ACCC seeks further comments in relation to sale of Southern Cross and related transactions

The Australian Competition and Consumer Commission has considered three separate, but related, proposed transactions involving the sale of Southern Cross Broadcasting, ACCC Chairman, Graeme Samuel, said today.

The three transactions are:

• 1. The proposed acquisition of all of Southern Cross by the Macquarie Media Group
• 2. The proposed acquisition of Southern Cross' metropolitan radio assets and other Southern Cross assets by Fairfax (the Macquarie Media Group intends to on-sell these assets to Fairfax after acquiring all of Southern Cross), and
• 3. The proposed acquisition of Fairfax's nine regional radio stations by the Macquarie Media Group.

"The ACCC has decided to release separate Statements of Issues for the proposed acquisition of all of Southern Cross by the Macquarie Media Group, and the proposed acquisition of Fairfax's nine regional radio stations by the Macquarie Media Group.

"A Statement of Issues is not a final decision, but gives the parties and the public some guidance on the preliminary issues the ACCC has identified and intends to investigate further.

"The ACCC has decided that it will not intervene in the proposed acquisition of Southern Cross' metropolitan radio assets and other Southern Cross assets by Fairfax.

"The ACCC's assessments of these matters are entirely separate to any assessments done by the Australian Communications and Media Authority. The ACCC has a separate role, assessing the proposal for any impact on competition under the Trade Practices Act 1974. In contrast, the ACMA's assessment focuses mainly on diversity in control of media operations. While the ACMA has accepted divestiture undertakings from Macquarie in relation to its proposed acquisition of Southern Cross, the ACCC cannot assume that these undertakings will necessarily resolve relevant competition issues.

"The proposed acquisition of Southern Cross by Macquarie raises a number of concerns in relation to the supply of advertising opportunities in 11 regions. The ACCC has also identified a competition concern if Macquarie retains the metropolitan radio assets of Southern Cross and Southern Cross Syndication rather than on-selling these assets to Fairfax.

"The proposed acquisition of Fairfax's regional radio stations by Macquarie raises concerns in relation to the supply advertising opportunities in Bundaberg, Port Lincoln and Spencer Gulf. The ACCC has also identified potential concerns in relation to the supply of content to consumers in these regions."

The ACCC invites further submissions from interested parties on these matters by 26 September 2007. Submissions can be sent by email to the ACCC at: mergers@accc.gov.au.

To allow for submissions in response to the Statement of Issues, the ACCC's final decision date will be deferred until 10 October 2007.
The Statement of Issues will be available on the ACCC's website, under Mergers.

Background

Southern Cross assets

Southern Cross' assets include:

• regional television
• metropolitan television
• metropolitan radio
• syndication of radio content, and
• television production and distribution.

The transactions under review

The Macquarie Media Group (Macquarie) proposes to acquire all of the shares in Southern Cross Broadcasting (Southern Cross). Macquarie then intends to on-sell Southern Cross's metropolitan radio assets and other assets to Fairfax. In a third, related transaction, Fairfax proposes to sell its 9 regional radio stations to Macquarie.

The ACCC has separately considered the potential competition issues arising from these transactions, as follows:

Proposed Acquisition of Southern Cross by Macquarie Media – Statement of Issues

This transaction involves the aggregation of the Southern Cross television and Macquarie Media radio stations in many regional areas.

The ACCC has analysed issues from the perspective of consumers (listeners and viewers), as well as from the perspective of advertisers. A key factor for consideration is the level of substitutability between radio and television, particularly for advertisers who look for opportunities to advertise their businesses.

In some locations, competing television stations and radio stations appear to provide effective alternatives to the Macquarie and Southern Cross outlets, and therefore no competition effects are likely. In Mt Isa, Roma, Shepparton, Bendigo, Wagga Wagga, and some locations in Tasmania, market inquiries revealed potential competition concerns, particularly in terms of reduced options for local advertisers.

Macquarie Media has raised the prospect of offering to the ACCC divestment undertakings in some regional areas. At this stage those discussions are still at a preliminary stage.

The ACCC notes that Macquarie has also offered, and the ACMA has accepted, divestitures required to address concerns arising pursuant to the diversity and control rules contained in the Broadcasting Services Act. The ACCC notes the divestiture undertakings accepted by the ACMA, but must consider firstly whether competition concerns exist in each area; and secondly whether a divestiture (whether of the same station required under the ACMA undertakings or of a different station or stations) will alleviate any competition concerns that may exist pursuant to the Trade Practices Act 1974.

