Grooveshark Rises In Popularity – So Now What?

image from www.blackweb20.com Grooveshark proudly announced on their blog yesterday that they made it onto Google's annual Zeitgeist – a roundup of the most popular search terms on the web throughout the year. They made the list of the Top Ten searches in the United States. Strangely enough, as far as regional of interest goes, the United States is actually last on the list. That's right. Out of ten regions, they're far more popular is places like Costa Rica, Argentina, Chile, UK, and Australia. In Argentina, they're ranked third, beating out Twitter and just behind Justin Beiber.

What's also interesting is that when you click on the United States, revealing regional interest, the popularity of Grooveshark gets broken down into states. They're the most fashionable in Tennessee, Maine, Delaware, Utah, and get this, North Dakota. Why is North Dakota significant? Well, because for a majority of my life, I've lived there. So why in the world are people in North Dakota taking interest in Grooveshark all the sudden? I don't know. That's what perplexes me.

The iPod Problem

Save for the tech-savvy bunch, in the more densely populated areas, it's not exactly the place where people are walking around with their iPhone or Android, streaming music through MOG or RDIO. File-sharing is prevalent, perhaps, not because people are immoral or because they don't care about musicians being paid, but because it's likely the only way they know how to realistically fill an iPod with music. Somehow, I don't picture teenagers or college-aged students debating the merits of getting a Zune Pass over a Thumbplay Music account.

They're probably not aware that those services even exist. This isn't to say that ignorance is an excuse to file-share, but if people aren't aware of other options, they can't use them. And if buying songs one by one at $1 or more doesn't make sense to them, they'll do something else. So where does Grooveshark fit into this picture? Not everyone around here is looking to fill their iPod with stolen songs.

Most of the time, they just want to hear a song. Whether that is while doing homework or things around the house, the only real reason they have songs on their computer is because they want to listen to them – not own them. These people don't have "the iPod problem." They have the "I just want to hear some songs that I like and not have to buy them, download them, or queue them up video by video on YouTube problem." Enter Grooveshark. It solved the music problem that they had. None of them wanted to buy songs and collect them or waste space on their hard drive, they just wanted to hear the Ke$ha single and get on with their day. Are these people lining up to pay for Grooveshark Plus or Anywhere? Probably not. Why not? Because they could care less about the ads on the player and don't own a phone that can play music anywhere, anyways.

Enter The Funnel

What about the conversion funnel you say? That is, if like me, you have Warner Music CEO Edgar Bronfman's voice in your head. In a recent conference call, he said, "The question has always been how to ensure that free-to-consumer models which are generally supported by advertising and offered to attract consumers are effective at converting consumers to paid subscriptions." Alright, so this isn't to say that Grooveshark won't be successful at switching my fellow North Dakotans over to paying users. What I'm saying is that they view probably Grooveshark as being free like YouTube and Pandora are free. The good news here is that rather than getting their song fix through LimeWire, they're getting it on Grooveshark.

Now they're hearing music with the option of buying it. Instead of sitting there, at their computers, with the MP3 already downloaded. They're standing next to the funnel. One day, when they do have the play music anywhere problem, they might upgrade. Rather than raising all this concern about how services must be "effective" at moving fans through the funnel maybe we should be excited that they're standing next to the funnel. Are they paying? No. But they're closer than they were before. They can be marketed to now. They can see your ad on the homepage of Grooveshark. If it's really easy to buy the thing that you're selling. They might. Yes, it's important that these services convert. The record industry needs money. Maybe, having users stand next to the funnel, listening to music for free – with the option of buying it – is better than them not being there. At all.

(via Grooveshark, Google's annual Zeitgeist)

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  1. Are we forgetting about the legal issues with Grooveshark?
    What rates are they paying out for On-demand streams? Nothing? That’s interesting – I wonder who might have a problem with that?
    What’s that you say? Grooveshark is in court with Universal right now? I wonder why?
    Same story as Limewire – somewhat less of an infringement, but it’s gonna get shut down.

  2. I'm aware of their legal issues right now. That's aside from the point that I explored. The concept of standing next to the funnel also has to do with Spotify as much as it does Grooveshark.

  3. Yes, but all your talk of converting and making money applies to grooveshark, not the labels.
    Like captain obvious said, it’s an illegal service in direct violation of the DMCA and various other copyright laws. Also, they’re barely making enough money to self-sustain right now and getting worse. If they actually had to pay royalties they wouldn’t exist right now.

  4. It’s important to understand what kind of conversion is being discussed here. Kyle is discussing a music fan that listens on Grooveshark, goes to a show, buys a Tshirt, buys vinyl, or otherwise contributes to the industry economy.
    I believe you are discussing the conversion of ad-supported listeners to paying subscribers. These revenues are probably split up among the content-owners Grooveshark has deals with (EMI, Merlin, etc) based on the individual licensing agreements.
    To my knowledge, Grooveshark has never been found to be in violation of DMCA or any other copyright law. If that is not the case, please point us in the direction of where we can find that information. I wasn’t aware of the financial issues either. You should show us some information on that has well.

