Weakening markets, new government investigations, growing legal costs, and a witch hunt for the Murdochs add risk to owning News Corp. shares, said Needham Co. in downgrading the media conglomerate's stock.

Media mogul Rupert Murdoch's News Corp. has historically underperformed broader indices in weak markets and this trend is set to continue, Needham analyst Laura Martin said in a note.

"Recent market volatility suggests that markets may trend downward over the next 12 months," Martin said, adding that News Corp.'s share price underperformed downward corrections in the S&P 500 typically by 15 percent over 6-12 months.

Martin reckons litigation costs -- arising out of lawsuits and government investigations following the News of The World phone hacking scandal -- will be a meaningful cost center for the company for the foreseeable future.

"We think this expense is not adequately reflected in Wall Street models," said Martin, who downgraded the stock a notch to "hold" and suspended her price target.

The analyst also expects the rivals of News Corp.-owned Fox News and WSJ to "exhibit sharper elbows" in an election year like 2012.

"We believe Wall Street underestimates the resolve of powerful personal enemies of the Murdoch's and political enemies of NWSA's conservative media outlets," said Martin, who prefers CBS and Viacom to News Corp.

News Corp. shares have lost almost 14 percent in value since the News of The World phone hacking scandal first emerged in early July.