The EC has apparently drafted a preliminary rejection of the AOL-TW deal citing concerns over vertical integration in on-line music distribution. The companies now have until Sunday to meet with EC officials and make concessions or amendments.
In a statement the EC said: "a negative recommendation is a normal part of the process." It added: "We are confident that the talks will conclude successfully." Sources close to the deal said that they do not expect AOL to make major concessions at this stage, but that they anticipate tweaking of existing offers.
Executives from EMI and Time Warner yesterday held an hour long meeting with the EC and, in a last ditch attempt to save that merger, delivered another set of concessions. No details of the latest concessions were disclosed either by the companies or the EC.
"The meeting took place this morning. The merging parties made proposals which they have yet to formalise," said Amelia Torres, spokesman for Mario Monti, the European Commissioner responsible for competition issues.
Officially, the companies involved in the $20bn TW-EMI merger have until midnight today to offer concessions and thrash out a deal. The EC will then deliberate and deliver its verdict at the latest by Oct 18.
The plight of the deal has looked increasingly bleak in recent days. A draft decision blocking the deal was in circulation last week, with the EC again concerned that the merger would dominate the nascent market for on-line music, especially through its link with the enlarged AOL-TW. It also fears maintenance of high prices for off-line music sales. The draft is understood to conclude: "It is highly likely the oligopolists will co-ordinate prices. Records are price insensitive products and therefore there would be very little incentive to compete on price."
On Friday Monti was forced to say that he had not yet decided what he would recommend to his fellow Commissioners. But in recent days he has repeatedly warned about the need to protect developing markets from being dominated by those companies first into the sector. And what he decides will have enormous impact on the future shape of the entertainment industries.
There is now wide speculation that AOL and Time Warner would be prepared to scrap the EMI takeover in order to save their own much larger merger. But the outcome is also expected to have wider implications, most notably on the three way deal between Canal Plus, Vivendi and Seagram.
In exceptional circumstances the horse-trading can go on beyond the deadline. And it looks like this is possible in the linked AOL and EMI cases. "We need to examine these proposals and they need to be formalised by the parties. We will be studying those, we will be testing them on the market,'' said Torres. This suggests that competitors will be consulted on whether the concessions are enough to allay any threat to competition.
EMI has informally offered to allow collecting societies - clearing houses - to license on-line music sales for at least five years. It has also said that it will not restrict technology used to play music on-line and has promised an arm's length relationship with AOL, arguing that it would not be in its own interest to distribute on-line exclusively through AOL. The EC remains concerned about concentration in music publishing. And music rights for films has been another worry. Disney has claimed that EMI is already charging it 10% over the odds for film rights.