Time Warner Gambles on 'Free' AOL; Will Rely on Ads

03 August 2006

Time Warner on Wednesday announced it will henceforth offer AOL's web and email services for free, relying solely on advertising to generate income.

At first sight it appears a bold move - but onlookers ask what other course TW could have taken in the light of the seemingly unstoppable decline in the portal's paid subscription base - down from over 26 million in 2002 to 18.6m in March this year.

TW also said it will cease marketing its dial-up service - a move that could save AOL more than $1 billion in marketing and operational costs, according to Credit Suisse analyst William Drewry.

Last month Merrill Lynch haruspex Jessica Reif Cohen estimated that the loss of subscription revenue could cut AOL's yearly revenue by $2bn and earnings by $250 million.

Nonetheless, AOL honchos are affecting a bullish stance: "This is the next logical step for AOL to capitalize further on the explosive rise in broadband usage and online advertising," says president/chief operating officer Jeff Bewkes. "With its robust and rapidly expanding advertising operation, we expect to put AOL back on a growth path."

  • Elsewhere within the globe's largest media company, all was sweetness and light. Time Warner posted a second-quarter profit of $1 billion (€781.4m; £532.5m), thanks to a sparkling performance from its cable division boosted by increased digital-phone and broadband customers.

    Data sourced from AdAge (USA); additional content by WARC staff