EMI shares slide after dismal sales cost music boss his job

Eric Nicoli, the chairman of EMI, ousted the head of its recorded music division yesterday after a dismal Christmas sales performance at the world's third largest music company.

The music giant was banking on key titles from the likes of Robbie Williams and The Beatles to ramp up sales over the crucial Christmas period. Yet its artists failed to light up the charts and it was a reformed Take That - the band that Williams left to pursue his solo career - that stole the top spot.

The management shake-up and a profit warning come on the heels of a wretched year for EMI during which talks over the long-anticipated merger with Warner Music broke down and separate talks to sell the company to a private equity company collapsed. Amid concerns over the company's release schedule and declining sales of CDs due to the growth of digital music, EMI also unveiled a charge of £11m related to fraud at its Brazilian operation.

Alain Levy, the industry veteran who headed EMI's recorded music operations, has paid the price for lacklustre sales over the festive season as well as the company's lack of progress in the US market over the past five years. He is set to leave the company with a pay-off of up to £7m when factoring in stock options. David Munns, vice chairman of the music division, has also been shown the door.

Mr Nicoli will take control of EMI's recorded music operations as the company looks to strip £110m of cost out of its operations. The cost-cutting plan will result in significant job cuts and cost the company around £150m. The vast majority of the cuts will be made in its recorded music division as opposed to the company's more solid publishing operation.

Mr Nicoli's decision to take over the responsibility of running the music division raised eyebrows across the industry. While Mr Levy and Mr Munns have enjoyed long careers in the sector, Mr Nicoli joined EMI only in 1999 after spending 20 years with United Biscuits where he is credited with inventing the Yorkie bar.

On the back of the profit warning, EMI shares shed more than 7 per cent to 246p, well below the 320p that Warner Music offered to buy the company last summer.

It is the second time Mr Nicoli has axed the head of the company's music division since he joined EMI. Ken Berry, Mr Levy's predecessor, left EMI in 2001 with a £6m pay-off after the disastrous signing of Mariah Carey who had been signed up to a contract worth nearly £60m.

Mr Levy was parachuted in to replace Mr Berry in 2001 after turning Polygram into the world's largest music label through the acquisition of rivals such as Motown and the rap label Def Jam. He joined EMI after the sale of Polygram to Seagram and his first item of business was to pay Mariah Carey £20m to leave the label after one disappointing album.

Ironically Mr Levy has also paid for the failure of Robbie Williams' latest album. Mr Levy engineered the UK's largest record deal, worth £80m, to keep the artist on EMI. Yet the latest album from Robbie Williams has flopped. The retailer Woolworths singled out the record's disappointing sales after warning on profits before Christmas.

The scale of the challenge facing Mr Nicoli has been highlighted by diving sales at the British music giant. EMI said revenue at its recorded music division would be up to 10 per cent lower than the £1.7bn it recorded last year.

EMI previously said its results for the year would be weighted toward the second half on the back of a slew of high-profile releases. Music companies derive 40 per cent of annual sales over the Christmas period. Analysts calculated that EMI would need to notch up three "blockbuster" albums that sold more than 3 million units during the period to hit forecasts. Patrick Yau, an analyst at Bridgewell Securities, said only one release - the much hyped The Beatles remix album Love - made the global top 20 list in 2006 with "disappointing" sales of 2.9 million. In 2005 EMI had three records in the top 20 including the second biggest selling album of the year - Coldplay's X&Y - that racked up 7.8 million sales across the world.

In the UK only one EMI release - The Kooks' debut album - sold more than 1 million units. The new Robbie Williams album Rudebox sold a disappointing 890,000 copies in 2006 according to Music Week making it only the fourteenth biggest release of the year.

Despite declining sales on the UK high street, the total number of album sales fell only 1.4 per cent to 124 million in 2006 according to Music Week. EMI's rivals - notably Universal Music, which released the three biggest selling albums of the year in the UK - have fared better than the British company.

Nicoli's unimpressive record

* Ken Berry, the former head of EMI's recorded music division who signed Mariah Carey in a deal worth almost £60m. After one disappointing album Mr Berry and Ms Carey walked away with handsome pay-offs.

* EU regulators, who threatened to block a proposed £15bn merger between EMI and Warner Music in 2000.

* The Napster founder, Shawn Fanning. The file-sharing service allowed internet users to illegally swap music for free, which triggered a steady decline in recorded music sales.

* Edgar Bronfman Jr, who bought Warner Music from AOL Time Warner in 2004, beating EMI. Hesparred again with Mr Nicoli last year as Warner and EMI traded bids before talks over the merger were abandoned.

* Impala, the independent music organisation that lodged a complaint with the European Court of First Instance over the merger of Sony and BMG. The complaint was upheld.

* Managers at EMI's Brazilian unit, who were found to have been overstating revenue and profit figures in October.

* Martin Bandier, who left as head of the publishing business in October amid talk he was to join Warner.

* Alain Levy, parachuted in to replace Mr Berry in 2001. EMI has made little progress in the US since his appointment, and disappointing record sales have led to his exit.