Last year, AOL said it was giving away its e-mail accounts, software and other features to users as it moved to an advertising-focused business model.

Overall revenue at AOL was $1.3 billion in the second quarter of 2007, which ended June 30, down 38% from the same quarter in 2006. Advertising revenue increased 16% to $522 million, up from the $449 million in the same quarter of 2006, but down from the 40% increases the company had reported in the last four quarters, according to the statement. AOL's operating income climbed 9% to $360 million. At the end of June, AOL had 10.9 million U.S. subscribers, a 59% drop from the 26.7 million subscribers it had in September 2002.

In the company's earnings call, Time Warner Chairman and CEO Richard Parsons said the parent company no longer thinks that AOL's advertising business will grow "at or above" the rate of growth of other U.S. Internet companies. AOL is in trouble," said Rob Enderle, an analyst at San Jose-based Enderle Group. "The market they exist in is fairly robust, and they shouldn't be showing the significant declines that they're showing."

However, Enderle said changing AOL's model was probably the right thing to do because if it hadn't, the company would have been out of business by now.