Grooveshark

What did it do?

Grooveshark was a Gainesville-based, web-based music streaming service run by Escape Media Group. Users could upload digital audio files, which other users could then play and organise into playlists. Alongside its search engine, recommendation system and free basic membership, the service had two paid subscriptions.

Why did it shut down?

The service's catalogue relied largely on files uploaded by users, and none of the major record labels had approved its original model. Universal Music Group sued in 2010 and 2011; UMG alleged that Grooveshark employees had uploaded thousands of illegal copies, which the company denied. EMI, Sony and Warner also sued, and Apple and Facebook removed the app from their platforms over copyright concerns. Facing potential damages of up to $736 million if the infringement were found to be wilful, the company accepted a settlement on 30 April 2015 that required it to shut the service immediately and hand its assets to the record labels.

The story

On 30 April 2015, people visiting Grooveshark found not music but a message announcing its closure. The site had been shut that day under a settlement with the record labels, and users were being directed to licensed music services. A service with more than 1 billion plays a month, a catalogue of more than 15 million songs and 20 million users disappeared overnight.

Grooveshark was founded in March 2006 by three students at the University of Florida: Andrés Barreto, Josh Greenberg and Sam Tarantino. In its first two years the service was a paid download platform on which users sold songs to each other for 99 cents; of that, about 70 cents would go to the record label, 25 cents to the user who sold it and 4 cents to Grooveshark. The model won approval from some small labels, but none of the majors. In April 2008 a web player that required no downloads was launched, and its popularity rose fast.

Growth came with legal risk, because the catalogue consisted largely of files uploaded by users. Universal Music Group sued in January 2010 and filed a second suit in November 2011; UMG alleged that Grooveshark employees had made more than 113,000 illegal uploads. Grooveshark denied the allegations and argued that the documents had been badly distorted. EMI, which had settled and signed a licensing deal in 2009, also sued on the grounds that it had not received royalty payments; Sony and Warner were among the plaintiffs too. Apple and Facebook removed the app from their platforms over copyright concerns, and in Germany the service was shut down, citing licensing costs.

The lawsuits dragged on for years. When it emerged that the company could have to pay damages of up to $736 million if the infringement were found to be wilful, Grooveshark settled with Universal, Sony and Warner. Under the settlement the service was shut immediately, and the website and all intellectual property were handed to the record labels. Shortly afterwards a site using the same name appeared, but it turned out to be a rebranded version of an existing MP3 search engine.

Grooveshark's story sums up the fate of services that try to make content licensing catch up with their growth. User affection and technical success were no substitute for an agreement that had never been reached with the rights holders.

Lessons for founders

• If your catalogue depends on user uploads, audit the limits of safe-harbour protection and your employees' conduct together with lawyers.
• A content service that scales without licences from the major rights holders grows its damages exposure as it grows.
• Being removed from app stores can close your distribution channel overnight; make compliance with platform policies part of your product strategy.

Sources

1. Grooveshark (Wikipedia)
2. Grooveshark Shuts Down to Settle Copyright Infringement Suit (The New York Times, 2015-05-01)
3. Grooveshark now feels lawsuit wrath of all major music labels: EMI, which had a licensing agreement with the music streaming service, alleged in a breach of contract lawsuit that it had not been paid any royalties (CNET, 2012-01-06)

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