By Adam Sherwin, Media Correspondent

Radiohead walked out of EMI in the autumn after Guy Hands, the group’s new boss, rejected a deal with the top-selling rock band that would have cost the record company more than £10 million, The Times has learnt.

The massive demand is far greater than had been thought. The critically acclaimed band had been offered a £3 million advance by Mr Hands for their latest album, but wanted more.

An EMI spokesman said last night: “Radiohead were demanding an extraordinary amount of money and we did not believe that our other artists should have to subsidise their gains.”

The band’s management hit back, saying that it believed that more high-profile artists could abandon EMI. It accused Mr Hands of not negotiating seriously.

Radiohead wanted EMI to hand over at least some of the copyrights to their catalogue of albums such as OK Computer, a demand that would have devalued EMI’s recorded music catalogue and cost the British music major millions in future earnings.

Giving Radiohead the rights to their last two albums would have presented EMI with a £4 million loss. It is believed that the band was also seeking a guaranteed £3 million EMI budget on international marketing for the new album, although their management does not accept this figure.

Guy Hands’s brief personal negotiations with Radiohead’s management came in the first weeks after Terra Firma, his private equity firm, took over EMI in a £2.1 billion deal.

Bryce Edge, Radiohead manager, told The Times: “We couldn’t move ahead with EMI because Guy Hands irrevocably refused to discuss the catalogue in any meaningful way. We sold 25 million records and we have the moral rights over those six albums. We wanted a say in how they are exploited in the future. We were not seeking a big advance payment, or a guaranteed marketing spend as discussions never got that far.”

Mr Edge hinted that more big names were set to leave EMI. Artists are upset that record companies still deduct “packaging costs” from royalty payments on digital downloads, which require no packaging.

Radiohead declined further discussions when their demand for control over their back catalogue was rebuffed. The six albums cannot be prised from EMI’s control for the 50-year period allowed by copyright law.

When the talks foundered, Radiohead released their new album In Rainbows as a “pay-what-you-like” download, an offer taken up by about one million fans. That experiment has ceased and on Monday the album will be released conventionally as a CD through XL, an independent label.

Radiohead’s original EMI contract also had no facility for digital sales, so it would not receive royalties through sales from the iTunes store. “It’s no surprise that artists are throwing their arms up in the air,” Mr Edge said.

Radiohead are charging £42.50 for next year’s UK tour, more than Prince’s shows at the O2 arena in London. Mr Edge said: “We don’t want to go on tour and lose money. It is expensive to put on the quality [of] show people expect. It is a comparable price to artists of a similar stature.”

Mr Hands has circulated a letter to EMI artists, which include Robbie Williams, Kylie Minogue, Coldplay and Gorillaz, to reassure them. He wrote: “We really value the collaborative relationship you have with the many EMI staff globally, who work on your projects.”

Terra Firma believes that it can find more than £100 million of annual savings from cutting inefficiences that existed under the previous management, led by Eric Nicoli.

Mr Hands hopes to appoint a new chief executive by the end of January. Terra Firma is believed to be contemplating a sale of EMI in 2012, which would value it at £9.4 billion.