NEW YORK (CNN/Money) - AOL Time Warner named CEO Richard Parsons to the additional post of chairman Thursday as the world's biggest media company sought stability to allow it to wrestle with problems at its flagship Internet service, AOL.

"I am highly gratified that the board shares my determination to maximize AOL Time Warner's tremendous potential," Parsons said in a statement issued by the company. "As we address the challenges facing our company and the industries in which we operate, I will work together with the extraordinary people in this company to focus on increasing value for our customers and our shareholders."

Parsons will assume the top post May 16 at the annual shareholders' meeting. The move came at the company's board meeting in New York and followed the announcement Sunday that Steve Case would resign as chairman.

"After deliberating this week, the board unanimously agreed that Dick should be named chairman," Case said in the same company statement. "I am delighted by this decision and look forward to working with Dick to ensure a smooth transition."

The move also was a further consolidation of power by the "old media" Time Warner side of the merged company over the "new media" America Online side, even though it was AOL that bought Time Warner in a deal that closed two years ago.

Case, the co-founder of America Online and the architect of the merger, had become a target for critics angered by the company's sagging stock price -- which has lost two-thirds of its value since the merger of AOL and Time Warner was completed on Jan. 11, 2001 -- and declining performance at its embattled America Online unit.

Case likely will remain on the board, as the company announced he will be one of the directors renominated for shareholder approval on this year's proxy ballot. But some of the company's largest shareholders have become vocal critics of Case and the company's performance and had said they would vote against him as chairman.

While it was likely not enough to cause his removal, it would have been another sign of no confidence in the company and the stock. Case said this he decided to give up the top post in order to reduce distractions at the company leading up to the meeting.

There had been some discussion that the board would continue to split the jobs of chairman and CEO between two individuals, either finding another chairman or promoting Parsons to chairman and naming another CEO. The Conference Board, an influential business group, recommended a week ago that corporations consider splitting the two posts that still are normally held by the same person, in the name of better corporate governance and oversight.

AOL Time Warner, which still faces federal investigations into accounting practices at America Online before and after the merger, tried to answer those concerns by saying it reaffirmed its governance measures, which include executive sessions of all non-management directors without the CEO and other management present as part of every board meeting.

Parsons, who had been No. 2 at Time Warner before the merger, took the CEO position last year with the retirement of Gerald Levin, the former Time Warner CEO who initially took that position with the merged company. Parsons beat out Robert Pittman, an America Online veteran who had shared the co-chief operating officer spot with him following the merger and who subsequently left the company when he didn't get the top executive spot.

Parsons will not receive addition compensation for his new position, the New York Daily News reported Friday, citing a source close to the board. He is likely to incur less opposition by shareholders than did Case, despite the role he also played in the merger.

"I think Dick is certainly capable of doing both jobs, and we'd certainly be happy with him being named," Oakmark Funds portfolio manager Bill Nygren said before the announcement. Nygren is a partner at Harris Associates, which holds about 40 million AOL Time Warner shares, or a shade less than 1 percent of the stock.

But Parson has his critics in the investment community as well. The New York Post reported Friday that Gordon Crawford of Capital Group, AOL's biggest institutional shareholder, still would like to see Viacom Inc. President Mel Karmazin running the show at AOL Time Warner. Karmazin and Viacom chairman and controlling shareholder Sumner Redstone are widely reported to be deadlocked in contentious negotiations on a new contract for Karmazin. The Daily News said Parsons' appointment means Karmazin won't be coming to AOL Time Warner, and it is more likely he'll stay at Viacom.

But while the chairmanship issue was resolved Thursday, several other major questions still face the company's top executives.

Many critics, saying the "new economy" business is a nag in the "old economy" stable, argue that it's time to dump the struggling AOL unit, either through a spinoff or outright sale. The company has insisted that it is committed to keeping the Internet unit, and many observers think that would be a mistake.

AOL Time Warner elects CEO Richard Parsons, above, to be the next chairman of the company. (Photo: CNNfn)

"How can they sell something that isn't doing well?" asked Credit Suisse Asset Management managing director Stanley Nabi, who owns AOL shares, before Thursday's announcement. "They'll get nothing for it."

America Online has said advertising and commerce revenue will continue to decline this year. The service also is losing subscribers to high-speed Internet offerings from cable and telephone companies as well as to cheaper dial-up Internet service providers. America Online executives have announced plans to turn around the unit, which is still a major provider of AOL Time Warner profits. But many details of those plans have yet to be worked out and their success has yet to be proven.

Even if AOL remains with the company it will not necessarily stay part of the company's name. Stripping AOL from the corporate name was one rumor flying on Wall Street following the announcement of Case's departure. A company official, speaking on a not-for-attribution basis, said such a change is not being considered at this time.

Parson has said improving the company's battered balance sheet is his major priority.

Long-term debt stood at a lofty $28.2 billion at the end of the third quarter. And the balance sheet is likely to take a hit when the company announces a charge to write down the value of some assets. The company took a record $54 billion charge a year ago, and the Washington Post reported recently another $10 billion charge could be announced for the just completed fourth quarter. (see more)

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Last week the company said it plans an initial public offering of stock in its Time Warner Cable unit at some time in the second quarter, although details on the size of the offering were not disclosed. The move would not only raise funds but also shift some of the debt to the new separate unit. But the market for IPOs in general and cable stocks in particular has been very weak, prompting some to question whether this is time to move ahead with an offering. (see more)

Parsons has said the company will look at the sale of non-core assets, and in September he identified three Atlanta sports teams owned by the company as an example of that type of assets. But executives of the teams said then that no sale was being planned.

Executives of AOL Time Warner and Walt Disney Co. have talked about merging AOL's CNN and the news operations of Disney's ABC, which could save the companies as much as $200 million a year.

But CNN is going through its own upheaval. Fox News has built a comfortable lead in domestic viewers, and Monday Time Inc. veteran Walter Isaacson announced he is leaving his post as chairman of CNN just 18 months after taking the top job. AOL Time Warner also owns CNN/Money.

At a news conference announcing Isaacson's departure, Turner Broadcasting CEO Jamie Kellner said talks with ABC currently are on hold.

Analysts surveyed by First Call expect AOL to report roughly flat earnings growth when it reports quarterly and annual results Jan. 29.

But there are many other numbers beyond EPS that will be eyed closely by anxious investors. The directors got a glimpse Thursday of what is likely to be a mixed report.

The company had strong revenue from its movie studios, which scored major hits in the most recent quarter with "Harry Potter and the Chamber of Secrets" and "The Lord of the Rings: The Two Towers."

But troubles at the AOL division have received the most attention, with turnaround plans detailed for the board at its last meeting in November, and for investors in December.

The company has acknowledged that advertising and subscriber revenue will continue to fall this year, though executives believe they will bottom out in 2003. The number of AOL subscribers will be closely watched. Doug Kass, a hedge-fund manager with Seabreeze Partners who has a small short position in AOL, says he believes the report will show a decline in AOL subscribers, which could further shake an already battered stock price.