Media groups Sky Network Television and Independent Newspapers are considering a merger to rationalise the complicated ownership of the satellite broadcaster.

The deal will also allow Sky, due to disclose its full-year earnings today, to pay shareholders a greater share of its $100 million-plus annual cashflow.

Analysts expect annual profits to rise from $750,000 to about $34 million.

Sky Network shares closed yesterday up 5c at $5.32. INL was 1c up at $4.71.

A deal between INL and Sky has been on the cards since INL sold its newspapers and magazines to Australia's Fairfax and bought Telecom's 12 per cent stake in the satellite broadcaster last year.

After these transactions and an INL capital return, it made little sense to retain two listed vehicles as INL was left with just a 78.3 per cent stake in Sky and $300 million of cash.

"The deal is the rationalisation of two publicly listed companies that have only one business," INL spokesman Sean Wynne said.

Sky chief executive John Fellet said the deal would also boost the broadcaster's shareholder equity, giving it a greater ability to pay more of its cash flow in dividends.

Under the proposed deal, a new company would be created, which would later assume Sky's current name.

Sky shareholders would be offered one share in the new company and an undisclosed cash sum for every share they own.

Shareholders in INL - 45 per cent owned by media tycoon Rupert Murdoch's News Limited - would get an undisclosed number of shares as well as cash.

If some shareholders preferred more cash or others more shares, the companies would try to accommodate them.

The details had yet to be negotiated, but Wynne said he expected shareholders would have a clear idea on progress by the end of the year.

"Sky's existing staff and management would continue to run Sky. It would be business as usual," Fellet said.

In a joint statement, INL executive chairman Ken Cowley and Fellet said the boards and managements of the two companies had a considerable amount of work to do before the deal could be brought to shareholders early next year.

The merger proposal would be implemented as a scheme of arrangement. It would require approval from regulators, the shareholders of each company and the High Court.