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The European Commission said Wednesday it has given its conditional approval to the merger of America Online with Time Warner, after a four-month in-depth probe into the deal. The commission approved the deal after AOL agreed to sever all structural links with German media group Bertelsmann AG. “The proposed undertakings will prevent AOL from having access to Europe’s leading source of music publishing rights, thereby eliminating the risk of dominance in the emerging market for online delivery of music over the Internet and software-based music players,” the European Commission said in a statement. Despite heavy lobbying by Walt Disney, the commission said that the merger does not raise concerns with respect to the European Internet broadband access market. The commission’s concerns focused solely on the music industry. “In a music market already characterized by a high degree of consolidation, the danger, which has been averted, was that by allowing AOL to team up effectively with three of the five music majors, the resulting company could have dominated the online music distribution market and the market for music players,” said European Commissioner for Competition Mario Monti. He explained that AOL would have had links with Bertelsmann’s music unit BMG, as well as with Warner Music and EMI. The other two majors to which he referred are Universal and Sony Music. The commission said AOL and Bertelsmann had put in place a mechanism by which Bertelsmann would progressively exit from AOL Europe, in which it holds a 50 percent stake. Bertelsmann will also pull out of AOL Compuserve France, its joint venture with AOL and Vivendi subsidiaries C�g�tel and Canal+. Without that break from Bertelsmann, AOL Time Warner would have controlled the leading source of music publishing in Europe, because Bertelsmann and Time Warner together hold approximately one-third of the European market in music publishing, the commission said. “Against this background, nothing would have prevented AOL from dominating the emerging market for Internet music delivery online, which includes both digital downloads and streaming,” the commission said, adding, “AOL Time Warner would have become the gatekeeper to this nascent market.” Industry observers underlined the importance of getting such controls right the first time. “You could possibly look at AOL as the potential Microsoft of that industry, now it’s beginning to merge with partners like this . . . the people with the infrastructure are looking for high-profile content providers,” said analyst Nicky Walton of International Data Corp. in London. Once European regulators clear such a deal, they are unlikely to exert much control over the companies’ future behavior, Walton said. “Once it’s through I think there will be occasional little upsets where the regulators have to reprimand them on this or that,” she said, but added that on the whole the new entity will be left to market forces. “It’s a bit like the Microsoft-Netscape browser court case: It’s all well and good they’re being fined, but Microsoft has still got the market.” With additional reporting by Rick Perera in Berlin. Paul Meller and Rick Perera write for the IDG News Service. Related Articles from The Industry Standard: Is Time Warner Afraid of Mice? Time Warner-EMI: Let’s Call the Whole Thing Off AOL/Time Warner � What’s at Stake Copyright � 2000 The Industry Standard

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