"Executives from the two companies made proposals that they have yet to formalize" in a meeting today with Competition Commissioner Mario Monti, commission spokeswoman Amelia Torres said. "It's impossible to say what the contents of the proposals are or what we think."
EMI and Time Warner must make a formal offer by 2 p.m. PT tomorrow, the commission said, or risk rejection of the merger, which would create the world's top music company. The commission, the European Union's executive agency, last week drafted a preliminary decision to block the deal.
The companies had already tried to gain support for their merger by promising not to withdraw from collecting societies, the organizations that set song prices and collect royalties. They also pledged not to have agreements favoring their own content and discriminating against rivals.
The commission has said it objects to the combination because it could dominate recorded music, music publishing and delivery of songs over the Internet. The companies may have to sell song copyrights to win approval, analysts said. A simultaneous review of America Online's purchase of Time Warner is another complication.
A 50-50 chance
Helen Snell, an analyst at ABN AMRO in London who rates EMI shares "hold," said the merger probably has about a 50 percent chance of winning approval.
"The company is still saying they're confident the merger will win approval, and they'd have to be careful to be broadcasting that confidence if they didn't think it could happen," she said.
Representatives for EMI couldn't immediately be reached for comment. Time Warner spokesman Ed Adler declined to specify what concessions were offered, saying only, "We continue to be in discussions with the EU."
Remedies to solving the commission's concerns may include selling some of the music copyrights or entire catalogs of song copyrights held between EMI Music Publishing and Warner/Chappell Music, Snell said. Estimates for the combined companies' share of the European market for music publishing range from 30 percent to about 50 percent, she said.
In recorded music, she estimated the combined company would have about 25 percent of the European market. EMI and Time Warner would be unlikely to agree to sell one of their record labels, which include Atlantic Records and Virgin Records, because "that would massively diminish their market power," Snell said.
Even if EMI and Time Warner did want to sell some record labels or copyrights, antitrust lawyers say it may not solve the problem. The commission has lingering concerns that the merger would whittle the industry down to only four major companies from five, giving them too much power to control music prices. Selling assets from one company in that oligopoly to another will only shift the antitrust problem onto that buyer, lawyers said.
In a speech today, Monti said the commission has to address the issue of whether the provision of services online competes with services offline. He asked, for example, whether online music sales compete with sales in retail outlets.
"The characteristics of downloadable music on the Internet, where the music can be delivered directly to your PC, never having been embodied in physical media, may provide users with a sufficiently different product that it does not compete directly with traditional music sales," Monti said in prepared remarks to be delivered this afternoon.
Though not mentioning any specifics about the cases involving AOL, Time Warner and EMI, Monti did say the merger reviews raised other "interesting issues" related to Internet distribution, including piracy and licensing.
He added that the commission would have to look closely at the arrangements for royalty-collecting societies to make sure they have been properly updated to take account of the changing circumstances of the Internet.
Analyzing the competition problems posed by the Internet may go beyond defining the market and market share, Monti said.
"It may also be necessary to look at the structures of industries, such as the music and publishing industries, to see whether the commercial interests of parties in maintaining the status quo is hampering the development of Internet services," he added.
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