The European Commission, which has been examining the proposed takeover of EMI since February, has warned Universal that its plan to buy EMI's recorded music business will significantly impede competition, and may veto the planned takeover unless there are major concessions.

Putting Parlophone with new artists on the table is a much bigger concession than previously mooted asset sales. New York-based Universal is trying to work out an asset sale plan with regulators and is racing to beat an August 1 final deadline.

One of the sources told Reuters that Universal, owned by Vivendi, is considering selling most of Parlophone, home to some of EMI's most high-profile musicians, but would retain its most-prized acts, including legendary band the Beatles.

BMG, the music publishing joint venture between German media giant Bertelsmann and the private equity group KKR, has met Universal and expressed interest in Parlophone, said one of the sources, who declined to be identified because the discussions are confidential.

But a third source said Universal had not offered to sell Parlophone to BMG.

"BMG is one of many buyers interested in picking up any assets that come out from Universal but Parlophone in its entirety is not part of the package for sale at the moment," the source said.

BMG declined to comment. News of the Parlophone talks was first reported in the Financial Times.

The second source said Universal could present its final package of concessions to the Commission as early as Friday, ahead of the August 1 deadline.

This would then automatically trigger a 15 working day extension to the Commission's September 6 deadline for a decision on the deal.

Universal had been planning to sell three much smaller music labels belonging to EMI -- Virgin, Chrysalis and EMI Classics -- and is now offering Parlophone to help address EU reservations about the group's clout in the CD and digital music markets, said the source.

But Parlophone is one of EMI's most prized assets, with current stars like Coldplay and marquee acts like Queen calling the label home.

That Universal is considering selling Parlophone to satisfy regulators would raise new questions about the dangers of a deal that has run into firmer-than-expected regulatory resistance. It comes even as Universal's parent Vivendi is considering whether to sell off media assets that could include the music giant.

Regulators want to reduce a combined Universal-EMI market share to below 40 percent in several European countries and reduce its market power, two people familiar with the matter said on Wednesday. Market share is being estimated in terms of sales and distribution assets as well as licensing deals, one of the people said.

A combined Universal-EMI would include a vast library of current top-selling and legendary marquee artists including Jay-Z, Kanye West, U2, Katy Perry and Pink Floyd.

(Additional reporting by Stephen Mangan; editing by James Jukwey)

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