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Last year wasn't kind to UK entertainment conglomerate EMI Group PLC. On February 5, the company issued its second profit warning since September, blaming a slow market for recorded music. EMI is now predicting that pretax profits for the year ending March 31 will total $213.4 million (245.1 million euros, or £150 million), far below analysts' predictions. The news caused an immediate 6.4% drop in the price of EMI shares on the London market.

"Despite strong performances in the UK and much of continental Europe, the second-half outlook for turnover in recorded music is impacted by the continuing economic downturn in Latin America and Asia, underperformance in the USA, and the slippage of some important Japanese album releases," the official EMI announcement read.

EMI has been plagued by a sagging music market and by some unwise strategic moves, including a much-publicized $80 million contract with pop singer Mariah Carey, who sang the national anthem at this year's Super Bowl. Last year, EMI Recorded Music paid Carey $21 million in upfront money as part of a multiyear contract. Glitter, her first—and hopefully, only—film tanked, as did the film's soundtrack album, which reportedly cost EMI $10 million. In late January of this year, EMI executives decided it was better to cut the difficult diva loose than to risk losing the full amount she had been promised. She was offered, and accepted, a $28 million buyout to terminate the contract. Total cost to EMI: $49 million, a rather expensive blunder in anyone's book.

There's been turmoil among the company's upper management, too. Nancy Berry, vice chairman of EMI's Virgin Music Group, who was widely credited with shepherding the Carey deal, departed in late October, shortly after the appointment of former PolyGram NV head Alain Levy as chief executive of EMI Recorded Music. Levy is known throughout the music industry as a cost-conscious manager. With the second profit warning came the resignation of chief financial officer Tony Bates, who had overseen finances for both EMI Group and EMI Recorded Music since January 2000. Former EMI Music Publishing CFO Roger Faxon will become the new CFO for EMI Group, while the CFO position at EMI Recorded Music will be filled by Stuart Ells, former CFO for composer Andrew Lloyd Webber's Really Useful Group entertainment company.

EMI has also announced that it would relocate Virgin Records from Los Angeles to New York, where it will be rolled in with the Capitol Records operation under the direction of David Munns, who was recently named chairman and CEO of EMI Recorded Music North America. Alain Levy will reveal long-term plans for the company on March 20.