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AOL, Warner, EMI fail to calm Euro merger fears

Companies pledge not to stiffle competition for three years. Eh?

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The European Commission remains unsatisfied with attempts by AOL and Time Warner to make their proposed merger more palatable, an industry source has claimed.

Last week, it emerged that the EC's competition watchdog is set to block the merger, according to a leaked preliminary judgement. Following the leak, AOL, Time Warner and EMI - which is hoping to fold its music operation into Time Warner's own - said they would work to calm European fears that the mergers would "create a dominant position in the markets for online music... Internet dial-up access [and] broadband Internet."

However, the source, cited by Reuters, claim that they have failed to allay the Commission's concern that "effective competition" would be "significantly impeded" if the merger was allowed to proceed, as the draft EC report puts it.

According to the source, AOL offered to change its stake in AOL Europe, a joint venture with German media giant Bertelsmann, and to promise not to force content providers signing up with the US operation to sign exclusively to AOL Europe too, for a period of three years after the merger. EMI, meanwhile, pledged not to give preferential treatment to online music providers allied to AOL-Time Warner, for the same period. The promise, you'll note, only covers music, not other, potentially more lucrative content, such as movies.

You can see why the EC isn't happy: essentially the companies are admitting that they do indeed plan to provide EMI and Time Warner content exclusively over AOL's network, or at least make it harder to get that content from other sources. Sure, they won't do this for three years, but it's clear that that's what they intend once that period is passed.

In short, three years down the post-merger line, the AOL-Warner-EMI operation will become potentially as anti-competitive as the EC fears.

The EC's final verdict on the EMI/Warner merger will take place before 18 October, and on the AOL/Time-Warner by 24 October. Commission insiders, however, reckon the organisation's decisions will be revealed by 4 October. ®

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