That’s the obvious question in light of news that both Terra Firma, the private equity group that bought EMI in 2007, and Citigroup, which funded most of the transaction, have written down most of their investments in the music company.

This isn’t a surprise–the move has been a long time coming–but it does open the door for Warner, which restructured its debt with an eye toward making such a deal earlier this year.

Pali Research’s Rich Greenfield thinks that Citi (C) will push to break up EMI and sell Warner (WMG) the record music group, which tends to lose money, and keep the music publishing business, which has been a reliable money maker, even during the industry’s 10-year freefall.

But at this point, I don’t know why Warner couldn’t try to swallow the whole thing. In the past, that deal would have been scuttled due to antitrust issues (and in fact, it was), but the music industry is a different beast right now–a sick beast–and I think regulators would be a lot more forgiving this time around.

[Image credit: beggs]

As it is, now that investors and analysts have heard the more plausible deal–instead of buying NBCU for $35 billion, the cable giant kicks in up to $6 billion in cash, plus its cable networks, and gets 51 percent of NBCU–they’ve decided they hate that one, too.

Here’s the story in the graphic form (click chart to enlarge):

The Comcast-NBCU story broke after the market closed on Wednesday, in case that wasn’t clear. As I’m typing this, Comcast (CMCSA) is trading around $15.6 a share, down some seven percent since the talks became public.

Pull back a bit and you see that things could be much worse: As recently as March, Comcast was down below $12, and there wasn’t any multibillion dollar deal weighing down the shares then.

If anything, investors are much more forgiving to Comcast here than the professional chattering class of writers and analysts, who hate the deal. The conventional wisdom: Comcast’s dream of marrying cable programming with its cable service is misguided because media conglomerates like Time Warner (TWX) and News Corp (NWS) have already tried it and concluded that it didn’t work. If the Roberts family spends money on anything, they argue, it ought to be on shareholders, either via dividends or by buying back shares.

Here’s a sampling of today’s sentiments:

Pali Capital’s Rich Greenfield:

Comcast is trying to become a massive player in content…a move that investors should be frightened about, regardless of the initial “math” surrounding the transaction.

Barclays Capital Vijay Jayant:

Press reports of this potential transaction give credence to investor concerns that management has empire-building aspirations in general or that they may not believe enough in their own distribution business over the long term and therefore need to diversify their portfolio holdings…fundamentally, we believe that Comcast shareholders would be better served if the company were to invest in its own shares.

So if this is a trial balloon, you wouldn’t say it has been shot down completely. But it’s certainly sagging.

As the intro to the video notes, Huntsberry was delivering his chat at a Federal Communications Commission hearing earlier this month. And as best I can tell, he was trying to alarm the FCC by pointing out just how easy it is to grab this stuff.

Along the way, he notes how many “legitimate” companies participate, in their own way, in the piracy value chain. Everyone from small storage start-up Drop.io, which allows users to host big data files for little or no charge, to Google (GOOG) and Yahoo (YHOO), which can point people toward pirate havens, gets tarred by Huntsberry’s brush.

Not surprisingly, the video inspired all manner of invective from my fellow bloggers, who railed about Huntsberry’s lack of sophistication, his temerity for asking the FCC for help in stopping piracy, and other offenses real and imagined.

I find it hard to get worked up about it, though, since I hear this stuff from media executives all the time. The big difference is that the ones who are most impassioned about it usually don’t want the FCC to stop piracy. They want the industry to offer compelling alternatives to piracy.

For instance, here’s a site someone who works for a very big media company points me to with some regularity. Said executive says it’s the latest and greatest in piracy. I wouldn’t know, because the download scares me off (and in case my employer is wondering, I don’t condone piracy, but I do write about it). So I’ll take said executive’s word for it.

In any case, the idea is not to tip me off about a great place to hoover up a camcorded version of “Pandorum,” but to point out how fast this stuff evolves and how difficult it is stop. I don’t see any harm in noting that, right?

Khan’s estimate is the first one I’ve seen floated in public so far. The analyst has proven to have a pretty good grip on AOL’s business to date, so I’m taking it seriously.

But for the record, note that not only is the $4 billion number a pittance of the company’s value during the original Web boom (remember those days?), it’s also marked down from the $5.5 billion Google assigned to the company when it wrote down its five percent stake earlier this year. Which was, of course, a markdown from the $20 billion value Google (GOOG) had given it in 2005.

UPDATE: Pali Capital’s Rich Greenfield also pegs AOL at “around $4 billion.” Greenfield is also in the growing group of people who think Time Warner is likely to sell off its Time Inc. publishing unit. I think otherwise, but this will be interesting to watch.

