EMI shareholders threw the future of Eric Nicoli, its former chairman, into doubt yesterday after the music major issued a profit warning and dismissed two senior executives, who will walk away with a combined payoff of £10 million.

Mr Nicoli, backed by the company’s board, fired Alain Levy, head of recorded music, and David Munns, chief executive for North America, as the company admitted that recorded music sales would be down by 6 to 10 per cent in the current year.

After Mr Levy’s departure, Mr Nicoli will become chief executive with responsibility across the group. However, some investors questioned whether he was the right choice to rescue EMI, given that he had served on the company’s board since 1993 and had been executive chairman since 1999.

Two of EMI’s top five investors indicated that they were uncomfortable with Mr Nicoli’s survival, although none wished to be named. One said: “Look at the share price graph since Mr Nicoli took over, or even when he first came on the board; it’s not flattering.”

Mr Nicoli had come to believe that Mr Levy and his ally Mr Munns were obstructing cost-cutting in the world’s third-biggest music company. About 1,000 jobs are expected to go from the company — which employs 6,300 people — at a cost of £150 million over the next two years.

The profit warning came after poor sales in both the US and the UK, with albums from Robbie Williams and Janet Jackson disappointing. Only a remixed album of Beatles tracks, Love, remained on target during the crucial Christmas season, leading analysts to slash profit forecasts.

There was some qualified institutional support for Mr Nicoli. William Claxton-Smith, of Insight Investment, said he “backed the decision of the board”, whose job it was, he said, to decide on the appropriate management. He also welcomed the appointment of John Gildersleeve as the non-executive chairman.

EMI’s poor performance in North America was also a factor in the sackings, with the group ending the year with a market share of 10.28 per cent, leaving it clearly in fourth place of the music majors. It had no albums in the top ten US sellers, although the Beatles and Keith Urban were among the ten best-selling artists.

The collapse in fortunes prompted a 7 per cent fall in the share price to 242¼p, but the stock was propped up by hopes of a takeover. Many believe that Mr Nicoli is willing to embrace a private equity buyer, after negotiations with Permira failed just before Christmas, but think that a sale is held back by a desire to secure a bid of around 325p — which is thought impossible in the current market.

Meanwhile, Warner Music, EMI’s closest rival, said that it would monitor the situation, although it remains reluctant to strike while the regulatory environment surrounding music deals is so uncertain. The European Commission is expected to take months to re-examine the legitimacy of the Sony-BMG merger, which, if unwound, would prevent the creation of Warner-EMI.

Mr Levy and Mr Munns are thought to have been against a sale. So their removal makes an agreement more realistic.

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