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CDnow, N2K in merger talks

Battered by thin margins and the stock market, two online music retailers are thinking of combining.

After a week in which CDnow and N2K each saw their depressed stocks slide more than 15 percent, the two online music retailers have confirmed that they are in talks regarding a possible merger.

As previously reported, the companies have been in ongoing discussions regarding a possible transaction. No agreement has been reached as of yet, however.

The move would be one of the first major consolidations involving two publicly traded Internet start-up ventures. More typically, a Net company that's gone public snaps up an online firm that hasn't managed to do so, as in yesterday's announcement that search engine Lycos plans to acquire Wired Digital.

The agreement would be structured as a merger of equal partners, with management jointly shared, the New York Times reported. Financial terms are not known.

Both companies are struggling with razor-thin profit margins, typical in CD sales online and off. Also, brick-and-mortar retailing giants such as Wal-Mart and Best Buy lately have moved into online music sales. Moreover, Amazon.com's June expansion into the music business has caused further dilution in the market. Amazon also has won at least one alliance with another site that formerly dealt with CDnow.

Both CDnow and N2K offer upwards of 200,000 CD titles, Music sales don't sing
online and have struck numerous distribution agreements, such as exclusive arrangements to provide music sales on portal sites including Yahoo, Excite, and online Disney properties.

New York-based N2K and Philadelphia-area CDnow have each seen their stock prices drop by about 70 percent since May.