SYDNEY, Sept 14 (Reuters) - Australian lawmakers were set to approve legislation on Thursday allowing the consolidation of media companies, clearing the path for a likely rival bid to CBS Corp's proposed buyout of television broadcaster Ten Network Holdings after reaching a late-night deal on media ownership.
Australia's so-called "two out of three" rule, which prohibits one organisation from owning all three media in any given city - newspapers, television and radio - would be removed under an agreement with influential independent senator Nick Xenophon.
The government secured the deal with Xenophon after sitting late into the night on Wednesday, clinching his crucial block of three votes and paving the way for the bill to be approved on Thursday when the senate reconvenes.
"This has been the most difficult, protracted and robust set of negotiations in 20 years of being in parliament - state and federal," Xenophon told reporters.
The reform package, designed to allow Australian media to better compete against online giants such as Netflix and Google, is a boost to News Corp's co-chairman Lachlan Murdoch and television entrepreneur Bruce Gordon, who have launched a joint legal challenge to the A$201.1 million deal by CBS to acquire the struggling Ten network.
Australia's communications minister, Mitch Fifield, said the overhaul of the pre-internet age laws will boost the long-term viability of Australian media.
"This is not 1988, the Internet does exist," Fifield told reporters. "The media laws were crafted for an era which today is barely recognisable."
Gordon, a billionaire, owns a regional television station, while Murdoch family-controlled News Corp publishes about two thirds of the nation's newspapers. The allies held major stakes in Ten and were long seen as favourites to buy it if the two-out-of-three legislation was changed.
Although no offer from Murdoch and Gordon has been disclosed, lawyers acting for them said on Monday the pair were interested in negotiating a deal for the Australian TV network.
While the Senate deal clears any regulatory hurdles for Murdoch and his partner, they would still need a court to force Ten's administrators to consider a counteroffer. The case continues.
Despite slipping into administration in June, Ten is a tempting target, with the youth-focused broadcaster enjoying a national reach and strong brand.
In exchange for Xenophon's support the government has agreed to establish a fund to assist regional and small publishers and increased training for journalists. (Reporting by Colin Packham and James Regan; Editing by Greg Mahlich)