Grooveshark Tries to Play by the Rules With Online Radio App

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 [e-mail]

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