Europe to OK $135bn AOL/ Time Warner merger

But EMI/Warner deal set to be nuked, claims insider

European Commission anti-trust officials have decided to let the $135 billion AOL and Time Warner merger go ahead after all, but the merger operation will not be allowed to take over EMI's music operation.

The plan, leaked to Reuters by a Commission insider, follows earlier claims that the EC was planning to block the AOL/Time Warner/EMI merger because it felt the deal would seriously stifle competition in the digital media and Internet access markets.

That claim proved correct - AOL, Time Warner and EMI representatives admitted they were indeed having to make further concessions in order to allay EC anti-trust concerns over the deal.

The EMI connection certainly appears to be the main stumbling block. With media company Bertelsmann owning half of AOL Europe and one of the world's 'big five' music companies, BMG, merging EMI and Warner Music into AOL would, the EC feared put too much of the market in the online service provider's hands.

"The more content AOL acquires and the bigger its community of users, the less reasons for a subscriber to abandon AOL's walled garden and the more reasons for potential Internet users to join AOL," noted the Commission's draft report on the merger. "AOL could refuse to distribute third-parties' film content or threaten to refuse to distribute in order to negotiate the most advantageous commercial terms."

AOL offered to buy out Bertelsmann's share of AOL Europe, but that clearly hasn't proved sufficient for the EC.

The solution: kill the $20 billion EMI/Warner deal, and everything will be hunky-dory. "If [the EC] sorts out the EMI/Warner Music problems, either by blocking the deal or resolving the issues of market dominance, it's hard to imagine the Commission having any problems with AOL-Time Warner," Reuters' source said.

"Discussions are still going on with [EMI and Time Warner], and they could still produce further commitments, but they'd have to be pretty clear-cut and that could be difficult."

The Commission is due to announce its verdict on the AOL/Time Warner merger by 24 October, though insiders say its decision will be made public next week or the week after. The deadline for the EMI/Warner team-up is 18 October. ®

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