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Music Streaming Service Grooveshark Goes Belly Up

By Mark Wilson, Esq. | Last updated on

Well, it was bound to happen sooner or later. Grooveshark, once home to 35 million users, has officially shut down under the pressure of $17 billion in lawsuits from music labels that claimed the eight-year-old company infringed on their music and allowed users to do the same.

If the Napster case defined the boundaries of the online music store for the 2000s, Grooveshark will define the streaming music player for the 2010s -- an era where even digital sales are giving way to online streaming.

Close Up Shop or We'll Bury You in Penalties

The closure is part of a settlement with the music companies, Rolling Stone reported last week. One of the conditions is that Grooveshark hand over basically everything -- its website, its intellectual property, and its mobile apps -- to the music companies. Why shut down? It was either that or pay $736 million in statutory damages to the music companies.

Unlike websites like Spotify or Pandora, which licenses music legally from publishers, Grooveshark allowed users to upload their own music files and then used those files to stream copies of songs to other users. This is a capital no-no in the music world, which entitles the publisher to some cash every time a song gets played.

Which Business Model Is Next?

Grooveshark's fate was basically sealed in October after a federal district court granted summary judgment for the music labels in a copyright infringement suit. In that case, it was revealed that Grooveshark's CEO essentially ordered employees to upload as much of their own music as they could in order to create the initial library of streaming music. This, at the very least, didn't allow Grooveshark to claim the DMCA Section 210 "safe harbor"; in this case, Grooveshark actively encouraged infringement, instead of sitting idly by while it occurred.

For some reason, Grooveshark thought it could keep the music companies at bay with the promise of lucrative personal information on users, something it would sell to the companies for more than it would cost to license the music. The companies, though, didn't seem interested, and Grooveshark's business model -- revealed in internal emails to be " [it] is easier to ask forgiveness than it is to ask permission' to use plaintiffs' content" -- fell apart.

It's worth noting that "outlaw" websites often predict what users really want before the legitimate industry catches up. Before there was Spotify, there was Grooveshark. Before there was the iTunes Store, there was Napster. Before there were Netflix and Hulu, there was no end of websites where users could illegally watch streaming content.

Once companies see that the business model presaged by illegal websites might be profitable, they move in and shut down the illegal websites. Would there have been a Spotify without a Grooveshark? Maybe -- but it may have taken longer for studios to catch on to what people really wanted.

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