Time Warner to reveal AOL cost-cutting plan

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Time Warner said on Tuesday that it would unveil the new business strategy for its AOL division on August 2, after it releases its quarterly financial results.

The company also said that recent reports about its plans for AOL included incomplete or “largely erroneous” financial information, and urged investors not to draw conclusions before the presentation.

Righting AOL is a top priority for Richard Parsons, Time Warner’s chief executive, and Jeff Bewkes, the company president who is his presumptive successor, as they try to prove to investors that they can shepherd the media group into the digital age and revive its slumping share price.

Led by Mr Bewkes, Time Warner executives have been mulling a plan to offer many of AOL’s services, including e-mail, for free to subscribers who already have broadband internet connections. The plan reflects Time Warner’s desire to speed AOL’s transformation from a dial-up internet service reliant on monthly subscription fees to an advertising-supported portal that could better compete with rivals Yahoo and Google.

It comes in reaction to a surge in online advertising and a steady erosion in AOL’s subscriber base. From a peak of more than 22m in late 2002, AOL’s roster of customers had fallen to 18.6m in the most recent quarter.

Analysts and some Time Warner executives have taken pause amid predictions that the switch could lead to the loss of $2bn in annual subscription revenue at AOL.

Time Warner declined to comment beyond their statement on Tuesday.

However, some people briefed by management said the company has projected more than $1bn in cost savings at AOL if the new plan were enacted, which would offset some of that loss.

The bulk of the savings would come from AOL’s $1.4bn annual marketing budget, which company executives have pledged to cut by $800m or more, these people said. Those reductions would imply thousands of job losses among workers who seek to lure new subscribers. Time Warner also projected $250m to $275m in savings from its customer support budget and additional savings in property and network expenses.

In a note to investors on Tuesday, Michael Nathanson, a Sanford Bernstein analyst, predicted that the size and speed of the cost cuts meant that the plan could actually be accretive to Time Warner’s earnings this year and in 2007. “The near-term material impact appears to be better than perhaps we and consensus would expect,” Mr Nathanson said.

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