The Copyright Royalty Board has published in the Federal Register a correction to its notice announcing the commencement of the next proceeding to set rates for the royalties paid by webcasters (including broadcasters who stream their music through the internet) to SoundExchange for the public performance of sound recordings in the period 2026-2030. The correction is to the date by which interested parties must file a petition to participate – setting that date as February 5, 2024, not February 6 as originally stated. Thus, interested parties have a deadline one day earlier than previously announced. We wrote more about that proceeding here.
The CRB also published in the Federal Register a notice announcing that it would be auditing five broadcast companies who are streaming their signals 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 by commercial webcasters. Another audit notice has gone out to a company called RFC Media, which is both a webcaster and a Business Establishment Service whose royalties are exclusively paid under Section 112 of the statute (see our article here about the CRB-set royalties for these services that provide music played in various food and retail establishments and other businesses).
SoundExchange may conduct an audit of any licensee operating under the statutory licenses for which it collects royalties. Such audits cover the prior three calendar years in order to verify that the correct royalty payments have been made. The decision to audit a company is not necessarily any indication that SoundExchange considers something amiss with that company’s royalty payments – instead SoundExchange audits a cross-section of services each year (see our past articles about audits covering the spectrum of digital music companies audited by SoundExchange here, here, here, here and here). Audits are conducted by outside accounting firms who, after they review the books and records of the company being audited, issue a report to SoundExchange about their findings. The company being audited has the right to review the report before it is issued and suggest corrections or identify errors. The reports are then provided to SoundExchange and, if they show an underpayment, SoundExchange can collect any unpaid royalties, with interest. Where the findings are disputed, the parties often work to bridge their differences to avoid litigation. While, by statute, notice of the audit must be published in the Federal Register, the results of the audit and any subsequent resolution usually are not made public.
SoundExchange is not the only royalty collection group that can audit music users – 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.
If your company is audited, get with your attorneys and accountants right away to discuss the audit process and how to minimize the disruption to your business. If you are not on this list of companies being audited, the list still serves as a good reminder to assess the records you are keeping to be sure you are maintaining them in a way that will demonstrate that you paid what you owe. Any company, big or small, could be the subject of a future audit to assess its compliance with its royalty obligations.