Nine Entertainment Co is considering shunning its regional affiliate partner, Bruce Gordon's WIN Corporation, in a sign the metropolitan free-to-air television broadcaster is not counting on any imminent reform of media regulation.
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The affiliate agreement – which sees WIN broadcast Nine content into regional areas – expires in December next year, while the deal between metro group Ten Network Holdings and regional player Southern Cross Media Group expires in June 2016.
Nine's content rates much higher than Ten's and if it were to switch to Southern Cross, the regional group would likely experience a big uptick in advertising revenue.
Merger talks between Nine and Southern Cross began last year but a deal cannot happen without the abolition of the reach rule, which prevents a commercial free-to-air licence holder from broadcasting to more than 75 per cent of the population.
Nine would not comment but fund manager sources said the network would likely demand a significantly greater share of Southern Cross's television ad sales in any affiliate deal.
Nine gets 39 per cent of WIN's ad revenue under its current agreement, which is believed to be about $80 million a year. Similar agreements in the United States are understood to be split around the halfway mark between metro and regional networks.
Sources said if Nine was to take half the revenue under a deal with Southern Cross and the regional network could mirror WIN's ratings and revenue with the same content, Nine would be about $20 million a year better off, while Southern Cross could benefit to the tune of $30 million-plus. Such a proposition may force WIN into agreeing to more favourable terms with Nine, and it is possible everyone ends up with the same dance partners. Seven West Media is aligned with Prime Media Group. Negotiations will likely begin in the first half of next year.
The news comes as an auction for Ten nears its climax, with a partnership between pay-TV group Foxtel and US media giant Discovery Communications considered the frontrunner.
Communications Minister Malcolm Turnbull led a regulatory review of the media sector this year, which amounted to nothing because the companies did not agree on the major issues. There was talk the review would recommence next year but it appears Nine is not waiting around to see what happens. Chief executive David Gyngell said last week the reach rule would become redundant as more viewers streamed television over the internet.
Australian Financial Review
