Copyright Royalty Board Announces SoundExchange Audits of Broadcast Companies Streaming Their Signals – How Do These Audits Work?

The Copyright Royalty Board this week published notice in the Federal Register that SoundExchange is auditing two broadcast companies who are streaming their signals online to assess 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. A notice was published last month indicating an audit of five other broadcast companies.  Notices of audits are annual events.  But, as the number of broadcasters selected for audits this year is higher than in past years, we thought that we should republish some of the observations that we have made in the past about these audits. 

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 notice issued this week audits the named broadcasters for 2022-2024, while the audits announced last month were filed in late 2024 and are for the years 2021-2023). 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 who have been subject to these audits – here, here, here, here and here).  

Audits are conducted by outside accounting firms (typically a limited number of firms are used by SoundExchange for all of these audits) 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.  The auditors are paid for by SoundExchange unless they find an underpayment of 10% of the total royalties (or more) in which case the cost shifts to the company paying the royalties.  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.  Even if you are not on this list of companies being audited this year, the notice 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.