Time Warner could consider a demerger of AOL if its new, free portal fails to capture enough revenue from the growing online advertising market, according to a report in U.K.'s MediaWeek. A Time Warner spokesperson has confirmed recent comments by CEO Dick Parsons in an interview with Fortune. The centerpiece of AOL's new strategy is a free portal - to be launched this summer - with a search engine and other functions previously only available to paying subscribers.

The spokesman is reported as saying if AOL fails in its latest effort to capture more online ads with its new strategy for the portal, it could be spun off. AOL's subscriber base has been falling steadily, although it reported a 45 percent increase in online advertising and continues to generate $1 billion in cash flow.

AOL hopes such a move, along with recent efforts offering free email and blogs, will allow the site to increase traffic and gain a larger chunk of the online advertising market.