Music Giant EMI Sacks Record Chief

In a stunning management shake-up, British music giant EMI Group ousted record chief Ken Berry on Sunday and replaced him with industry veteran Alain Levy, company sources said.

The sudden move follows a string of profit warnings and financial setbacks at the world’s third-largest music company, including a disastrous sales debut from pop icon Mariah Carey, who suffered a nervous breakdown months after signing an $80-million-plus contract this year. The London-based company also is home to such acts as Radiohead, the Beatles and Sparklehorse.

Levy was recruited for the job about a week ago by EMI Chairman Eric Nicoli and is expected to report for work this morning, according to three sources close to the negotiations. Berry, who has more than a year left on his contract, was not notified of the change until Sunday, company sources said.

Nicoli, Berry and Levy were unavailable for comment.

Levy, who previously transformed PolyGram into the world’s leading record corporation, has been given a mandate to restructure the management team at EMI, which ranks last in U.S. sales among the five major music companies. He takes over two weeks after the flagging British music corporation announced that profit would plunge 20%, a warning that sent EMI stock tumbling to its lowest point in a decade.

Since the early 1990s, the U.S. arms of EMI’s top divisions, Virgin and Capitol Records, have been plagued by management strife, which has damaged EMI’s market share as well as its reputation in the creative community. Once hailed in music circles as the company that brought the world the Beatles and Nat King Cole, employees now joke that EMI stands for “Every Mistake Imaginable.”

Berry, like his predecessors, has failed to rejuvenate the U.S. division since taking over as global chief five years ago. Last week, EMI fired five dozen employees in Hollywood and folded Priority Records division into Capitol, three years after Berry authorized a $100-million payment for the once-booming rap label.

Other deals consummated by Berry have not panned out as planned either, including Carey’s extravagant, four-album contract, which EMI outbid competitors to land. Despite a lavish marketing and promotional campaign for Carey’s new “Glitter” CD, the album has sold fewer than 400,000 copies since its Sept. 11 debut. It’s the worst showing in the superstar’s career, albeit not helped by the release’s coinciding with the terrorist attacks.

Berry’s executive choices for EMI’s U.S. division also have proved disappointing. During his tenure, Berry installed the managers running the Virgin and Capitol divisions, as well as the head of the company’s U.S. sector. In addition, he has come under fire for allegations of nepotism involving the ascent of his former wife, Nancy Berry, who runs Virgin’s worldwide record division.

Earlier this year, EMI released a Canadian rock act named Custom from Virgin after a run-in between Nancy Berry and a member of the band. Sources said the band’s lead singer consulted an attorney about filing a harassment claim against Virgin after allegedly receiving a series of threatening voicemail messages from Nancy Berry.

The company agreed to craft an unusual exit arrangement for Custom, allowing the band to put its finished album up for sale on the free market. The move cost EMI about $750,000 in funds it spent to create the recording. It could cost even more should Custom score a hit after its album is released on a competing label in January.

Adding to Ken Berry’s problems was the fact that EMI had been the subject of takeover talks for more than a decade. The company was jilted twice in recent merger talks with competitors AOL Time Warner and Bertelsmann.

Levy’s sudden hiring comes during an industrywide downturn in global music sales. And though EMI is at the bottom of the U.S. market, the company continues to perform strongly in other territories and still maintains the best music publishing in the business.

Levy, a former record producer who joined PolyGram as head of its French music operation in 1984 and took over as chief of the global group in 1991, was credited with transforming the once-quiet classical music company into a major competitor in the pop arena. He persuaded PolyGram to invest more than $1 billion during the 1990s to acquire a handful of prominent U.S. labels, including A&M;, Island, Motown and Def Jam.

The 54-year-old French executive also pushed PolyGram into the movie business, investing another $1 billion in production companies and a distribution network. On Levy’s watch, the value of PolyGram’s stock nearly quadrupled--from $16 to $57 per share--the price Seagram paid when it acquired PolyGram in 1998.

Levy quit the company with a $10-million buyout after a dispute with PolyGram’s owner, Philips Electronics. Levy had accused Philips officials of initiating sales talks with Seagram behind his back.

David Munns, a former PolyGram marketing executive and manager for rock group Bon Jovi, will join EMI as Levy’s second-in-command.