The company - formed in 2001 from a merger between internet firm AOL and media giant Time Warner - said on Friday it had agreed to sell the business to Canadian music, film and software specialist Cinram International for $1.05bn (�630m).

The deal brings the cash raised by AOL Time Warner through disposals and other one-off gains so far this year to $3.8bn.

The bulk of the cash is expected to go towards paying off AOL Time Warner's debts, which the company has pledged to reduce from $26bn in late March to $20bn by the end of next year.

DVD promise

AOL Time Warner chairman and chief executive Dick Parsons said the latest disposal underlined the firm's "commitment to reducing debt through the sale of non-strategic assets."

Under the deal, Cinram will take over Warner Music's DVD and CD manufacturing, printing, packaging, distribution and merchandising business.

The agreement also includes a long-term deal for Cinram to produce Warner Music's CDs and DVDs in north America and Europe.

The Canadian firm said the acquisition would help it cash in on strong global growth in DVD sales.

"We are extremely pleased to be acquiring these quality assets and to be entering into these long-term agreements with AOL Time Warner," said Cinram chief executive Isidore Philosophe.

Merger questions

AOL Time Warner, the world's biggest media company, has been under pressure to slim down since the abrupt end of the dotcom boom helped pushed it $54bn into the red two years ago.

Much of the loss - the biggest in corporate history - stemmed from massive write downs in the value of AOL's internet -related assets, many of them acquired at the height of the dotcom frenzy.

AOL Time Warner's deteriorating performance has caused some analysts to question the wisdom of the giant merger which created it, although the firm managed to return to profitability in the first three months of 2003.