Analysts are bracing themselves for a sharp downturn in advertising revenues at STV owner SMG after ITV warned of a looming slump in the autumn.

Analysts are bracing themselves for a sharp downturn in advertising revenues at STV owner SMG after ITV warned of a looming slump in the autumn.

ITV said it expects a 20% year-on-year drop in revenues in September and cited market figures predicting a 5% to 8% fall in advertising sales in the final quarter of the year.

SMG is due to publish financial results on August 28 and yesterday said it was unable to comment ahead of this.

Numis analyst Paul Richards said: "If you see the scale of the downturn that ITV is facing in September and in Q4, we would expect SMG to be affected by that, although not affected in exactly the same way."

He noted that financial services advertising is down sharply south of the border; it is of much less importance north of the border due to Royal Bank of Scotland and HBOS's dominance.

ITV also had a strong September last year after screening the Rugby World Cup, in which the English team made the final. Scotland fared rather less well. Sam Hart, analyst at stockbroker Charles Stanley, added: "National advertising is definitely weakening, and I think it is inevitable that SMG will see some sort of decline, although it may well be that it is not as dramatic as that at ITV."

ITV executive chairman Michael Grade yesterday reported a 3% rise in the first half of the year compared to 2007, but the company recorded a £1.5bn pre-tax loss after £1.6bn was wiped off the value of its broadcasting operation in the face of falling advertising spending.

He said: "In the context of the wider advertising market, the company held up well."

But he added: "Our current estimate is that September will be down 17% for the market and 20% for ITV."

He added that market consensus implies a drop in TV advertising revenues of between 5% and 8% for the final three months of the year.

The company said it was seeing a particular slump in advertising by household goods retailers and home improvement stores but the grocery and utility sectors were still spending.

In what could be a worrying sign for STV, Rupert Howell, managing director of ITV's brand and commercial operations, said the decline in the market is due to smaller or regional companies reining back while big national advertisers kept spending.

In response, Grade, who joined ITV just over a year-and-a-half ago from the BBC with a remit to turn round the fortunes of the ailing broadcaster, announced an extra £35m of cuts, with some of it likely to come from job losses, on top of £81m already scheduled.

He cut or postponed targets for revenues from ITV's television content and online businesses.

ITV also slashed its dividend by 50% to 0.675p per share "reflecting the opportunity to maintain the investment in programming and the weaker economic outlook".

ITV faced increased costs over the period due to the Euro 2008 football tournament taking place in June while last year's rugby tournament was in the autumn, chief operating officer John Creswell said. Grade used the opportunity to press regulators to scale back their requirements.

He said that in a weaker advertising market regulatory issues such as contracts rights renewal, the formula that protects advertisers from ITV abusing its dominant market position, and its public service broadcasting requirements needed to be resolved swiftly.

Grade added that ITV was prepared to withdraw from being a public service broadcaster.

ITV shares closed down 5.8% at 43.6p, while SMG was down 2.3% at 9.75p.