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What is a royalty and profit participation? And why should I want a royalty audit or profit particip

Music Industry

In the music industry, bands, songwriters and music publishers get paid a sum of money upfront along with a royalty for every sale. For example, for every stream and download, they will get a variable amount of money that is calculated in a complicated way. In the film and TV industry, the concept is similar, but it's not called a royalty but rather a profit participation. This is a share of the "profit" that the movie generates. Likewise, in other industries, typically people are paid in two ways: 1) they're getting paid an upfront lump sum amount (an advance) and 2) they're also earning an additional periodic payment (the royalty or percentage share of the "profits").

Film/TV Industry

Typically, there are big companies, like recording companies or large motion picture companies, that are paying people like actresses, rock bands, directors and producers. But there are often mistakes in calculating how much is owed. These big companies write a check for these variable payments and send a little bit of paperwork that supports how they calculated the amount. This is where auditing comes in.

Clients perform a royalty audit or profit participation audit to figure out whether or not they've been underpaid. They hire an auditor, called either a royalty, participation, contract compliance or forensic auditor, to go in and look at the books to figure out what those miscalculations were and find out how much the client is actually owed. The auditor notifies the company that it is being audited, and the professionals begin looking behind these calculations and asking, "Did they receive money from CD sales or from home video sales? How much did they receive? Did they really report properly for everything that they got?"

Usually from these audits, about 90 percent of the time, we find that the client has been underpaid, sometimes a significant amount, and so we do our analysis and put our report together showing how much this client has been underpaid, here's how much they're owed and here's all the support as to why we think they're owed this amount.

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