The presence of new media is now more pervasive than ever. There are literally hundreds of companies that offer “Video-On-Demand” (VOD), “Electronic Sell-Through” (EST) and internet/ad supported streaming (ADSS) services, such as: Apple, In Demand, Amazon, Verizon, ATT, Microsoft, Comcast, DirecTV, Sony, Vudu, Google, Hulu, as well as foreign licensees, such as FilmFlex, Telecine, Sky, Orange, etc. The pure number of companies multiplied by the number of movies and television series equals millions and millions of transactions, deriving billions and billions of dollars. The various forms of new media continue to grow and evolve at a vigorous pace and have already begun the process of replacing the traditional DVD market as well as, partially, the traditional television model.
Thus, it is paramount that studios, distributors, agents, or other stakeholders are properly reported by these new media licensees. However, based on our industry experience, such licensees may be prone to errors, which perhaps are caused by the complexity of reporting, the rapid growth without adequate controls in place, coupled with the significant volume of transactions involved. As such, reporting from these new media companies should be carefully monitored. Therefore, and considering the above-mentioned risks, companies may want to exercise their right to audit the books and records of these new media companies to verify that revenues have been reported properly.
The main challenge may be the complexity of the underlying calculation of the royalties paid by the new media companies. As such, you should develop internal procedures to test the proper application of the royalty calculation, as stipulated in the license agreement. Furthermore, studios and other distributors should consider developing an audit program to periodically review new media companies.
If you need assistance with developing such monitoring procedures, with establishing a new media based audit program, or if you simply like more information on new media and the overall audit process in general, please reach out to us for further consultation.
