UPDATE 2-Vivendi offers big divestitures in BMG deal-source

(Adds comments by EU Commission, independent publishers)

By David Lawsky

BRUSSELS, March 15 (Reuters) - Vivendi's Universal Music (VIV.PA) has offered major sell-offs to win Brussels' approval for its purchase of BMG Music Publishing, creating the world's largest music publisher, a source familiar with the case said.

Hit songs by Britney Spears, 'N Sync and the Backsteet Boys would be included in the divestiture of the Zomba Music Group catalogue, now owned by BMG Music Publishing, a unit of Bertelsmann [BERT.UL], the source said on Thursday.

The European Commission, which regulates competition in the 27-nation European Union, will soon send questionnaires to gauge rivals' and customers' views on Vivendi's proposed sale of several major catalogues under the 1.63 billion euro ($2.15 billion) cash deal, the source said.

The source said this market testing might help Vivendi avoid a Statement of Objections, a formal charge sheet from the Commission listing problems which complicate approval of a deal. But negative results might push the Commission toward a Statement of Objections.

EU regulators have a June 1 deadline to take a decision. A Commission spokesman had no comment.

Publishers have been increasingly coveted because they are shielded from some of the piracy issues that have rattled the music industry in the Internet age of file-sharing.

In addition to generating revenue when CDs or downloads are sold, publishers make money by licensing songs to be performed live and for use in films and television.

OPPOSITION

The deal has been opposed until now by Impala, a group that represents 2,500 independent labels and publishers, which contends the takeover would consolidate power into few hands and thus impede competition.

An Impala official said that she needed to see what else was being proposed but divestitures would not be enough.

"We expect to be fully consulted" by the European Commission, said Helen Smith. "We would expect to see a full package of remedies, including measures to help build up the independent sector."

She said one necessary element is a long-term commitment by Universal to the national groups which gather royalties -- called collecting societies. The societies would have trouble continuing if they served only small publishers, she said.

"The collecting societies act as an equalizer in the marketplace," said Smith.

It was Impala's challenge of the Commission's approval of a merger that created Sony BMG, a recorded music joint venture between Sony Music (6758.T) and BMG, that led the EU's Court of First Instance to annul that deal.

The Commission is now doing an in-depth review of that case after the companies resubmitted an application for clearance.

At the same time, Impala has reached an agreement with Warner Music Group (WMG.N), endorsing its proposed purchase of Britain's EMI Group Plc EMI.L.

But early this month EMI rejected a cash takeover proposal from Warner, saying the price was too low.