Time Warner set for AOL shake-up

As Time Warner focuses on premium content, AOL looks more peripheral

Time Warner has prepared the ground for a major shake-up of its struggling internet business AOL after it saw a steep decline in subscriber numbers.

The media giant said it had taken steps to separate AOL's content and access operations from early next year.

Experts believe this could pave the way for one or both of them to be sold.

Notice of the planned changes came as Time Warner reported a 28% fall in second-quarter profits but said it was "pleased" with its performance.

Subscriber drift

The firm's advertising-funded businesses are suffering from the economic downturn which has hit all media businesses.

Ad revenues at AOL rose just 2% in the past three months as it struggled to compete against the likes of Google and Yahoo.

AOL's subscriber base has shrunk rapidly since it decided to offer e-mail and other services free to all users and not just subscribers, instead focusing on boosting content to attract more advertising.

We have made the key decisions that will enable us to run AOL's access and audience businesses separately beginning in 2009 Jeff Bewkes, Time Warner chief executive See Time Warner shares

Although AOL still has more than eight million subscribers, about 2.8 million have left over the past year.

This depressed AOL's revenues by 16% and profits by 28% over the latest three-month period.

Experts believe Time Warner could sell AOL's dial-up arm to internet services provider EarthLink while both Yahoo and Microsoft are thought to be interested in AOL's website operations.

"We have made the key decisions that will enable us to run AOL's access and audience businesses separately beginning in 2009," said Time Warner's chief executive Jeff Bewkes.

Excluding exceptional items, Time Warner generated profits of $792m in the three months to 30 June, compared to $1.07bn a year ago.

The success of the Sex and The City movie boosted sales at the Warner Brothers film studio by 14% while Time Warner's TV networks, including CNN and HBO, saw sales rise 9%.

But the weak advertising market hit the performance of its magazine arm, whose titles include Time and Sports Illustrated.

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