Hipgnosis rival scents blood as it builds stake in music rights fund

THE founder of Hipgnosis is facing a battle over his future as the boss of a rival music rights firm builds a stake and prepares for a swoop.

The Daily Telegraph has learnt that Josh Gruss, chief executive of Round Hill Music, has bought shares in Hipgnosis Songs Fund, which lost the backing of investors in a vote in October.

Round Hill is understood to be positioning itself to replace Merck Mercuriadis, the controversial founder of Hipgnosis who is an investment adviser.

Mr Mercuriadis’s role at the company is in doubt after he was defeated in a bruising continuation vote, while he has also come under fire from the newly-installed chairman.

Bosses have only a few months to outline plans to reorganise the fund, which owns the rights to songs by artists including Blondie and Neil Young, or face being wound up.

The stake-building marks the latest manoeuvre by Round Hill, which was listed in London prior to its $470m (£370m) takeover by US music firm Alchemy Copyrights in September.

Robert Naylor, the former chairman of Round Hill, was picked as the successor to Andrew Sutch, the Hipgnosis chairman ousted following the vote.

Francis Keeling, another former Round Hill executive, also joined the Hipgnosis board as a non-executive director. Mr Gruss is understood to have spoken to Mr Naylor about installing Round Hill as a new investment adviser. He plans to put forward a detailed proposal, including moves to rein in costs, in the new year.

Insiders insist that Round Hill’s experience of both the music rights market and the London Stock Exchange make it an obvious candidate to take the reins at Hipgnosis.

One source suggested that the company could launch an aggressive bid to oust Mr Mercuriadis, including hiring lawyers to look for any possible breaches of contract. The source added: “They’ll want to get him out of the kitchen for as little money as possible.” Mr Mercuriadis is a divisive figure in the music industry. Hipgnosis’s chairman has accused him of a lack of transparency over the valuation of song catalogues and in financial reporting.

Hipgnosis pioneered the boom in music rights as investors rode a wave of lower interest rates to buy up song catalogues from artists. But rising rates and scrutiny over valuations have prompted a collapse in Hipgnosis’s share price.

In addition to voting against continuation, shareholders also voted down a proposed $465m catalogue sale.

Bosses said the deal was necessary to pay down debt, but investors and analysts baulked at the price tag, which represented a roughly 25pc discount on net asset value.

Hipgnosis is now battling to shore up its balance sheet and restore shareholder trust and has scrapped dividends. Losses for the first half ballooned to $63.7m, up from $17m for the same period in 2022, while revenues dropped by $23m to $63m. Hipgnosis in recent years has spent billions of pounds building up a catalogue of more than 65,000 songs from artists including Justin Bieber and Britney Spears.

However, rising interest rates has made music royalties less attractive to financial investors which can find higher returns from traditional assets such as bonds. In June, Sir Rod Stewart abandoned a lucrative deal to sell the rights to songs from his 60-year career after reportedly being unhappy with cuts to Hipgnosis’s offer price following a downturn in the market.

Hipgnosis, Round Hill and Mr Mercuriadis’s representatives declined to comment.