Requiem for a Grooveshark: How Did It Last So Long?

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Its business model allowed the streaming service to survive years of legal attacks before succumbing this week. How?

A streaming service is not a streaming service. Grooveshark, the notoriously unrepentant music streaming service that ceased operations yesterday (Apr. 30), had for years survived legal attacks by major music companies. In the end, a settlement with major labels reached on Thursday, the business model that had been protecting Grooveshark was fatally wounded by the actions of its executives.

A typical on-demand music service follows one of two paths. It will look to raise large sums of capital, license music from record labels and lose money while growing market share. (This is the path Spotify has taken.) In the other scenario, a streaming service struggles to reach a critical mass and is absorbed into another service, creating a larger company with greater prospects for success. (This happened with Napster, and will almost certainly happen with others.) Beats Music's quick acquisition by Apple was atypical. 

Grooveshark took a different path. Although it licensed some music, the company built most of its catalog from the uploads of its users. This placed it in a category with YouTube, also sourced through user-uploaded files, rather than Spotify (an on-demand service which licenses its music from rights holders) or Pandora (a non-interactive service which primarily relies on a statutory license). And like YouTube, Grooveshark used a component of copyright law called a "safe harbor" that protects digital services from the infringing behaviors of third parties.

In the simplest of terms, the safe harbor provisions require both ignorance and due diligence. A digital service cannot have actual knowledge of infringing material hosted on its network. And it must promptly remove infringing content when notified by the copyright owner. (There's much more to it of course, which you can find an explanation of here.) Grooveshark's usage of safe harbor was integral in its longevity.

But Grooveshark was far from ignorant of copyright infringement on its system. The company claimed to operate "with strict DMCA compliance," as a spokesperson told Billboard in October after a Manhattan court ruled against the company in a copyright infringement suit. That case revealed conduct the DMCA does not allow, namely instructing employees to upload songs to grow its catalog. "Escape engaged in purposeful conduct with a manifest intent to foster copyright infringement," the judge wrote at the time.

In fact, the judge in most recent summary judgement on March 25th ruled Escape Media wasn't entitled to the safe harbor defense. The company was found to have an insufficient record-keeping system, that it failed to terminate repeat users and "actively" prevented copyright holders from collecting information needed for their take down requests.

Legal on-demand services are different. Spotify, Rhapsody, Rdio and many other services have licensing deals that cover all songs in their catalogs, agreeing to pay a certain amount of royalties -- typically 70 percent of company revenue -- and must renegotiate those deals with labels every few years. (YouTube, while reliant on safe harbor for much of its existence, eventually worked out licensing deals with labels as well as publishers.) While the relationship between services and labels is often tense, the two sides works as partners toward a shared goal. Grooveshark was never viewed in the industry as a partner. 

Lawsuits and road blocks did not deter Grooveshark from innovating. The service claimed 35 million unique users when it released a redesigned website in 2011. The following year, Grooveshark released a data product, called Beluga, and released an HTML5 website as a workaround to having its apps banned in Apple's App Store and Google Play. It launched a radio service called Broadcast in 2013.  As recently as December the company was planning to launch a paid Internet radio service called Broadcasts.

The company held out hope it could work out a deal with major labels."Look how effective we've been with headwinds. Now imagine what we could do with tailwinds," CEO Sam Tarantino told Mashable in 2013. Instead, major record labels took away Grooveshark's sails and impounded its boat.

It's remarkable the company was at sea for so long.


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