The emerging battle between the media barons James Packer and Kerry Stokes has almost all the ingredients of pulp fiction – money (plenty of money), glamour assets (pay TV) and a long-running history of antagonism between the protagonists.

What is missing in this saga is an obvious conclusion.

Stokes – chairman of the Seven Network – opened hostilities last week in an $A234 million raid that secured him an 18 % stake in the in Consolidated Media Group. Consolidated is made up of the rump of the Packer dynasty’s media empire Publishing & Broadcasting and includes 25% of the pay television company Foxtel, a half share of one its key content providers Premier Media Group and just over a quarter share of the internet jobs site Seek.

James Packer responded by splashing out $A25 million to lift his stake by 1% to 39% and has since spent more. That was a move designed purely to show the he was still attached to the assets that were the foundation of his family’s wealth. They would not be sold for a song.

For Packer the battle appears to be largely about price. He showed where his loyalties lay when he sold off the majority of the family media assets (Nine Network, and ACP Magazines) to private equity in 2007 and refocused the business on gambling.

Stokes, meanwhile, has demonstrated more than a passing affection for pay TV. In 2007 he reportedly spent hundreds of millions waging a legal battle against Foxtel, NewsCorp and many others, claiming they conspired to sink his pay television channel C7.

Consolidated Media may well have what is necessary to make a meaningful reprise in the sector. It would give Stokes a seat at the table of Foxtel, the lynch pin of pay TV in Australia. More to the point it may give Stokes an option over Foxtel should Telstra be forced to sell its 25% stake. (Ever since the Rudd government was elected in 2007 it has had Telstra in its sights. In short, Rudd reckons Telstra’s provision on content cements its unacceptable dominance of the telecommunications market. Prohibiting Telstra’s provision of that content may help to encourage competition).

The pre-emptive rights over Foxtel are the stuff of conjecture. None of its shareholders have ever confirmed their existence. But at the least a seat at the table of Foxtel combined with Premier Media Group, a key supplier of sports content, may give him the power to shift pay TV in his favour.

These minority positions would not be out of keeping with his array of media assets, which include: a near 50% stake in Seven Media Group, which houses the Seven TV network; New Idea publisher Pacific Magazines; half of the internet company Yahoo 7 as well as a reseller of the TiVo digital recorders; a stake in West Australian Newspapers; and Seven Network regional affiliate Prime Media. Stokes’ ambition simply may be a wish only to be a quasi-investment company. But that does not gel with the hundreds of millions he has spent – there are perhaps less risky ways to collect an annuity.

More likely is a grand plan to forge these assets into a coherent strategy, with those businesses that do not fit obviously with the others serving as useful bargaining chips. Whatever the plan, he has bought a fight. Although he has sufficient share of Consolidated Media to prevent a friendly takeover via scheme of arrangement for the firm, Packer with 40% still calls the shots.

And, even if Stokes is successful in gaining Consolidated Media, Foxtel is far from a fait accompli, as it requires the assent of its (effective) 50% shareholder Rupert Murdoch. Failure on both counts could leave Stokes with stranded assets and no obvious buyer.

Consolidated Media shareholders are already among the happier investors in the media sector. Its shares have outperformed its peers by a wide margin throughout the last two years of declining advertising revenues. And now, on the back of Stokes’ plays, the shares have risen 13% and in all likelihood will rise higher as the rhetoric and the speculation over Stokes’ ambitions mounts. It is not one for the faint heart but certainly a boost to an investor’s morale.
 

Richard Inder is an investment adviser at Macquarie Private Wealth. His disclosure statement is free and is available on request. Clients may hold shares in the firms mentioned. Comments, think differently? Write to richard.inder@macquarie.com