What happened? Seven West Media Ltd (ASX: SWM) shares fell 11% by lunch time on Tuesday, dragged down by the shock announcement from Nine Entertainment Co Holdings Ltd (ASX: NEC) on Friday that its earnings would fall this financial year. Nine shares were down 16% at the time.
What does that mean for Seven? Nine noted in its statement that earnings would fall due to "softer than anticipated Free-To-Air advertising market in the second half which is now expected to be in low single digit decline, driven by particularly soft conditions in May and June. Previous guidance assumed Free-To-Air market growth of c2% in the period."
This indirectly impacts Seven West's free-to-air 7 Network, as well as that of smaller rival Ten Network Holdings Limited (ASX: TEN). All three stations (plus SBS) are fighting for an ever-decreasing slice of the free-to-air advertising market.
Advertisers are moving towards more targeted and cost-effective mediums, like Facebook, Twitter, and online streaming companies, as it gives greater control over who sees their ads.
For example, when I'm watching Foxtel Go, Foxtel knows I'm a mid-20s male living in Adelaide that watches the share market and can send me a share-market platform ad from Commonwealth Bank of Australia (ASX: CBA) before my movie starts. This kind of control cannot be achieved via TV and is one of the reasons why Nine, Seven and Ten are struggling to grow revenue and earnings.
What can you do? The best thing investors can do is listen to the wise words of one Mr Warren Buffett, who says to only ever invest in great companies at great prices. I would argue that Seven and Nine are not a great companies- they are the market leaders in a sector being decimated by the changing consumption trends provided by widespread internet use. I prefer to invest in small companies that have growing revenue and earnings, as well as some kind of competitive advantage over peers.
Another idea is to check out smaller companies that are disrupting the major players- just look at the success of Apple which revolutionised the way people interact with digital devices.
