Updated: Earlier this morning, Rich Greenfield, the scary smart media analyst at Pali Capital, slashed his price target on News Corp to $20 from $27, citing big concerns over slowing advertising revenues for newspaper and television stations. And since this is a global problem, there is little room for News Corp to hide.

He is forecasting a 1.5 percent decline in revenues for News Corp.’s newspaper business, a 9.5 percent decline in its TV revenues and a 7.8 percent decline in revenues at its filmed entertainment division. Greenfield cut his earnings and overall revenue estimates on the media behemoth as well. The good news? Rupert Murdoch is sitting on $6 billion in cash, which means he could grow revenues through acquisitions. Cash, if not king, is indeed a king-maker.

Since he didn’t offer an analysis of the Internet part of News Corp.’s business, especially MySpace, I emailed him to find out what he thought about that. He didn’t go into much detail but he did say, “MySpace is one of their BEST-performing assets right now…MySpace is doing great.” Last year Murdoch said he expected MySpace to bring in about $750 million in revenue for its fiscal year ended in June, the lion’s share of the $1 billion in revenue forecast to come from the company’s Fox Interactive division. If the big shift from old media to online accelerates, Rupert’s kingdom does have enough assets to capitalize on that shift. But then, I wouldn’t count on any ad dollars just yet.

In Las Vegas later this week at VMworld, a trade show that celebrates the red-hot technology known as virtualization and it most visible proponent, VMware, many will wonder what the future looks like for the company that single-handedly created a market for this technology.

Going into the show, the company that prompted many copycats and even more innovators to try their hand at virtualization faces a plethora of challenges, among them the threat of commoditization of its core product, increased competition and fiscal uncertainty. But the most important question is also the hardest one to answer: Did EMC’s meddling kill the golden goose known as VMware?

2008 has been a year of uncertainty for the Palo Alto, Calif.-based company that was previously one of the hottest technology startups around, hiring engineers at a clip faster than Google. Following a wildly successful IPO in August 2007 that valued the company at $29 billion, shares of VMware continued to rise as interest in its products grew.

As is always the case, nothing lasts forever, and earlier this year a tempered forecast for revenue and profit growth sent VMware’s stock reeling. The share price drop made the already strained relationship between VMware and EMC Corp., which owns 90 percent of the company, even more tenuous.

The internal tensions boiled over and led to the firing of co-founder and CEO Diane Greene. She was replaced by Paul Maritz, a former Microsoft executive whose startup Pi Corp. was acquired by EMC when the storage company was trying to develop a cloud computing strategy.

The move was followed by the departure of Dr. Mendel Rosenblum, VMware’s chief scientist and co-founder as well as Greene’s husband. Another senior executive recently returned to his previous gig at Oracle. The exodus of these and other senior members of VMware’s management team is making folks on Wall Street nervous.

Yet such nervousness comes at a time when virtualization has a strong wind at its back. People are increasingly looking to virtualization to boost the utilization of their servers, which has remained at a notoriously low level. Meanwhile the costs of operating servers — whether in corporate or Internet data centers — is getting out of hand, mostly due to rising power costs, making virtualization a must-have technology for all companies.

According to a recent survey conducted by Avocnet, an IT management services company, 33 percent of companies polled had implemented server virtualization, particularly for energy-saving goals. And this trend is only going to gather momentum.

For now, VMware is the king of the heap; it enjoys an enviable position in the virtualization market, similar to that of Cisco in the market of routing and switches. But remember Juniper? It built a massive business by being an alternative to Cisco.

A dozen or so companies are currently going gaga over virtualization, among them Oracle, Sun, Hewlett-Packard and of course, Microsoft. VMware was two years ahead of all of them, but as key people leave and its technology becomes commoditized, EMC’s crown jewel is losing its luster.

I think the biggest threat to VMware market is Microsoft, which despite being a latecomer is pretty serious about this market. Given that virtualization is a space that is closer Microsoft’s core OS business, one can be assured that the barons of Redmond are going to do their best to compete with VMware.

And as if that weren’t enough, VMware’s hypervisor technology is facing an open source threat. Last week, Sun Microsystems open sourced its virtual machine, following closely on the heels of Red Hat, which acquired Qumranet earlier this month.

My colleagues at OStatic summed it up nicely when they said, “Virtualization, is, at its core, headed for software utility status, and will likely be wrapped into operating systems, and increasingly adopted in open source form for free. That spells big trouble for VMware — with many historical precedents causing one to wonder about the company’s business.”

One man who understood these changes was Rosenblum. In an on-stage conversation at our Structure 08 conference, when asked about competition, Rosenblum said, “The bar to entering is getting fairly low. VMware’s value is managing the data center and reliability, etc.”

And in an earlier conversation with me he said, “VMware clearly is going to have competition. Sure it was nice when we were all alone, but we are very different from these other companies…What we are doing is basically coming up with a new way to run the data center. So from that perspective, we will continue to have something better than others.”

Too bad he isn’t going to be around to make that happen. I’m sure the new management will come up with a competent strategy, the question is when — in other words, how soon can they once again distance themselves from the pack?

This article also ran on BusinessWeek.com.

Wow…this came as a complete and total surprise. VMware has announced that Diane Greene, president and CEO of the hot virtualization company is leaving and will be replaced by Paul Maritz, whose company, Pi Corp., was acquired by EMC Corp. back in February. I am flummoxed by this move since VMware has been on an upswing and despite increased competition, has been pretty bullish about the future.

