The Time Warner and EMI music groups have scrapped their plans for a merger that would have reduced the number of major record labels from five to four, according to a joint statement released by both parties on Thursday (10/5). The merger faced opposition by European regulators, and possibly threatened Time Warner’s pending merger with America Online.

The groups are not abandoning their plans for a merger altogether, however, according to the statement.

"We continue to believe that a joint venture with Warner Music Group can create substantial value for our shareholders and benefit our artists, consumers and employees by bringing together two companies with complementary strengths,” said EMI Group Chairman Eric Nicoli.

The two groups “have agreed to continue discussions with each other, the Commission and other regulators in order to attempt to achieve a combination which is acceptable to all parties,” the statement went on to say.

The merger, which was first proposed in January, would have brought Warner Music Group imprints such as Warner Bros., Atlantic and Elektra together with EMI entities like Virgin, Capitol and Grand Royal. The union would have placed Warner acts such as Madonna, Van Halen, Tim McGraw, Seal, Phil Collins, Cher, Eric Clapton, Kid Rock and Stone Temple Pilots under the same umbrella as EMI artists such as Beastie Boys, Snoop Dogg, David Bowie, Yanni, Lenny Kravitz and the Spice Girls.

The combination also would have left the groups sharing lucrative back-catalogs, such as Warner’s Led Zeppelin catalog and EMI’s Beach Boys catalog.

Analysts have been widely reported as saying that Time Warner’s decision to pull the plug on the EMI deal greatly improves the likelihood that its pending merger with AOL will gain the necessary governmental approval to move forward.

AOL’s stock price closed up $2.58 to $61.50 per share--an increase of nearly five percent--while Time Warner shares rose $5.24 to $91.24--an increase of about six percent--in the wake of Thursday’s announcement. Shares of EMI, meanwhile--which trade on the European market in British pounds--fell 5.6 percent, according to a Bloomberg report out of Brussels.