Streaming copyright royalties audited

April 1, 2006


Soundexchange has begun an enforcement program to ensure that webcasters are accurately paying royalties owed to the record companies and recording artists represented by Soundexchange. Soundexchange collects copyright royalty fees paid by broadcasters who stream their signals on the Internet, as well as those paid by other webcasters.

Starting in February 2006, Soundexchange began auditing 11 of the most popular Internet radio websites. The audits, which are permitted by U.S. Copyright Office regulations, will cover the years 2002, 2003 and 2004. Four broadcast group owners will be among the first to be audited: Bonneville, Clear Channel, Cox and Susquehanna. The remaining websites to be audited are America Online, Beethoven.com, Live365, Microsoft, MTV Networks, Real Networks and Yahoo. Soundexchange has announced that this is just the beginning of its enforcement program and it intends to perform regular audits of webcasters, both large and small.

U.S. Copyright Office regulations permit Soundexchange to audit webcasters once during each calendar year. The audit may cover any or all of the prior three calendar years. No calendar year may be subject to audit more than once. Audits of the webcasters' records must be conducted by an independent and qualified auditor and must take place during reasonable business hours using generally accepted auditing standards. For their part, webcasters must use commercially reasonable efforts to obtain or to provide access to any relevant books and records maintained by third parties for the purpose of the audit and retain such records for at least three years.

Before finalizing its written report, the auditor must review its tentative findings with the webcaster to remedy any factual errors and clarify any issues relating to the audit, but only if the webcaster cooperates with the auditor to remedy promptly any factual errors or clarify any issues raised. The auditor need not review its tentative findings with the webcaster if the auditor suspects fraud.

Finding results

Once the auditor issues its final written report, Soundexchange and the webcaster are required to accept the findings in the report as determinative on copyright royalties owed in the audited years. Soundexchange is required to pay the cost of the audit, unless it is determined that the webcaster underpaid its royalties owed by 10 percent or more, in which case the webcaster must, in addition to paying the amount of any underpayment, pay the costs of the audit.

Broadcasters currently simulcasting their on-air broadcasts on the Internet, or contemplating doing so, should be sure to inform themselves about the record-keeping obligations, reporting requirements and, most importantly, royalty fees to which Internet streamers and webcasters are subject. In view of Soundexchange's dominant role in this area, it would be prudent for a webcaster to obtain a Soundexchange Internet webcasting license, if it does not already have one.


Dateline

Radio stations in Michigan and Ohio must file biennial ownership reports on or before June 1, 2006.

June 1 also is the deadline for radio stations in Arizona, DC, Idaho, Maryland, Michigan, New Mexico, Nevada, Ohio, Utah, Virginia, West Virginia and Wyoming to place their annual EEO reports in their public files and post them on their websites.


Martin is immediate-past president of the Federal Communications Bar Association and a member of Fletcher, Heald & Hildreth, Arlington, VA. E-mail martin@fhhlaw.com.



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