Time Warner Board Makes No Decision on Free AOL

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The board of Time Warner Inc. (TWX) met Thursday, but the company remained silent on a plan to make more of its AOL services free in an effort to tap the Internet advertising boom.

Time Warner and AOL LLC executives scheduled a conference call next Wednesday to release details of the unit's new business strategy, which is expected to include making AOL.com e-mail accounts and possibly other features free.

Officials at Time Warner and AOL had no comment Thursday on the board discussions.

Over the past few months, senior executives have been discussing ways to boost advertising dollars at AOL, even at a potential cost of hundreds of millions of dollars a year in lost subscription revenues.

Making AOL.com e-mail free would remove one of the few remaining reasons for AOL subscribers to keep paying when they already have high-speed Internet access through a cable or phone company.

AOL typically charges such customers $15 a month, a discount from the $26-a-month unlimited dial-up plan.

Despite the loss of subscription revenues, AOL has little choice. AOL's subscription base already has plummeted 30 percent since 2002 to 18.6 million in March — and it will keep dropping even if e-mail remains a premium offering.

Doing nothing risks driving e-mail users to free services from Google Inc. (GOOG), Yahoo Inc. (YHOO) and Microsoft Corp. (MSFT), robbing AOL of opportunities to persuade customers to watch an ad-supported video or two as they return to AOL.com to check their messages.

Nonetheless, Time Warner and AOL are taking a big gamble because the move will likely accelerate the decrease in subscriptions, which still account for about 80 percent of AOL's revenues.

But AOL sees a greater long-term payoff in advertising. In the first quarter of 2006, subscription revenue dropped 13 percent while advertising saw a 26 percent boost.

Over the past year and a half, AOL already has been making most of its news, music videos and other features available for free on its ad-supported sites, moving away from its roots as a walled-garden service emphasizing exclusive content.

The company tried to keep some customers paying by giving free e-mail accounts only with less-desirable AIM.com addresses. Many subscribers hung on simply for the AOL.com accounts they've had for years, but over time defected to offerings elsewhere.

Besides AOL.com e-mail, AOL may also make its proprietary software free, so those who drop subscriptions but still want AOL's free content wouldn't have to learn new, Web-based tools, potentially discovering rival offerings in the process.

It's not clear what else might become free. It's possible AOL would charge separately for parental control and security software, so users wouldn't need the entire subscription package simply for those programs.

The company expects to save money in marketing and customer service. Layoffs are likely, on top of the thousands already let go in recent years, including about 1,300 customer-service personnel given pink slips in May.

Investors have been cautious about Time Warner's prospects. In recent weeks, Time Warner stock prices have been hovering near a 52-week low of $15.70. Shares rose 8 cents to close at $16.21 Thursday on the New York Stock Exchange.