Jan. 12 (Bloomberg) -- EMI Group Plc, the U.K. record company that signed the Beatles, ousted two top music executives and forecast lower revenue after disappointing holiday sales.

Alain Levy will leave after five years as chief executive officer of the recorded music division. David Munns, the unit's vice chairman, will also step down. Chairman Eric Nicoli will become CEO of EMI, the world's third-largest music company, and take charge of the record unit, EMI said in a statement today.

The company's shares fell to the lowest in five months after EMI said music revenue may drop as much as 10 percent. EMI, which released albums by Robbie Williams and Keith Urban in the fiscal second half, had none of the 10 best-selling albums in the U.S. last year, according to Nielsen SoundScan. EMI sales have fallen as downloads failed to make up for business lost to piracy.

The revenue drop ``is pretty scary,'' said Anthony de Larrinaga, an analyst at SG Securities in London. ``The market was getting wise to the fact that some of the release roster in the second half wasn't performing as well as it would need to.''

Nicoli, 56, joined EMI from snack maker United Biscuits Plc in 1999. Levy, 60, worked for companies including PolyGram before he joined EMI, according to the EMI Web site. Levy, who joined PolyGram in 1984, later became CEO and led the company's expansion into the movie business, the EMI Web site says.

``I am not surprised to see that album sales have fallen year-on-year, but I am surprised that Levy has gone,'' said Patrick Yau, a media analyst at Bridgewell. ``He was credited with turning the business around three years ago.''

Shares Drop

Shares of EMI fell 19.25 pence, or 7.3 percent, to 245.25 pence in London, the lowest level since Aug. 3. The stock has dropped 18 percent since the company ended talks to be acquired by Permira Advisers LLP on Dec. 14. It was the second time in a year that takeover plans collapsed.

``The second-half release schedule has failed to make up for the weak first half of the year,'' said Henk Potts, a fund manager at Barclays Stockbrokers in London. ``EMI was clearly hoping that a takeover would provide them with a `get out of jail free' card.''

The cost of a credit-default swap contract based on 10 million euros ($12.9 million) of EMI's bonds rose 12,000 euros to 174,500 euros, according to Deutsche Bank AG prices. Credit- default swaps are financial instruments based on corporate bonds and loans that are used to speculate on a company's ability to repay debt. An increase indicates a credit quality deterioration.

Cost Cuts

John Gildersleeve, 62, EMI's non-executive deputy chairman and senior non-executive director, is now non-executive chairman, the company said.

EMI said the one-time expense of a cost-cutting program will be as much as 150 million pounds. Most of the savings will come from ``the reduction of front and back-office overhead and an increase in shared services.''

``I expect they will focus on getting the business right, as well as significantly reducing headcount to generate the cost savings,'' said Bridgewell's Yau, who cut his rating on EMI's stock to ``underweight.'' ``In the background I expect private equity might renew its interest.''

Sales Slump

EMI has two divisions: EMI Music, the recorded music unit, and EMI Music Publishing, which manages song copyrights. EMI said today that the publishing unit ``continues to perform in line with expectations.''

EMI reported a first-half loss of 30.6 million pounds in November, saying sales fell 6.1 percent because this year's release schedule is weighted to the second half more than usual. Releases for the second half include an album by Norah Jones, slated for later this month.

Downloads accounted for 8.5 percent of EMI's revenue in the fiscal first half, up from 5.4 percent in the previous year. That wasn't enough to make up for losses to piracy.

Sales in the industry fell 4 percent in the first half as a 10 percent drop in physical sales outweighed gains in downloads, the International Federation of the Phonographic Industry said in October.

Slumping sales have led Nicoli to several attempts to combine with Warner Music Group Corp., the world's fourth-largest music company, as a way to reduce costs.

In July, EMI and Warner abandoned $4.6 billion bids for each other after a European Union ruling damped prospects for regulatory approval.

Sinatra, Beatles

EMI traces its roots to the earliest days of recorded music, and became known as Electric and Musical Industries in 1931.

During the 1950s EMI released Elvis Presley's first records outside the U.S. and bought Capitol Records, gaining Frank Sinatra, Nat ``King'' Cole and Peggy Lee.

In 1962 the head of EMI's Parlophone label, George Martin, signed the Beatles. While the band dissolved in 1970, its albums remain lucrative for EMI. Last year the company released an album of Beatles songs remixed by Martin and his son Giles. The ``Love'' album currently ranks ninth on the Billboard 200 list.

EMI's music publishing business expanded through acquisitions including the 1997 purchase of a 50 percent stake in Berry Gordy's Motown catalog.

To contact the reporter on this story: Aisha Phoenix in London at aphoenix@bloomberg.net.

Last Updated: January 12, 2007 13:15 EST