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Net giants may marry music clubs

Bertelsmann and Time Warner hold preliminary talks to merge their music clubs, BMG Direct and Columbia House, according to sources.

Media giants Bertelsmann and Time Warner have held preliminary discussions to merge their music-and-video clubs, BMG Direct and Columbia House, into one company, according to a source familiar with the talks.

The companies discussed the possibility of a merger late last year, but those talks stalled shortly afterward, the source said. Now the companies are considering other ways to bring the clubs together and could resume discussions, the source added.

"There were conversations, and there is a possibility," the source said, referring to a potential partnership between the companies. The source would not elaborate on the structure of a possible deal.

A merger or partnership between the two music clubs could take a number of forms and could translate to a larger Internet presence for the companies. Time Warner, half-owner of Columbia House, is being acquired by Net behemoth America Online, and many analysts have speculated on the future of many of the media giant's properties once the merger is complete.

Executives from BMG Entertainment and Time Warner declined to comment.

The talks come as the record-club business is in decline, facing increasing competition from online music sales. Columbia House, of which Sony owns the other half, claims about 16 million members and had sales of $1.4 billion in 1998.

The record club had planned to merge with online CD retailer CDNow in hopes of adding an e-commerce element to its mail-order and direct marketing business.

But last month, the companies decided to cancel their merger plans. Competitive concerns from e-commerce giant Amazon.com, as well as the struggling financial status of Columbia House, were cited as reasons for the merger's cancellation from both sides.

Time Warner said last week that its first-quarter profit from operations rose to 5 cents a share, compared with break-even results a year ago, on rising advertising sales at its magazines and cable TV networks.

The merger discussions were first reported by The Wall Street Journal.

Bloomberg contributed to this report.