Warner, BMG in Music Talks

Bertelsmann and AOL Time Warner Inc. are discussing a possible merger of their recorded-music divisions, though sources on both sides cautioned that such a deal would be riddled with potential pitfalls and may not come to pass.

The potential deal is the latest scenario to be floated in the $30-billion global music business, which is suffering from surging piracy and plummeting sales. Proponents say the cost savings that could come from consolidation could hold the major labels’ only key to survival.

The talks involve a plan in which each giant would put its record labels in a jointly owned venture, say people familiar with the discussions. Those sources, however, suggest that any Bertelsmann-Warner deal is far off.

Sources said several major stumbling blocks remain. One issue: how to construct a 50-50 joint venture from two companies that aren’t the same size. Warner Music Group, home to acts such as Metallica and Lil’ Kim, is the larger company and owns one of the world’s biggest music publishing operations.

A Warner Music spokeswoman declined to comment. A BMG spokesman said the company doesn’t comment on “market speculation.”

Regulatory objections also could pose a problem.

European Commission officials scotched plans for a merger of the music operations of Bertelsmann and EMI Group about two years ago. A year earlier, regulators rejected a planned deal between AOL Time Warner’s music unit and EMI.