Time Warner Inc. (TWX) said on Thursday it will make a decision on AOL's future by the end of the year, addressing rampant speculation the online unit could be spun off or merged with another company.

It also said it could see a complete separation of majority-owned Time Warner Cable (TWC), in five years, but no decision has been made yet.

AOL, one of the most closely tracked divisions at the world's largest media company, has undergone a transformation into an online advertising sales engine from its prior business of providing Internet access.

Time Warner Chief Executive Richard Parsons told a Merrill Lynch U.S. media conference in London that the early results looked good and he was encouraged by AOL's progress.

"By the end of this year, we can make the call on AOL (on whether) we have found a business model or approach that can result in sustainable growth over time," Parsons said in the Webcast presentation. "We're in the right area."

His comments follow recent public remarks by Time Warner Chief Operating Officer Jeffrey Bewkes, who mused about the prospect of a stock offering for AOL, an idea the company has contemplated over time.

A stock offering would make the once-mighty Internet company more competitive for acquisitions against larger rivals.

Microsoft Corp. (MSFT), Yahoo Inc. (YHOO) and Google Inc. (GOOG) are moving quickly to buy or build online advertising businesses to seize a larger chunk of the fast-growing ad business on the Internet.

Microsoft agreed in May to buy Web marketing agency aQuantive Inc. (AQNT) for $6 billion, just weeks after Google announced a deal to buy Internet ad supplier DoubleClick Inc.

"It all comes down to the ability to transform AOL into a destination for the 12- to 35-year-old generation relative to surviving on their former dial-up or access subscriber base," Pali Capital analyst Richard Greenfield said. "If they can, they should keep it."

Time Warner sold a 5 percent stake in AOL, worth $1 billion to Google in late 2005, a deal which included using Google's search technology and a provision to explore future technology roadmaps.


Time Warner Inc.'s stake in the cable services company could diminish over time as it begins buying other cable properties, Parsons said.

"Eventually, five years down the road, it's conceivable to me that because of the way that business grows ... There could come a point in time when there's two separate stand-alone companies," he said. "I'm not prepared to make that call yet."

Time Warner spun off 16 percent of its cable services division this year as part of a plan to create publicly traded equity that could be used to finance purchases.

"That space is going to consolidate and we want to participate in that consolidation," Parsons said.

He spoke broadly on other topics including his view of the publishing industry, and dismissed speculation the company was considering the split off or sale of slow-growing Time Inc.

"We're not looking to move our publishing company out," Parsons told Merrill Lynch analyst Jessica Reif Cohen during a question and answer session. He added Time Warner would continue to shut down unprofitable titles and sell off others.

"Magazines will be around for a long time," he said. "It can be in the 8, 9, 10 percent growth business for a long time, if we successfully make this transition to digital."