UPDATE 2-Mediaset profit tops view; Nov ad sales flat

* 9-month net profit 184.2 mln euros

* Q4 ad revenue could fall 2-2.5 percent - exec

* 9-month advertising revenue down 10.8 percent

* Shares close up 0.38 percent before results (Adds conference call comments)

MILAN, Nov 10 (Reuters) - Italian broadcaster Mediaset (MS.MI) reported a smaller-than-expected fall in nine-month net profit and said the decline in Italian advertising will narrow in the fourth quarter.

The mainly free-to-air TV broadcaster, owned by Prime Minister Silvio Berlusconi, posted a net profit of 184.2 million euros ($275.9 million), down 48 percent but topping analysts' expectations for 171 million euros.

Mediaset, which faces increasing competition from Rupert Murdoch's News Corp (NWSA.O) as broadcasting technology evolves, said Italy nine-month advertising revenue fell 10.8 percent. It said results were hit by the global recession.

"For the time being, November (advertising) is flat. We are confident December will confirm the same trend. And being conservative, the quarter could be down around 2 percent to 2.5 percent," Publitalia Managing Director Luigi Colombo told a conference call.

The company said it still expects 2009 operating and consolidated net profit to be down markedly from 2008.

Competition with News Corp has recently heated up as the Mediaset rival launched a new free digital channel that adds to its pay-TV satellite broadcasting business Sky Italia. [ID:nN06205925]

Mediaset has challenged Sky Italia's dominance in the Italian pay-TV market with an offer on digital terrestrial frequencies. Revenue at its pay operations rose 40 percent in the first nine months of the year.

In 2012 Italy will switch off completely the analogue TV signal.

In the conference call, a Mediaset executive reaffirmed the target for its pay-TV operations was breaking even in 2010 and said customers would rise back to 3.6 million by the end of December, one month ahead of target.

Some 1.8 million pay-TV cards expired at the end of June.

CAN AFFORD 1 BLN EURO DEAL

Turning to M&A, Chief Financial Officer Marco Giordani said the group had financial strength for acquisitions and was still interested in the consolidation of the Spanish market, where it owns broadcaster Telecinco (TL5.MC).

He reiterated that "nothing really material" was going on.

"Generally speaking, we can afford an acquisition without any problem in the 1 billion euro area ... I'm clearly talking in theory as there is no deal on the table," he said.

Last month, a Mediaset spokesman said talks with Spain's Prisa (PRS.MC) over business in Spain had stalled.

Giordani said M&A was not part of the group's strategy and said he saw no change to the policy of paying all the cash flow generated from its Italian operations in dividends.

In October a Milan court ruled Fininvest [FIN.UL], the holding company of Berlusconi that control Mediaset, must pay 750 million euros for bribing a judge in a 1990s battle to buy publisher Mondadori (MOED.MI).

The order, which has been suspended, fuelled market speculation that Mediaset or other companies controlled by Fininvest could pay higher dividends. (Reporting by Danilo Masoni; Editing by David Cowell and John Wallace)