Annual Statement of Accounts (ASOA) certification required for music streaming service providers

In 2018, on-demand streaming services accounted for 75% of all music listening, an increase of 25% from 2016.[1] As new streaming services flood the market to meet consumer demands, these companies must comply with regulations governing the payment of royalties under the licensing agreements in place and the controls in support of processing transactions.

What you need to know

The Library of Congress U.S. Copyright Office 37 CFR 210.17(f)(2)(iv) regulation requires an Annual Statement of Accounts (ASOA) certification to ensure all royalties are all accurately paid to the music labels and the artists. Most critically, the ASOA certifies:

• The processes used by or on behalf of [streaming service], including calculation of statutory royalties, generated Annual Statements of Account for the year ended [insert date] (“Annual Statements”) must conform with the standards in 37 CFR 210.17(f)(2)(iv); and
• The internal controls relevant to the processes used by or on behalf of [streaming service] to generate Annual Statements must also be certified to be suitably designed and operating effectively during the period covered by the Annual Statements.

The law requires each ASOA to be certified by a licensed Certified Public Accountant (CPA). There are options to consider when undergoing the certification (e.g., SOC 1 Exam, AT205) with the goal of ensuring the following:

• Royalty inputs are recorded and processed in a complete, accurate and timely manner.
• Royalties are accurately calculated and Annual Statements are generated in a compliant manner.
• Internal controls related to systems and system processing are in place.

Ensuring compliance and obtaining the ASOA certification

Streaming royalties can be extremely complex. The issue has many nuances that must be defined in order to navigate compliance requirements. Consider these key questions:

• Does your organization’s systems process and report the data correctly?
• Does your organization rely on third parties as part of your processing? And, are adequate controls and processes in place to ensure the data is processed correctly?

Engage a trusted third-party advisor to help walk through the ASOA requirements, better understand the risks to your organization, gain assurance over your internal controls and obtain the required certification. For more information on this topic, or to learn how Baker Tilly specialists can help you with your ASOA, contact our team.

[1] Neilson 2018 Mid-Year Music Report: https://www.nielsen.com/us/en/insights/report/2018/us-music-mid-year-report-2018/