Royalty Audit Bill Signed in California

Just over a year after it passed the California Senate, Bill 1034 has been signed into law:

Gov. Arnold Schwarzenegger on Friday signed a law giving recording artists more flexibility to audit record companies’ finances in search of potentially unpaid royalties.

The law, which goes into effect Jan. 1, allows artists to conduct annual audits and applies to any record companies doing business in California. The law holds down the cost of audits through means such as letting a single auditor work for several artists on the same label simultaneously.

“This is a significant step forward for artists’ rights,” said Sen. Kevin Murray, the Los Angeles Democrat and former music agent who sponsored the bill. “The ability to audit will keep record companies a little bit more honest.”

The law is the culmination of a campaign by some musicians, including Don Henley, to give artists more power to determine whether they are due royalty payments.

Artist royalty rates are typically set around 12 percent to 16 percent of sales. But before any of the royalties reach an artist, they must usually cover promotion, production, packaging and other expenses. In addition, the labels withhold large percentages to cover discounts they offer to retailers as well as reserves for any returned goods.

Up to this point, artists have faced the choice between paying for expensive audits, possibly uncovering less money than the cost of the audit, or not conducting the audits and losing out on royalties.

“You get a limited right to audit in most contracts, but it’s not a legitimate right if you can’t afford to do it,” Murray said. [AP]

This is a huge step toward keeping the record companies honest, and toward leveling the playing field between labels and artists. Great job.