The paneling is the ugliest thing in the room, not counting the furniture, which I am sure is not yours. To get rid of the paneling, you will probably also have to remove the built-in shelves, which look like they are probably cheaply constructed. Then you can deal with the fireplace wall. I would cover the brick with a veneer of stone, but that really depends on your taste. No need to keep the light fixtures either.

To me, the carpet is the most attractive element in the room.

Rip out the paneling and drywall the room. Clean the fireplace brick and live with it for a while before deciding. There is already electric up there so put some cool lights up where the existing ones are. I don't see a good reason to spend all the time and money painting the paneling when drywall is only a bit more if you are DIYIing.

I'm in the minority probably but think by the time you add art up there and some décor near the bottom the fireplace would be easy to live with for a while.

How much of what we can see is original to 1974?

I'm thinking I would remove the valance. Do you need the curtains for privacy or light control?

How do you feel about the panelling and the brick? If you're not sure how you feel, I'd live with it for a good while first before making any decisions.

Short term or are you ready to tackle for the long term?

Short term: Remove the carpeting and replace

Paint the paneling

Replace the window treatment.

Long term: Rip out the paneling and replace with sheetrock

Remove the carpeting and replace with hardwood or luxury vinyl

Replace window treatment

How do you feel about 70s design in general? Do you like a little vintage character, or do you want to update it to generic contemporary?

I can't tell the quality of the wood paneling from the pic. Some that was used in the 70s was very cheap, but some was nicely done, if you like the look. I don't like how the paneling looks behind the shelves flanking the fireplace, and agree with a previous poster that the shelves look cheaply constructed. If you want shelves there, I would think about better quality built-ins.

I'm bothered by the lack of trim around the large doorway.

The fireplace looks nice, unless you despise brick. It's hard to make out the detail of the lighting with them on, but I probably wouldn't be in a rush to get rid of them.

I think i am going to be the single naysayer here. it all gets costly fast. What seems like something must be done like yesterday, in a few months, may be nothing or you wished you saved the money etc. I do agree with the carpet, i swear i had that same shag in 1976. Yech! Cleanliness would demand that. some reasonable quick changes, remove or change the hanging lights to more modern - though i can't see them well, they might be lovely. I would like to get rid of the cross board over the fireplace, I think that a thick chunk as a floater, would update nicely. how about painting the book shelves to disconnect them a little another really great inexpensive update is to wallpaper the back of the shelves. remember to have fun!

you should paint it first and remove the paneling or just paint it but if the paneling gets annoying then you should use sheet rock and i can tell you further if you upload some more photos which has closer look

Interesting pendant light fixtures placement. Not sure they are necessary unless you too plant to flank the fireplace with reading seating that way. I am surprised no one has suggested replacing them with cans. You can't just remove them without leaving ugly white discs in the ceiling (don't ask me how I know). The flooring will set you back a chunk of change so while it is out I would choose the least expensive option at this point and paint the paneling. I might leave the book shelves for last..do something different there, possibly wall paper. Actually the flat front and clean mantle of the fireplace looks rather modern to me. I would not paint the wood near the fireplace. The modern thing to do seems to be painting the brick, but to my eye the least modern element is the brass trim and it is pretty minimal. The window treatments were mentioned but your picture isn't really featuring them so all I will say is you will want something that flows with your furniture. Pictures from multiple angels and an idea of your furniture and needs would be helpful.

I remember when we bought our home -- everything seemed expensive. I think some of the elements in your room are totally fine for now, especially the fireplace and mantle.

1. Remove and replace carpeting.

2. Paint out the paneling on the lefthand wall.

3. If the shelves are sturdy, either paint or wallpaper behind them and use as-is.

4. I like the hanging lamps as a nod to the era of the house, so suggest trying to work with them. Same with the fireplace. It has a modern/minimal feel.

I agree with Justerri, the fireplace is the least offensive in the room.

It looks like you have more paneling in the adjacent rooms?

You're going to remove the carpet -- good. If your budget allows, a good wood floor will last a lot longer than another carpet.

I see the purpose of those hanging lights for reading by the fire. If you want to update those, it makes sense for reading. If you won't be reading by the fire, then replace with cans. An inexpensive fix.

I agree with others on painting the paneling. That's hundreds, versus thousands, by replacing it with drywall. You never know what you'll find behind the paneling that could create issues.

Ceiling moulding to go with what's above the fireplace, would be beneficial to the walls. That said, don't paint the trim above the fireplace. Leave the fireplace alone for now.

Trim around the door will also give the room more character. That said, that is the one element that makes me wonder if the paneling is added on top of drywall. Can you tell what sort of nails were used on the paneling? If you knock on the paneling does it sound hollow/does it move, or is it hard and solid wood?

I also agree on removing that valance.

Looks like the room has great possibilities.

Cool photoshop job, Justerrilynn! It's amazing what a can of white paint can do!

Congrats on your new home that happens to have been build in my birth year! Neat room with loads of potential! First, think about your furniture/TV placement based on how you plan to use the room. Then, depending on your budget and in addition to removing carpet, I would take down the drapes & valance, and remove the (is is also carpet?) brown covering on the hearth and lay a stone/veneer there. The shelving can be replaced with proper built-ins with cabinet bases for hidden storage for a traditional look or floating shelves for a more farmhouse/industrial look, depending on your taste. I think once the walls are white, the brick fireplace will look much more updated but if not, you could always whitewash the brick for a cheap but pretty update without having to reface. Also, if budget permits, the pendants can be swapped out for recessed/can lighting to bring additional light to the space.