NEW YORK (Reuters) - Time Warner Inc.'s AOL said on Monday it planned to launch a free Internet television service by early 2006, in one of the technology and media industry's most ambitious designs to reach TV viewers online.

Yahoo Inc. (Research) and Google Inc. (Research) threaten to bypass traditional media outlets by linking computer users with TV shows online, striking partnerships with programmers or creating content. What they lack AOL now possess in abundance -- the shows themselves.

In its first year, in an exclusive deal, the advertising-supported service, In2TV, will feature approximately 3,400 hours of programming from 4,800 episodes spanning 100 series of Warner Bros.-produced shows from the past.

They include past prime time hits "Welcome Back Kotter," "Growing Pains" and "Kung Fu" organized under six channels divided by comedy, drama, animation, action, classic and superhero/villain genres. Two more channels may launch in 2006.

Over time, Warner Bros. could add up to 14,000 episodes from 300 series it has cleared with rights holders, executives said. AOL is also in talks with "every major provider" to offer shows not owned by Time Warner, Kevin Conroy, executive vice president of AOL media networks said in an interview.

In2TV has been two and a half years in the making, executives said, and to date remains one of the most aggressive displays of collaboration among the corporate siblings of the world's largest media conglomerate, once riven by infighting after the 2001 merger of AOL and Time Warner.

"The great promise behind this legendary merger was there would be synergies," said Jupiter Research analyst Todd Chanko, who was briefed on the service ahead of the announcement. "Here, you have a great example of two sister operations with mutual needs being satisfied by the other. It's a no lose proposition."

Working with a corporate sibling was "better than spending $100 million" to build a service from soup to nuts, Eric Frankel, president of Warner Bros. domestic cable distribution, told Reuters.

Invoking phrases eerily reminiscent of the unkept promises of the merger, Frankel added, "We're hoping one plus one equals seven."

Indeed, with some 112 million unique monthly visitors to AOL's online properties, the company has been restructuring the company to attract an even larger audience by offering more free programming, through which it can sell online advertising to offset a quickly declining dial-up subscriber base.

AOL has also been in discussions for an alliance or a sale of a stake in the division to Microsoft Corp. (Research), Google Inc. and Comcast (Research) to reach a wider audience.

The project comes amid turmoil in the traditional TV industry, where the Internet, digital media players such as Apple's iPod, cable TV's on-demand systems and video games now compete for attention.

Eyeing a shift in viewership, two top U.S. TV broadcast networks, Viacom's (Research) CBS and General Electric's (Research) NBC, inked deals with cable company Comcast Corp. and satellite TV provider DirecTV Group Inc., respectively, to sell on-demand episodes of recently aired top shows for 99 cents each.

Meanwhile, Apple and Walt Disney's ABC networks struck a landmark agreement in October to offer episodes of top shows "Desperate Housewives" and "Lost" for sale at $1.99 per show that can be downloaded into recently launched new iPod digital music players. CBS and NBC are also in discussions to offer shows to Apple's service, sources have said.

Jupiter's Chanko, who is a media industry veteran, said he saw the future of TV in free, advertising-driven business models. Selling shows directly to consumers on a per episode basis, although interesting, could face problems at a time when monthly cable bills average about $40 and rising each year.

"There's only so much programming that the U.S. public will pay for at any given point of time," Chanko said.

Conroy said AOL has not ruled out a transactional business and perhaps someday charge for shows. But, he added, "You have to build a mass market for consumer consumption before people think about ownership models."

In the foreseeable future, however, In2TV, will only feature backlog shows that are not currently on syndication on other channels, in order to sidestep conflicts with existing distribution agreements.

"We have more programming in our warehouse than we can monetize on traditional TV," Frankel said.