Why Seven West Media shares surged

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Seven West Media (SWM.AX) has seen its shares climb after the company said the current financial year was ‘the worst of it’.

The owner of Seven television, The West Australian newspaper, Pacific Magazines, as well as several radio stations and online platforms, announced a new round of cost cutting, and that it expects underlying earnings to be down between 2% to 4% from last year.

At one stage the shares soared as much as 16% to $2.42.

The company’s chief executive, Don Voelte told analysts net profit would be down “a few million” from last year. Seven West also unveiled a new strategy to reduce the group’s reliance on advertising revenue, and attempt to monetise its relationship with audiences.

Rohan Lund, Seven’s chief operating officer said the five year plan would see the company move away from the role of a traditional media company, which reaches mass audiences to sell advertising, to that of an ‘audience’ company, which will commercialise its audience and content.

Earlier, Seven and Telstra Corporation (TLS.AX) announced a joint investment of $10.4 million into HealthEngine, an online consumer health directory. HealthEngine has around 450,000 unique visitors per month, and includes an appointment booking service.

Mr Lund said it was part of Seven’s strategy to invest in adjacent verticals relevant to the media company’s audiences, and expects to build Australia’s biggest patient and practitioner marketplace, in conjunction with Telstra.

Seven is also looking to reinvent its current free-to-air offering, with online products to complement its existing free-to-air channels. Like most global free-to-air broadcasters, Seven is being forced to adapt to a new reality, and a structural change to its industry. Channel Nine is already moving that way – as an example, in a partnership with Fairfax Media (FXJ.AX) owned Australian Financial Review, it has begun a new Sunday business show. Both Nine and Seven have had online ventures for a few years now, with Ninemsn and Yahoo!7 respectively.

Ten Network Holdings (TEN.AX) has yet to indicate how it will deal with structural change affecting free-to-air stations, but it really has no other choice if it wants to survive.

Foolish takeaway

The name of the game is “adapt if you want to survive”. Maybe they could make a reality-TV show out of it!

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