AOL Time Warner and Bertelsmann, two of the world's largest media groups, are poised to resume talks over the proposed merger of their recorded music divisions.

Negotiations over the joint venture were interrupted last week when Bertelsmann of Germany told AOL Time Warner that it was unable to proceed with a separate $300m-$350m offer for the US group's consumer books operation.

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AOL Time Warner abruptly cancelled meetings over the music deal, frustrated at Bertelsmann's alleged about-face on acquiring the books business.

Senior executives, however, hope to get the music talks back on track following talks between Gunter Thielen, Bertelsmann chairman, and Jeff Bewkes, head of the US group's content businesses.

Dick Parsons, chairman and chief executive of AOL Time Warner, is thought to have sanctioned renewed talks - under certain conditions.

AOL Time Warner was said to be seeking assurances from Bertelsmann in areas such as due diligence, regulatory strategy and transaction timetable.

"It could be back on track before the end of the week. Due diligence is continuing," according to one insider. Negotiations have been complicated by both companies' reluctance to cede control of their recorded music subsidiaries, prompting talks on a 50-50 joint venture between Bertelsmann's BMG subsidiary and Warner Music.

Any agreement, excluding their respective publishing operations, would deliver several hundred million dollars of cost-savings.

Rival music groups, including Britain's EMI Group, were said to be monitoring the talks closely and could intervene with a counter-offer if they collapse.

AOL Time Warner, meanwhile, is pushing ahead with the separate sale of its CD and DVD manufacturing operations.

Cinram International, the Canadian CD and tape manufacturer, is thought to be in pole position to acquire AOL Time Warner's seven factories in a deal worth about $1bn.

The company has hired investment bank Merrill Lynch to pursue the transaction.

Pending that disposal, AOL Time Warner may also invite bids for its Warner Chappell music publishing arm.

Officials, however, warned that a deal on recorded music was far from certain.

The sides are also struggling to agree on relative valuations for the recorded music divisions.

Bertelsmann and AOL Time Warner are both struggling with demanding targets for debt reduction. Any merger is unlikely to involve significant cash payments on either side.

In spite of the tensions over the combination, the two companies already have a successful joint venture in Bookspan, a combination of their respective book club subsidiaries, created three years ago.