AOL Taking Big Risk With Free Subscription Plan

AOL’s plan to offer free subscriptions to its broadband properties could cost Time Warner nearly $1 billion of operating profit through 2009 according to a report in the Wall Street Journal citing internal forecasts.

AOL would lose half its profit from its Internet access business in the next three years, dropping from $1.6 billion in the U.S. this year to about $800 million in 2009, while losing two-thirds of its dial-up members in the process.

According to the WSJ, AOL execs think they can make up for that loss with advertising, increasing its operating margins from 17% in 2006 to 42% in 2009, and cutting $1 billion from its marketing budget.

UPDATE: (from Pamela Parker) Time Warner has released a statement saying recent media reports are based on “incomplete” and “largely erroneous” information. It promises to lay out strategic plans for AOL to investors after the company’s earnings call August 2.

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