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Time Warner abandons AOL sell-off in favour of Microsoft ad partnership

LONDON – Media giant Time Warner is backing away from the sale of its online division AOL, in favour of a tie-up with Microsoft to boost advertising revenue at the unit.

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"We are not interested in selling AOL," Dick Parsons, Time Warner chief executive, said at a press briefing in Los Angeles yesterday.

Parsons revealed that Time Warner had instead been in discussions with different parties about a deal that could help AOL's transition from a business that relied on paid subscriptions to one that made money from ad revenue.

It is widely reported that Time Warner is on the verge of signing a deal with Microsoft to develop an online ad service to challenge Google.

If the deal went ahead, AOL would stop using Google as its primary internet search provider in favour of Microsoft's MSN.

AOL and Google currently work together, with Google providing AOL's search technology and AOL taking a slice of the advertising revenue generated for Google by its users.

It is believed that Google has been trying to secure a deal, but has lost out to Microsoft with Time Warner keen to close a deal by the end of the year.

Time Warner had been in talks with Microsoft, Yahoo!, Google and Comcast earlier this year about selling a stake in AOL, the second-most visited website in the US, behind Yahoo!.

The news is likely to appease Time Warner shareholder Carl Icahn, who is against selling AOL to a rival company.

Icahn, who owns a 2.5% stake in Time Warner, is leading a group of investors in a campaign against the media giant and its board after what he sees as a disappointing performance under Parsons.

Earlier this month, Icahn hired investment bank Lazard to compile a break-up plan and choose new directors for media giant Time Warner.

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