Seven West Media chairman Kerry Stokes held talks with US entertainment giant ViacomCBS about merging his company with rival broadcaster Network Ten, a move that would have reduced the amount of television networks available to viewers and reshaped the local media industry.
Mr Stokes’ free-to-air television, digital and newspaper company started trying to sell several assets including the studios business that produces Home and Away earlier this year to reduce its multimillion-dollar debt pile. But the talks with ViacomCBS, which began in April and have since ended, suggest Mr Stokes is also open to selling the entire media company that owns Channel Seven and The West Australian.
Several industry sources familiar with the discussions, who spoke on the condition of anonymity because the talks were confidential, said Mr Stokes contacted ViacomCBS boss Bob Bakish to discuss a merger of Seven and the industry’s third metropolitan commercial broadcaster Ten. ViacomCBS, a $US18 billion ($25 billion) television and movie business, bought Ten in 2017 after it went into administration. Mr Bakish and Mr Stokes have known each other for more than a decade.
The pair had at least one meeting, according to the sources who also said a brief proposal summarising what a merged company might look like was put together by investment bank Goldman Sachs. The sources said the informal proposal discussions included merging functions such as the Seven and ViacomCBS sales and marketing teams. The ViacomCBS sales division currently represents Ten, Nickelodeon and MTV in Australia.
Goldman is advising Seven and Nine Entertainment Co (the owner of this masthead) on the sale of transmission tower business TX Australia. Seven and ViacomCBS declined to comment.
The talks fell over because they decided it was an impossible task but they are a strong indicator that the 80-year-old Mr Stokes is looking to wind back his media interests after more than five decades in television. Seven Group Holdings, which is majority-owned by Mr Stokes, is the biggest shareholder in Seven with a 41 per cent stake. Mr Stokes enjoys the influence that comes from owning media but his son Ryan Stokes is believed not to share the same love for the industry. The talks are also an indicator of the financial pressure Seven was under at a time when advertising has been hit by the coronavirus pandemic.
One of the main obstacles to a merger of any free-to-air networks is current regulations. Media laws were changed in 2017 to allow for the relaxation of the “two out of three” rule, which prevents companies owning newspapers, radio and television stations in the same city. The law still prohibits two television companies being owned by one entity. Two sources who spoke on the condition of anonymity said Mr Stokes was not concerned about this because he believes he has a positive relationship with the federal government. Ryan Stokes was the best man at Treasurer Josh Frydenberg’s wedding.
Regional media companies Prime Media Group, WIN and Southern Cross Austereo and Australian Community Media are separately lobbying for the laws to be relaxed. They want the ‘one-to-a-market’ rule, which prevents a television broadcaster from operating more than one TV licence in a market, and the ‘voices’ test, which in regional areas requires four separate media companies to operate, to be removed.
Seven chief executive James Warburton, who was in charge of Ten in 2012, told The Australian Financial Review last week those reforms needed to apply to metropolitan broadcasters.
“Any review by the government that includes television licences relaxation and the ability to operate more than one licence in regional markets must be extended to the metropolitan markets given stronger competition and diversity exists,” Mr Warburton said.
It is unclear exactly when the talks ended but two sources indicated the discussions could have concluded as recently as a month ago. Some Seven sources insist they took place only early in the year. Such a move would have increased ViacomCBS’ television presence in Australia. It is currently planning to launch its new streaming service Paramount+ in the country early next year. Seven has expressed an interest in a foray into the subscription streaming space.
If a merger was announced, it would also be subject to regulatory approvals and there is no guarantee the Australian Competition and Consumer Commission would’ve allowed the deal to go ahead as it would have left Australia with just two metropolitan broadcasters − Nine and Seven/Ten. It is also unclear whether Seven’s discussions with ViacomCBS were still underway when US private equity firm Oaktree Capital offered to buy some of Seven West Media’s debt and was turned away.
Mr Warburton was clear about his merger and acquisition intentions when he arrived at Seven last August. He has since sold Seven’s magazine division to rival publishing company Bauer Media and attempted to merge the company with its regional affiliate partner, Prime. The merger was thwarted by regional media owner Antony Catalano and WIN Corp owner Bruce Gordon. Seven also successfully sold its West Australian headquarters.
Since his arrival Mr Warburton has also tried to sell off multiple assets including Seven Studios, TX Australia and its digital ventures portfolio, which includes businesses such as Airtasker and SocietyOne. Part of the reason Seven has floated ideas about mergers and acquisitions is related to a $481 million debt pile. Mr Warburton said the priority was to sell off these companies to free up cash that would allow more flexibility to restructure the company.
The financial pressure Seven was under early in the year was exacerbated by the coronavirus pandemic, which caused major falls in advertising spend. The falls were so big that staff at television network and newspaper division West Australian Newspapers were put on JobKeeper. Mr Warburton said last week that the pandemic had affected his company more than rivals Ten and Nine.
To adapt to changing market conditions, Seven axed a number of roles across the company and renegotiated a deal with its banking lenders. The broadcaster also renegotiated its deals with the AFL and the International Olympic Committee. Seven secured reductions from both entities and is in heated discussions with Cricket Australia about a reduction on their existing deal. Seven also offered the Big Bash League to Ten before the pandemic. Seven remains in talks to sell Seven Studios and TX Australia. Mr Warburton said in August he was still interested in merging with Prime.
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