AOL Hoisting the Ax

Time Warner's (TWX Quote - Cramer on TWX - Stock Picks) AOL will cut 5,000 jobs, or about 26% of its workforce, as part of a plan to boost ad dollars by making its content free.

The affected workers will "no longer be with the company" within six months, AOL says in a statement. AOL Chief Jon Miller announced the job cuts, which had been expected, at a meeting Thursday.

About 5,000 of AOL's 19,000 workers are based in the U.S. The company has big customer service centers in places including Tucson, Ariz., Ogden, Utah, and Oklahoma City, as well as in Germany, France, the U.K. and the Philippines.

AOL execs said Wednesday that they would cut operating expenses by $1 billion by the end of next year as the struggling services competes for users and online ad dollars with Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) and Microsoft's(MSFT Quote - Cramer on MSFT - Stock Picks)MSN. The AOL changes, which include de-emphasizing its faltering dial-up access business, won't have a material impact on Time Warner's bottom line.

Time Warner has little choice but to make big changes at AOL. Gains in advertising haven't overcome declines in its dial-up business, which people are fleeing in droves for faster Web access. Sales at the unit fell by 2% in the second quarter.

Investors, who have long complained about AOL's drag on Time Warner's shares, seem to be pleased with the changes but have pointed out that they probably should have occurred years ago.

The job cuts were reported earlier by Reuters.

Shares of Time Warner fell 11 cents to $16.56.