Merger heralds music revolution

TWO of the world's biggest record companies are on the verge of an historic merger, breaking the logjam that has frustrated four years of attempts to reshape the global music industry.

Bertelsmann and AOL Time Warner have agreed terms on a deal in which their music businesses - BMG and Warner - would join forces. The companies hope to make an announcement by the end of the month, as long as it is not vetoed by European competition watchdogs.

Neither company would comment this weekend, but according to highly placed insiders, disagreements between the groups that last month brought talks to the verge of breakdown, have been resolved.

A tie-up would cut the number of global music giants from five to four and add to the pressure on Britain's EMI, which has failed to find a partner.

In 2000, EMI tried to merge with Warner, home to Madonna and the Red Hot Chilli Peppers. Later that year it held prolonged talks with BMG, whose artists include Dido and Avril Lavigne.

EMI, whose acts include Norah Jones, Radiohead and Coldplay, has a far larger share of the European market than Warner. So competition authorities in Brussels are expected to be happier about a BMG-Warner tie-up than about the BMG-EMI proposal, which finally foundered in May 2001.

One industry insider said: 'A BMG-Warner deal would leave EMI looking very isolated.' The British company ranks number three in music's Big Five, behind Sony and industry giant Universal, part of Vivendi. A BMGWarner deal would leave EMI fourth of four.

Six weeks ago, EMI revealed that in the year to March its music sales fell by 12.6% - far higher than the industry average.

Bertelsmann and AOL Time Warner's talks are covered by an 'exclusivity agreement' - prohibiting both from talking to other potential partners. That expires at the end of the month. But insiders say that if the deal is approved by the EU competition authorities, they could announce a deal within a fortnight.