(By Salman - iStockAnalyst Writer)In past few sessions, media stocks have suffered deep sell-off on concerns a full blown recession will lead to a sharp decline in the ad revenues. Already, financials, auto and retail- three sectors that account for maximum ad spending, have taken a severe hit due to slowdown in the economy and turmoil in financial markets.

Recently, TNS Media Intelligence reported that advertising spending in the United States, for the period ended June 30 has suffered its worst decline since 2001. Further, according to Nielsen Monitor-Plus, during the first three weeks of September financial sector companies including Capital One, Discover, Synovus, Washington Mutual and Visa, reduced their TV ad spending. Similarly, total automotive advertising spending by automakers and dealers fell 11.2% in the United States, to $6.5 billion during the first 6 months of the year.

On Friday, Viacom Inc and CBS Corp revealed that their advertising sales have been badly impacted due to ongoing crisis, as a consequence of which they are slashing their profit outlook.

In a statement, Viacom Chief Executive Officer Philippe Dauman said "Given the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth, we are taking the prudent step of moderating our near-term targets,"

Viacom, which owns MTV Networks and the Paramount film studio, forecast its third-quarter earnings per share at 53 cents to 55 cents, missing the analyst estimates by at least 10%, as advertising revenue dipped about 2% worldwide.

CBS said it expects to report third-quarter adjusted earnings of 42 cents to 44 cents a share, compared with 51 cents in the period a year ago. The company said revenue growth for the quarter was about 3%, helped by higher syndication revenue and recent acquisitions.

"The continued economic slowdown in the United States has adversely affected advertising revenues across the company's businesses, primarily at the local level, and the effects of the current financial crisis are likely to cause further declines in advertising spending," CBS said in a statement.

Earlier, CBS CEO Les Moonves said the company was seeing "the beginning of a comeback" in some local advertising categories.

CBS reports third-quarter earnings Oct. 30, while Viacom reports Nov. 3.

On Friday, the S&P media index dropped 6.5%, compared to the broader S&P-500 index's 1.18% percent decline. Shares of Viacom (Via-B) lost $3.58 or (17.83%) to $16.50. The shares of the company are down over 60% from 52 weeks high.CBS (CBS) plunged $2.04 or 20.12% to 8.10. The shares have retreated 70% from 52 weeks high.

Other media stocks too felt the heat after the two companies issued the profit warning on Friday. News Corp (NWS) gave off 8.14% while Time Warner Inc. (TVX) subtracted 8.92%.

Media stocks now face the threat of downgrades as more and more advertising companies are expected to come up with lower guidance.

Things don't look bright for online advertisers either. Online advertising numbers released by the Interactive Advertising Bureau point towards a moderation in growth of online ad spending. Online ad spending for the second quarter came in at $5.745 billion, a 12.8% increase from the same period last year, but a slight decrease from the $5.765 billion in the first quarter of 2008. Quarterly online ad revenue has yet to match its last peak, reached in the fourth quarter of 2007.

Recently, UBS Internet Research Analyst Ben Schachter lowered third-quarter estimates on companies including Google, Yahoo, ValueClick, and eBay. Schachter believes that there is" no business model based on advertising or consumer spending that will be immune to a downturn. Specifically for the advertising names, as corporate profit forecasts come down, we expect planned advertising spending will be delayed and/or cut.”

Disclosure: The author does not own any of the stocks mentioned.