Accounting (Royalties)
by Ben McLane, Esq.
An artist signed to a label and who has commercially released a record will look forward
to the day when he or she can be paid royalties. The process by which an artist is paid
royalties is called an "accounting". Incidentally, the accounting process discussed
herein is also applicable to a songwriter with a publishing deal.
Accountings are generally made twice a year, within sixty to ninety days after the close
of each calendar six-month period. The cut-off for the six-month periods are usually -
but not always - June 30th and December 31st. Sometimes, labels make quarterly
accountings, which is better for the artist because the waiting time for monies
is less. However, on the flip side, some labels account only once per year. When
an artist is accounted to, in addition to receiving a check (if any records were
sold), he or she will normally receive a statement showing record sales and how
the royalties were calculated. Because the artist will only receive royalties
on records actually sold, as opposed to records shipped, in some instances an
artist has to wait a long time to be paid.
The record contract usually will contain language which allows the artist to "object"
to the accounting. An objection occurs when the artist questions the accuracy of the
accounting. In other words, the artist believes he or she has been ripped-off. It
is important for the artist to understand that the contract will specify a specific
time limit to object; otherwise, the accounting becomes final ("binding") and the
artist waives the right to audit or sue the label for breach of contract. The objection
period is generally stated as being one year after the statement is sent to the artist.
The artist should attempt to increase the period to two or three years.
The record contract will usually also contain the right to "audit" the books and records
of the label. If this clause is absent, the artist should demand the right to audit.
The artist will only have the right to audit during the objection period discussed above.
Normally, the artist will have the right to audit only once a year. Further, the label
generally will require that any audit be performed by an accountant. The labels's
rationale is that this makes an audit more expensive and thus discourages audits.
Moreover, an accountant should be more efficient and cause less disruption to the
label's normal operations. Finally, the label will seek restrictions on what can be
audited (e.g., only books and records relating to actual sales reports for the artist).
In the normal course of things, it is only reasonable for an artist to audit an accounting
if the artist is making a lot of money because then there is a high probability of
underpayment by the label. However, since one never knows who will have the next hit,
the artist must ensure that his or her rights are protected in the contract.
Copyright 1998, Ben McLane
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