EMI Group Stumbles on Warning

British music giant EMI Group lost a third of its value Tuesday after warning that profit would plunge 20% this year as conditions in the global music industry go from bad to worse.

The news follows disappointing sales debuts from rising star Aaliyah, who died last month in a plane crash, and pop icon Mariah Carey, who suffered a nervous breakdown months after signing an $80-million-plus contract with EMI.

Carey’s new “Glitter” CD is expected to tumble down the pop chart this morning from its debut at No. 7 when the industry’s weekly sales tabulations are announced by SoundScan. Despite EMI’s costly marketing and promotional campaign for the record, Carey’s album has barely sold 200,000 copies in the U.S. since its Sept. 11 release--the worst showing in the global superstar’s career. EMI outbid competitors to sign the four-album contract with Carey to help bolster its sluggish Virgin division.

But Virgin, and its other top label, Capitol Records, continue to falter in the U.S., where the London-based company ranks last in sales among the five major music giants. Trying to cut costs, the company recently folded its Priority Records division into Capitol just three years after paying more than $100 million for the once-booming rap label.

EMI also is under-performing in Latin America, where it recently slashed 100 jobs from its Spanish music division. The company also said it may soon get out of the manufacturing and distribution business.

EMI Chairman Eric Nicoli said the company is counting on upcoming releases by Lenny Kravitz, Robbie Williams, Garth Brooks and Pink Floyd to bolster profit in the second half of the fiscal year.

“Notwithstanding the first-half setback, and the ongoing uncertainty in our markets, we expect a much improved performance from recorded music in the second half,” Nicoli said. “While not immune to external influences, our business is fundamentally sound and we will be well placed to strengthen our position as market conditions improve.”

EMI’s American depositary receipts plunged 29%, or $2.80, to $6.75, Tuesday in over-the-counter trading.

Tuesday’s dramatic downturn is the latest in a string of financial setbacks for the flagging British music company, which was jilted twice in recent merger talks with competitors AOL Time Warner and Bertelsmann. EMI has been the subject of takeover speculation for a decade with a parade of potential buyers, including Seagram Co., Walt Disney Co. and Viacom Inc.

The U.S. arms of Virgin and Capitol Records have been plagued by management strife since the early 1990s, which has damaged their market share as well as their reputations in the creative community. The corporate turmoil has forced the exit of nearly a dozen top executives, including Priority founder Bryan Turner last week.

EMI recorded music chief Ken Berry has had little luck in rejuvenating the company’s U.S. division since taking over as global chief five years ago. A number of the deals consummated by Berry have not panned out as planned, including the purchase of Priority and the lavish Carey contract.

In addition, several of Berry’s executive choices for EMI’s U.S. division have proved disappointing. During his tenure, Berry installed the individuals running the now-lackluster Capitol and Virgin divisions, as well as the head of the company’s U.S. sector. Berry also has come under fire for allegations of nepotism involving the ascent at EMI of his former wife, Nancy Berry, who is head of Virgin’s worldwide record division. Nancy Berry, who has been credited with creating global marketing campaigns for such superstars as Janet Jackson and the Rolling Stones, spearheaded Carey’s latest marketing blitz.

Earlier this year, Nancy Berry’s intrusive management style caused a stir when EMI decided to release a Canadian rock act named Custom from Virgin after a run-in between her and a band member. 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.

After the incident, 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 that it had spent to create the recording.

Ken Berry, who separated from Nancy and is in the final stages of completing a divorce, was traveling Tuesday and could not be reached for comment.