Netco giving a free pass to subs

Time Warner shares dipped, then mostly recovered, on Tuesday as problem child AOL prepares to unveil a new business plan that could mean offering free service to millions of customers.

TW said it will present the Netco’s future strategy at a meeting with investors Aug. 2 after its second-quarter earnings report. AOL has continued to weigh on the conglom’s financial results and stock price.

Time Warner also said Tuesday that “recent media reports appear to be based on unauthorized disclosures, including of incomplete and largely erroneous financial information” and cautioned investors “not to draw conclusions regarding AOL’s future strategy until the company’s presentation.”

It referred to a Tuesday story in the Wall Street Journal predicting that the loss of subscription fees would cost AOL $1 billion in operating profit — about half of its current profits — through 2009. It said the number of U.S. paid subscribers would plunge to about 6 million from 18 million.

Time Warner shares fell 1.9% early in the day but ended the session off only 0.66% at $16.56.

The idea is that an upswing in online advertising would make up for lost profits and create a more viable Internet company in the long term.

TW chief operating officer Jeff Bewkes and AOL chief Jon Miller are said to back the move, which would make AOL free to subs who have high-speed Internet access from another provider. Some AOL loyalists still keep subscriptions to the service for email and instant messaging.

The short-term pain would be evident: AOL makes most of its money from subscriptions. But the number has been eroding quickly as consumers adopt high speed, often going through their cable or telephone companies and dropping AOL altogether.

As a result, drastic measures are needed to rethink the division, and Wall Street has been on TW’s case to do something big to turn the company around or sell it.

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