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EMI is in talks to buy music unit of AOL Time Warner

EMI Group Plc said it is talks to buy AOL Time Warner Inc's music unit, a transaction that would to create the world's second-largest record company.

The discussions are at "a very preliminary stage," EMI said in a statement.

However, Bertelsmann AG, owner of the smallest of the five main music companies, has also said it is talking with Time Warner about merging their music units.

"EMI will be able to extract benefits from the deal -- we are supportive of them trying to buy Warner music," said Robert Talbut, who helps oversee the equivalent of US$98 billion at Isis Asset Management, including EMI shares.

"The only issue is going to be the regulatory one," Talbut said.

EMI, currently the third-biggest record company, tried to buy Warner Music in 2000 and Bertelsmann's BMG in 2001.

Both previous efforts collapsed in the face of European regulatory hurdles.

Sales in the global music market fell to US$32 billion last year, the lowest in more than a decade, hurt by slower consumer spending and by piracy.

Completing such a merger may become easier after a European court last year overturned three of the European Commission's vetoes on takeovers, some analysts have said.

Those vetos included Schneider Electric SA's purchase of rival Legrand SA.

With a combined market share of 23.9 percent last year, EMI, home of the Rolling Stones, and Warner Music would trail Vivendi Universal SA's record unit.

The global music market fell for a third year last year, slumping by 7 percent, according to the International Federation of the Phonographic Industry.

Consumers are now spending more on products such as video games rather than CDs and illegal copying of music on Web-based services such as Kazaa has increased.

Efforts by record companies to sell music online haven't paid off so far.
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