Last week, the Copyright Royalty Board published a Federal Register Notice announcing that SoundExchange was auditing broadcaster Alpha Media as well as Music Choice and Google to assess their compliance with the statutory music licenses provided by Sections 112 and 114 of the Copyright Act for the public performance of sound recordings and ephemeral copies made in the digital transmission process. From the notice, it appears that SoundExchange is auditing only the webcasting activities of these organizations. Music Choice also provides a music service usually delivered with cable or satellite television services; a service that is subject to separate royalty rules though part of the same section of the statute. Google is somewhat of a surprise as most people don’t think of it as providing a noninteractive webcasting service – the kind of service subject to the statutory royalty which SoundExchange collects – but it must be doing so for it to be audited.
SoundExchange may conduct an audit of a licensee for the prior three calendar years in order to verify royalty payments. While, by statute, the notice of the royalty must be published in the Federal Register, the results usually are not made public. The decision to audit a company is not necessarily any indication that SoundExchange considers something amiss with that company’s royalty payments – instead they audit a cross-section of services each year (see our past articles about audits covering the spectrum of digital music companies here, here and here). SoundExchange is not the only royalty collection group who can audit music companies – though its audits are different because announcements are published in the Federal Register. All of the other performing rights organizations (e.g. ASCAP, BMI and SESAC) can conduct audits from time to time. Audits are not limited to music, as television stations and other video companies can be audited to assess their compliance with program royalty obligations. We wrote more extensively about the royalty audit process here. So read our summary of the audit process, talk to your attorneys and accountants about the records you are keeping, and maintain those books and records to show that you have paid what you owed, as any company, big or small, could be the subject of a future audit to assess its compliance with its royalty obligations.