People have been trying to come up with a legal way to share music since the heydays of Kazaa and Napster. Record labels weren’t ready to relinquish control, though, and arguably, consumers weren’t ready to pay.
Grooveshark, a file sharing community that allows users to freely buy and sell tracks from each other, hopes that the timing is right to win the labels over.
Grooveshark is two things: A website and a small, downloadable application called Sharkbyte. The website is the front-end, where users browse through music held on others’ computers. Listening to full streaming tracks is free, while buying a DRM-free mp3 version of a song is 99 cents.
The application is where the peer-to-peer magic occurs. Built with Java, so that it can run on Windows, Mac or Linux, the application scans through any folder the user directs it to and compiles a list of music, which is then listed on the main Grooveshark site for others to find.
Later, when another user chooses to purchase a song that is on, for example, my own list, the music will be sent over from my computer. Of the 99 cent charge, 70 cents goes to the record label, 25 cents to me as a credit toward future music purchases, and the remaining 4 cents to Grooveshark. (Later, the 29 cents left after the music label cut will be split 50/50 between the user and Grooveshark.)
No reference is made in a user’s music catalog to where a track originally came from. If it was downloaded illegally, no harm and no foul, says Grooveshark — just share it with others, and the track can start making money for the label again. Of course, Grooveshark’s business plan requires assent from the labels, and so far, they’ve only convinced small ones to sign up (there’s a list here).
This is the point where the bet Grooveshark is making becomes apparent. Although users are only supposed to share songs by artists from the small records on the company’s list, that’s an unrealistic expectation at best, as there’s no way to automatically filter content. So, of course, songs by popular artists from the big labels are for sale all over the website. The company has said it’s holding all sales money from such songs in escrow, until the labels begin to accept it or ask for their artists to be removed.
That may leave the company in a precarious legal position, though. While big labels like Universal and the RIAA seem content to wait and see what happens with Grooveshark’s sales model, they likely have solid grounds for trying to have Grooveshark shut down whenever the fancy strikes them, and even going after the users (though we’re not sure the bad publicity would be worth it for them, since Grooveshark is at least trying to pay the labels).
Still, Grooveshark is one of the best-looking attempts at creating a legal music sharing system that we’ve yet seen.
Grooveshark is located in Gainesville, Florida. It has so far taken just under $1 million in seed funding, and has about 40 employees (it’s keeping its costs low by drawing from students at the University of Florida, where the founders are from). It hopes to close a venture funding round in three to four months.
9 Comments
-
Braydon said:
It’s a pretty gutsy risk they are taking going down the escrow path, despite their end user licensing agreement putting the onus onto their user base for illegal sharing. By accepting money in any capacity, without a license, they have dramatically increased their legal exposure - and with that - cost exposure. I’ve triple checked with our media legal team and confirmed that the cost per infraction is $150,000.
And what’s more, with Universal moving away from signing companies with this kind of deal, it’s not likely they will be given a pass; particularly if their traffic spikes. Lots of users may not actually be a good thing for them.
We opted for the fully legal route to keep our users and our company protected. We considered the Grooveshark model, and technically could implement it in about a two hours, but instead we decided to filter out and only allow downloads of licensed content. Sure, it hinders growth, but it also eliminates risk.
We’re keeping a close eye on how things progress with Grooveshark from a legal standpoint, since if it turns out to be accepted then there are very, very significant implications for digital music online.
-
Sarah said:
ha, if braydon is right it seems like a no brainer. Where’s the article on rvibe.com? it seems like a truly legal way to share licensed songs.
-
james said:
Braydon,
You’re forgetting one fundamental thing as to why the wolves are still at bay. We’re going after the very segment of users that are bringing the labels to their knees with illegal downloading. We’re trying to give the users of illegal networks like Limewire a reason to buy music rather than steal it.
You say you’ve taken the path to “eliminate risk.” Good for you. Now go fight iTunes, Rhapsody, Emusic etc. for the 6% of the market legal downloading represents. We’ll go recover lost revenue for the labels and artists form the other 94% of downloads which are illegal.
