Is traditional media dead? It appears that Reed Elsevier thinks so after today’s announcement that it plans to become a fully online operation and less dependent on advertising.

The group behind magazines such as New Scientist and Computer Weekly seeks to divest its print operation, Reed Business Information, which will see advertising fall from about 13 per cent of group revenues to about 3 per cent.

Reed’s chief executive Sir Crispin Davis has been clever to tap into what the market wants to hear in a struggling media sector. With the advertising market and traditional media under pressure, all a company needs to do is mention it is moving away from the traditional model to win market favour.The news sent the shares up nearly 10 per cent — along with the announcement that Reed will acquire ChoicePoint for $4.1 billion.

A strategic shift of such magnitude appears to have been necessary for Reed. While the group has seen its shares rise by about 40 per cent in the past five years, there has been little share price movement in the past year since it announced plans to sell its education business.

Reed says that its ultimate plan is to become a more cohesive business with a focus on risk information and data analytics. However, this announcement could leave some investors feeling uneasy and questioning the management’s commitment to its latest shake-up. After all, when Sir Crispin announced plans to sell-off Reed’s education business in February 2007, investors were under the impression that Reed Business Information was part of the future strategy.

Furthermore, despite the shift away from traditional media, Reed is unlikely to escape the difficulties of falling under the ‘media’ banner. As it seeks a steadier, less cyclical revenue stream by focusing on more of a subscription-based model, it would perhaps be safer as a support services stock.

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