An economic recession could hammer those media and entertainment companies that rely heavily on advertising next year, curtailing experimentation when the industry needs it most.

Just how severe the impact of a sinking U.S. housing market, global credit crunch and possible slowdown in consumer spending will be depends on many factors, including how deeply embedded a company's product are in people's homes, executives told the Reuters Media Summit in New York this week.

Goldman Sachs analyst Anthony Noto, who downgraded the entertainment sector in September, sketched out an even bleaker view if a recession materializes.

His firm pegged the risk of recession at 45 percent and Noto said that could cause ad revenue among traditional media companies to tumble 10 percent in 2008, compared with current estimates of flat to 1 percent growth.

While nearly all media companies depend in part on ads, worst hit will likely be print media and broadcaster CBS Corp, where advertising accounts for over 70 percent of revenue.

Entertainment companies with international exposure and Internet businesses could buck the trend. Noto cited News Corp and Walt Disney Co as top performers next year, noting however that even News Corp Chairman Rupert Murdoch is hedging forecasts against worse conditions.

Obviously a recession is not a good thing and will have an impact on ad spending, Peter Levinsohn, president of News Corp's Fox Interactive Media, told the summit. In times like that advertisers tend to move more towards accountability ... We still feel pretty good about our prospects.

Media companies that make their money by selling their entertainment could have a cushion, as consumers seek diversions even in the worst of times.

Electronic Arts Chief Executive John Riccitiello pointed out that its Pogo online casual games sites had one of its best days on September 12, 2001, one day after the attacks on the World Trade Center and Pentagon.

People were at home and they had to do something. They were probably flipping back and forth between Reuters, CNN and Pogo, he said.

FRINGE AT RISK

Online ad growth across the industry is expected to rise more than 20 percent this year, fueling heavy investments. But consumption of new entertainment forms is tiny compared to traditional viewing habits.

For example, video viewing on the Web from the likes of Google Inc's YouTube relative to television watching is currently about 0.01 percent, said David Sanderson, head of Bain & Co.'s global media practice.

Web search, led by Google, should weather a recession, but more novel types of advertising -- such as ads on mobile phones and commercials built into video-on-demand programming -- could be vulnerable.

Clearly, the fringe areas would be much more impacted... the newer areas that have less of a track record in terms of their ability to have a direct marketing impact, said Rino Scanzoni, chief investment officer for North America at WPP Group's media-buying division GroupM.

Scanzoni said his division now expects lower U.S. ad growth for the 12 months to September 2008 of 3.7 percent to 3.8 percent, compared with a prior forecast of 4.2 percent.

BRIGHT SPOT

Gangbuster holiday sales of video games -- buoyed by titles this quarter including Activision Inc's Guitar Hero III and Electronic Arts Inc and Viacom Inc's Rock Band -- have put a new shine on the sector.

Top executives say the sector appears relatively recession-proof and is more vulnerable to industry-specific events, such as game console cycles, than economic fluctuations.

And for the first time in the current generation, sales of games for latest generation systems -- Sony Corp's PlayStation 3, Nintendo's Wii and Microsoft Corp's Xbox 360 -- have surpassed sales of older titles, EA's Riccitiello said.

Most anything you can consume in your home wins at the expense of things that require travel or capital expense, he said.

Strauss Zelnick, chairman of Grand Theft Auto maker Take-Two Interactive Inc, warned that no sector should consider itself immune. Zelnick's career is rooted in traditional media, including stints as a former CEO of BMG Entertainment and President of 20th Century Fox.

No entertainment business is truly counter-cyclical, he said. People try to tell you that but it's just not the truth. Think about it -- you've just lost your home. No, you're not going to pay $50 on a video game, you're just not, even though it's Christmas time.

(Editing by Phil Berlowitz)

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