Any tie-up between the highly profitable pay TV operator Foxtel and struggling free-to-air broadcaster Ten Network would likely face intense scrutiny from regulators.
Existing laws block Foxtel from taking more than 15 per cent and the competition regulator will likely look into Lachlan Murdoch's business interests.
Foxtel refused to comment on a Fairfax Media report that it considered a bid for Ten with US private equity firm Providence Equity Partners - and could form a content or marketing tie-up with Providence if the latter proceeds with an offer for Ten.
The deal would have granted Foxtel 10 per cent or more of Ten and allowed Ten shareholders Lachlan Murdoch, Gina Rinehart, Bruce Gordon and James Packer to sustain their combined 40 per cent stake. Providence would have held the remainder.
A deal would give Foxtel access to more people than the 30 per cent of households that subscribe to it, as well as provide access to the highly coveted premium sporting rights it is not allowed to bid for now.
With a market capitalisation of just over $710 million, Ten is not a huge bite for Australia's most profitable media company and has potential for a turnaround after years of underperformance.
A deal would also provide backoffice savings and provide a wide metropolitan and regional audience to advertisers.
Under existing rules, News Corp could buy Ten today if Mr Murdoch didn't own radio company Nova Entertainment. There has been speculation Mr Murdoch is open to offers for Nova.
But the Australian Competition and Consumer Commission would likely take a close look at Foxtel taking a stake in Ten. Foxtel is half-owned by News Corp, of which Mr Murdoch is co-chairman.
In order to return to his father's News Corp in March this year, Mr Murdoch had to step down as chairman of Ten and cede his controlling voting stake to satisfy cross-media laws. He dropped his association with friend Mr Packer, reducing his voting stake in Ten from 17.6 per cent to 8.8 per cent.
If Foxtel took a significant stake in Ten, this stake could be viewed in relation to the stakes held by Mr Murdoch and Mr Packer.
ACCC head Rod Sims has previously said the regulator would have concerns about a combination between Foxtel and a free-to-air station, pointing to the regulator's decision in 2012 to block Kerry Stokes' request to bid for Mr Packer's pay TV investment vehicle, Consolidated Media Holdings.
"We were concerned that a television station getting together with pay TV might have competition concerns in the market for top line sports," Mr Sims told Fairfax Media. "I think it's fair to say if there was any getting together of Foxtel with a free-to-air station we would have concerns about that and would have to look at it very closely indeed."
Foxtel and Telstra declined to comment. Mr Murdoch's spokesman, John Connolly, declined to comment.
The media industry is largely pushing for a watering down of ownership laws, however Communications Minister Malcolm Turnbull has said he won't proceed without consensus on how laws should be structured. Foxtel is understood to have never raised buying a stake in Ten with the former Labor government.
Foxtel has been busy lately slashing prices, lobbying the government to crack down on online piracy, talking with Seven West Media about a subscription video-on-demand service, and planning for the launch of its "triple play" product, which will combine pay TV with broadband and telephony.
