I don’t ever remember a time when so many of my clients – across music, film and television – have been looking so closely at their royalty/profit participation statements. More and more frequently, working with some of the top royalty auditors, I am going through the life cycle of an album, movie or programme project – checking the accounting principles and finding obvious errors.
At that point it is time to let the auditors loose for a full-blown forensic examination.
The key to effective accounting is, of course, a carefully drafted set of accounting and audit provisions in the commissioning/production agreement.
Many larger organisations foist densely drafted clauses on the creatives who provide them with the programming and music from which they are able to make their profits.
Restricted legal budgets may make it economically challenging to negotiate these arcane clauses in detail.
Some of the acquiring parties may offer the deals on a ‘take-it-or-leave-it’ basis; the temptation of the up-front money and a guaranteed release/broadcast too much for a needy creative to dwell for long on the contractual small print.
However, there are a few key principles to bear in mind when looking through audit provisions: in essence the requirements for the royalty/profit participant are:
Accounting/Reporting – full and detailed periodic reporting of how the work is being exploited and the basis upon which the royalties/profits are being computed;
Payment – an obligation to pay what is due – stating when, how, to whom and by whom the payments are to be made;
Record-keeping – an obligation on the paying party to keep full and detailed records of its exploitation of a work to include contracts, key correspondence and all applicable financial information;
Audit and inspection – the right within realistically designated time-frames to appoint an auditor of choice to inspect the accounting party‘s books and records, to obtain explanations and to report on findings.
Inevitably, crafting these provisions of itself is as much of a black art as it is a science.
It is through the experience of many years that one becomes increasingly vigilant in one’s attempt to preserve as much as possible of one’s clients’ ability to interrogate the veracity of what is presented as a complete and accurate set of royalty accounting figures.
In recent times I have been asked to act as an independent arbitrator in royalty accounting disputes between payer and payee – which has added another insight into this ever more densely-laid minefield.
Whether it is advising on deals and negotiating contracts before a deal is signed or reviewing the terms when a production/album has become successful, the Media & Technology Team at Marriott Harrison is able to assist.