Seven West Media Ltd (ASX: SWM) incorporates free-to-air TV, newspapers, magazines, online platforms and radio, and is a $2.07 billion company by market capitalisation.
Similar to the other TV network companies, it is expanding its broadcasting and online content offerings to counteract the shift to internet and video on demand and broadband transmission of content. 67% of revenue comes from TV, so viewers wanting programming via mobile and internet can have a big impact on company earnings. Newspapers and magazines respectively make up 16% and 14%.
It has run popular shows like My Kitchen Rules, The X Factor, Downton Abbey, and televised the Australian Open Tennis, Australian Open Golf, AFL and Rugby League World Cup.
Switching the channel over to finance, it saw a slight 3.6% drop in total revenue in 2013 and NPAT was $232.5 million before abnormals. From write-downs in assets related to magazines, Yahoo!7 and restructuring, a total net abnormals charge came to $295 million, which sent the year's results to a net loss of $69.7 million. Since 2010's $96.2 million profit, NPAT had been rising until this big write-down.
Comparing that trend to Ten Network Holdings Limited (ASX: TEN), its competitor has been gradually declining over the same time period, down from $96.8 million to $1.85 million, taking large abnormal charges itself of close to $275 million in 2013.
Seven did have a net profit margin of 12.4%, though in many previous years it regularly would have been in the low to mid 20% range.
Long-term debt has expanded out since 2011, and although the company has paid it down over the past year, the $1.49 billion total is still more than five times its NPAT before abnormals, and that will weigh down on the company when it needs to expand to meet the challenge of internet, mobile and cloud computing content.
The other free-to-air rival, Nine Entertainment Co Holdings Ltd (ASX: NEC), just re-listed on the ASX, so over the next year investors will see how that company performs with full reporting along the way.
Foolish takeaway
Free-to-air TV has a number of challenges with viewers having so many options as to what they can watch and the format they receive it on. They are not insurmountable, but require bringing together popular programming content and investing in digital media through acquisitions/mergers or organic internal development.
Investors will have to watch the financial statistics, but Seven West Media has the better earnings power of the three, and if it can get its borrowings down, then its balance sheet will be a lot healthier.
