EMI’s $20 billion merger with Time Warner looks doomed to failure, following a draft decison by the European Commission to block it. The draft will be circulated to EU member governments this evening.

The EU’s competition regulator is concerned that the merged companies could monopolise the market for downloading music from the web. It’s draft concluded: “It is highly likely the oligopolists will co-ordinate prices. Records are price-insensitive products and therefore there would be very little incentive to compete on price.”

There were also fears that the merged company could license the sale of its music direct to buyers, charging discriminatory tariffs and bypassing the collecting societies which act as clearing houses for selling music rights.

EMI yesterday downplayed the negative draft decision as normal procedure, and its executives will meet Mario Monti, EU competition commissioner, on Monday.

Meantime, EMI shares closed 10% up, energised by speculation about rival bidders such as Bertelsmann and Telefonica.

News source: Financial Times