NEW YORK (CNN/Money) - AOL Time Warner Inc. is in talks about possibly selling its battered music unit to competitor EMI Group PLC, according to a published report Friday.

The New York Post reports that EMI, the largest independent music company and the No. 3 overall worldwide, is holding talks about possibly buying Warner Music. AOL Time Warner has announced it is seeking to sell assets as a way to significantly reduce its $25.8 billion in net debt.

The music industry has seen declining sales, partly due to the increased ability of consumers to download music on the Internet and burn their own CDs rather than buying them from the record companies. AOL Time Warner's own estimates are that industry sales will decline between 5 and 10 percent this year.

It is widely expected that a year from now there will be four major music companies rather than the current five, according to the Post, and it had been expected that EMI might be purchased by one of the media conglomerates that own its four major competitors. But this deal, which the Post said would be financed by private equity and banks because of the low value of its stock, would enable it to continue as an independent company. The paper said EMI would need to raise $3.5 billion in order to buy Warner Music.

Shares of EMI were off about 3 percent to £121 in midday London trading Friday. Shares of AOL Time Warner (AOL: Research, Estimates), parent of CNN/Money, closed down 12 cents to $10.15 in trading Thursday.

In comments to investors, AOL CEO Richard Parsons last month referred to Warner Music as "our most structurally challenged business." The company took charges totaling $1.5 billion to write down the value of its music assets in the fourth quarter, although those charges were largely overlooked as the company took more than $40 billion in other charges related to its Internet and cable operations, leaving it with a $98.7 billion net loss for the year.

But the company's music division actually saw revenue increase slightly last year to $4.2 billion from $4 billion in 2001. Earnings before interest, taxes, depreciation and amortization, a closely watched measure of profits known as EBITDA, rose to $482 million from $419 million a year earlier, accounting for a bit more than 5 percent of company-wide earnings.

Three years ago, Time Warner Inc. and EMI tried to combine their music holdings in a joint venture seen as a merger of equals that was then valued $20 billion. The companies estimated at that time that cost savings from a combination could reach $400 million by the third year after the link-up.

But European antitrust regulators blocked the deal. EMI then pursued a deal with BMG, a unit of German media conglomerate Bertelsmann, only to have regulators block that deal as well. The Post said it is generally believed that the antitrust climate has changed enough that regulators would approve a deal this time around.

The Post quoted some music industry executives as questioning why AOL would sell the music unit at a time when valuations are such a depressed level. But the company has said that it wants to reduced net debt to less than $20 billion by the end of next year, and that it faces about $1.8 billion in additional debt on its balance sheet in the coming year due to a required payment to purchase Vivendi's share of AOL Europe, the construction of a new headquarters in Manhattan and other items.