The Seven Network has seen its shares plunge more than 10% this morning after it shocked investors with an earnings downgrade for 2008 of up to 50%, and especially for the six months to December.

The shares recovered to be off 5% by midday at around $6.60, after hitting a low of $6.07 in trading after the early morning delay. that was a loss of 88 cents.

The statement to the ASX this morning detailed an earnings downgrade, huge losses (unrealised) on the company’s $1 billion plus stockmarket adventure and confirmed that its buyback of up to 19.4% of the company’s listed shares, would now commence. That will enable chairman and major shareholder, Kerry Stokes, to cement a controlling 55%-56% stake in Seven if all the shares are bought back.

Judging by the performance this morning, Seven will be knocked down in the rush and the shares will absorb a nice share of the $1.3 billion in cash still left from the sale of half of the company’s TV and magazines businesses to KKR.

The news confirms worries held by investors and analysts about Seven’s poorly timed market adventure. Seven bought close to the top of the market almost a year ago and is now selling at much lower levels. That’s not clever.

Seven said that profit before tax in 2008 was likely to be about 40-50% below the previous year, due to weak advertising revenue.

The group also said it had taken a loss on its investments of $14 million and expected to take further losses as it unwinds the portfolio, which wasn’t revealed until the interim earnings announcement in February.

The company told the ASX that “given the volatility in markets, it is practically impossible to reasonably forecast the earnings for this current half (ending December 2008).”

“But it is likely that the profit before tax (including significant items) will be approximately 40 per cent to 50 per cent below the prior corresponding period.”

It said this was based on realised losses on the company’s portfolio of listed securities of $14 million, as well as weakness in advertising markets and a previously advised impact on profits from the acquisitions of internet operators Unwired and Engin.

Its holding in West Australian Newspapers, at an adjusted cost of $540 million, now has a market value of an estimated $448 million, while the value of other listed securities, at an adjusted cost of $702 million, had an estimated value of a combined $645 million.

That’s a total estimated unrealised loss of $159 million. Included in the other securities is GRD (which was written down in the year to June) and a 4.82% stake in Consolidated Media Holdings, which owns 25% of PBL Media and 50% of Fox Sports owner, Premier Media and 25% of Foxtel.

Seven said it continued to reduce its exposure to listed securities and had, so far, realised around $14 million in losses in fiscal 2009.

Seven ”expects to incur further losses (dependent on market behaviour) as the portfolio is further unwound,” the company said.

Seven said the current market volatility provided ”a significant opportunity in the current share price of the company’s shares”.

The news comes after the Nine Network operated at a second half loss for PBL media and its owners, CVC (with 75%) and the Ten Network surprised nearly three months ago with a 10% downgrade in its 2008 profits (for the year to the end of August) because of slowing ad revenues and the impact of the Olympic Games sucking up ad dollars to Seven.

Seven had been thought to be well placed as its post Olympic Games programming was strong and it claimed it had done well from the Olympics. So clearly the last quarter is looking marginal and the earnings downgrade raises the prospects of a cost cutting drive at the network, something its private buyout group, KKR, will be pushing for.