AOL seen as linchpin in AOLTW's Q3 –

All eyes will likely be on AOL Time Warner Inc. (AOLTW) Wednesday when the media conglomerate unveils its third-quarter results, which are expected to hinge on the performance of its beleaguered America Online (AOL) Internet unit.

Analysts surveyed by Thomson First Call predicted that AOLTW would report revenue of around US$9.9 billion, and income of about $0.04 a share, with gains led by the company's film and cable divisions.

It's been rough sailing for AOL in recent months, as the unit has faced a government probe of its finances, a change in leadership, stunted online advertising and slowed subscriber rates, which have left many seeing the online unit as AOLTW's Achilles' heel. After all, AOLTW's stock has sunk almost 70 percent since Time Warner Inc. merged with America Online Inc. in Jan. of 2001, fueling reports that top executives from the old Time Warner camp are just about fed up with the big Internet unit that couldn't keep up.

However, AOL is fighting to make a comeback, proving to itself and its Time Warner detractors that it still deserves to be the largest Internet service provider (ISP) in the world. The unit launched a new version of its software last week, packed with over 100 new features, including e-mail updates and a new call-waiting service, and even announced that it was eliminating third-party pop-up ads. But while the unit looks to AOL 8.0 as its lifesaver, some analysts still aren't impressed.

"AOL 8.0 is not really going to boost them," said Paul Kim, an analyst with Kaufman Brothers LP. "They are using this launch as a symbolic gesture that they are refocusing on their subscriber base ... but it's less about capabilities and more about complete power."

In terms of complete power, Kim points to Microsoft Corp., which is set to release the 8.0 version of its MSN Internet access software Thursday. Kim estimates that Microsoft has lost over a billion dollars on MSN and doesn't mind losing more, making it a formidable enemy to AOL, which is under pressure to pull its financial weight.

"Microsoft looks like it wants to be really aggressive in this market ... they really don't care how much money they lose," Kim said.

AOL doesn't boast such deep pockets, however, and it looks unlikely that AOLTW will be willing to prop the unit up for very long.

"AOL is not the prima donna anymore, if anything it's in the doghouse," Kim said.

The unit's status will be more clear when AOLTW reports its third-quarter results after the bell Wednesday.

Shares of the company (AOL) traded up 2.68 percent to $13.40 a share in midday trading Tuesday.

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