"The CD as it is right now is dead," Levy said, adding that 60% of consumers put CDs into home computers in order to transfer material to digital music players.
EMI Music is part of EMI Group PLC (EMI.LN).
But there remains a place for physical media, Levy said.
"You're not going to offer your mother-in-law iTunes downloads for Christmas," he said. "But we have to be much more innovative in the way we sell physical content."
Record companies will need to make CDs more attractive to the consumer, he said.
"By the beginning of next year, none of our content will come without any additional material," Levy said.
CD sales accounted for more than 70% of total music sales in the first half of 2006, while digital music sales were around 11% of the total, according to music industry trade body the International Federation of the Phonographic Industry.
CD sales were worth $6.45 billion and digital sales $945 million, the IFPI said.