In the course of its investigation the Commission will examine the effects of the transaction on the emerging business of music distribution over the internet and on the markets for internet dial-up access and paid-for content.
In a statement, the Commission said:
“The main competition issue raised by the merger is the vertical integration of Time Warner content with AOL on-line services. This matter is complicated by the fact that AOL has recently entered into a joint promotion, distribution and sales agreement with Bertelsmann, the German music recording, publishing and broadcasting group. This agreement brings about a considerable integration of the two companies' commercial activities. Therefore, as a result of the merger with Time Warner, AOL will have preferential access to the leading source of music publishing rights and music repertoire in most Member States. It cannot be excluded that, because of the strength of the music catalogue to which AOL will have access, it will be able to dictate the technical standards for delivering music over the Internet and monopolise the music player software. This strategy could enable AOL to play the role of the 'gate-keeper' in the emerging on-line music distribution channel.”
As regards the internet, the Commission found that AOL, which with a market share of almost 40% is the leading internet company in the USA, is the only internet company with a presence in most European Member States. During its investigation the Commission will thus examine whether AOL could leverage its strong position in America and its proprietary content and services to achieve dominance in Europe, in particular, in a number of neighbouring internet paid-for content markets, such as films, TV programmes and financial news.
In order to ease the competition problems identified by the Commission, AOL offered commitments aimed at severing a structural link with Bertelsmann stemming from the European joint venture, but they were insufficient to ease the competition concerns raised by the transaction.
The Commission now has four months to investigate the facts and to adopt a final decision whether or not to allow the proposed transaction to proceed.
The Commission is also carrying out a full investigation into the merger between Time Warner and the UK's EMI Group Plc in the music sector.