The second key competition issue arises from Macquarie Media's acquisition of Southern Cross' radio stations in Melbourne, Sydney, Brisbane and Perth, and the Southern Cross syndication business that focuses on selling radio content from those radio stations and other content to other radio broadcasters.

Macquarie Media intends to on-sell these assets to Fairfax. However, the ACCC, at the request of Macquarie Media, has conducted its analysis according to a possibility, albeit perhaps theoretical, that it might retain those Southern Cross assets.

In the event that Macquarie were to retain the Southern Cross metro-radio stations and Southern Cross Syndication, the ACCC considers that there may be competition concerns. Southern Cross Syndication supplies content which is largely obtained from 2UE and 3AW to many of Macquarie's regional radio competitors. The ACCC is concerned that Macquarie may utilise control of this content to adversely affect the competitive position of its rivals in regional radio.

Macquarie Media has raised the prospect of offering to the ACCC undertakings to address this issue. At this stage those discussions are only preliminary.

Proposed acquisition of Fairfax's 9 regional radio stations by Macquarie Media – Statement of Issues

The ACCC has decided to release a Statement of Issues identifying certain concerns in relation to the proposed acquisition of Fairfax's 9 regional radio stations by Macquarie Media.

The 9 radio stations that Macquarie Media intends to acquire from Fairfax are:

• 2 stations in Port Lincoln, SA
• 2 stations in Riverland, SA
• 2 stations in Spencer Gulf North, SA
• 2 stations in Bundaberg, QLD
• 1 station in Ipswich, QLD, and
• narrowcast licence assets in SA and QLD.

In Bundaberg, Macquarie Media already owns one radio station and is seeking to acquire the Southern Cross 10 television station. The transaction would result in Macquarie Media owning all of the commercial radio stations in Bundaberg as well as Southern Cross television. Market inquiries have indicated possible competition concerns.

Market inquiries have also indicated possible competition concerns in Port Lincoln and Spencer Gulf North, where Macquarie Media is also seeking to acquire the only 2 television stations from Southern Cross. The ACCC considers that aggregation of radio and television assets is likely to be of particular concern where there are no alternative radio or television stations.

Proposed acquisition of the Southern Cross metro-radio assets and other Southern Cross assets by Fairfax

The ACCC will not intervene in the proposed acquisition of certain Southern Cross Broadcasting assets by Fairfax Limited.

The key Southern Cross Broadcasting assets that Fairfax intends to acquire from Macquarie Media Group are:

• 2UE (Sydney)
• 3AW and Magic FM (Melbourne)
• 4BC and 4BH (Brisbane)
• 6PR and 96FM (Perth)
• The Southern Star Group (film and television production and distribution)
• Southern Cross Syndication, which focuses on selling Southern Cross radio content and other content to other radio stations, and
• Satellite Music Australia, which focuses on the supply of satellite music services to retail outlets.

The key focus of the ACCC's investigation was in Sydney and Melbourne. In Melbourne a key aspect of the transaction is the consolidation of The Age newspaper with the 3AW and Magic radio stations. In Sydney a key consideration is the consolidation of The Sydney Morning Herald and 2UE.

The ACCC considered the competition issues that could potentially arise in three key areas. Firstly, from the perspective of the consumers, who are the readers and listeners. Secondly, from the perspective of advertisers. Finally, the ACCC considered the perspective of the businesses that both buy content from media outlets and sell content to media outlets.

In coming to its decision, the ACCC took into consideration the existence of competing daily newspapers, in particular The Herald Sun and The Daily Telegraph. The ACCC also took into consideration the existence of competing radio networks in Sydney and Melbourne.

The ACCC's inquiries indicated that competitors would be likely to constrain the possibility of any anticompetitive behaviour that might arise from any substitutability between radio and daily newspapers.

The existence of competitors was also considered to constrain any potential anti-competitive effects that might arise from the potential bundling or tying of media products, or from the possibility of foreclosure of competitors.

Macquarie may provide divestment undertakings to the ACMA in relation to these proposals. As was stated in relation to the proposed acquisition of Southern Cross by Macquarie, the type of undertaking that may address ACMA's concerns may be different to an undertaking that addresses the ACCC's competition concerns, should one be offered by Macquarie to the ACCC. The ACCC must consider firstly whether competition concerns exist in each area; and secondly whether a divestiture (whether of the same station required under the ACMA undertakings or of a different station or stations) would alleviate any concerns that may exist.