LONDON (CNNfn) - Antitrust regulators are demanding potential partners America Online Inc. and Time Warner Inc. sing a medley of songs to get a green light for their merger on both sides of the Atlantic.|
The two will have their chance this week to have their voices heard, as European Union competition officials prepare to hear arguments for and against the $128 billion deal from executives, competitors, consumer groups and customers Thursday. They will meet at the Borshette Conference Center in Brussels, the former venue for EU monetary policy meetings.
A major sticking point for the European watchdog, observers say, is the planned tie-up between British music publisher EMI Group PLC and Warner Music Group, a unit of Time Warner. Combined, this joint venture would be the world's biggest music company. Officials in Brussels are keen to prevent† music on the Internet from being dominated by just one firm.
"Real issues on the music side"
That's a different tune to what AOL and Time are hearing in the United States, where antitrust officials are more concerned about the power that Time Warner's cable network could give the merged company - power that critics fear it might use to hamper competing online services and entertainment companies that would rely on the Time Warner cable networks.
As a result of those fears, U.S. regulators there are set to block the merger unless the companies pledge to open up Time Warner's cable lines to entertainment and Internet content from competitors.
Back in Europe, EMI and Time Warner have their date Wednesday with officials of the European Commission, the EU's executive arm. For Brussels, cable is not an issue because Time Warner doesn't own any cable lines of its own there. Time Warner is the parent of CNNfn.com.
"It will be an interesting week, that's for sure," said one person familiar with Time Warner thinking. "There are some very real issues on the music side."
On the agenda will be AOL's recent promotion, distribution and marketing pact with Bertelsmann Music Group. The Commission said in June that it was concerned this accord, giving AOL preferential access to the repertoire of another of the world's big five music companies, could hand the Internet company a dominant position in the field of Web-based music distribution.
BMG, part of family-owned German media powerhouse Bertelsmann AG, would be one of the other music companies that would form a four-headed oligopoly accounting for 80 percent of the worldwide music business by sales, according to music business sources. The quartet would be completed by Universal Music, a unit of Canada's Seagram Co., and Japan's Sony Music.
While company executives say the issues of Time Warner's deals with EMI and AOL are distinct, commission officials are considering how consumers in Europe will be affected by the creation of a huge new player in the markets for music and online services - markets that are increasingly converging as more and more consumers turn to the Internet to access music.
"There are strong indications that Time Warner/EMI could become dominant in the digital delivery of music via the Internet especially if considering the merger between America Online and Time Warner," the commission said in June, outlining its extended review of the Warner-EMI merger.
Current thinking inside Time Warner, said a person familiar with the AOL transaction, is that the company expects to complete both deals. Time Warner and AOL say they expect their merger to be wrapped up this fall.
No announcement by the commission is expected immediately after this week's meetings with Time Warner and EMI. The commission is expected to rule on the Warner Music-EMI deal by Oct. 18, while a decision on the Time Warner-AOL merger is scheduled for no later than Oct. 24.
Independents 'could gain from merger'
European music industry experts say independent labels could actually to gain from the Warner Mucis-EMI deal. That's because ever bigger record companies, seeking mega-sales by relying on established genres and artists, leave gaps in which smaller operators can find their own niches, which global music companies aren't likely to touch.
"The independent companies tend to be successful in areas that the majors stay away from - then they get nabbed," Paul Williams, news editor at U.K. music trade magazine MusicWeek, said, referring to the likelihood for small labels to get purchased by larger music companies once they become successful.
While that may be good for the labels, artists may not have it so good.
"The counter-argument is that the marketing clout that the mega-company will have will not be conducive for the small acts to get their stuff on the Net - they'll be squeezed out," said Hamish Champ, managing director of industry journal MBI. Nonetheless, he too believes many independent labels stand to benefit from the EMI-Warner deal.
The danger to AOL and Time Warner is that EU antitrust officials may be emboldened by recent successes in reaching across the Atlantic to block U.S.-centered deals: most recently the watchdogs in Brussels teamed up with U.S. Department of Justice officials to block WorldCom Inc.'s †(WCOM: Research, Estimates) planned buyout of long-distance telecommunication rival Sprint Corp. (FON: Research, Estimates).