Here’s how Khan got to his number (click chart to enlarge).

Time Warner (TWX) has yet to dispose of AOL, but there’s lots of sotto voce chatter about CEO Jeff Bewkes’ next move.

Last month, I reported that people familiar with Bewkes’ thinking believe he’s planning on selling off the company’s namesake Time Inc. publishing unit in 2010. Today, Pali Capital analyst Rich Greenfield picks up the torch.

From a note published this morning, where the analyst raised his estimates and target price for the stock:

“Unlike many of its media peers, we believe Jeff Bewkes and the Time Warner Board of Directors have no emotional attachment to the assets within Time Warner. In turn, we would not be surprised to see Time Warner seek a separation or sale of its publishing division (magazines) following the AOL spin. With Publishing set to represent under 10% of Time Warner’s EBITDA post-AOL spin and the inherent difficulties of shifting Time Inc.’s magazine business to an online subscription model, we believe it may make sense to further simplify Time Warner down to only cable networks and filmed entertainment in 2010.”

Anyone want to hazard a guess about what Bewkes might be able to fetch for the world’s biggest publishing company? It lost $32 million on revenues of $800 million last quarter (click to enlarge).

I’ve asked Time Warner for comment, but don’t expect one.

ADDENDUM: Several readers note, correctly, that Time Warner-ditching-Time Inc. is a recurring rumor that comes and goes every couple of years. So this may well be same old same old.

“I  wrote for TIME for 14 years,” writes John S. DeMott.  “Spinoff talk was happening then, even before the merger with Warner.  Ain’t gonna happen now.” Could be!

That said: 1) Time Warner has new(ish) management and 2) this chatter definitely has some currency. At a media conference sponsored by GCA Savvian today, AOL founder Steve Case mentioned that he’d spoken, in a casual manner, with Bewkes this morning and left with the notion that post AOL-spinoff/disposal “my guess is there might be another move in there in the not-too distant future.” To me the clear implication was that he was talking about dumping Time Inc.

[Image credit: broma]

Details on the new notes, which mature in 2016, are available here, and there’s more fine print here. But the broad strokes are that the offering will allow Warner to bolster its balance sheet, and remove investors’ concerns about its ability to finance existing debt load. Those concerns had prompted Warner to dump its dividend a year ago–long before dividend-slashing became trendy.

But the most interesting part of the offering, per Pali Research analyst Rich Greenfield, is language allowing Warner to redeem the notes early “if a major music transaction occurs.” Translation: Warner still isn’t giving up on the idea of combining with EMI Music Group, a merger the two labels have been trying to pull off for nearly a decade.

Hey! Also, there’s a new album out from Green Day, one of Warner’s biggest acts. I’d show you  a YouTube clip, but Warner (WMG) and Google’s (GOOG) video site are still sparring, so the label’s videos aren’t on the world’s largest video site. So here’s Green Day 1.0 (per “High Fidelity”): Stiff Little Fingers, circa 1980:

No more. Greenfield has cut his recommendation on the company from a “Buy” to a “Sell.” His logic: “While we have long viewed Rupert Murdoch as the most visionary CEO in the media sector…we are increasingly surprised/frustrated with his lack of strategic direction related to News Corp’s television station, newspaper and book publishing assets.”

To tease that out, Greenfield sees News Corp. as two different businesses: There’s a group of “good” assets–its film studio, cable networks, MySpace, etc.–and a group of “bad” assets–its broadcast TV and newspaper units, including Dow Jones, which owns this site. (Uh-oh).

The analyst previously argued that the “bad” businesses would wither away without pulling down the rest of the company; now he worries that Murdoch, who isn’t known as a sentimentalist but is known for his love of newspapers, will prop up his money-losers for too long:

Our fear is that News Corp. is so committed to its existing businesses that it will be willing to sustain businesses that slip into negative profitability for years, (similar to its approach to the NY Post). We believe several of its TV stations are or will shortly be ‘in the red,’ with book publishing heading for losses, as well as a significant number of its Newspapers. In fact, on a reported operating income basis, Dow Jones will generate meaningful losses in its first full-year of News Corp. ownership following its $5.7 billion acquisition.”

So perhaps this will cheer up Greenfield, though it won’t be good for me or for my colleagues: Portfolio.com’s Jeff Bercovici is reporting that Dow Jones’s Wall Street Journal will be making newsroom cuts next week:

It’s unclear exactly how many employees will be affected, but two sources put the number of people being targeted at 50. (If, as seems likely, that is the number of people on the list to be offered buyouts, then the actual number of jobs eliminated could be substantially lower.) It’s also rumored that there will be parallel cuts at Dow Jones Newswires, and that one or more Journal bureaus may be eliminated as part of the cutbacks. A Dow Jones spokeswoman declined to comment.”

