UPDATE 1-Newsday to charge for website, online cable service

* Cablevision plans to charge for Newsday website

* Writes down Newsday value by $402 mln (Adds company response)

NEW YORK, Feb 26 (Reuters) - Cablevision Systems Corp CVC.N plans to charge online readers of its Newsday newspaper, a move that would make it one of the first large U.S. papers to reverse a trend toward free Web readership.

The paper said in a statement late on Thursday that it is in the process of transforming the site into a locally focused cable service.

Newsday, which covers the New York suburb of Long Island, was bought by Cablevision in a $650 million deal last May that was widely criticized on Wall Street as a puzzling move into a troubled newspaper market.

Cablevision had to write down Newsday’s value by $402 million on Thursday, pushing its fourth-quarter results to a loss, as U.S. print advertising sales and circulation have dropped with more readers seeking free news on the Web.

But Cablevision Chief Operating Officer Tom Rutledge said the cable TV company was aware of the difficulties faced by the traditional newspaper business.

“Our goal was and is to use our electronic network assets and subscriber relationships to transform the way news is distributed,” he said on a conference call with analysts.

“We plan to end the distribution of free Web content and make our news gathering capabilities a service for our customers,” he added.

Rutledge’s comments could raise speculation that the paper may seek cost cuts by reducing print operations. It could also look to cross-promote Web access as part of the Cablevision programming package.

Newsday’s publisher Timothy Knight said in a statement: “We are in the process of transforming Newsday’s Web site into an enhanced, locally focused cable service that we believe will become an important benefit for Newsday and Cablevision customers. More particulars will be forthcoming over the next few months.”

Several large U.S. newspaper groups have had to lay off staff, reduce print costs, slash dividends and scramble for debt refinancing in a fight for survival. Others have filed for bankruptcy protection, including former Newsday parent Tribune Co, Journal Register Co JRCOQ.PK and Philadelphia Newspapers LLC.

In the past, several major newspapers including The New York Times charged readers for full or partial access to stories on their websites.

But in recent years, news content has become widely available for free, forcing many papers to give up small subscription revenue in the hope of gaining better ad sales by attracting more readers.

Such moves, however, have not made up for the loss of print advertising and circulation revenue. Some major business papers like the Financial Times and News Corp's NWSA.O Wall Street Journal have been able to maintain subscription fees.

Cablevision has been seeking operational partnerships with Newsday. Last August, it set up Newsday TV, an interactive television channel that allowed digital cable subscribers in Long Island to subscribe to the paper through their TV sets.

Aside from the financial pressures of owning a newspaper, Cablevision management has also clashed with the editors of Newsday, according to reports in the New York Times and other media sources last month.

The dispute allegedly arose over Newsday’s coverage of allegations against Eddy Curry a player on the New York Knicks basketball team, which Cablevision also owns. (Reporting by Yinka Adegoke; Editing by Gary Hill, Richard Chang)