Microsoft is considering taking a stake in Time Warner's America Online (AOL) unit.

Such a move that could have significant impact in the market for consumer Internet content and services.

Microsoft and Time Warner are discussing such a deal, reports claim, although the stage of the negotiations and the nature of a subsequent partnership are being characterized in conflicting ways by different media outlets.

Confusion and chatter

The New York Post, which first reported the possible deal, describes the discussions between Microsoft and Time Warner as "advanced" and involving plans to combine AOL and Microsoft's MSN Internet unit.

Meanwhile, The Wall Street Journal called the talks "preliminary" and said they are part of a broader discussion about areas in which the companies can collaborate.

Areas of collaboration being considered include AOL switching from using Google's search engine to using MSN's and possibly combining the two groups' advertising sales teams, according to the Journal.

Both the Post and the Journal are basing their reports on unnamed sources.

Time Warner didn't immediately return a call seeking comment. A spokeswoman for Microsoft declined to comment.

AOL’s falling crown

Although AOL once ruled consumer online services with its subscription-based model, it has been scrambling this year to revamp its business and make it advertising driven, by providing for free most of the services and content it previously charged for.

By doing this, AOL, which has been steadily losing subscribers over the past two years, is trying to reinvent itself and better compete with Yahoo, which charges for some services, but whose revenue is generated primarily from online advertising.

Google makes most of its money from online advertising tied to its search engine services, has been adding nonsearch services to its menu of offerings, such as Web mail, blogging and instant messaging, and in this way has become a direct competitor to AOL, Yahoo and MSN.

Meanwhile, Microsoft has been increasing its investment in MSN, building its own search engine, improving the Hotmail Web mail service, refining the Messenger instant messaging service and creating a blogging/social networking service in its attempts to compete with Yahoo and Google.