Royalty disputes appear in nearly every creative field. Musicians, writers, filmmakers, and performers rely on ongoing payments tied to how their work is used. When those payments do not match expectations, disputes follow. In almost every case, the contract becomes the central document that determines what should happen. Clear agreements help avoid problems, while vague or outdated ones often create them.
Common DisputesDisputes frequently arise from the manner in which royalties are calculated. A contract may promise a percentage, but the question becomes what that percentage is based on - is it gross or is it net? And if it is net, what exactly is deducted from the gross to produce the net? Many agreements deduct costs before calculating the royalty, which can significantly reduce the final amount. For musicians, this might include recording expenses, marketing charges, or packaging deductions. For authors, it could involve reserves for returns, taxes, or administrative fees. When these deductions are not clearly defined, misunderstandings can develop quickly.
Transparency is another issue. Creators do not always receive detailed written statements or accountings that show how revenue was generated or how their share was calculated. Streaming platforms often rely on formulas that can be hard to interpret. Film and television projects may involve multiple distributors or territories, each with its own reporting cycle. When creators cannot see how the numbers are produced, it becomes difficult to confirm accuracy.
Language in older contracts also causes problems. Terms like "net receipts," "worldwide rights," or "all media" can become unclear as technology evolves. Streaming, podcasting, and user-generated content did not exist when many contracts were written. As new revenue streams develop, both sides may interpret older language differently.
Audit rights are another common source of conflict, as contracts are often unclear about whether an audit is allowed, how often one can be requested, who pays for it (the audit costs can be expensive if an experienced CPA is involved), or what happens if discrepancies are found. Separately, payment timing also creates disputes. Whether royalties are issued quarterly, semiannually, or annually, delays or missed deadlines become serious concerns when income depends on consistent reporting.
How Contracts Guide ResolutionsStrong contracts reduce these risks by addressing issues before they arise. Definitions help clarify how revenue is categorized. Detailed royalty structures explain how percentages apply to different income streams. Accounting provisions outline what information creators should receive with each statement. Audit clauses specify the process when verification is needed. Dispute resolution provisions describe whether disagreements go to mediation, arbitration, or court.
When a dispute occurs, the first step is a careful reading of the royalty calculation, accounting, and audit provisions of the contract. Many issues can be resolved by applying the terms as written. Others may require renegotiation or formal dispute resolution, but the contract remains the roadmap for the process.
Arbitration vs. Litigation: Pros and ConsMany entertainment agreements require arbitration instead of litigation. It’s essential to understand the trade-offs:
Arbitration is usually faster than litigation, and allows parties to select an industry expert as the neutral third party, as opposed to a judge simply being appointed. It has the advantage of privacy if confidentiality is important to you. The proceedings are not open to the public, and there is no public record. However, discovery (rights to documents and information in advance of the hearing) can be more limited in arbitration matters, and the decision is usually binding, meaning there is no right to appeal.
Litigation (going to court) provides broader access to information through discovery, which can be particularly helpful when one party controls most records, and it enables you to go into the hearing more prepared. Court decisions also create public records. However, litigation typically takes longer, is more expensive, and involves more formal procedures.
Royalty disputes can be stressful, especially when they involve work that reflects years of effort. The strongest protection comes from understanding the agreement before signing and reviewing key financial terms carefully. When questions arise, the contract guides both the discussion and the resolution. With clear agreements and informed decision-making, creators can better protect the value of their work and reduce the likelihood of conflict.
Hrbek Law works with creative professionals on contract negotiations and royalty issues. Contact us today if you need assistance with your agreement or are dealing with payment problems.