Media firms brace for brutal year

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New York: The US media industry, fresh off a bruising 2008, is preparing for an even more brutal 2009 as the slump in advertising, fall in consumer spending and financial crisis show no signs of easing.

The economic turmoil quickens a challenge that television networks, cable TV operators, newspaper publishers and others already faced: the gradual, but epochal shift of people's tastes toward the Internet and digital media. “2009 will be a tough year,” said Stefanie Kane, partner at PricewaterhouseCoopers's entertainment, media and communications practice. “Clearly, consumers are cutting back spending. It's an economic reality, it's job losses and fear of upcoming job losses.”

Even before the mortgage market meltdown that sparked the economic crisis, advertisers were devoting more of their budgets to the Web than ever before, leaving traditional media companies pondering their long-term survival.

The crisis brought that question center-stage and sent stocks of media and entertainment companies plunging -- from conglomerates like News Corp to video game publishers like Take Two Interactive , from satellite radio provider Sirius XM to movie rental chain Blockbuster . At the Reuters Media Summit in New York next week, top industry executives will discuss how to cope with the crisis.

How can they revive shareholder confidence? Should they sell off some assets or buy another company? The question, whether they are conglomerates or fledglings, is how they will grow as consumers pull back to save money?

On another level, could the crisis spark new interest in some forms of entertainment as people look for cheaper ways to amuse themselves, resulting in big opportunities for some companies? Or will people just stop spending money?

“Some people argue that media entertainment is counter-cyclical because people want and embrace the release that entertainment brings. That's true, but media companies are very concerned about consumer spending,” said Howard Bass, senior partner in Ernst & Young's Global Media & Entertainment Advisory Services practice. “We have to see what happens in retail next month, but I think it's going to be a very tough market,” he said. Global advertising could fall 3.9 % in 2009, led by an 8.7% decline in the United States, according to a UBS report released earlier this month. Against this backdrop, the S&P media index .GSPME has lost 41% so far this year, underperforming the Dow Jones Industrial Average .DJI, which is down about 33%.

Experts say some media companies could take advantage of the drop in valuations to hunt for bargains.

Technology companies, which were often too expensive, could round out some media companies' needs to adapt more to the Internet -- particularly in the mobile device world.