Last Friday, the Copyright Royalty Board filed a notice of its intent to audit TuneIn, a streaming radio provider, for its collection and payment of royalty fees to copyright owners and performers. The audit was authorized by SoundExchange, the organization designated by the CRB to collect royalty payments and statements submitted by licensees such as TuneIn and distributing royalties to the appropriate parties.

SoundExchange may choose to conduct an audit once a year for any or all of the previous three years for any licensee but may only audit a given year one time. In TuneIns case, docket number 19-CRB-0008-AU, SoundExchange has chosen to audit TuneIns 2018 account statements. The audit will be conducted by Lawrence Offsey, a Certified Public Accountant, of Hexagon Associates.

The CPAs role is to determine the accuracy of the royalty payments or distributions and whether overpayments or underpayments exist. The CPA will provide a written report to SoundExchange. If it is determined that royalties were underpaid, TuneIn will be required to promptly remit the balance due, including applicable late fees. If they overpaid, however, they are not allowed to recoup, offset or take credit for the overpayment unless an agreement is made with SoundExchange.

Under Title 17 of the Copyright Act, streaming providers like TuneIn, Spotify and Pandora – whether offering their services via subscription or without a subscription – are granted the right to reproduce sound recordings owned by others to facilitate the digital transmission of those recordings provided they pay royalty fees to the copyright owners of those recordings and comply with the terms set by the Copyright Royalty Judges.

The following rules apply to licensees, including TuneIn, in the payment of royalty fees:

• Make monthly royalty payments to SoundExchange on or before the 45^th day after the end of the month in which the licensee made eligible transmissions.
• Licensees must make any minimum annual payments by January 31 of the license year.
• A late fee of 1.5%, or the highest lawful rate, whichever is lower, per month applies. SoundExchange can waive or lower this fee for immaterial or inadvertent failures to make timely payments.
• SoundExchange must notify licensees within 90 days if they discover noncompliance.
• Royalty payments must include a statement of account.
• SoundExchange must promptly distribute royalty fees to copyright owners and performers.

As a streaming music, news and podcast provider, San Francisco-based TuneIn uses a freemium model. There is an ad-supported free version as well as a premium subscription. The free version gives users access to 120,000 radio stations and podcasts. The premium version gives subscribers access to premium live NFL, MBL, NBA and NHL sports, news and talk radio, live streams and original content including festivals, and commercial-free podcasts and music sorted by genre (e.g., Classic Rock Hits, Radio Disney, Latin Hits, Smooth Jazz, Country Roads). The commercial-free news option launched in October 2018, featuring CNBC, Fox News Talk, MSNBC and news podcasts from Progressive Voices, The Economist and The Wall Street Journal. A TuneIn premium subscription is available for $9.99 a month after a seven-day free trial, or of $99.99 a year after a 30-day free trial.

According to TuneIns media kit, the streaming provider reaches 77 million global users each month, including 23 million in the U.S., who listen to more than 400 million hours per month. It is available in 239 countries and territories and on more than 200 platforms and connected devices. The company is backed by Comcast Ventures, IVP, Sequoia Capital, Causeway, General Catalyst Partners, Icon Ventures, and Marker LLC.

In terms of popularity, in January 2017, TuneIn was ranked the top streaming audio service by only 4% of 5,200 survey respondents 13 years and older, based on their usage over the previous 12 months.

Insider Take:

How royalty payments are calculated and paid has been a contentious topic between licensees and copyright owners and performers since streaming music was first available. Copyright owners and performers believe they are underpaid, and streaming services have pushed back. In January 2018, the CRB ordered streaming music services to increase royalties by 43.8% over a period of five years. This will raise expenses significantly for services like TuneIn but still may not pay artists adequately for their work.

That said, neither the CRB nor SoundExchange have indicated or implied any wrongdoing on the part of TuneIn. This could be a random audit, or there could be suspicion of underpayments by TuneIn to copyright owners. The announcement of the intent to audit is a legal requirement, so we cant make any assumptions based on that announcement alone. However, it does remind licensees that a third-party has the right to inspect their books to ensure copyright owners are paid according to the CRBs requirements – a subtle but perhaps necessary reminder.