SYDNEY (Reuters) - Top Australian television broadcaster Seven West Media Ltd (SWM.AX) and smaller Prime Media Group Ltd (PRT.AX) said they held takeover talks which ended without a deal, a faltering start to likely media consolidation brought on by deregulation.

The talks indicate Australia's traditional media owners are wasting little time capitalizing on the liberalization of ownership laws to explore deals designed to expand their audience reach and compete harder against new foreign rivals.

Shares in Prime, the likely takeover target in any talks with Seven, fell sharply after the companies confirmed discussions had failed to bear fruit.

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"There was a conceptual proposal received from Prime but ... this did not result in any agreement," Seven said in a statement, without giving details.

Until this month, top-rating free-to-air Seven, about one-third owned by billionaire Kerry Stokes, was banned from buying its A$161 million ($128 million) regional partner Prime because of laws preventing one company from broadcasting to more than 75 percent of a market.

But Stokes and other traditional media players won long-sought reforms to the laws last week, allowing them to boost market share through consolidation.

"The law just changed last week and it will start a dialogue, but I don't think anything definitive will happen in the short-term," said Ashok Desai, associate director at stockbroker CPS Capital Group Pty Ltd.

Prime shares were down 7.4 percent and Seven shares were flat by mid-session on Friday, in a slightly higher overall market.

Australia's media landscape has been upturned by the arrival of foreign competitors like Netflix (NFLX.O) and advertising juggernauts like Facebook (FB.O) and Google (GOOGL.O), resulting in declining earnings and job losses.

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Seven West Media posted an annual loss in August due to a slew of impairments and writedowns in its television and print assets.

(Additional reporting by Rushil Dutta in Bengaluru; Editing by Stephen Coates)