U.S. slump casts pall over media, entertainment

By Kenneth Li

NEW YORK (Reuters) - A U.S. economic recession could hammer those media and entertainment companies that rely heavily on advertising next year, curtailing experimentation when the industry needs it most.

Just how severe the impact of a sinking U.S. housing market, global credit crunch and possible slowdown in consumer spending will be depends on many factors, including how deeply embedded a company's product are in people's homes, executives told the Reuters Media Summit in New York this week.

Goldman Sachs analyst Anthony Noto, who downgraded the entertainment sector in September, sketched out an even bleaker view if a recession materializes.

His firm pegged the risk of recession at 45 percent and Noto said that could cause ad revenue among traditional media companies to tumble 10 percent in 2008, compared with current estimates of flat to 1 percent growth.

While nearly all media companies depend in part on ads, worst hit will likely be print media and broadcaster CBS Corp, where advertising accounts for over 70 percent of revenue.

Entertainment companies with international exposure and Internet businesses could buck the trend. Noto cited News Corp and Walt Disney Co as top performers next year, noting however that even News Corp Chairman Rupert Murdoch is hedging forecasts against worse conditions.

"Obviously a recession is not a good thing and will have an impact on ad spending," Peter Levinsohn, president of News Corp's Fox Interactive Media, told the summit. "In times like that advertisers tend to move more towards accountability ... We still feel pretty good about our prospects."

Media companies that make their money by selling their entertainment could have a cushion, as consumers seek diversions even in the worst of times.  Continued...