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Reuters Edge

Hollywood ending unlikely for media companies in '09

NEW YORK (Reuters) - America’s troubled economy and concerns about what it will do to advertising budgets have made this a painful year for U.S. media companies -- and the script calls for more misery to come.

Forecasts for advertising growth have already been steadily cut in recent months, reflecting worries that corporations will scale back spending on TV commercials, radio spots or billboards as they trudge through the economic downturn.

And 2009 may be even rougher for media companies, analysts say, without the marketing bonanza surrounding this year’s Beijing Olympics and the political advertising ahead of November’s U.S. elections.

“We ask people about their plans for next year, and most say steady state,” said Mike Vorhaus, president of Magid Advisors and a veteran media consultant. “By the way, they told us last year that this year would be steady state or down a little -- and of course it was worse than people thought.”

Interpublic Group's IPG.N Magna, a media buying and planning agency, has lowered its estimate for U.S. advertising growth this year to about 2 percent, or just over half of the 3.7 percent it first forecast for 2008.

Among others, Magna’s initial forecast for 2009 calls for modest spending growth of 3.1 percent but experts said they would not be surprised to see such estimates cut if the economic picture does not improve.

In turn, media stock prices have dropped -- sometimes dramatically. Despite Monday's broad market rally, shares of CBS Corp CBS.N and Viacom Inc VIAb.N are down more than 30 percent this year, while News Corp NWSa.N has lost about 25 percent.

“What you’ve started to have is specific advertising slowdowns in specific industries,” said Vorhaus. “That’s whacked the hell out of the business, whether it’s newspapers or TV stations or TV networks or magazines.”

AUTOS, FINANCIALS

During the last major advertising downturn in 2001, ad spending fell 6.5 percent largely due to the washout of startup Internet companies when the dotcom bubble burst.

This time around, the problem rests more with traditional advertisers like auto companies and financial institutions.

A recent survey last month by the Association of National Advertisers indicates that spending will remain under pressure next year. Just over half of the 100 companies surveyed by the group responded that they expected their budgets to be reduced in the next six months.

To some degree, analysts say, those cutbacks have already been factored into stock prices for companies that depend on advertising dollars for revenue.

“We know historically that advertising tends to slow as consumer spending slows,” said Robin Diedrich, a senior analyst with Edward Jones. “The stocks have been down on worries about what’s coming.”

It’s not just independent forecasts that have investors spooked, as Diedrich points out. “A lot of these companies have been alluding to advertising slowing down,” she noted.

Investors will be listening for any such allusions this week, when most of the industry’s top companies are making presentations at a Merrill Lynch conference.

Broadly speaking, cable television, outdoor and Web advertising have weathered the storm relatively well. Print and radio, meanwhile, have been battered by the one-two punch of weak local ad markets and competition from digital media.

What’s in store for local newspaper, radio and television advertising will be somewhat determined by back-to-school and holiday retail sales. If consumers curtail their buying, that likely puts pressure on retailers to cut marketing budgets.

The start of the 2008/09 TV season will also help determine how the media business shakes out over the coming months.

All of the major TV networks -- General Electric's GE.N NBC, News Corp's Fox, Walt Disney Co's DIS.N ABC, and CBS Corp's CBS -- have sold commercial time for the upcoming season at higher rates than the prior year. And the success of NBC's Olympic broadcast raised enthusiasm for broadcast TV.

Still, prime-time TV ratings have been falling, and there are big questions about this year’s schedule since the development season was shortened by a screenwriters’ strike. Another year of poor ratings could sour advertisers and pressure spot-market commercial prices.

“I think it’s going to be ugly,” said Dennis Miller, general partner of Spark Capital and a former executive with Sony Pictures and Turner Network Television. “There’s an orgy of nonfiction that has seeped into every network and the consequence is a lot of undifferentiated shows.”

Still, some contend that corporations should keep up spending during the downturn -- music to the ears of media executives. It’s based on the idea that companies should reinforce their brand names with cash-strapped customers, since they’ll likely be more picky in their buying decisions.

“By and large our clients continue to see it as a positive return on investment,” said Baba Shetty, chief media officer for Interpublic Group agency Hill Holiday. “If you view it that way, it’s something you continue to put money into, even in bad times and especially in bad times.”

Editing by Gary Hill

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