AOL Time Warner is hoping to boost the number of subscribers to its troubled America Online internet division by offering exclusive access to news and features from its magazines and CNN news channel as it warned of a 40% drop in advertising revenues next year.

The warning, from the world's biggest media company, chimes with the prediction by the WPP chief executive, Sir Martin Sorrell, that the advertising market will not recover until 2004 and dashes any hopes of an early recovery.

The company's chief financial officer, Wayne Pace, warned that sharp falls in advertising and e-commerce sales next year at America Online would offset any gains the company made in subscriber revenue.

"It is clear that 2003 will be a transition year, but with this plan we expect America Online to deliver solid growth beginning in 2004," he added.

The announcement came as AOL unveiled its long-awaited strategy for turning around its flagging America Online division, switching its focus from internet access to selling premium add-on services to subscribers.

Jonathan Miller, the recently appointed chairman of America Online, today unveiled plans to offer features from Time magazine as well as the US gossip magazine People and Sports Illustrated in the hope of persuading web users to fork out for its subscription service.

Subscribers will be able to read articles from the magazines at no extra charge and will be given free access to CNN's online video service, which usually costs $4.95 (£3.18) a month.

Revenues for AOL's internet division, which is facing a government investigation into its accounting practices, are expected to be flat in 2003 with earnings before interest, taxes, depreciation and amortisation (Ebitda) down between 15% and 25%.

America Online expects revenue for 2002 to total between £5.7bn and £5.8bn and advertising and commerce revenue to be £960m to £1.03bn.