Market, Goldman sock media stocks

Analyst predicts ad spending declines in the U.S.

The global financial crisis will take its toll on advertising as marketers will cut back amid slowing consumer spending, several experts said Tuesday in downgrading their ad forecasts for this year and next.

One analyst even predicts ad spending declines in the U.S.

The dire ad forecast -- along with a Goldman Sachs downgrade of several entertainment companies -- came as U.S. stocks were again taking a pounding Tuesday. The Dow dropped 508 points while the S&P 500 Nasdaq were down 5.7% and 5.8%, respectively. The Hollywood Reporter Showbiz 50 lost 5.5%.

The only two stocks from the Showbiz 50 that rose were the two exhibition stocks, Carmike Cinemas and Regal Entertainment, up 2% and 1%, respectively. Big screens, though, didn't fare as well, as Imax dropped another 9% on Monday. That stock has lost 38% in a week.

On the advertising front, media buying firm ZenithOptimedia cut its global forecast for ad spend growth in major media from 6.6% to 4.3% for 2008 and from 6% to 4% next year.

It said the main reason for the reduced outlook is the financial shock caused by recent bank failures, citing entertainment, luxury goods and travel companies as most likely to cut ad budgets as consumers tighten their belts.

"The bank failures will have a fairly small direct effect on ad expenditure -- since financial advertising contributes only about 4% of global ad expenditure -- but fears for the future will cause consumers to cut their spending, while companies carefully inspect their budgets to find cost savings," Zenith said.

In a positive twist, though, the firm predicts no ad spending declines in the current economic downturn because ad budgets weren't as inflated -- and not growing way ahead of the gross domestic product -- heading into it as was the case during the recessions of the early 1990s and 2000s. "There is no bubble in ad expenditure to burst, which is why we expect global ad expenditure to slow in 2008 and 2009 rather than to go into reverse," Zenith said.

Even for the U.S., it targets a 1.6% ad gain this year, down from its previous estimate of 3.4%, and a 0.7% increase in 2009, down from 2.6%.

Meanwhile, analysts at Barclays Capital, led by former Lehman Bros. analyst Anthony DiClemente, cut their U.S. ad outlook Tuesday and now predict declines for 2008 and 2009. They project that total U.S. ad spend will fall 3.6% to $284.3 billion this year, with 2009 to decrease another 5.5%.

That would be worse than the declines seen in the 1991 and 2001 U.S. recessions, when advertising dropped 1.9% and 6.2%, respectively.

"We would continue to significantly underweight large-cap media and newspaper stocks and remain cautious on stocks with exposure to the broadcast television networks and the local broadcast station groups," the Barclays analysts wrote in a report. Their favorite U.S. media stocks, with an "overweight rating," include Google and Discovery Communications in this environment.

As for the Goldman Sachs downgrade, analyst Mark Wienkes also lowered his financial estimates and price targets on big entertainment players citing "weaker local advertising and a softening national ad market."

He continues to favor shares of Walt Disney and Viacom, both of which he rates "buy," over those of News Corp. ("neutral") and CBS Corp. ("sell"). Wienkes doesn't rate shares of Time Warner.

Among the conglomerates, Sony was best on Tuesday, dropping 4% and Time Warner was next at negative 4.5%. Viacom was down 5%, Disney off 6% and CBS down 8%.

The worst decliners Tuesday from the Showbiz 50 were Netflix, down 16%, Cumulus, down 14%, Entercom Communications, off 13%, E.W. Scripps off 11% and TiVo down 10%.