BRITAIN EMI
Kirsty Wigglesworth  /  AP
A Beatles poster shown outside the EMI office in London, Friday Jan. 12, 2007. EMI Group PLC said Friday that two top music executives are leaving the company and at the same time issued a profit warning after lower-than-expected sales over the Christmas period. (AP Photo/Kirsty Wigglesworth)
updated 1/12/2007 9:55:41 AM ET 2007-01-12T14:55:41

Music company EMI on Friday announced the departure of two top executives and said it expects revenue to fall at its music division after disappointing Christmas sales. Its shares dropped more than 7 percent.

EMI Music Chief Executive Alain Levy and Vice Chairman David Munns will leave the world's third-largest music company with immediate effect, EMI said.

EMI Group PLC, home to artists such as Coldplay and Robbie Williams, said in October that it expected the bulk of its full-year sales to be generated in the second half of the financial year ending March 30.

However, on Friday, the company downgraded its full-year revenue forecast significantly, saying it expects a 6 percent to 10 percent drop in EMI Music revenues.

In the Christmas trading period, EMI had been counting on strong performance by two key products _ "Love," an album of remixed material from The Beatles, and Robbie Williams' latest album "Rudebox," according to analysts.

"Love" performed respectably, reaching No. 5 on the Billboard chart in the United States at the end of December, but "Rudebox" didn't show in the Top 40 in the latest British chart.

Bridgewell Securities said the latest report confirmed fears that EMI relied too heavily on "blockbuster" album sales.

Shares in EMI fell 7.4 percent to 2.45 pounds ($4.75) on the London Stock Exchange, having fallen as much as 10 percent in early trading.

The disappointing performance of the Christmas offerings was highlighted on Thursday by music retailer HMV Group, which reported that holiday sales were down 0.8 percent on a like-for-like basis. The fact that HMV nonetheless increased its market share points to the rapid shrinking of the traditional recorded music business in the face of digital downloading services.

IFPI, the global association of the recorded music industry, reported that digital music sales doubled in the first half of 2006 to $945 million, and accounted for 11 percent of world music sales. In the United States, digital grabbed 18 percent of the market; in South Korea, it accounted for 51 percent.

Simon Wallis, an analyst at Collins Stewart in London, said EMI's music publishing arm remains strong and cautioned investors that market share in the industry has always been volatile.

"One year's poor result does not mean that EMI Recorded Music is rotten and worthless," Wallis said. "It is more a poor reflection on management's ability to set an appropriate cost base for their business and manage their release schedule. It also points to lousy shareholder communications."

EMI said it will introduce further cost-cutting measures aimed at generating annual savings of 110 million pounds ($213 million). The company sees more than half of the savings coming through in the financial year to March 2008, with the full amount realized in the year ending March 2009.

The restructuring will entail a one-time expense of no more than 150 million pounds ($291 million), EMI said.

Levy was recruited by EMI five years ago to turn around the fortunes of the ailing music company after the departure of Ken Berry. Levy's role will now be filled by Eric Nicoli, who joined the company as chairman in 1999.

Under Nicoli's tenure, EMI has made several unsuccessful attempts to merge with industry partners.

EMI earlier this year said it was abandoning merger talks with Warner Music Group Corp., due to an unfavorable ruling from the European Court Of First Instance on another music industry merger. It was the third failed courtship between the two music giants since 2000.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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