Economic Woes May Mangle Media Stocks

With economic storm clouds gathering, offline media companies stand to be drenched.

A report from Moody's Investors Service on Wednesday says media outfits with exposure to print and broadcast advertising will be the most vulnerable players in the sector in the event of a recession.

Moody's says Internet search-related advertising, a market dominated by the likes of Google (GOOG) and Yahoo! (YHOO), is better off because it's cheaper and more responsive.

"Because of the drain on traditional branding in favor of creating a robust Internet presence and search-engine links, companies highly exposed to only the branding element of advertising have come under pressure," says Moody's in the report. "We anticipate the continuation of this trend will lead to increased spending on Web site creation and search at the expense of more costly brand-building efforts in traditional media."

With the U.S. housing slump shaking the world's financial markets, Moody's believes that the risk of a recession has reached its highest levels since 2003.

In the media sector, companies that could lose their investment-grade credit ratings in the event of a downturn include newspaper publishers Gannett (GCI), New York Times (NYT) and Belo (BELO), as well as radio broadcaster Clear Channel Communications (CCU), the ratings firm said.

Those with the least potential for vulnerability include Viacom (VIAB), Comcast (CMCSA), Time Warner Cable (TWC) and Cox Communications, the report said.