Royalty Audit Recoveries and Issues - Music
- Incorrect royalty rates – Though the calculation of the reportable royalty rate might seem simple, too often mistakes are made and an incorrect royalty rate is applied to some or all royalty-bearing sales of physical or digital content.
- Incorrect royalty base prices – The correct royalty base price is dependent on the agreement. Often, the licensee will base royalties on a price too low, instead of the agreed upon base price.
- Underreporting of units – The licensee may not pay royalties on all of the royalty bearing sales. When they underreport the units, you lose out on the royalties you should have received.
- Unreported sales – The licensee may fail to report sales simply because the incorrect information has been entered into their royalty system.
- Excess costs charged – The licensee may charge you more than your fair share of deductible costs, and for other costs that are non-deductible as outlined in the agreement.
- Excess free goods – There is usually a clause in the agreement that defines how record labels need to report royalties on free goods, verses those that can be royalty-free. Often, they will withhold royalties on more than the allowed free good amount.
Other examples include:
- Unreported income
- Incorrect % share
- Failure to increase royalty rates for new periods or escalations based on sales levels
- Excess revenues withheld
- Incorrect prices reported
- Unauthorized distribution
- Unreported territories
- Royalty processing errors
- Mathematical and input errors