Business Matters: Grooveshark Sued by EMI, Blames High Royalties and Pending Acquisition by Universal

Warner and Sony Join Universal's Lawsuit Against Grooveshark

Warner and Sony Join Universal's Lawsuit Against Grooveshark

Grooveshark Sued by EMI
-- Grooveshark has been sued by EMI, but you wouldn't know it from the music streaming service's explanation for the companies' failed relationship.

A Tuesday post at reported the recorded music division of EMI has terminated its contract with Grooveshark after the company failed to pay an agreed-upon $100,000 installment payment on a promissory note of $450,000. An EMI spokesperson confirmed to the company is seeking summary judgment in a New York court and has terminated its licensing agreement with Grooveshark.

A complaint filed in the Supreme Court of the State of New York, a copy of which has been seen by, says EMI moves for summary judgment "in lieu of a complaint" against Grooveshark parent Escape Media Group, Inc. for $300,000, plus interest and costs, on the grounds Escape failed to make a $100,000 payment on a promissory note that was scheduled for March 15. Escape made payments totaling $150,000 in December, January and February.

Grooveshark is telling a different story, however. In a statement to, the company claimed to be the party that unilaterally terminated the contract. "Grooveshark was recently forced to make the difficult decision to part ways with EMI due to EMI's currently unsustainable streaming rates and EMI's pending merger with Universal Music Group, which we consider monopolistic and in violation of antitrust laws," the statement says.

"We were bemused by Grooveshark's statement following EMI's launch of legal action against them for breach of contract," an EMI rep said in a statement to "The only decision that Grooveshark has made is to stop paying artists for the music that is carried on their service."

What a strange turn of events. Exactly how does a digital music service walk away from a licensing agreement due to a corporate merger that has yet to win or lose regulatory approval? Why would Grooveshark decide to walk away from "unsustainable streaming rates" it had agreed to pay for the duration of the contract?'s request to Grooveshark for further explanation was not answered at deadline.

Gainesville, Fla.-based Grooveshark has been a magnet for lawsuits over the years. EMI sued the company in June 2009 and settled -- with an agreement to license its catalog -- in December of that year. Independent rights organization Merlin sued and settled with Grooveshark the following year.

More lawsuits have recently piled up. EMI Music Publishing sued for breach of contract in January. Universal Music Group sued Grooveshark over alleged copyright infringement, among other things, in November. Sony and Warner Music Group joined the lawsuit in December.
( CNET)'s Approach to Licensing From the Majors
-- Grooveshark wasn't mentioned by name at's panel at SXSW Interactive last month, but the audience would be forgiven for thinking of the embattled music service when chairman Seth Goldstein described what he feels is a doomed strategy for launching a music streaming service.

"There are some examples," Goldstein said, "I won't mention them by name -- of startups that are like, 'You know what? I'm going to just create the biggest freakin' music service. I don't care about the labels. I'm going to get 20 million users and then the labels are going to have to deal with me on my terms because I have the audience. And then I'll do deals but I'll have so much leverage I'll [be able to] squeeze them.' And the labels just love that because they have tons of lawyers and they're really good. And they force you to hire really good and really expensive lawyers, and it just becomes a war of attrition. And you will lose because the VCs no longer want to back that."

The example Goldstein described jibes with the internal emails contained in Universal's lawsuit against Grooveshark's parent company, Escape Media Group, Inc. has done the exact opposite. The company inked licensing deals with all four majors a mere nine months after the service's public launch. Goldstein understood that labels have a lot of deals on their desks but have limited business development resources. "The most important thing is to just get above the noise and don't overstay your welcome," he said. The company was helped by the fact that some of its angel investors were "very significant, very senior" people within the music industry who Goldstein says "blessed us as being more than flash in the pan."

Rather than spend months negotiating only to end up with the only deal that would be on the table, moved quickly. They key, Goldstein said, is to swallow your pride and just realize you're working with other people's content. "The bigger you get, the more you fatten yourself up for these entertainment companies," he said. "So you better put something in place sooner than later."

L.A.'s Origami Vinyl Turns 3, Format Still In Demand
-- Origami Vinyl, located in the Echo Park neighborhood of Los Angeles, has turned 3 years old. In that time, Internet radio has gone mainstream, digital download sales have continued to soar and new subscription services have popped up in the U.S. and all around the world.

Origami Vinyl's rate of growth has slowed (not a surprise) but the format is still gaining. U.S. vinyl sales were up 20.8% through March 25, according to Nielsen SoundScan. That pace is down from both the 29.4% year-to-date gain at the same point last year and the 36.2% gain in 2011. But in terms of unit gains, vinyl sales are almost level with last year: sales were up 160,000 units through March 25, 2011, compared to 175,000 units in the same period in 2011.

Origami Vinyl has noticed this continued growth in demand. "[We've seen] that more and more people are pressing records these days," owner Neil Schneild told LAist. "We're a curated record shop and that's what we thrive on, so we have to be selective about what we bring in and what will fit in the space. So it's making my job a bit more difficult, but that's a fantastic problem to have. When we first opened, there weren't as many options, so this is great. Another trend is that more people are buying vinyl. It just continues to expand -- and we see all ages."

Origami Vinyl is taking its love of the analog world even further by creating limited-supply zines and hosting in-store performances. The latter is a common event at record stores as local artists play to promote their releases and touring artists do short sets at record stores before their club shows later in the evening. Printing zines, like selling vinyl, is a throwback to a time when recorded music products were far scarcer.

The store isn't anti-digital, however. It will soon unveil an iPad-based listening station as well as an online store (that will presumably sell vinyl).

People get excited about vinyl's renaissance. Vinyl represents a backlash against easily available digital music as well as the weaker sound quality of compressed downloads and digital streams. Its growing popularity means some people still like the tangible nature of music products. Vinyl's difficult nature becomes more alluring when digital music is so easy.

But it's important to keep perspective. The format accounted for only 1.2% of U.S. album sales and 2.1% of physical format sales through March 25. The CD, always in decline, represented 60.9% of album sales through March 25.
( LAist)