<a href="http://Grooveshark.com" rel="nofollow">Grooveshark.com</a>, one of the Internet’s earliest, but most legally murky, streaming music services, shut down this week as the result of a settlement with major record labels.
Its parent company, Escape Media Group Inc., faced trial in a New York federal court this week that could have seen the company pay more than $736-million (U.S.) in damages for copyright violations on close to 5,000 songs, Reuters reported.
The trial started Monday, but on Thursday night, Grooveshark’s founders announced that a settlement had been reached and that as a result the service would immediately cease operations.
Traditional streaming music services pay royalties rights holders, like record labels and publishing companies, for each play by a user. While these are usually worth fractions of a penny, they can add up to significant quantities. Grooveshark allowed users to upload music to be listened to by other users across the service, circumventing these cumbersome, but legally required, licensing agreements.
The service’s website has been replaced with a statement apologizing for the company’s actions, admitting that it “failed” to secure licences. “That was wrong. We apologize. Without reservation,” the statement reads.
While streaming video enterprises like Netflix have seen profit and widespread adoption, audio streaming has lagged behind in both. The shuttering of Grooveshark is a major step forward in the maturation of audio streaming services, evening the playing field for legitimate competitors like Spotify and Rdio while encouraging consumers that music, even when streamed, has value worth paying for.
When Grooveshark began operating in 2006, downloads were king, and there were so few competitors that consumers who wanted to stream had few options. But in the past few years, streaming music has seen massive growth, making licensing agreements the norm.
“Grooveshark consciously broke the law and knew it,” said Terry McBride, founder and chief executive of the Vancouver independent label Nettwerk Records and a well-known proponent of fairly licensed digital music. “The very big difference between now and a decade ago is that there’s alternatives that offer a free way of doing it that are licensed and that treat everyone in the ecosystem fairly.”
It once boasted 35 million paying users. But now the Swedish service Spotify, which has licensing agreements for all of its audio content, has 60 million users, one-quarter of which pays via subscription, and three-quarters of which pay nothing, but must hear ads. The marketplace for on-demand audio streaming is now full of healthy competition, including Deezer, Rdio, Jay-Z’s high-fidelity Tidal service and Google Play.
None of them has turned a sustainable profit, but the streaming industry has seen impressive growth in the last few years. While the $15-billion global recording industry saw flat growth in 2014, the decline of CD and download sales was bolstered by 39 per cent revenue growth from streaming. The International Federation of the Phonographic Industry, a major recording industry lobby group, said in a report earlier this month that subscription streaming is becoming a “key driver” of the floundering industry.
Grooveshark’s business model relied on having users upload music to their servers, rather than licensing from the companies who owned the rights. This free-for-all mentality also used to extend to YouTube, but the Google-owned video player has, in recent years, been pulling down audio that includes unlicensed music. YouTube also introduced its paid “Music Key” program last Fall that works in conjunction with its Google Play streaming music service.
Reuters reported that the Grooveshark’s growth plan was fuelled by unlicensed content with a plan to “beg forgiveness” when caught by labels.
“If Grooveshark had gone and gotten properly licensed, they might still be around right now,” Mr. McBride said in an interview.
Representatives from streaming services such as TIDAL, Rdio and Deezer did not respond to request for comment by the time of publication.