Goldman warns of worse newspaper fate in recession

By Michele Gershberg

NEW YORK, Jan 9 (Reuters) - U.S. newspaper revenue and earnings declines are likely to accelerate in a recession, making the troubled media sector even more vulnerable in 2008, Goldman Sachs said on Wednesday. Newspaper shares fell after Goldman lowered estimates and price targets nearly across the board for publishing companies covered by its analysts, with the New York Times (NYT.N: Quote, Profile, Research, Stock Buzz) and McClatchy Co (MNI.N: Quote, Profile, Research, Stock Buzz) noted among the least favorites.

While newspapers are already struggling to compensate for advertising that has moved to the Internet, economic woes will serve as a catalyst, Goldman analysts said in a research note.

"We believe this secular trend will be exacerbated by a cyclical downturn in 2008, particularly affecting the classified categories, resulting in what we believe will be the industry's weakest revenue performance since 2001," it said.

New York Times shares fell 4.22 percent to $15.42, McClatchy slid 3.59 percent to $10.47 and Gannett Co Inc (GCI.N: Quote, Profile, Research, Stock Buzz) shed 2.75 percent to $32.89.

Goldman said separately it expects the U.S. economy to drop into recession this year, with gross domestic product growth of 0.8 percent for 2008. It sees the Federal Reserve slashing benchmark lending rates to 2.5 percent by the third quarter from the current 4.25 percent.

Within the media and communications sectors, Goldman analysts Anthony Noto, Peter Appert, Jason Armstrong and Mark Wienkes kept a cautious investment view of newspapers and radio, a neutral view on telecoms and cable services and an attractive view on Internet and video games.

"We would avoid those sectors and companies with the most exposure to advertising, deteriorating content or ratings trends, secular audience issues and/or significant competitive factors," the note said.