Music Business/Law Tips - Accounting/Royalties (Part 2)

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.

Ben McLane Esq
benmclane.com