One more thing. Rather than shamelessly plugging rVibes in the comments of every article written about us, go make some waves of your own. Like Sarah said, “Where’s the article on rvibe?”
-
Braydon said:
@ James
Don’t get me wrong, I think it’s a very interesting business decision and I hope it is successful; if it is, we’re going to remove our filters and let people share everything as well. And I also agree with you that the millions of users on open p2p networks is a tremendous opportunity (I think everyone agrees).
However, it doesn’t change the fact that there is significant legal (and financial) risk with the direction Grooveshark is going and that the monetization scheme is currently illegal under US copyright law (even if Grooveshark passed the responsibility to their user base as they do currently). To realize that, you need look no further than the MPAA v. Grokster Supreme court case; it comes down clearly on the side of the copyright owner.
And from a business perspective, all of our partners and investors have always wanted to make sure we reduced our legal exposure on sharing. I think most savvy investors, who want a reasonable return, practice due diligence on legal risk with an eye toward protecting their investment.
I’ll pass on the “shameless plug” comment, but note that Sarah actually said “it seems like a no brainer.”
-
Thomas said:
wow, these boards are actually showing some excitement for once…i like it! James, you never answer Braydon’s claim of your site letting users illegally share music. You say you’re trying to give users a reason to buy music rather than steal it, but it seems that you do nothing to stop people from stealing music on your site-simply encourage buying. This might seem like a cool idea, but your users can still share music illegally on your site, plain and simple.
i did some research and saw many articles on rvibe.com throughout the internet, shame on Venture Beat for not profiling them, too.
-
Marc Cohen said:
I don’t understand the notion that Grooveshark is going after P2P filesharers. Just because it uses a P2P backbone? P2P users don’t care about the technology, they care about the price, which is free. Grooveshark is charging more than many large music download stores. Grooveshark has completely missed the point that the lesson of P2P is free.
Grooveshark has already jumped the shark.
-
Elizabeth Connors said:
I understand the notion of legal p2p sharing and I like it-it makes the experience of buying music more fun and interesting than just going to a regular download store.
However, it seems that Grooveshark is just as illegal as Kazaa or Limewire. James, its all well and good to say that while rvibe will try to go after 6% of the market, you guys will go after 94%- but you’re doing it illegally!! why can’t you see this??
Saying you’re going to recover lost revenue for labels and artists is a noble fight, but rvibe seems to be doing that better-by making sure that every song purchased on their site is 100% licensed.
I feel bad for Grooveshark because unlike Kazaa or Limewire, they are putting themselves out there and are setting themselve up to be sued.
-
Sarah said:
a half illegal business is still illegal…
-
james said:
Grooveshark has completely missed the point that the lesson of P2P is free.
No Marc, the lesson about p2p is that a user can find anything they want. They’re not limited by how much music a service can fit on their servers. Price is only half the lure of p2p. Yes, on a standard day we charge 99 cents for a download, but when we throw an ad partner in there, the songs drop to 29 cents. You can see this tonight from 8 to 11 (EST)
(Nice Happy Days reference BTW)
As far as the legality issues, we’ve signed 450+ record labels and are working on the majors. Coincidentally, we just sent out our first batch of checks to copyright holders on Monday.
Now as far as letting people share music illegally. Guy wants song, guy BUYS song, we pay royalties. The user is doing nothing wrong. The issue of having a licensing agreement falls on our shoulders.
I’m kind of busy today, so I won’t have time to go back and forth with a bunch of talk about legal this and legal that. However I will tell you to keep your ears open and your eyes peeled because all of this will pan out soon. So sit back and enjoy the show.
Nemaste,
James
One Trackback
11:20 pm
Grooveshark -- Blog Archive » VentureBeat: Grooveshark offers P2P music downloads — but is it legal? said:
[...] From VentureBeat: [...]