Greene didn’t give any hint to her departure when I met her at a recent tech gathering. More importantly, when I was hanging out with VMware co-founder (and Greene’s spouse) Mendel Rosenblum at our Structure 08 conference, he pointed to rosy skies ahead. At the bottom of the press release announcing her departure, however, is information indicating that the company might be facing a rough 2008, which explains the sudden change in management.

VMware expects to announce earnings for the quarter ended June 30, 2008 as scheduled on July 22, 2008 at 2pm PDT. On that call Paul will make observations about the second half of 2008. While VMware is not updating guidance for Q2, we expect revenues for the full year of 2008 will be modestly below the previous guidance of 50% growth over 2007.

The markets aren’t too happy — the stock has tanked more than 30 percent already to as low as $36.51 a share. Shares of EMC are taking a pounding as well, falling as much as 13 percent to change hands for $13.18.

I think something big is going on — no CEO and co-founder just up and quits the company. The numbers might be worse than they seem. Did Greene pay the price for the missed numbers or is there something else going on? 

I couldn’t help but notice the fact that Joe Tucci, chairman of VMware’s board and CEO of EMC, was all over the press release announcing Greene’s departure, with not so much as a word from her, Mendel or any of the VMware co-founders. Of course, the fact that Diana’s replacement, Maritz, works for EMC only adds to the mystery.

By way of background, Maritz retired from Microsoft in 2000 and in 2003 started Pi Corp., a software startup focused on building cloud-based solutions for new ways of doing personal information management. Pi Corp. was acquired by EMC last February, and Maritz became president of EMC’s cloud division. Greene and her four co-founders launched VMware back in 1998. The road leading up to the company’s blockbuster IPO and subsequent stock market darling status was a long one.

Update from Stacey: Greene’s departure is likely more politically than financially motivated, according to sources in the virtualization community. They point to friction between Greene and her bosses at EMC, as well as EMC’s worries about Greene as the CEO of a publicly traded company as the reasons behind her departure. Most people suspect we’ll see her at the helm of another startup within a few months. VCs will certainly be calling her — if not today, then tomorrow.

For a look at how open source figures into the story, check out OStatic.

Updated: Hulu says that they are doing server maintenance. The timing of it is seriously stupid - 9 am PST or 12 PM EST - not exactly off hours for web users. Some one should be spanked for the unfortunate timing of this “maintenance.”

When it comes to Hulu, I was the first to eat humble pie, lauding them for their quality and their easy-to-use interface. I appreciated the quality of content they sent our way, which made my recovery easier. Thanks to their professional library they have been making a lot of money and could do about $25 million in revenues. Glad to see that others, including YouTube haters, are finally catching on to their changing fortunes.

So when Liz pointed me a link to her latest story, I was doubly disappointed. (NewTeeVee has screenshots.) Essentially, Hulu has stopped embedded videos from playing on other web sites, though they continue to play back on official Hulu partner sites like AOL, and Fancast still appears to work.

Is this an outage or is this a sign that Hulu has started to behave like an incumbent with a backward-looking mindset? I hope this is a mistake and not a sign that the Hollywood cabal is behaving like one. I want Hulu to be around - it is my DVR in the cloud and I love it.

This morning, between fielding phone calls, answering emails and writing blog posts, I have been watching TV, a lot of TV…on Hulu, the new online video portal backed by NBC (GE), News Corp. (NWS) and $100 million in funding from Providence Equity Partners.

Before I go any further, a mea culpa: I mocked the service, and its backers, all through the summer. From the moment I learned about the new company, I was skeptical. And now, after spending three hours or so on the service, I am ready to eat crow. And not just any crow, but rotten, six-month-old crow: I have never been more wrong.

Now to my first impressions: This is an awesome service, one that worked flawlessly on my Macbook Pro and ThinkPad T61 without a hitch. The quality of the video shows is good enough to enjoy without straining the eyes, and even in the full-screen mode, the Flash video looks pretty amazing.

As Liz had noted yesterday, the site is clean, sparse and well laid out, taking a cue from the on-the-air (old TV) roots of its parents. And I can use this service to catch up on all the episodes of “Scrubs” I’ve missed.

Hulu doesn’t seem like a YouTube (GOOG) competitor. (This is yet another thing I was wrong about.) What it really is trying to do is time shift — and place shift — television on a massive scale. It’s basically an attempt to counterbalance the tight control that cable and satellite networks have over distribution.

It’s the kind of service that should scare startups trying to develop their own distribution platforms, such as Joost. It is also the kind of service, if it can attract enough viewers, that could succeed in relegating YouTube and others like YouTube to the “user-generated content” world, at least in the U.S. market. The social media features alone, such as sharing, are good enough to get Hulu some traction. I loved the ease with which you can create short, embeddable clips from full-length TV episodes, and the slider-based clip-and-share feature is pretty awesome.

Hulu has a long way to go before it can claim an audience as large as YouTube’s, and no one knows how much pressure it will face from its distribution partners, such as the cable companies. There are already rumblings about the draconian terms of service, and it’s unfortunate that its big media parents are restricting the site to web-based streaming and expiration dates for fresh episodes of new shows. But I think that when the beta becomes publicly available, you are going to be pleasantly surprised. For once, I am happy to be wrong.