Grooveshark has been in the news lately. Many of the major music companies have filed suit. Proceedings against Grooveshark started in November 2011, with Universal Music demanding compensation for tracks that were not cleared. A month later, Sony Music Entertainment and the Warner Music Group followed. By January 2012, EMI Music Publishing was alleging breach of contract and failure to pay agreed royalties. In the federal case, Grooveshark executives are being accused of personally uploading copyrighted material to their site.
Yet early in the Fall, and before the above allegations were made, the Journal treated Grooveshark as a legitimate business in a comparison with Spotify and Rhapsody. We now know better, and would like to apologize for this oversight; see “Spotify: Not Out of the Woods Yet”, Music Business Journal, October, 2011; 8-9.
Here is a brief update. The legal case against Grooveshark was given momentum when one of its employees was anonymously quoted on Digital Music News suggesting that the company understood it was flouting the law. The site allows streams and uploads of music and offers two different premium-subscription paid memberships with various perks (such as no advertisements and customizable features). It is likely profitable, with about 35 million users. Ironically, the company that owns Grooveshark is named the Escape Media Group.
Back-end B2B deals in the US are thus on hold for the moment, although progress has been made with some independent labels. Nevertheless, the arm of the big four labels extends overseas, so the future of Grooveshark is also in question there. In January, GEMA, a German authors’ and performing rights organization protecting more than a million copyright owners worldwide, stopped talks with Grooveshark over the latter’s refusal to accept licensing terms (in fairness, neither Spotify or Rhapsody have yet entered the German market because of similar concerns).
Grooveshark’s main defense seems to be the Safe Harbor Provision, which basically states that the company is not liable for the content uploaded by users onto their site. On paper, their business model appears to be eligible under the provision because the service enables users to upload and stream music through their site; Grooveshark itself only provides the server.
Universal’s basis for the suit is, incidentally, (i) whether the anonymous comment posted on Digital Music News can be traced back to its source and implicate Grooveshark; and (ii) whether there are business records at Escape Media Group that show uploads by its own company employees.
On the first question, Digital Music News was served a subpoena by Escape Media to reveal the source of the article where the anonymous comment implicated the group. Paul Resnikoff, chief editor of Digital Music News, argued that he was protected by the law and was not obligated to disclose his sources. He added, defiantly, that “[such a protection] is the cornerstone of a free press and open society that we all enjoy in the United States, and the result for us has been a body of knowledge that is unrivaled and growing every day… we count many executives from Escape Media Group as devoted readers”. (For Resnikoff’s full response see www.digitalmusicnews.com/permalink/2012/120119deargrooveshark )
The answer to the second question will depend on the evidence presented to the court. Still, the arm of the law seems to be reaching out to make yet again the case for intellectual property theft. At the very least, this is bound to stunt Grooveshark’s growth.
By MBJ Staff