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Auditors are more necessary with technological changes in royalty & participation accounting

Technology has changed the playing field for many industries; Royalty & Profit Participation auditing is no exception. Many music companies, studios, licensees, production companies and others have relied on age-old methods of bookkeeping as well as outdated and potentially unreliable ways of calculating payments that are due. Digital Music News, however, found that some large companies are gradually implementing new tools to improve transparency in making royalty payments and profit participation payments—Sony Music Entertainment is just one example.

In an effort to promote accounting transparency, Sony Music announced in a May 2019 memo to artists the introduction of “Real Time Royalties” and “Cash Out,” two new payment mechanisms to “allow our artists and royalty participants to view and withdraw earnings faster than ever before.”

The payment tool was aimed at providing artists and their teams immediate access to royalty information, including global royalty earnings, account balances, distribution fees, etc.….

Revelator, a digital provider of artist distribution platforms, royalty, and payment services, had similar goals at heart when the company launched Artist Wallet, the first digital wallet app for artists and music makers, in May 2019, according to PR Newswire. The mobile copyright application, which is powered by smart contracts technology, claims to improve efficiency in payment advances to artists by “turning future receivables into instant royalty payments.”

However, while the motivation behind these technological advancements is warranted, there is still a long path to achieving efficiency and transparency in the royalty & participation business and there are important factors to consider before relying solely on new technology to audit, analyze, and manage royalty & participation payments.

Firstly, while real-time royalty data may replace traditional periodic statements, a chaotic stream of revenue and expenses might mask potential unreported income. Too much data in an unorganized manner can give a false sense of security and leaves clients vulnerable to unreported income from right under their noses.

Secondly, these technological changes in the entertainment industry are still very new—and this means that we are ways away from seeing consolidation in the digital platforms and applications that are used across different offices, foreign countries, and by varying representatives. The existence of such technology does not guarantee that royalties due you or your client will be appropriately reported in the new systems. Rather, disruptive technology is likely to take many more years to replace the existing infrastructure that has been in place for decades—and this shift from one infrastructure to another is likely to result in more miscalculations and underreporting.

Lastly, new tools in the royalty & participation process does not ensure that payment calculations are in accordance with your specific agreement. These new or re-vamped tech systems process huge amounts of data, much of which has no relevancy to your agreement or payments. Having a qualified auditor with a focus on only your project can help ensure that all calculations are accurately and appropriately being made according to what your contract outlined. New technology in an industry that sorely needs radical innovation is surely exciting. But do not mistake that excitement for security. While an auditor prioritizes you and your client, a machine simply cannot.

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