AOL, Time Warner’s most problematic unit, is slashing its global workforce by 20%, eliminating some 2,000 jobs, as part of an ongoing shift from a subscription-based business to one based on ad revenue.

The cuts will take effect over the next several months.

Time Warner has posted strong earnings of late, propelled mainly by cable, but AOL has been a blemish on the balance sheet. It lost 1.1 million subscribers in the second quarter, as overall revenue sagged 38%, although ad revenue was up significantly.

Talk of a selloff or spinout of AOL, a frequent topic among investors in recent years, intensified again in 2007. AOL has faced some formidable integration issues, owing partly to the fact that nearly half its employees, including top management, were based in northern Virginia. Recently, AOL relocated top brass and its official headquarters to Gotham.

Top execs insist that comparisons between the subscription-driven and ad-driven models are inherently difficult, and that the division is well-positioned to convert brand awareness into dollars.

“We’re only a year and a month into our transformation, and the turnaround has been dramatic,” topper Randy Falco told staffers in a memo on Monday. “We’re now in a position to win as an advertising-supported business. We have a bright future as a company if we can execute on this vision.”

Time Warner shares fell 1%, closing at $18.79 on a day of general market declines.