Grooveshark.com, 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 to rightsholders, like record labels and publishing companies, for each play a user makes. 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 symbolic step forward in the maturation of audio streaming. By providing a legal setback for piracy-friendly services, the settlement evens the playing field for legitimate ones, encouraging consumers to pay fair value for music.
Grooveshark joins the legacy of services like Napster and Limewire among companies that proffered free, unlicensed music until the long arm of the law finally wrangled them. Unlike those early companies, which had little competition and forced legal downloads into existence, Grooveshark, had legal – and free – competitors that offered the same service for much of its lifetime.
When Grooveshark began operating in 2006, downloads were king, and there were so few competitors that consumers who wanted to stream had few options. That changed quickly, however. 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 whom pay via subscription, and three-quarters of whom 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.
Tyler Goldman, North American chief executive of Deezer, one of the world's largest streaming companies, says the closure of Grooveshark won't immediately drive a significant number of new users to services like his. Pirates, he said in an interview, will be pirates; Deezer and its competition should instead strive to make excellent products.
"I think users could pretty much get the same thing on YouTube," he said. "I think it's incumbent on us as quality audio providers to continue to improve the value of our service. I think that's what's driving our growth."
(Representatives from other streaming services such as Tidal and Rdio did not respond to requests for comment.)
Grooveshark's business model relied on having users upload music to their servers, rather than licensing from the companies who owned the rights. This model allowed it to host rare and difficult-to-license tracks that don't appear on other streaming services, which helped it earn its millions-strong user base. It was a slippery legal slope quickly steepened when allegations were reported that its own employees uploaded music to its servers.
This free-for-all mentality sometimes extends 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. But unlicensed music in videos still needs to be sought out and shut down, meaning there's still plenty of it to be found.
Reuters reported that the Grooveshark's growth plan was fuelled by unlicensed content with a plan to "beg forgiveness" when caught by labels.
"This is an important victory for artists and the entire music industry," the Recording Industry Association of America, which represents the major American music labels that brought forward legal action, said in a statement. "For too long, Grooveshark built its business without properly compensating the artists, songwriters and everyone else who makes great music possible. This settlement ends a major source of infringing activity."
It was an avoidable end for an otherwise pioneering service. "If Grooveshark had gone and gotten properly licensed, they might still be around right now," Mr. McBride said in an interview.