By Hannah Karp
Music service Grooveshark has spent years embroiled in legal
battles with record labels because the company didn't obtain
licenses for the music it offered free to its millions of users.
Now the eight-year-old company is trying a fresh approach: playing
by the rules.
Launching what a company spokesman calls its "first compliant
app," Grooveshark plans to roll out a digital radio service in
January that will cost 99 cents a month and run without
commercials. Broadcasts, as the service will be called, will let
listeners text chat with each other via the app while accessing
custom radio stations created by users rather than algorithms,
according to the company.
It's cheap enough to be an impulse buy, but expensive enough to
generate real revenue if enough people sign up, argues Grooveshark
Chief Executive Sam Tarantino. The app, he added, could "change the
ballgame" in digital radio, which is dominated by Pandora Media
Inc.'s free, ad-supported service. Grooveshark has about 30 million
users, while Pandora has nearly 80 million.
In creating Broadcasts, to be offered as a separate app from its
current $9-a-month unlimited service, Grooveshark didn't have to
negotiate with the record labels that sued its founders and parent
company, Escape Media Group, for copyright infringement, winning a
key judgment this fall.
That's because the company is paying government-mandated royalty
rates through the same system used by Pandora and other digital
radio services. On-demand, interactive music services such as
Spotify AB, by contrast, negotiate licenses directly with record
labels.
"We're trying to show that we're doing everything we possibly
can to be a legitimate player here," said Mr. Tarantino. Both Apple
Inc. and Google Inc. have removed Grooveshark's previous apps from
their app stores in recent years after copyright owners complained
that they were essentially forums for piracy. Grooveshark then
created a Web-based app to circumvent those online gatekeepers.
Broadcasts will be available in both Apple and Google's app
stores.
Mr. Tarantino said he didn't obtain licenses when he started the
company because labels were reluctant to give him permission to use
their songs without sizable financial guarantees.
"It was a catch-22--you need money to gain licenses, and you
need licenses to gain money," Mr. Tarantino said. The record
labels, he said, told him to "build something and come back to
us."
After doing so, though, he said his investors told him: "You
have all these lawsuits--we're not going to give you a big
check."
Mr. Tarantino said he is still working to obtain licenses from
the major record labels for Grooveshark's existing unlimited
streaming service, for which it now charges $9 a month. Grooveshark
has some licenses from publishers, artists and smaller labels, but
none from its legal adversaries: Vivendi SA's Universal Music
Group, Sony Corp.'s Sony Music Entertainment and Access Industries'
Warner Music Group. Its current free offering is also an on-demand
listening service, supported by ads, with features such as
collection management and playlists.
Grooveshark's move comes after a New York federal judge in
September backed the labels against the company in a crushing
ruling, which found co-founders Mr. Tarantino and Josh Greenberg
had personally helped upload nearly 6,000 songs for which they had
no licenses, and urged employees to do the same. The judge also
found that the Gainesville, Fla., company and its founders had
destroyed critical evidence, including records of the files they'd
uploaded.Universal Music first sued Grooveshark in 2010 and the
other plaintiffs, Warner Music and Sony Music, joined Universal in
a new suit filed the following year. Damages have not yet been
determined, and Grooveshark may still appeal the decision.
Write to Hannah Karp at hannah.karp@wsj.com
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