UPDATE 1-Mondadori sees "grim" Q1 ad sales, recovery by 2010

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By Deepa Babington

ROME May 12 (Reuters) - Italian publisher Mondadori's (MOED.MI) CEO said advertising sales in the first quarter were "very grim" and predicted the advertising market would only recover at the end of the year or early next year.

Forecasts for advertising sales in April and May were "not comforting" either, CEO Maurizio Costa said, as he cited the challenges facing publishers who must adapt to new technologies stealing customers while funds dry up amid the financial crisis.

"The signals on advertising are not comforting," he said. "I have to say it has been a very grim first quarter on advertising and even the forecasts for April and May are not comforting."

A recovery in the advertising market was expected next year, but could happen as early as the year-end, he said. Advertising accounted for 18 percent of revenues at Mondadori last year.

"If it emerges that the most critical part of the financial crisis is over ... then we will see the light at the end of the tunnel at the end of the year," Costa said.

Shares in Mondadori were up 3.9 percent in afternoon trade.

However, Costa said, the market for books is expected to hold up better, showing only a 2 to 4 percent percent fall in sales since books represent a comparatively cheap purchase amid the financial crisis.

"Books are doing well, even in the first part of the year. I have to say we are sufficiently optimistic and think that even this year the books market will hold up," he said.

"Certainly, a small impact from the crisis will be there -- a 2,3, or 4 percent fall in sales."

Book sales accounted for about 21 percent of Mondadori's revenues last year.

Over the long-term, Costa said the major concern for publishers was facing the double-threat of newer technologies -- like Amazon.com Inc.'s (AMZN.O) electronic reader Kindle among others -- stealing away customers from books and magazines while money for investment dried up amid the crisis.

"What makes this phase particularly negative is we have to change our model of business, we have to understand how to fight things that can be really dangerous and invest in the future when resources are scarce," he said.

(Editing by David Cowell)