What would happen if Seven acquired Fairfax Radio ? Is Kerry stoking the Fairfax fires ?

This week Seven Chairman Kerry Stokes said it was possible that it would acquire a radio network.

Television and radio assets have always been considered a potent combination because of cost and sales synergies and cross promotion opportunities.  Many US, UK and Europeon media groups own both.

Stokes said “I don’t know if we will, it’s up to (Seven chief executive) Mr Worner, but it’s possible.”  

He went on to say in the Sydney Morning Herald “ he saw potential synergies in owning a radio network and a free-to-air television network.”

Kerry Stokes is known to like ‘ distressed assets ‘ and given Fairfax radio’s  performance, it fits that description well. It's value has dropped about 50% to $100 million ( Fairfax were previously offered $200 million to sell).

Based on current ownership laws, Seven could acquire radio stations in all cap cities, except Perth where cross media rules currently don't allow that because they own The West Australian newspaper.

However it is tipped that the cross media ‘ two out of three rule ‘ will be abolished paving the way for Seven to be able to own TV, newspapers and radio.

Currently the Seven West Media empire includes Seven Television, Pacific Magazines, Yahoo!7, as well as The West Australian and WA regional newspapers and radio stations.

With Southern Cross Media already in talks with Nine, the most likely target for Seven would be Fairfax radio stations. It's a great fit and has plenty of upside, especially in key Sydney and Brisbane markets. The Seven TV Network is targeted 30 to 54 and Fairfax radio targets 45 to 54.

Understandably, to ensure Nine don't get SCM easily or cheaply, Seven would also be ‘ in talks ‘ with SCM if only to pump up the price for Nine.` A sound strategic move.'

News  and Current Affairs are absolutely critical to the success of a TV Network,  just as Breakfast is critical to a radio station's success. The 6pm News is TV’s equivalent of radio’s breakfast shows.

You don't win ratings unless you win those slots.

Sport is also important for television networks, which would make Triple M attractive to Seven also, however it looks likely the Southern Cross Media stations will be snapped up by Nine.

Fairfax radio owns the highly successful 3AW Melbourne, 2UE Sydney,  6PR Perth (currently the 2 out of  3 rule would prohibit Seven from owning ) 4BC Brisbane and 4BH ( Seven would most likely sell 4BH and keep the talk station).  Seven could go further and complete a National Talk Network by buying Capital’s Canberra 2CC which would give it a voice in the national capital and could also acquire 5AA Adelaide from Nova Entertainmnent making it a formidable National AM Talk Network across 6 key markets.

Whether Seven would want to buy into the older AM technology ‘ is a question that Seven’s CEO Tim Worner (right) and it’s Board would no doubt be pondering.'

But back to two out of three. The rule says that in any licence area you can’t control a daily newspaper, a radio licence and a TV licence. There is growing consensus that it’s an analog-era rule whose time has passed. Listeners, readers and viewers are now getting much of their daily news and entertainment online.  News aggregators, search engines and social media such as Blogs, Facebook, Twitter, Google, Ninemsn etc. play an increasing role in distributing news, information and entertainment. The law is likely, but not certain to change.

The laws were last reviewed almost a decade ago and a lot has changed since then .It originally was set to be dumped in 2006 when then-communications minister Helen Coonan introduced her media reform package.

If the government makes these media reforms there are major cost benefits, sales synergies and greater audience delivery for any new enlarged media company but, also, there are major cultural challenges to be overcome.

Culture, ego's and status are a huge consideration in any merger. It would seem though that a Seven purchase of Fairfax radio would be fairly straightforward.  Seven West is a huge company with a market cap of around $2 billion and Fairfax radio is tiny by comparison worth somewhere between $100 and $200 million, so Seven would very much be in the drivers seat. It's unlikely Fairfax shareholders would sell the radio assets for a bargain price.

If a sale took place it’s probably good news for some Fairfax radio employees and talent, particularly those at the struggling stations like 2UE and 4BC . Being owned by a TV Network would give them considerable advantages.

It would open up greater opportunities for both radio and TV talent.

Radio and TV programming are  different, although Talk radio is programmed in similar ‘ blocks ‘ as television is. Strong key talent are critical to both. TV Programmers don't generally get 'hands on' involved with producing shows. The role of Executive Producer is very different in radio compared to television.

Radio may lose valuable Program Directors and APD roles if radio were to be run by TV executives. In sales, marketing and support roles like accounting, engineering and IT, you could expect big culls at some point after a merger.

There would be increased cross promotion opportunities for both radio and TV in a merged company.

In a merged Seven / Fairfax radio group, News would become centralized feeding both radio and TV. Quality of News could actually be improved across both platforms.

At the end of the day there would be only one Chairman, one CEO, one CFO and one Board of Directors for the new group, so some ‘ key ‘ Fairfax people would go.

Merging media groups is a way for companies to continue to grow. It allows them to increase revenue and profits as advertising revenue slowly shifts from 'old' media to 'new' digital media .

It's an exciting option for both Seven and Fairfax radio. Ownership under Seven would give stations like 2UE and 4BC a far greater opportunity for growth and success. It would make it easier for the radio stations to attract strong ( Seven ) talent with dual radio/TV roles.

The other TV networks, Ten and Nine, might not be too keen to run advertising on a Seven owned radio network, so there may be some shifting of ad spends.

Seven are very savvy and highly successful television operators and have a tremendous track record . Applying their media nous and utilizing the best people at Fairfax radio could make for a powerhouse radio / television combo.

Finally in Sydney, 2GB could have some serious commercial Talk competition ( besides the ABC ) and that's been a long time coming.

The greatest challenge in any merged media company is to harness the great talent, programming brains, key management and best staff. As well as building a new (merged company) winning culture. And a lot of ego’s have to be taken care of too. As a result the new Seven / Fairfax group would be able to deliver better packaged advertising solutions for clients across various delivery points.

What will it mean to Seven West and Fairfax shareholders ? Usually in most takeover’s the acquirer's share price drops given the increased risk, while the target's share price usually lifts. But at the end of the day it will depend on the deal.

Brad March is a Director of Radio Today, is a former CEO and Group Program Director of Austereo and has been named Media Executive of the Year.