The short story: The lousy ad market will be even worse than people think.

The longer story: Pali Research’s Rich Greenfield has chopped his estimates for News Corp. (owner of Dow Jones, which owns this site). He expects operating income for the company’s fiscal 2009 (which wraps up this summer) to be down 22 percent; he’d previously pegged the number at -18 percent.

Dragging down the business: The company’s international newspaper and domestic TV operations; he thinks their operating income will drop a staggering 39.6 percent and 60.4 percent, respectively.

And Barclays Capital’s Anthony DiClemente takes a similar whack at Viacom: He had previously forecast that Viacom’s operating income would drop by 1.9 percent in 2009; now he figures the decline will be eight percent.

DiClemente predicts that advertising at Viacom’s cable networks, which power the majority of the company’s financials, will drop seven percent in the coming year. That’s worse than the three percent drop he thinks that cable TV in general will see, in large part because MTV’s target audience has been disappearing as of late.

Check out the following chart from Barclays, which tracks ratings for the core demographics at Viacom’s biggest cable channels (click to enlarge):

Notice that MTV’s 23.9 percent decline has happened amidst tons of press for its reality shows, notably “The Hills,” which is supposedly a sensation among the kids these days (that’s some of the cast, at the top of this post). (UPDATE: An earlier version of this post reproduced inaccurate data that Barclays sent out regarding Viacom’s Noggin channel; Viacom points out that the channel registered a 64 percent increase in its core demo from the fall of 2007 through the fall of 2008).

Meanwhile, did you know that MTV has followed up “A Shot At Love With Tila Tequila,” a reality show/dating game hosted by a bikini-wearing bisexual pin-up girl, with “A Double Shot At Love,” which is…well, you can probably guess.

If you need it spelled out, here’s a promo clip:

Like most of Wall Street, Pali Research’s Rich Greenfield is sure that Sumner Redstone will have to sell big blocks of CBS and Viacom shares in order to resolve a looming debt dilemma–even though that will beat down the price of the battered stocks even more.

Unlike most of Wall Street, though, Greenfield is sure that Viacom (VIA), at least, is a media business that’s well-positioned to survive the econalypse.

And his thesis makes sense: A big chunk of the cable company’s revenue is guaranteed, no matter what happens to ad rates, because it comes directly from cable operators, who pay Viacom a fee for each one of their subscribers. So unless millions of people stop getting basic cable (not going to happen), that’s going to remain a reliable source.

Add in the fact that the company’s Nickolodeon brand remains dominant, even if other franchises like MTV are showing their age, and the company should be okay for years to come, Greenfield argues.

The problem: It’s become increasingly clear that Redstone is going to have to unload big blocks of his holdings in CBS and/or Viacom, a move he insists he won’t do. But there doesn’t seem to be any alternative. Redstone’s National Amusements holding company has $1.6 billion in debt, $800 million of which comes due next month. Some of the CBS and Viacom holdings will have to go, and they should go sooner than later, Greenfield says in a note today:

While a block trade by the Chairman and Founder cannot be looked at as a positive, we believe investors are already assuming it will happen. We would simply like to see Redstone and NAI get the trade out of the way, so that investors can focus on the compelling value offered by Viacom’s stock price. With NAI in breach there is no timetable for a remedy (in discussions with its lenders), which we believe makes it critical for NAI to at least explain to investors what its current asset and debt situation is.”

The first four weeks of Q4 2008 have seen CD sales fall about 23% in total (down 26% excluding last week’s AC/DC exclusive that did not benefit the major record labels, nor retailers beyond Wal Mart), compared to the 16%-18% declines experienced during the first three quarters of 2008 and last year’s full-year decline of 19%.”

The accelerating rate of decline for CDs combined with the slowing growth of digital unit sales has resulted in Q4 total unit sales declining 11.6% compared to the 5%-7% declines experienced in Q1-Q3 2008 and is similar to the 11.3% decline experienced in Q4 2007.”

Those are the kinds of stats that make it easy for even the most slothful armchair analysts to declare the CD dead. And they’ll be right–one day.

Even after CD sales shrink by double-digits again this year, it’s going to remain a big business. Last year the music labels shipped some $7.4 billion worth of discs in the U.S. alone. Question. Who is buying these things?

[Image Credit: Neil Rickards]