SAN FRANCISCO (Bloomberg) - News Corp.'s MySpace social-networking unit fired almost 30 percent of its staff to save money in response to falling advertising sales and gains by larger rival Facebook Inc.

The cuts lower US staffing at Los Angeles-based MySpace to 1,000, according to a statement yesterday. The announcement suggests the company eliminated about 400 jobs. Dani Dudeck, a MySpace spokeswoman, declined to comment on the firings, severance costs or how much money may be saved.

News Corp. chairman and chief executive Rupert Murdoch is retooling his Internet operation to regain momentum.

The $580 million purchase of MySpace in October 2005 looked shrewd the next year when Google Inc. signed a $900 million accord to sell ads on the site. Facing the expiration of that deal and gains by Facebook, Mr. Murdoch, 78, hired former AOL chief Jonathan Miller in April to overhaul the digital operation.

"Two years ago MySpace seemed like it had unlimited upside, and people were throwing around valuations in the multi-billions of dollars," said Doug Creutz, an analyst with Cowen & Co. in San Francisco. "The site has lost a lot of that cachet."

Mr. Miller, 52, head of Fox Interactive, has already replaced MySpace's management, bringing in former Facebook executive Owen Van Natta, 39, to replace MySpace founder Chris DeWolfe as CEO in April.

Yesterday's actions come a year after another effort to fix MySpace. Fox Interactive missed its goal of $1 billion in revenue in the year ended in June 2008, leading News Corp. to reorganise operations and raising questions from analysts about the unit's prospects.

"MySpace grew too big considering the realities of today's marketplace," Mr. Miller said in a statement. "This restructuring will help MySpace operate much more effectively both structurally and financially moving forward."

Marketers will spend an estimated $520 million this year at MySpace, a 14 percent drop from 2008, according to estimates from researcher eMarketer. Facebook's worldwide advertising sales are expected to rise 20 percent to $300 million this year, New York-based eMarketer said in a May report.

Facebook, based in Palo Alto, California, has 850 employees. The company, already the social-networking leader worldwide with 307.1 million users, surpassed MySpace in the US last month, reaching 70.28 million, according to ComScore Inc. MySpace has 126.9 million users globally, including 70.26 million in the US.

Fox Interactive's revenue declined 11 percent to $187 million in the quarter ended March 31 from a year earlier, primarily because of a 16 percent drop in advertising, while costs rose.

A renewal of the ad accord with Google is unlikely to be "anywhere near" the current size, Richard Greenfield, a New York-based analyst with Pali Capital, wrote in a June 10 research note. He recommends selling News Corp. shares.

Fox Interactive scrapped a $350 million plan to consolidate in new offices because the unit no longer needs that much space, the Los Angeles Times reported on June 6.

Fox Interactive, including MySpace, is worth about $750 million, according to Spencer Wang, an analyst with Credit Suisse Group AG in New York.

News Corp. has been cutting expenses at its TV stations and newspapers to counter an advertising slump. Operating income in the fiscal third quarter declined 47 percent. The New York-based media company forecasts operating profit for the year ending June 30 to fall 30 percent.