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Seven West Media downgrades earnings expectations

Seven West Media's shock earnings downgrade earlier this week sent its shares into a nosedive and has cast a pall over the media sector.

The company said the TV, newspaper and magazine market is unlikely to strengthen in the final quarter. The company, which has led the TV ratings by a substantial margin, now expects full year earnings before interest and tax between $460 million and $470 million, implying a second half earnings fall of 25-30 per cent.

The announcement sent Seven shares more than 22 per cent lower yesterday.

Deutsche Bank analysts said the trading update, released after the market closed on Tuesday, was a disappointment and showed the pressure that traditional media companies are under. Rival network Ten posted a 40 per cent first half decline in group earnings before interest, tax, depreciation and amortisation earlier this year.

"This weak trading update despite the strong TV ratings performance, suggests that the company is finding it difficult to monetise its rating success and the significant investment in content in the subdued market conditions," Deutsche Bank analysts said.

Deutsche Bank expects traditional advertising revenues to decline by 2.5 per cent across the industry in 2011-12.

Seven also said it remains committed to keeping costs below CPI except continuing investment in programming in its television division. Deutsche Bank estimates that Seven's AFL expenditure of $100 million will drive up costs in its television division by 8.3 per cent.

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