In the last week, copyright audits have been in the news. Several broadcasting publications noted the recent announcements by the Copyright Royalty Board that SoundExchange has decided to audit several companies that pay it royalties, including webcasters (including Pandora and a number of broadcasters in connection with their webcast operations), business establishments services (those who provide music for stores and other businesses – DMX and Muzak) and music services provided by cable and satellite video providers (e.g. DMX and Muzak). It was also just announced in the Federal Register that the sports leagues plan to audit a number of MVPDs to determine if the MVPDs have been accurately paying the royalties owed the sports league for the sports programming on TV stations carried on certain satellite and cable systems. What are these audits, and why are they being announced by publication in the Federal Register?
When media companies buy a piece of equipment, or a building in which to house their operations, they usually know in advance how much their purchase is going to cost, and in the vast majority of cases, they get a bill specifying the price. Even the purchase of some programming is easily quantifiable – either as a fixed fee per month, or some barter arrangement or other set fee.
But, in many other licensing transactions, the fees are not as easily quantifiable. For certain movie packages or other syndicated video programming, the number of times that a program is played is not necessarily clear in advance. For music, it is even more complicated, as a digital music service never knows how much music it is going to use when it enters into a licensing agreement. In the case of programming carried by an MVPD on a distant signal basis pursuant to the compulsory copyright licenses under Sections 111 and 119 of the Copyright Act, the MVPD in advance won’t know how many subscribers it will have or exactly what programming the stations that it carries will program. So in all of these cases, the user of the copyrighted material does not get a bill. Instead, the user has to tell the “seller” of the rights (or its representative) how much they owe. Because the buyer is reporting how much they think that they owe, the rights organizations usually have the right, by contract or by law, to audit the user to decide if the user paid the right amount.
Continue Reading SoundExchange Audits of Digital Music Companies and Sport Leagues Audits of MVPDs Published in the Federal Register – Understanding Audit Rights Under Statutory Licenses