The latest televised ad for Time Warner's (NYSE:TWX) America Online service is clever. That is, of course, until you notice a fatal flaw. If you haven't caught the spot for the zillionth time, it shows two men in a push-tray cafeteria. Explaining the merits of surfing the Internet with AOL, one of the men likens the company's services to the metal dome covering his tuna sandwich. He then proceeds to pour meat sauce and gelatin cubes -- representing spam and viruses -- over both his dome and his buddy's uncovered plate. After that, he lifts the dome off his untouched tuna sandwich to show how it passed the culinary car wash with flying colors.

Where's the flaw? Look carefully, and you'll notice that like most domed food covers, this one -- a proxy for AOL -- has a big hole in the middle. Really. Yes, like AOL's best intentions in recent years, there always seems to be a hole somewhere.

It's not just investors looking for that hole in their pockets when they find that the stock they hold is worth little more than a quarter of what it was five years ago. There have also been holes in AOL's collection basket since its domestic subscriber base peaked in September of 2002.

Until that point, the office pool chatter every three months consisted of bragging rights for whoever came closest to guessing how many hundreds of thousands of new net members were added to the AOL family. Then, with 26.7 million stateside members, that quarterly subscriber growth was reported within parentheses. It was no longer a matter of how many new faces were signing up -- now it had become a matter of how many old ones were getting away.

One last look back
While the company's subscriber base in Europe has held pretty steady at nearly 6.3 million, stateside defections have hit the company hard. The company lost a net of 2 million subscribers last year to close out 2004 with just 22.2 million AOLers. That's a far cry from the 26.7 million domestic members that called the service home a little over two years earlier.

That stings especially hard, now that companies like Yahoo! (NASDAQ:YHOO) and Google (NASDAQ:GOOG) have made eyeballs and page views matter again with the lucrative popularity of paid search. Sure, AOL is still a happy beneficiary of the trend. While subscription revenue dipped slightly last year, it also saw advertising revenue move 28% higher. Because paid search is blessed with fat margins, AOL saw its operating profits soar by 41% last year, despite the smaller billing base. That's good. It could have been great. It should have been great.

In November, I waxed nostalgic about the company's heady growth through the 1990s. A week later, I suggested some ways for the company to recapture some of that glory. The dial-up pioneer desperately wants to matter in your broadband future. But some of its recent moves, like killing off its newsgroup reader and pushing more of its proprietary content delivery onto the slower Web, haven't exactly helped its cause for differentiation at a time when it needs to justify its subscription premium.

Yet there are some very good reasons to get excited about AOL -- and its parent, Time Warner -- again. With the stock still trading in the teens, and at a market cap discount to what either Time Warner or America Online were fetching as individual entities before their colossal merger, it may be time to discover this once quintessential Rule Breaker.

Always look at the bright side of strife
Yes, the guy in the AOL ad is clearly lifting the cover from his tuna sandwich with the hole in the center, but the message is still effective. AOL really has improved its value proposition by rolling out a truly effective spam filter, while bundling free anti-virus software in its latest software version.

This month, the company has also upped the ante of its premium subscriptions by announcing discounts on a voice-over-Internet protocol (VoIP) service, as well as a free music offering. These two moves don't exactly wow me -- and I'll tell you why -- but at least it's a sign that AOL is trying.

See, VoIP is huge. I like it that AOL is offering VoIP cheaper to its service's subscribers -- $29.99 for unlimited calls in the U.S. and Canada, as opposed to $39.99 for those who want the service but aren't members. The only problem is that Vonage, the market leader with half a million users, offers the same service for just $24.99 a month. AOL may promise connection simplicity and jazzier features, but when its discounted rate is still steeper than the competition's regular price, this loyalty reward looks more like a loyalty tax.

Earlier this week, the company announced a deal with XM Satellite Radio (NASDAQ:XMSR) to launch an online music service. A watered-down offering will be available to everyone with Internet access, but the key component of the deal is a premium service that will be available for a price to those outside AOL's subscriber moat, but will be gratis for AOL subscribers. Now, I love satellite radio. I think the streams that AOL and XM will put together will be great. But my problem with this service -- like AOL's VoIP offering -- is that for subscribers to feel they are getting a price break, there have to be people willing to buy in at full price.

I can't see someone paying AOL $15 more a month for stand-alone VoIP service than they would through Vonage. And as far as getting folks to pay for digital radio streams, Internet radio and sites like already stream quality-targeted fare for free. There was a reason, after all, why XM abandoned its only premium streaming service earlier this year in favor of bundling it with its satellite radio subscriber package.

Yes, I appreciate AOL's efforts, but it needs to get back to offering real price breaks to its paying subscribers. It's never going to go as cheap as dial-up rivals like Earthlink (NASDAQ:ELNK) and United Online (NASDAQ:UNTD), and it's even harder to make a premium offering stand out in the speedy broadband space.

Still, as long as AOL still commands well over 20 million subscribers -- a juicy target audience for many, many reasons -- it can use that clout to help it land the sweetheart deals that will make its membership as sticky as dot-com flypaper.

Loyalty programs. Genuine price breaks. Exclusive presale access for events and merchandise. Now that paid search has made stickiness an online portal's most desirable trait, it's time for AOL to shake the moneymaker that made it one of the most inspirational growth stock stories in the lore that birthed our Rule Breakers newsletter service. It's faint, but I can hear AOL rattling that moneymaker. Can't you?

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Longtime Fool contributor Rick Munarriz has been an AOL subscriber since 1992, but he doesn't own any of the stocks mentioned in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.