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After industry representatives made their views known to the European Commission, the merger of America Online Inc. and Time Warner Inc. appeared more likely to gain approval from European Union antitrust regulators than the smaller, related alliance between Time Warner’s music division and EMI Group PLC . Commission officials will complete draft decisions about both deals by Wednesday, and the verdicts will be based to a significant extent on feedback from a half-dozen or so of the companies’ peers about antitrust concerns. The commission’s conclusions will greatly influence the deals’ fate: They will be presented at Wednesday’s meeting of competition experts from all 15 EU member countries, who will in turn make an advisory ruling ahead of the final vote of the twenty-member board of the Commission. The commission, the EU’s executive agency and antitrust arm, was scheduled to complete yesterday its series of so-called market tests with industry groups following final offers of concessions last week by the companies involved in both mergers. The agency, which has not revealed the concessions offered for either deal, must deliver a final ruling on the AOL merger by Oct. 24 and on the EMI merger by Oct. 18. While industry representatives’ responses to AOL’s concessions were far from enthusiastic, many privately conceded that the $120 billion AOL-Time Warner merger could still win EU approval if it is granted under the right terms. These representatives said AOL-Time Warner’s concessions did not fully address their main worry — the so-called vertical integration of AOL’s powerful on-line services with the vast media conglomerate Time Warner. However, most representatives involved in the discussions could not specify why the concessions fell short. One source familiar with the matter also noted that the AOL-Time Warner commitments concern only online music, while the commission has also identified TV shows and films as relevant markets. The source said it would be necessary for AOL to commit to a non-discriminatory agreement for third-party content providers. Without such a concession, AOL would be in a position to technologically and financially discriminate against competing content providers. None of the companies involved have publicly commented on their concessions. On whole, the companies’ latest concessions, according to sources, closely resemble those submitted a few weeks ago. Time Warner has pledged it would not give preferential terms to AOL-affiliated Internet service providers in the distribution of its online music for five years. AOL would “progressively” abandon its joint venture with German media company Bertelsmann AG and would not force content providers that sign a deal with AOL in the United States to sign up with that venture, dubbed AOL Europe. The only other concession made last week, sources said, was the inclusion of a linked commitment by Warner EMI to make the group’s music compatible with other technologies. To address concerns related to the vertical integration of all the companies involved in the two deals, Warner EMI has also pledged not to withdraw, for five years, catalogued mechanical and performing rights from collecting societies, and to avoid discriminating against non-AOL-affiliated Internet service providers for the distribution of their music online. One way that at least some of the vertical links between AOL and Time Warner would be cut would be if EMI’s $20 billion deal with Warner Music fell through entirely. One Brussels-based competition lawyer, who is not involved in the talks, said, “It was our thinking that the EMI part of the deal was being sacrificed for AOL to go through.” However, market players maintain that not all the hurdles facing AOL would be cleared even if Time Warner dropped the EMI deal. These representatives have also told the commission that there are still too many antitrust problems that Warner EMI concessions left unaddressed. Warner EMI Music, as the combined group would be known, has offered to sell a number of assets, industry sources confirmed — including all European physical distribution facilities, such as CD-production sites and trucking capacity — and to end agreements with other major music companies for distribution and compilation albums. In addition, the companies have pledged to divest record labels in four countries to reduce market share to below 35 percent. The labels that would be sold are PathE Marconi in France, CMC in Denmark, Minos in Greece and Dro in Spain. The companies have also agreed to dispose of publishing assets, including UK music catalogues Virgin Songs and Magnet; Fazer in Sweden; and Nordiska in Norway. Warner EMI Music would terminate sub-publishing contracts under which it licenses songs on behalf of other companies and appoints third-party sub-publishers for their own catalogues in Greece, Portugal, Sweden, Denmark, and Finland. Market players have made a number of arguments against EMI’s concessions to divest companies’ music catalogues. “The divestments seem concrete at first glance, but they are just plain ambiguous,” said one source. “Take for example Virgin Songs. No one knows what songs are a part of that repertoire, not even the people at Virgin.” Warner EMI did not provide the songs included in the catalogues, the contracts binding the songs, or the terms of those contracts, the source said. Even if the companies had listed the artists in the catalogues, it would be difficult to determine which of those artists’ songs were included. Another source pointed out that the companies’ pledge to name third-party sub-publishers for their catalogues would do nothing to distance Warner EMI from their catalogues. “EMI and Warner would be the biggest customers for whatever sub-publishers they appoint. [The sub-publishers] would become marionettes for the companies and basically do whatever they wanted,” the source said. A number of arguments were made against the offers related to record labels. One source said PathE Marconi represented only 3 percent of the market share in France and would do nothing to reduce Warner EMI’s dominance. Another source pointed out that record labels of any significance could only be bought by one of the other big companies, reinforcing fears that the merger would strengthen the oligopolistic structure of the market. “It would be a game of musical chairs,” the source said. Additional objections that market players are submitting in the commission’s market-tests relate to various rights linked to Warner EMI’s music. A number of industry sources claim Warner EMI’s offer regarding collecting societies does nothing to address antitrust concerns about broadcasting rights, synchronization rights, and the rights the companies exercise over composers and songwriters. Perhaps most importantly, they say, Warner EMI’s assurances do not directly address the right to broadcast music on an Internet site, which could fall under a song’s broadcasting or cable programming rights. “I just can’t see how this deal can go through,” was a comment echoed by sources from four of the roughly half-dozen entities participating in the commission’s market testing. In the United States, the Federal Trade Commission is also examining the AOL-Time Warner merger. The issues focus on opening Time Warner’s cable-TV lines to companies that compete with AOL in high-speed online access. Copyright (c)2000 TDD, LLC. All rights reserved.

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