RPT-PREVIEW-News Corp investors brace for writedowns, job cuts

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By Robert MacMillan

NEW YORK Jan 30 (Reuters) - When the economy cratered last fall, News Corp (NWSA.O) Chief Executive Rupert Murdoch quickly told investors his media empire would feel the pain.

After that, silence. With a week to go until quarterly results, investors wonder how bad things will be and are girding for sharper-than-expected profit declines, asset writedowns and perhaps more severe job cuts.

Punishing drops in the stock market, coupled with a slump in advertising spending, make it likely that News Corp will join peers such as Time Warner Inc (TWX.N) and CBS Corp (CBS.N) forced to revalue the assets on their books, analysts say.

So far, Murdoch has resisted big cuts for his 60,000-plus employees: News Corp has made limited cuts, including several hundred jobs at Fox Interactive Media, home of the MySpace social network. Media reports say more are on the way at The Wall Street Journal and New York Post newspapers.

If Murdoch wants to keep the business healthy, it is time to make "hard decisions" and prune older media like papers, Pali Capital analyst Rich Greenfield said.

"We are concerned that the News Corp growth story, propelled by cable networks and Sky Italia, will be far less exciting over the next few years," Pali Capital analyst Rich Greenfield wrote in a note on Thursday.

"It just feels like the legacy assets are weighing too heavily," Greenfield added in an interview. "I think they've been the most aggressive in trying to develop businesses with long-term returns on capital ... where others initially didn't believe or thought the start-up costs were too high."

One unit seen ripe for a writedown is Journal parent Dow Jones, which News Corp bought in 2007 for $5.6 billion, or a 65 percent premium to its market value then. More recently, News Corp has been trying to cut costs at Dow Jones, including freezing employees' salaries this year.

U.S. newspaper publishers have seen their shares lose half to nearly all their value in the past 12 months, prompting some to write down 20 percent or more of their assets.

Besides The Wall Street Journal, which has typically performed better than other newspapers, Dow Jones also counts local U.S. papers, the Dow Jones Newswires, the Barron's financial weekly among its assets. News Corp also owns the The Sun and Times of London and The Australian.

UBS analyst Michael Morris pointed to a $25 billion writedown at Time Warner and a $14 billion one at CBS. Assuming News Corp writes off a similar percentage, he estimated that it could write down $10 billion, or about a sixth of its assets.

"In particular, we see possible issues at the broadcasting and publishing businesses, including Dow Jones," he said.

A writedown would not affect News Corp's daily performance, but it would be an admission the company paid more for acquisitions than it should have. That in turn could weigh on the stock price.

BAD NEWS ALL AT ONCE

News Corp's shares have fallen 67 percent in the past 12 months, underperforming peers such as Time Warner, Viacom Inc VIAb.N and Walt Disney Co (DIS.N).

Murdoch in recent months managed down shareholder expectations. In a statement in November, he said operating income would fall in the low to mid teens percentage points, instead of rising 4 percent to 6 percent.

He also warned that weaker overseas currencies, particularly the euro and pound, could hurt the New York-based News Corp. A little more than half its fiscal 2008 revenue came from North America and about a third came from Europe.

Many media companies have warned of more advertising sales declines. Magazine publisher and broadcaster Meredith Corp (MDP.N) said automotive ad sale pacings are down 70 percent this quarter -- a dire sign for companies such as News Corp.

Wachovia analyst John Janedis expects a 26 percent drop in operating income for fiscal 2009, which ends on June 30. Greenfield forecast a 30 percent drop, along with an 80 percent decline in TV profits.

Barclays analyst Anthony DiClemente forecast a 35 percent drop in revenue for News Corp's Fox TV stations in the second half of fiscal 2009.

In recent years, investors tolerated Murdoch's love of newspapers because his cable, satellite and interactive businesses were growing.

But MySpace competitor Facebook is grabbing more share of the Internet social media space. And Sky Italia's satellite business could suffer because of the weaker euro and a troubled Italian economy.

As if that were not enough, MySpace's $900 million Internet search advertising deal with Google Inc (GOOG.O) expires in 2010, about the time economists expect the markets to recover.

"We do not believe a new Google search deal is likely to be as favorable," DiClemente said. (Editing by Andre Grenon)