August 2, 2006 11:40 AM PDT

AOL to users: Don't defect--here's free stuff

Is free the new moneymaker for AOL?

As expected, the Time Warner Internet unit said Wednesday that it will offer for free e-mail and other services in an attempt to stem the tide of subscription cancellations from people who got sick of paying for what other companies offer gratis.

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AOL gets freer, chases profits
Time Warner President Jeff Bewkes talked during a morning conference call on Aug. 2, 2006. His aim: allow subscribers to stay with AOL even when they go to broadband.

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"This will remove the biggest barrier to our members staying with AOL as they migrate to broadband," Time Warner President

That software includes e-mail, anti-spyware, spam filtering, a local phone number and social-networking applications, as well as access to AOL community content and services such as video search, he said.

The company plans to co-market its software with broadband access partners. "AOL will be aligned with the cable and DSL providers," Bewkes said. "We will no longer be competing with them for (subscriptions)."

The shift, believed to be the fourth business model transition for AOL in recent years, as it struggles to regain footing in the Internet industry, is designed to curb the tens of thousands of subscription cancellations that Bewkes said AOL gets each day.

"The No. 1 reason they leave AOL when they switch to broadband is price," he said.

The move away from being an Internet service provider and toward being a media company will also help the company attract some of the lucrative online-advertising dollars that Google and Yahoo have been gobbling up.

The move to free software "will significantly accelerate AOL's transition to an advertising-supported business model," said Richard Parsons, chief executive of Time Warner.

The changes aren't expected to reduce AOL earnings this year but rather reduce operating expenses by more than $1 billion by the end of 2007, according to Bewkes.

AOL has more than 113 million unique visitors per month in the United States and 220 million unique visitors per month globally, executives said. The company said it has 17.7 million subscribers after losing 976,000 during the second quarter. The company has lost more than a third of its subscribers since its peak in 2002.

During the second quarter, which ended June 30, AOL revenue declined 2 percent to $2 billion as a result of a more than 10 percent drop in subscription revenue. However, ad revenue rose 40 percent to $129 million.

Time Warner executives said they are in talks to sell off the access business in Europe.

AOL is still offering dial-up access--unlimited service for $9.95 a month and a premium service with extra storage for $25.90--but will no longer aggressively market it.

The company is catering to broadband in a big way. Also this week, AOL is previewing a new video portal with more than 45 video-on-demand content channels and a programming guide, video search, and the ability to upload and share videos.

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America Online Inc., Time Warner Inc., video search, broadband, media company


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