DSP Audits

Yes, the Music Modernization Act (MMA) assigns a number of statutory functions to The MLC. One such function is to engage in audits of DSPs to verify the accuracy of blanket license royalty payments. (17 U.S.C. 115(d)(3)(C)(i)(XII)). The MMA provides guidelines for how those audits may take place. (17 U.S.C. 115(d)(4)(D))

No, rightsholders are not responsible for the cost of conducting audits. Audit costs are covered by The MLC’s operational budget which, as specified by the MMA, is fully funded by DSPs through an administrative assessment set by the Copyright Royalty Board. The funding the DSPs provide to The MLC to cover its operational budget is completely separate from the mechanical royalties DSPs are required to pay to The MLC. Unlike other collective management organizations, The MLC does not deduct any fees from the mechanical royalties it collects and distributes to rightsholders.

If an audit leads to the recovery of additional royalties, The MLC will distribute the full amount of those additional royalties to rightsholders, without deducting any audit costs or fees from the royalties recovered.

The MLC initiates an audit of a DSP by filing a Notice of Intent to Audit with the Copyright Office and simultaneously delivering a copy of the notice to the DSP. The notice must identify the period of time to be audited. The Register of Copyrights is directed to publish the notice in the Federal Register within 45 days after receipt.

The MLC can initiate an audit of a particular DSP no more than once in any 3-calendar-year period.

Each audit may cover a verification period of up to 3 full calendar years preceding the year during which the audit was noticed.

The MLC may not audit records for the same verification period more than once.

There is no deadline in the MMA for when audits must conclude, but it does set certain standards for how an audit should proceed:

• Audits must be performed during the ordinary course of business by examining the books, records, and data of the DSP, according to generally accepted auditing standards and subject to applicable confidentiality requirements.
• The DSP must make such books, records, and data available to the auditor, must respond to reasonable requests for relevant information, and must use commercially reasonable efforts to provide access to relevant information maintained with respect to the DSP by third parties.

The audit must be conducted by a qualified auditor, which means an independent, certified public accountant with experience performing music royalty audits. (17 U.S.C. 115(e)(25))

The MLC has undertaken an RFI/RFP process to identify and select qualified auditing firms to conduct audits on behalf of The MLC.

If an audit leads to the recovery of additional royalties, The MLC will distribute the full amount of those additional royalties to rightsholders, without deducting any audit costs or fees from the royalties recovered.

If an audit reveals an overpayment by a DSP, The MLC is directed to provide a credit to the account of the DSP, which must accompany a corresponding debit from Members who received overpayments.

The MLC will clearly identify any royalty adjustments that are made as a result of audits on the royalty statements for each impacted Member.

On January 10, 2024, The MLC issued notices of intent to conduct audits of DSPs that began reporting usage to The MLC in 2021 in order to preserve The MLC's right to verify the accuracy of royalties reported and paid by those DSPs for the three-year period beginning on January 1, 2021 and ending on December 31, 2023. Here are DSPs that received audit notice letters dated January 10, 2024:

• Amazon Media Venture LLC (AMP)
• Amazon.com Services LLC (Amazon Music)
• Anghami FZ LLC (Anghami)
• Appcompanist, LLC (Appcompanist)
• Apple Inc. (Apple Music)
• Artist Technology Group DBA PANTHR Music (PANTHR Music)
• Audiomack Inc. (Audiomack)
• Avail LLC (The Cover Foundry)
• Beatport LLC (Beatport)
• Bill Graham Archives, LLC (Wolfgang’s Music)
• Boxine GmbH (Tonies)
• Choral Tracks LLC (Choral Tracks)
• Classical Archives, LLC (Classical Archives)
• Da Capo Music, LLC (Yes! Fitness Music)
• Deezer S.A. (Deezer)
• Fan Label, LLC (FanLabel)
• Global Tel*Link Corporation (GTL)
• Google, LLC (Google Play Music/YouTube)
• GrooveFox Inc. (GrooveFox)
• IDAGIO GmbH (Idagio)
• iHeartMedia + Entertainment, Inc. (iHeart Radio)
• M&M Media, Inc. (Trebel)
• Midwest Tape, LLC (hoopla)
• Mixcloud Ltd (Mixcloud)
• MONKINGME S.L. (MonkingMe)
• Music Choice (Music Choice)
• Napster Group PLC (Napster)
• Naxos Digital Services US Inc. (NAXOS)
• Nugs.net Enterprises, Inc. (Nugs.net)
• Pacemaker Music AB (Pacemaker)
• Pandora Media, LLC (Pandora)
• PianoTrax LLC (PianoTrax)
• Power Music, Inc. (Power Music)
• PRIMEPHONIC B.V. (Primephonic)
• Recisio SAS (Karaoke Version)
• Saavn Media Limited (Jiosaavn)
• Securus Technologies, LLC (Securus)
• Slacker, Inc. (Slacker/LiveXLive)
• Smithsonian Institution (Smithsonian Folkways Recordings)
• Sonos, Inc. (Sonos)
• SoundCloud Operations Inc. (Soundcloud)
• Spotify USA Inc. (Spotify)
• TIDAL Music AS (Tidal)
• Transsnet Music Limited (Boomplay)
• TRIBL, LLC (Tribl)
• Ultimate Guitar USA LLC (GuitarBackingTrack.com)
• Weav Music, Inc. (Weav Run)
• XANDRIE USA (QOBUZ)
• Yoto Ltd (Yoto)