Optimism is AWOL at media gathering

Merrill Lynch exec expects 'long and deep recession'

NEW YORK -- Media and entertainment insiders struck some somber notes Tuesday, predicting an extended U.S. economic downturn and growing challenges to the advertising market.

"We expect this to be a long and deep recession," one that is more drawn-out than generally seen since World War II, Merrill Lynch managing director and entertainment industry analyst Jessica Reif Cohen said at the second annual Media and Money conference organized by Dow Jones and the Nielsen Co., parent of The Hollywood Reporter.

After several quarters of weakening trends in local advertising markets, national advertising is also in danger, she said. "We've definitely started to see national get hit now," Reif Cohen said.

Fellow panelist Wenda Harris Millard, co-CEO of Martha Stewart Living Omnimedia, also noted "a lot of unrest" among consumers and marketers and last-minute ad buying in recent months.

John Squires, executive vp at Time Inc., argued that consumers will continue to buy magazines in an economic slump, but overall the media environment will be under pressure. "We're going to deal with a pretty challenging marketplace for advertising for the next year or so," he forecast.

In a keynote interview, Scott Sperling, co-president at private equity group Thomas H. Lee Partners, discussed his limited appetite for mergers and acquisitions right now.

He argued his team has long factored in a recession, but things may turn out worse than expected. "The depth of the advertising recession is greater than we projected," he said.

Thomas H. Lee's portfolio includes Nielsen, Univision, Clear Channel and Warner Music Group.

In the current climate, Sperliing said he sees no appealing buyout targets in media and entertainment, arguing prices are still too high -- despite battered stocks -- given the credit crunch, the recession and a reduced growth outlook. It may take a year or longer for prices to come in full line with the new realities as he sees them.

"It's better to be cautious rather than aggressive in a market like this," he said. "We'd rather (step back in) on the upswing."

Digital media and emerging markets were mentioned as markets that should weather the downturn better than the rest.

However, Digital's advantage as a flexible ad buy "will become its curse in the fourth quarter" as retailers will cut spending there as a weak holiday season progresses, said Jeff Lanctot, chief strategy officer at Avenue A/Razorfish.

David Eun, vp content partnerships at Google and YouTube, even suggested that "places like YouTube may find they are beneficiaries" of tough times. He cited the video site's focus on being measurable and performance-oriented.

Asked about YouTube's overall monetization challenges, Eun said the company continues to experiment. "It's still so early now," he said. "We are committed to figuring it out, because certainly the opportunity is so large."
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