Media sector stocks gained a lot of attention early this week with many bursting out of the cocoon with the likes of Ten Network Holdings, Nine Entertainment and Southern Cross Media Group. However, for a few the boom may seem to be a short-lived one; for instance, TEN that soared up more than 40% early this week, was again down 6.9% on May 10, 2017, drifted again by the weakening sentiment on the stock. Fairfax on the other hand (up 1.8% on May 10, 2017), had its own take with the news circling around private equity firm, TPG Capital, interested in buying FXJ’s property listings business, Domain and the metropolitan publishing assets for 95 cents a share. Nonetheless, the media sector stocks are continuing to have an extended boom post a sweet start to the week owing to the proposed media reforms by the Turnbull Government. The companies also reacted positively to the budget at the back of the proposed reforms.

Particularly, the Australian Government has announced a comprehensive package of reforms that will improve the sustainability of Australia’s free-to-air broadcasting sector, support the creation of high quality Australian content and modernize broadcasting and content regulation. The package also includes a community dividend in the form of further restrictions on gambling advertising. Notably, the package provides substantial financial relief, conceding that Australia’s broadcasters are facing intense competition for audiences and advertising revenue from other media companies, including global online and on-demand operators.

Abolition of ~$130 million broadcasting license fees is a big boost
By considering that in today’s media environment, the Government proposed to abolish broadcasting license fees (around $130 million per year) to enable broadcasters to compete in the modern media environment. License fees are a remnant of a previous regulation, which are revenue based and introduced when broadcasters could generate significant profits due to their exclusive access to mass audiences. Additionally, the Government will introduce a price for the use of radiofrequency spectrum.

Under the new reforms, broadcasters will pay new annual spectrum fees of around $40 million annually and net result is expected to be a benefit of $414 million to Free-To-Air broadcasters over five years. The new norms reflect the current media landscape and gives commercial broadcasters the flexibility to grow and adapt in the changing media landscape, invest in their businesses and in Australian content, and better compete with online providers.

The key change of the laws is removal of the two out of three rule (An operator cannot control more than two of the regulated media platforms including commercial television, commercial radio and associated newspapers in any commercial radio license area) and the 75% reach rule (An operator, either in their own right or as a director of one or more companies, must not be in a position to exercise control of commercial television broadcasting licenses whose combined license area populations exceed 75% of the population of Australia).

Funding $30 million to increase coverage of niche sports
The package also includes a community dividend in the form of further restrictions on gambling advertising during live sports programs, which will ban gambling advertisements from five minutes before the commencement of play until five minutes after the conclusion of play or 8:30pm, whichever comes sooner. This enactment is expected to provide a clear and practical zone for families and children to watch live sports. Further, the reform package will also amend Australia’s anti-siphoning regime to reduce the size of the list and update other parts of the scheme, while ensuring that iconic sporting events of national significance are retained.

Importantly, the Government will provide funding of $30 million over four years to subscription television to maintain and increase coverage of women’s sports, niche sports and high participation sports that are less sustainable to broadcast as the increasing coverage of these sports will assist them to build their profile, boost participation and improve sponsorship opportunities.

This move by the Government has set a pace for many media stocks and the scenario would be an interesting one to watch out for, with some feeling the brunt of self-inflicted issues at such a rosy time.

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