TIME WARNER is to give away AOL services to high-speed internet customers in a strategy U-turn that will see it sacrifice subscription revenues in the pursuit of online advertising dollars.

The American media giant, which took control of AOL in a disastrous 2001 merger, said yesterday that it would offer its e-mail and AIM instant messaging programs, as well as various software and internet services, free of charge to broadband users in the US from early next month. A European roll-out of the free service is planned for next year, according to sources.

The high-risk strategy shift will see AOL, which currently derives 80 per cent of its revenues from subscriptions, attempt to build an advertising-based revenue model.

AOL’s US subscriber base, which peaked at 26.7 million in September 2002 but had dropped to 18.6 million by last March, is expected to take a massive hit as millions more subscribers drop their paid accounts.

However, faced with the free e-mail services offered by rivals such as Google and Yahoo! and under pressure from its shareholders to improve AOL’s performance, Time Warner felt that it had little choice. By moving to a free service AOL hopes that it will be able to boost user numbers and persuade those customers to look at advertisements, including ad-supported video, as they check their mail.

Separately, Time Warner announced yesterday that it was close to finalising a sale of its AOL operations in Europe and was hopeful of sealing the deals by the autum.

The group confirmed that it was in exclusive talks with France’s Neuf Cegetel, the telecoms company, over a sale of the French AOL business. Meanwhile, sources said that the company had drawn up a shortlist of bidders for its £650 million UK arm that included BSkyB, Orange and Carphone Warehouse.

Bidders for the German unit were said to include Versatel, freenet.de, United Internet, Telecom Italia and KPN.

Jonathan Miller, the AOL chief executive, said yesterday: “The sale process, which separately covers our operations in the UK, Germany and France, is progressing and we are hopeful that we have reached agreements with the winning parties some time in the fall.”

The comments came as Time Warner announced second-quarter net income of $1.01 billion, up from a loss of $409 million the year before on a litigation-related charge. Revenue rose 1.2 per cent to $10.71 billion, while revenue from advertising rose 11 per cent to $2.24 billion.

Time Warner’s cable-TV business led the profit growth, offsetting continued weakness at AOL. Advertising, though a relatively small part of AOL’s revenue, rose 40 per cent in the second quarter, while the division’s overall revenue declined 2 per cent.

Dick Parsons, the chief executive of Time Warner, said: “We’re pleased with this quarter’s results, which put us firmly on track to achieve our full-year financial objectives.”

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