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While talk at the highest level within the companies remains hopeful, inside the two music giants there is chatter that the deal is a no-go.
BMG & EMI: WILL EC APPROVE?
Proposed Merger Could Be Threatened By EU Price-Fixing Investigation
As the European Union continues to make its large presence felt in the music world, insiders claim that merger talks between BMG and EMI have stalled after encourntering serious problems with the European Commission. Some sources now place the chance of a deal at 50-50.

Last week, the EU said it would launch an investigation into alleged CD price-fixing at the major label level, following a similar inquiry by U.S. counterparts the Federal Trade Commission. The FTC was sure to let its peers in Europe know about the record companies' alleged practices when the EMI-Warner Music Group merger was up for European regulatory review. Many believe the EU's interest in the matter is a prelude to putting the kibosh on any BMG-EMI pairing that would reduce the number of major music companies from five to four.

The EU's latest shot comes just days before the exclusivity period of the WMG-EMI talks expires, and when Bertelsmann, parent to BMG, is expected to make its merger plans with EMI public.

Highly placed sources said that while Bertelsmann-EMI talks are on track and are continuing, the two companies will surely miss their late-January target date due, in part to, regulatory concerns, and a deal may not be forged.

For a deal to fly, it is thought that the two companies would have to divest from some of its label operations, with Virgin and Zomba/Jive being floated as possible casualties, as well as get out of the distribution and manufacturing games. If this sounds familiar, it should. Time Warner faced the same concerns when it was trying to merge its music operations with EMI last year. According to reports, EMI has stated it will not give up Virgin as any condition of a proposed deal. 

While talk at the highest level within the companies remains hopeful, inside the two music giants there is chatter that the deal is a no-go, as both parties believe hesitancy to make the moves necessary for the deal's approval will likely kill it.

Bertelsmann, however, still believes it has a 50% chance of a pact with EMI as no deadline has been set for the conclusion of merger talks.

Meanwhile, both companies are moving forward with their individual businesses. BMG, under new CEO Rolf Schmidt-Holtz, has realigned its executive operations, while EMI, under chieftain Ken Berry, will begin making moves at the label level, which includes the naming of producer Andy Slater as the head of Capitol Records.

In addition, Bertelsmann plans to launch its commercial Napster model as soon as June. Bertelsmann CEO Thomas Middelhoff said the service will incorporate a digital rights management system and could eventually support trading of films and other entertainment.

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