Music Merger Talks May Resume

Bertelsmann and AOL Time Warner Inc. could return to the bargaining table as early as next week to push toward a potential merger of their recorded-music operations, sources said Thursday.

Senior executives at the two conglomerates are holding internal strategy sessions in anticipation of renewed negotiations, sources at both companies said. Talks to assemble a joint venture chilled earlier this month after Bertelsmann executives said the German media giant wouldn’t pursue a purchase of AOL’s book-publishing unit.

AOL Time Warner Chairman Dick Parsons, who has been described as “furious” over the book deal’s collapse, decided to continue with the music talks after overtures from Bertelsmann Chief Gunter Thielen, according to people close to the discussions. Jeffrey Bewkes, who heads AOL’s entertainment group, and Warner Music Group Chairman Roger Ames also pushed to keep pursuing a deal, the sources said.

Both sides have reason to resume talks: the industry’s underlying problems -- bloated costs and surging piracy -- remain. Although Warner and Bertelsmann’s Bertelsmann Music Group have enjoyed hot streaks on the pop chart in the last several weeks, U.S. album sales continue to sink after an unprecedented 11% decline last year.

The talks have focused on a deal that would give each parent company a stake in the joint operation.

Sources say consolidating Warner’s three major labels with Bertelsmann’s three labels would lead to cost cuts totaling hundreds of millions of dollars. A merger also would create a giant with an estimated one-third share of U.S. album sales, rivaling the industry leader, Vivendi’s Universal Music Group.

Still, crucial obstacles remain, including issues related to each company’s valuation and the management structure of the combined entity. Any deal would have to be approved by antitrust regulators, who in the last three years have frowned on two separate music-label mergers that would have reduced the number of global competitors from five to four. For AOL, the talks come as the company is under pressure to reduce its $20-billion-plus debt load. Apart from the talks with Bertelsmann, AOL is seeking to sell its CD and DVD manufacturing unit for about $1 billion.