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Should you own Seven West Media Ltd or Ten Network Holdings Limited?

Media companies are trying to bridge the gap between traditional broadcast viewing and online content service such as video-on-demand and mobile usage. It is changing revenue streams and creating challenges to retain audiences who are becoming used to accessing news and entertainment when and where they choose.

Here are two well-known TV and media companies that are making those changes, yet progress is still ongoing. For investors interested in media stocks, which should you prefer?

Seven West Media Ltd (ASX: SWM), which operates such businesses as Seven Television, Pacific Magazines, The West Australian newspaper and Yahoo! 7,  pulled off a 5% gain in underlying net profit for the first half of FY2014. Growth in TV advertising and cost-cutting initiatives helped raise overall earnings.

Its newspaper and magazine segments were both down around 20% in EBIT for the half year, yet the TV segment accounts for about 76% of total group EBIT.

Seven led the market in TV advertising revenue and ratings in the half year. 13 of the top 20 TV shows in 2013 were on Seven Television. It ran strong performers like My Kitchen Rules and broadcast the Australian Open tennis.

It is expanding its digital and mobile presence through Yahoo! 7, which has seen increased video revenue from a rise in video streaming. In May 2014, it will launch its HbbTV, combining broadcast TV and the internet for more video on demand (VOD). This has opportunities for targeted advertising and e-commerce.

Ten Network Holdings Limited (ASX: TEN) comprises news content and entertainment businesses such as TEN television and two other free-to-air TV channels, ELEVEN and ONE. Their online platforms expand coverage into digital and mobile.

Its new Tenplay service allows viewers to watch previously broadcast TV shows when they choose. Mobile and tablet PC users can view shows at their own pace and time while the company can still deliver advertising.

FY2013 annual revenue was down 13.3% to $630.1 million, producing an underlying net loss of $5 million. No final dividend was paid.

Some of the popular shows it runs are Masterchef Australia, Secrets & Lies, So You Think You Can Dance Australia and Offspring. It also broadcasted the Sochi Winter Olympics and T20 Big Bash League.

Foolish takeaway

Both companies are adjusting to the move towards digital media by viewers. Over the past year significant items from write-downs have resulted in statutory net losses for the two.

Looking at underlying net profit, Ten Network Holdings has been trending down since 2010, whereas Seven West Media has been trending upwards over the same period.  Of the two, I would prefer Seven West Media, but I would be watching its EBIT growth as well as monitoring revenue from online advertising and e-commerce.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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