Time Warner to lose $1bn in move to free web access

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Time Warner is considering giving up $1bn (£540m) in operating profits in a desperate attempt to make its AOL internet subsidiary a serious long-term rival to Yahoo! and Microsoft's MSN.

The company will mull over the financial implications of its decision to give free access to its online content, including messaging and e-mail, where now it charges a subscription fee.

AOL was a pioneer of the dial-up internet age and helped to get America online. But its subscribers are defecting at a rate that looks likely to top 1 million per quarter.

Customers who once got dial-up internet access from AOL are switching to broadband and finding better deals from other providers. And the numbers still paying to use AOL's "walled garden" of exclusive internet content and e-mail are dwindling, because most other gateways to the web are free. Yahoo! and MSN offer their own content and search facilities for free, funded by advertising revenues.

Time Warner's chief operating officer, Jeff Bewkes, and AOL's boss, Jonathan Miller, will argue at a Time Warner board meeting this month that AOL should adopt a similar business model.

But the pair will warn there is a high short-term price to be paid to make the switch. About one-third of AOL's 18.6 million content subscribers already get their internet access from other providers, and making the content free would wipe out income from them and encourage others to switch from AOL. Revenue from internet access in the US would plunge from $4.2bn this year to $1.5bn in 2009. The operating profit foregone on this side of the business would be $1bn, the company projects.