Vondran Legal® Intellectual Property Law - Copyright Royalty Audits.  Call us at (877) 276-5084 to discuss your case.

Introduction

Are you a creative artist who has entered into a licensing or record deal?  Feel like you are not being properly paid and your agreement has the legal right for you to conduct a Royalty Audit?  Well, now may be the time to exercise your rights under that clause.  Here are a few important things to consider.

Misconceptions when dealing with a Royalty Audit

Here are 10 common misconceptions artists have about initiating royalty audits and reasons why they should consider proceeding regardless:

1. "It's too expensive."

• Reality: While audits can be costly, many agreements allow artists to recoup audit costs if discrepancies are found. Moreover, small errors can accumulate, leading to significant losses over time.

2. "The label/publisher will retaliate."

• Reality: Licensing agreements are legal contracts, and audits are a right within these agreements. Reputable companies understand that audits are a normal part of business and should not retaliate.

3. "I trust my business partner."

• Reality: While trust is important, errors and oversights happen, even with honest partners. Audits ensure that both parties are working from accurate data.

4. "I don't want to strain the relationship."

• Reality: An audit is a standard business practice, not a sign of distrust. Clear and transparent financial practices can strengthen professional relationships. Audits don't have to be contentious and detrimental to relationships. Audits, when carried out with appropriate methodology, are cooperative procedures intended to guarantee precision and equity in royalties.

5. "There's probably nothing wrong."

• Reality: Even minor miscalculations can compound over time. An audit helps identify unintentional errors like incorrect royalty rates or missed sales.

6. "It will be time-consuming and disruptive."

• Reality: While audits can take time, professionals skilled in this area know how to minimize disruption. The potential recovery from errors far outweighs the temporary inconvenience.

7. "I'm not earning enough to justify it."

• Reality: Artists at all earning levels can benefit from ensuring accurate reporting, especially since smaller amounts can have a significant impact on emerging artists.

8. "It will hurt my reputation in the industry."

• Reality: Professional audits are a business norm, especially as artists grow their brand. A reputation for financial diligence is positive, not negative.

9. "The agreement is too complex; I don't fully understand it."

• Reality: This is all the more reason to perform an audit. Consulting with a lawyer or audit professional helps ensure you're receiving what you're entitled to under complicated terms.

10. "I don't know how to start the audit process."

• Reality: Many professionals specialize in conducting royalty audits. Engaging a qualified expert simplifies the process and guides you step-by-step.

To make sure that all facets of royalty payments are correct, a comprehensive audit should cover both underpayments and overpayments. By emphasizing overall accuracy and fairness, this balanced approach not only safeguards the licensor's revenue but also supports the audit's non-adversarial nature.

Potential types of Royalty Audits we may be able to assist in

Here are a few issues where you may want to engage a Royalty audit lawyer.

1. Examine Record Label Statements: Scrutinize the royalty statements provided by record labels, focusing on inconsistencies in deductions, unreported revenue streams, and accurate calculations.

2. Audit Streaming Revenue: With streaming platforms dominating music consumption, ensure that all streaming royalties (e.g., Spotify, Apple Music) are correctly reported. Pay attention to payout rates, territorial discrepancies, and any black-box revenue.

3. Review Mechanical Royalties: For songwriters and composers, mechanical royalties from physical sales, digital downloads, and streaming should be reviewed. Ensure all publishing rights societies and distributors report accurately.

4. Check Sync Licensing Revenue: Audit payments related to synchronization rights (use of music in movies, ads, TV shows). Ensure proper accounting for all territories and platforms where the music was used.

5. Investigate Performance Royalties: Review statements from performance rights organizations (PROs) like ASCAP, BMI, and SESAC to ensure live performances, broadcasts, and public plays are correctly reported.

6. Analyze Foreign Royalties: Ensure that foreign sub-publishers and collection agencies accurately account for international royalties, which can be complex due to different rates, deductions, and reporting systems.

7. Scrutinize Physical Product Sales: For clients still selling physical formats (vinyl, CDs), ensure accurate reporting of sales data, inventory levels, and returns, which can affect royalty payments.

8. Digital Platform Audits: For artists monetizing content on platforms like YouTube, TikTok, or Facebook, ensure the accuracy of content ID systems, ad revenue splits, and payment schedules.

9. Audit Merchandising and Branding Deals: If clients have branding or merchandise deals, audit the payment structure, royalty rates, and sales data. These deals can have complex revenue-sharing arrangements.

10. Cross-Reference Licensing Deals: Examine licensing agreements with video games, apps, and other digital services. Ensure that advances, minimum guarantees, and revenue shares are paid accurately.

By conducting thorough audits across these revenue streams, we can help ensure our artists and creative clients receive the full royalties they're entitled to.

10 types of entertainment companies that can be potentially subject to a royalty audit initiated by an artist or creative talent:

1. Record Labels

• Handle music distribution and royalties for recording artists and can often be subject to audits to verify earnings from streaming, sales, and licensing.

2. Music Publishers

• Manage the licensing and royalties for songwriters and composers, making them subject to audits to ensure accurate reporting of mechanical and performance royalties.

3. Film and TV Production Companies

• Responsible for paying royalties related to creative contributions like acting, directing, or scriptwriting. Audits can check for accurate payments based on box office earnings, syndication, or streaming.

4. Streaming Platforms (Music and Video)

• Distribute digital content and are often subject to audits to verify accurate streaming counts, payments, and distribution splits.

5. Book Publishers

• Authors, illustrators, and other content creators often initiate audits to check royalty payments based on book sales, licensing deals, or adaptations.

6. Merchandising Companies

• Handle licensed merchandise for artists and can be audited to ensure proper reporting of sales and royalty shares from branded products.

7. Video Game Companies

• Video game developers, voice actors, and composers may audit companies to ensure accurate royalties based on sales, licensing, and in-game purchases.

8. Theatrical Production Companies

• Playwrights, choreographers, and performers can audit companies for royalties from ticket sales, touring productions, and licensing for future performances.

9. Advertising Agencies

• Creators of jingles, slogans, and visual assets can audit these agencies to verify royalty payments from commercial placements and usage rights.

10. Art Galleries and Licensing Agencies

• Visual artists who license their work for commercial products, prints, or exhibitions may audit these entities to ensure fair payment based on sales and licensing agreements.

These companies manage or distribute content across different creative sectors and may be bound by various types of licensing agreements that often allow artists to initiate royalty audits. 

Call us if you are considering an audit of any of the following:

• Rhino Records
• Lionsgate
• Viacom
• Atlantic
• Sony Pictures
• 20th Century Fox
• MGM Studios
• Disney Interactive Studios
• NBC Universal
• Paramount Pictures
• Sony US international
• Warner Music
• Ubisoft
• Walt Disney Pictures
• Playboy 

Contact a California Royalty Audit Law Firm

In order to ensure that intellectual property (IP) licensors get paid what they are entitled to and to maintain open, fruitful communication with licensees, royalty audits are crucial.  Artists should regularly audit their royalties to ensure they are being properly compensated. Even if discrepancies seem unlikely, proactive financial oversight is key to maintaining a sustainable career in the creative industries. We can be reached at (877) 276-5084 or fill out the contact form on the right side of this page.