this transaction, it was argued, would help the industry remain self-sufficient and profitable, as it tries to manage a high-cost base. A substantial part of a TV network’s costs are people but there’s also the expense of maintaining and investing in infrastructure, which for the regional networks is vast, as they transmit content to places as far flung as Cape York and Karratha.

After the consolidation proposal was put forward, independent reviews were commissioned for Fletcher’s department to consider. One by media specialist Megan Brownlow and another by KordaMentha, which would analyse the historical and projected financial health of the regional television sector and make recommendations.

This included a review of the regulatory environment, which prevented such a merger. Under the law, at least four independent media voices, across radio, newspaper and free-to-air TV, must exist in regional markets.

While the independent reports were never released, sources familiar with their findings said they didn’t recommend a merger. However, there were assessments that if consolidation did occur among regional television networks it would ensure the industry’s sustainability and provide scale, giving those businesses greater leverage to negotiate with its metropolitan counterparts, particularly when striking affiliate deals. Analysts describe the regional television stations as price takers in those affiliate deals.

The three television networks did not respond to interview requests or declined to comment.

The consolidation proposal and the independent reviews have gathered dust in the past two years but the jockeying ahead of possible takeover activity among regional media continues. Meanwhile, the government has a green paper out for consultation with the industry, which is reviewing television regulation and the use of spectrum.

The regional television networks have been critical of the paper and the proposed overhaul of the broadcast licensing system, saying the reforms will not ensure the sustainability of the struggling industry.

“The green paper consultation process that is currently underway provides a platform for regional media organisations to put detailed proposals to the government on the reforms they believe will secure the future of regional public interest news gathering,” a spokesman for Communications Minister Paul Fletcher said.

When asked about the proposal to allow consolidation among the three networks, and the two independent reviews, the spokesman declined to comment.

Last year, the regional media sector was hit hard by the pandemic and the government provided a range of relief measures, including a $50 million Public Interest News Gathering program to support media business in regional Australia.

Speculation of consolidation in the media sector intensified last month, when investors Antony Catalano and Alex Waislitz, who own regional and rural newspaper group Australian Community Media, sought permission from the media regulator to lift their shareholding in Prime Media to just under 20 per cent. They bought a parcel of stock from Bruce Gordon, who is also a substantial shareholder in Prime.

Gordon, Catalano and Waislitz used their shareholdings to thwart a bid by Kerry Stokes’ Seven West Media to merge with Prime. Seven has a 14.9 per cent shareholding in Prime. The attraction to an acquirer of Prime - aside from its assets - include the $68 million in franking credits the company has on its balance sheet, as well as close to $30 million in cash.

The other movement in regional television was when Gordon’s WIN this month signed a seven-year affiliation deal with Nine. WIN broadcasts Nine’s content across its footprint and in return pays about 50 per cent of its regional advertising revenue to Nine. This marked a return to the Nine-WIN affiliation that had existed for nearly three decades until five years ago, when WIN signed an affiliation instead with Ten.

Gordon is also agitating for a board seat on Nine, of which he owns just under 15 per cent through investment vehicle Birketu. He also owns additional shares in Nine through swaps.

There has been some speculation that WIN could be vended into Nine, but analysts don’t see how this would be attractive to Nine with the affiliate deal in place. Nine sources and those close to Gordon have both indicated this is not being discussed.

Gordon has been wily in keeping his options open in how the regional media landscape might be restructured. The smart money would be watching his next move.

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