You can expect Malcolm Turnbull to stamp his mark on the prime ministership soon and media stocks are likely to be among the early beneficiaries from this.
Credit Suisse believes Australia's reform agenda will accelerate under Turnbull's government and the once communications minister will have his sights set on changing the "reach" rule that restricts cross-media ownership.
The growing popularity of online video streaming has made the reach rule that prevent one company from owning media businesses that reach 75% of the population out-of-date, and Turnbull is acutely aware of this as he was a successful internet entrepreneur before entering politics.
Credit Suisse believes the abolition of this restriction is a question of "when" not "if" and would lead to a frenzy of mergers in the sector as traditional media group need scale to compete against the new age online rivals.
Free-to-air (FTA) television broadcaster Nine Entertainment Co Holdings Ltd (ASX: NEC) is tipped by the broker to be the biggest beneficiary as it can merge with regional broadcasters Southern Cross Media Group Ltd (ASX: SXL) or the nation's largest privately owned regional TV company WIN Television.
Seven West Media Ltd (ASX: SWM) will likely be compelled to consider buying Prime Media Group Limited (ASX: PRT) to meet the competitive threat of the enlarged Nine Entertainment.
Seven West announced yesterday that it will buy back $75 million of its shares over the next 12-months. Watch out to see if management suspends or slows its on-market buyback as that could be an early sign that it is considering an acquisition.
Southern Cross could also strike a merger deal with Ten Network Holdings Limited (ASX: TEN), although Credit Suisse believes that Southern Cross shareholders will benefit more from a takeover by Nine Entertainment.
Another media rule that could be scrapped is the two-out-of-three rule that stops a group from owning more than two mainstream media types in one market. Removing this rule will not have as big an impact as the reach rule but it could pave the way for Fairfax Media Limited (ASX: FXJ) to merge with Nine Entertainment without Fairfax having to sell its 54% stake in Macquarie Radio.
What's more, earnings for FTA television broadcasters will get a boost if TV license fees are lowered. Credit Suisse estimates that every 1% reduction in the fee will add $30 million to the sector's earnings before interest, tax, depreciation and amortisation (EBITDA) line.
But potential reforms under the Turnbull government could prove to be a mixed-bag for other sectors.
Retail-exposed stocks like Myer Holdings Ltd (ASX: MYR) and Federation Centres Ltd (ASX: FDC) will benefit if penalty rates for weekend work are lowered but that might be offset by potential increases to the goods and services tax (GST).
Meanwhile, building materials companies like Boral Limited (ASX: BLD) and Adelaide Brighton Ltd. (ASX: ABC) could suffer if the new government changes negative gearing rules that have been driving up property prices.
However, I suspect changes to negative gearing will be aimed at encouraging construction of new housing stock, so don't turn too negative on the sector just yet.
