AOL, BMG Music Talks Continue

Executives of AOL Time Warner Inc. and Bertelsmann, who have been discussing a potential merger of their recorded-music units, failed to come to terms in their latest round of bargaining Wednesday, leaving the potentially landmark deal hanging in the balance.

Insiders say the longer the talks drag on, the more doubtful it is that the two sides will strike a deal. The companies have been discussing fusing AOL’s Warner Music Group and Bertelsmann’s BMG into a 50-50 venture. It would rank as the top music company in the United States, with an estimated 32% share of the market, according to Nielsen SoundScan data.

But deal makers can’t agree on the value of the music divisions, sources said. AOL has maintained that Warner Music’s financial performance and catalog make it the more valuable asset and have asked Bertelsmann to kick in a cash payment to cover the difference. The gap between what AOL wants and what Bertelsmann is willing to pay is believed to be about $50 million or less, sources said.

Representatives of the companies declined to comment Wednesday.

AOL’s board, scheduled to meet today, is expected to hear an update on the talks from entertainment division chief Jeff Bewkes, sources said.