Emi Records Group

In a dramatic demonstration of the economic toll of digital piracy on the music industry, EMI Group is expected to fire more than a quarter of the London-based company's employees and radically alter the way it does business to further cut costs.

After a slow holiday season and years of on-again, off-again merger talks with one of its largest competitors, struggling music giant EMI Group confirmed Friday that it had sacked two top executives. The departure of EMI Music Chief Executive Alain Levy and Vice Chairman David Munns was announced with the disclosure that the London-based company planned to revise its fiscal outlook.

Ailing music giant EMI will merge two of the music industry's best-known labels, Capitol Records and Virgin Records America, in a sweeping reorganization prompted by the company's financial troubles. EMI on Thursday unveiled the new Capitol Music Group, retaining the name of its iconic label whose roster once included the Beatles and Frank Sinatra. Capitol President Andy Slater was forced out, six months into a five-year contract extension.

EMI Group named two executives to its new Capitol Music Group, created last week with the combination of the Capitol and Virgin labels. Lee Trink was named president of Capitol Music and Jeff Kempler chief operating officer, reporting to Jason Flom, who was appointed chairman and chief executive of the group Jan. 25, EMI said. Both were executive vice presidents at Virgin.

EMI Group cut its revenue and profit forecasts for the second time this year as music sales slump in the U.S. EMI shares had the biggest slide in two years Wednesday after the company said full-year sales at its recorded music division would fall 15% and earnings would miss analysts' estimates. London-based EMI last month predicted a 10% sales drop.

It may sound like a broken record, but Warner Music Group on Tuesday again said it wanted to acquire struggling EMI Group. The prospective deal, which would put Madonna, the Red Hot Chili Peppers, the Beatles and Norah Jones under the same umbrella, marks the latest twist in a six-year mating dance between the two companies.

EMI Group and online music sellers including Microsoft Corp. halted talks on removing copyright protection from songs because they couldn't agree on the size of an advance payment, people briefed on the offer said. EMI demanded an upfront payment to compensate for its risk in releasing the music without software that prevents copying, the people said. The retailers countered with a lower offer, which London-based EMI rejected, and negotiations are now on hold, the people said.

Britain's EMI Group has rejected a $4.1-billion takeover proposal from Warner Music Group, the latest in a tortuous, six-year courtship that has yet to be consummated. The prospective deal, which would have brought Metallica, Bjork, David Bowie and the Beastie Boys under the same umbrella, "is not in the best interests of EMI shareholders," according to a statement released by the company Friday.

Customers of Apple Inc.'s iTunes store will soon be able to play downloaded songs by the Rolling Stones, Norah Jones and other top-selling artists free of the copying restrictions once imposed by their label. EMI Group, the world's fourth-largest record label, and Apple, the biggest seller of digital music and players, plan to announce a landmark deal today that would remove copying protections from songs, according to two people familiar with the negotiations.

Apple Inc. and EMI Group want digital music fans to pay more money for more freedom. EMI, the world's fourth-largest record label, said Monday that it had agreed to sell its 150,000-song catalog through Apple's iTunes store without the anti-piracy software that limits which devices can play digital music. EMI acts include Coldplay and the Rolling Stones -- only the Beatles were excluded from the deal. The companies plan to charge $1.