* Third cut to German TV advertising outlook this year
* May merge German broadcasting, digital entertainment ops
* Shares drop as much as 14 pct to four-year low (New throughout)
FRANKFURT, Aug 29 (Reuters) - Shares in German broadcaster ProSiebenSat.1 dropped more than 14 percent to a four-year low after it warned that TV advertising revenues in German-language markets would decline in the third quarter and said it may look for external investors.
The top German free-to-air broadcaster had already cut its TV advertising market outlook twice this year but said as recently as earlier this month it still expected a bounce-back in the second half of the year.
Many major companies that rely on ad revenue have reported spending cuts by makers of fast-moving consumer goods such as Unilever, Nestle and Procter & Gamble - the world's biggest advertisers - as they respond to weak global economic growth.
Goldman Sachs downgraded ProSieben to "neutral" from "buy." "We believe shares will remain under pressure until the first signs of market improvement (this is likely to affect other ad-exposed stocks as well)," it wrote.
ProSieben shares were down 11.6 percent to 28.90 euros by 0820 GMT, at the bottom of the German blue-chip DAX and dragging the European media index down 2.5 percent.
German rival RTL - which is due to report second-quarter results on Wednesday - fell 8.2 percent and Britain's ITV was down 3.7 percent. French broadcasters also fell sharply in early trading.
ProSieben said it now expected third-quarter revenues at its German-speaking broadcasting segment to decline by a medium single-digit percentage. It had previously said revenue growth in this segment should benefit from increasing momentum.
"Previous expectations regarding an improved TV advertising revenue performance in the Broadcasting German-speaking segment of ProSiebenSat.1 Group in Q3 2017 are unlikely to be met," it said in a statement late on Monday.
ProSieben, whose popular shows include "Germany's Next Top Model," said it now expected 2017 German TV advertising market revenues at about last year's level.
ProSieben also said it was looking for possible external investors to back its content production and digital commerce businesses, and was considering merging its TV advertising business in German-language markets with its Digital Entertainment division.
Jefferies analyst Tasmin Garrity, who rates ProSieben "buy," wrote: "This would be taken as a measure to obfuscate weakness in the advertising business and as a move against the increased transparency that the company has moved towards."
Investors have told Reuters they are uneasy about ProSieben's unclear digital strategy, and sources have said the broadcaster has held informal talks with a number of peers about possible tie-ups over the past 12 to 18 months.
Shares in WPP, the world's largest advertising group, fell sharply last week after it cut its sales target for the second time in six months due to the curbs on spending by consumer goods giants. (Reporting by Ludwig Burger and Georgina Prodhan; Editing by Alison Williams and Adrian Croft)