Michael Grade, executive chairman of ITV, can be forgiven for not wanting to join the great and the good of the broadcasting industry at this weekend's Edinburgh TV Festival.

He is not going despite the fact that his most important lieutenant on the creative side of the business, recently hired programming boss Peter Fincham, is giving the showpiece MacTaggart Lecture on Friday. Grade can hardly have relished the prospect of being buttonholed by people asking him about ITV's woes - a forecast 20% drop in advertising revenues, a plummeting share price and the likelihood that the company will soon be too small to remain in the FTSE 100 index.

It is easy to see ITV's problems as a microcosm of the whole media sector. Looking at media shares as a percentage of the UK stock market, they represent today about 2.6% of the FTSE All-Share. Compare that with the start of the decade when valuations were sky-high. In 2002, they accounted for 4.1% of the FTSE All-Share. A year earlier, as the dot-com bubble was bursting, media represented 5.8%.

No wonder Sir Crispin Davis, chief executive of business information publisher Reed Elsevier, complained recently that he felt his firm's positive results were being overlooked. "I have spoken to analysts who say they like the stock, but it is their company policy to be underweight on media companies," said Davis.

The doom-mongers wonder if this points to a bigger conundrum. Do creative businesses such as media firms belong on the stock market? With the economic storms clouds gathering, there has certainly been a trend for going private this year. Global Radio has taken Capital Radio owner GCap off the stock market, completing the virtual removal of all commercial radio from the City. Emap's radio and magazine businesses were also recently split in two and sold off to Germany's Bauer and a consortium of Guardian Media Group and Apax Partners.

Business information giant Informa, publisher of Lloyd's List, is being courted by private equity. Smaller trade publisher Wilmington, which has recently been forced to turn Press Gazette from a weekly to a monthly, has also been talking to private equity. And the management of TV firm RDF is taking itself private, three years after floating on the "tiddler" stock market AIM. One City analyst jokes that so many media firms have been "delisting" that he will hardly have any stocks left to cover.

Some of those big-name shares that remain, such as Trinity Mirror and Johnston Press, have seen their valuations slump over fears of a prolonged advertising drought - even if the share prices have risen from their lows in the last month. At the same time some of the fastest-growing independent TV firms such as All3Media and Shine are privately held.

Richard Menzies-Gow, analyst at Dresdner Kleinwort, says: "We are getting to the point where you have to ask does the media survive as a sector [in the City]? Certainly very creative businesses, not primarily driven by profit, shouldn't be public companies." That may seem a statement of the obvious but it is worth remembering there are dozens of small media companies - in film, marketing, advertising and the internet - that went onto the stock market during the bull run of 2003-7. There are no fewer than 80 media firms listed on AIM. Their initial ambitions may have been clear: to raise capital and reward staff. The problem is that many of these businesses have volatile revenue streams which, investors hate during a downturn.

Alex de Groote, analyst at Panmure Gordon, goes further: "When a lot of these companies raised money, they didn't do anything with it." He says some firms that are struggling have only themselves to blame if they are so exposed to the advertising market. Matthew Horsman, founder of corporate advisory firm Mediatique, says: "It is not appropriate for some of them to be listed."

But there is a split, as Sir Crispin Davis pointed out. Media firms that are faring well are selling to other businesses, not to consumers. "It's the unsexy part of the media," says de Groote. Business information and education publishing have been good for Reed Elsevier, United Business Media, Informa, Pearson and Thomson-Reuters. Advertising firms with a global reach such as WPP and French firm Publicis, which don't depend too heavily on the UK economy, also look well-placed.

De Groote argues that at least some of the problems for the sector as a whole are cyclical and don't just affect media but retail and services too.

He sees parallels between the recession of the early 1990s. Then the value of media firms fell to 2.8% of the FTSE All-Share because of a similar downturn in advertising. At some point the economy will turn up again. And firms that are privately held such as Global Radio or the GMG/Apax-owned Emap could turn to the stock market to try to realise their hoped-for gains. Some will want an exit.

The biggest unresolved question is the impact of the internet. Plainly, firms that fail to adapt will struggle and the City is already punishing their share prices. New players such as property classified website Rightmove have already emerged.

Horsman of Mediatique argues in a new report (Cash, Creativity and the Independent Production Sector) that those who create and control content are still in a strong position to profit in the digital age.

So while running a radio station and playing other people's music no longer looks a great business model - why not just log onto a website or use an iPod? - a TV firm or publisher that creates and owns content ought to have a better future. This is why some City analysts are not that gloomy about ITV, because it has a strong production business.

During the first dot-com bubble, media owners used to claim "content is king". Now Horsman says, with the distribution model fragmenting as consumers use more varied media sources, that still applies: "If you make compelling content, you will still get paid for it."

It is a silver lining for all those anxious media executives in Edinburgh.