Economic woes loom large for some media in 2008

By Michele Gershberg

NEW YORK (Reuters) - The media industry is on the brink of a second downturn in a decade, one that could accelerate the divisions between fast-growing targeted advertising and traditional formats aimed at mass audiences.

Since the last advertising recession following the Internet bust in 2000, the world's largest media companies have tried to adapt to deep technological changes, from the rise of high-speed Web use to the spread of portable digital media players like Apple's iPod.

But a deteriorating U.S. housing market has raised fears of a domestic recession that could harm media segments vying for some $290 billion in U.S. advertising in 2008.

Leading media executives and sports commissioners will discuss their strategies at the Reuters Media Summit in New York from November 26 through November 29.

Experts say advertisers need to remain competitive in a tightening market while keeping costs down, making them likely to boost spending in areas more directly linked to commerce, such as Web search queries.

That would benefit companies like Google Inc, Amazon.com Inc and eBay Inc. But television

networks like CBS or NBC and Web companies like Yahoo Inc. that rely on brand advertising could suffer.

"We see continued strength in paid search and continued strength in retail e-commerce, and possibly an acceleration of online video," said Sanford C. Bernstein analyst Jeffrey Lindsay.

Web search leader Google, whose shares surged passed $700 earlier this year to become the sixth-largest U.S. company by market capitalization, broadcasts confidence it will push through the year unscathed.

The shares currently trade closer to $650, but some analysts see it reaching $900 within a year.

"We feel that we're not too sensitive to those macroeconomic fluctuations," Google's chief economist, Hal Varian, said in an interview. "If there is a macroeconomic downturn, people will be a little pinched. We think that would be to the benefit of online sales."

Varian said he was not pessimistic about the economy in general and saw a temporary slowdown more likely than a significant slump.

"When we look at our customers in the sectors we service, it's really broadly distributed," he said. "We're not particularly exposed to any sector that's highly volatile."

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A few executives from more traditional media outlets have already sounded a warning note for 2008, a year that is expected to see stronger advertising from the dual boost of Olympic Games and a U.S. presidential election.  Continued...