  5. Grooveshark has deals with EMI and Merlin. Funny how you never mention that in every disparaging blog comment you seem to revel in posting, Captain Obvious.

  6. aww, how cute – EMI (the smallest and most desperate major label) has a deal with Grooveshark. do you think grooveshark would be able to pay out for on-demand streams for more than just EMI and Merlin? Are you fucking nuts?
    bringing up merlin is an irrelevant counterpoint considering that they, unlike the majors, are not in the business of suing companies to offset lagging record sales.
    did i mention that this model didn’t work for limewire?

  7. Captain Obvious–did you use to work at Grooveshark or something? You seem to know an awful lot about the status of their financials.

  8. Actually Sara, Kyle is not discussing going to shows, etc. If you read the last paragraph, he’s talking specifically about purchasing the music for availability when not connected to the Internet.
    Grooveshark hasn’t been found (the legal term) by any court (yet) to be in violation of the DMCA, but that’s only because it just hasn’t happened yet. If you have the slightest clue as to what copyright laws are, you know they’re in violation of the law for every song they allow the streaming of without licensing. As for the DMCA itself, there are specific rules for dealing with streaming media (remember the big fuss in dealing with online radio?). Specifically, here are several examples of how Grooveshark is in direct violation of the DMCA:
    1. The DMCA prohibits the fulfillment of a specific song request within one hour of the request. This is Grooveshark’s bread and butter. If you’ve ever used Pandora, you know that if you try to play a specific song, Pandora tells you that it legally cannot for that very reason.
    2. The DMCA prohibits telling listeners upcoming songs, even the next song. Grooveshark doesn’t abide by that in its radio feature, and allows listeners to determine what’s coming next, again illegal.
    3. The DMCA doesn’t allow the playing of more than three songs from any one recording or four from any artist in a three-hour period. Again part of Grooveshark’s bread and butter.
    There are waivers that are obtainable for all of the above, but Grooveshark doesn’t have them. Despite whether you think those things shouldn’t be illegal, they are in fact and any legitimate business must abide by the law, like Pandora currently does.
    My source for Grooveshark’s financial “issues” is the Grooveshark blog.

  9. Have fun trying to falsely educate people on how companies can comply with the DMCA. Really? You’re comparing how Pandora complies with how Grooveshark does when their models couldn’t be more different?
    -Pandora has NOTHING to do with the DMCA. Please stop trying to construct an argument.
    -Grooveshark content is user-uploaded a la Youtube (of course you know this, right?!) so they would indeed not be around if they failed to comply with DMCA takedown notices within 24 hours.
    -Oh, but of course! If Universal Music Group, the most forward-thinking group in music, sues a company, that MUST mean that they’re illegal.
    No, Captain Obvious, besides being the most angry person in a forum in a while, it’s pretty clear to me that you’ve been personally affected by the mismanaged, old-school approach to music consumption from the ‘old’ industry. You know, the one that sues consumers to encourage less consumption of music rather than embrace the technology they never had a chance of slowing down?

  10. Actually, Captain Obvious didn’t mention DMCA, I did. You state Pandora and Grooveshark’s models couldn’t be more different… So immediately you must be a complete moron, because they could be more different if one did, say, movies instead of music. Right away, you’re obviously not willing to engage in a serious or intelligent discussion.
    Despite that, we’ll still look at your very poor assertions. You state that Pandora has nothing to do with the DMCA, but that is incorrect. It must comply with the DMCA, as must every US person or business. Its business model is what it is specifically because of restrictions imposed by the DMCA.
    Grooveshark does get its music in the first place from users like YouTube, that is correct. The key difference though is that YouTube provides a place where users provide content to users. Grooveshark instead takes user-uploaded content, and the company provides it to users as its own. See the difference? YouTube provides a means for user to give to users. Grooveshark takes from a user, strips any “source” information, and then provides it to users from Grooveshark. That’s what you’re missing, besides of course the obvious key difference that YouTube is for ORIGINAL material, and Grooveshark is for sharing of copyrighted material by people who don’t own the copyrights. Yes, you can also upload original material, but don’t bother trying to make that argument while its marketed as a place to get pop music and non-copyrighted music makes up less than .00001% of the content.
    Universal suing Grooveshark has nothing to do with making them illegal. You have all the tools necessary to make a determination of legality. Read the DMCA. Read the US Copyright Code. Does Grooveshark comply 100% with either? No. Again, maybe you and lots of people on Hypebot think the DMCA and copyright laws need to be changed (as I do also), but until that happens, Grooveshark is illegal. Black and white, cut and dry, no debate about it. You can argue all you want about what should and shouldn’t be legal, but if the question is “under the current law, is Grooveshark legal?” then the answer is no, and that is absolutely, factually correct.
    At some point, Hypebot should do some sort of forum or discussion that’s moderated where intelligent people can have actual conversations about factual information without emotion clouding responses. Like I’ve written about on my blog, if people would put down the bullhorn and think about it rationally for five minutes, they’d think much differently.

  11. Good point about Kyle’s intentions on conversion. Making people buy for when they are not connected to the internet is important and that’s why I love the download buttons on Grooveshark that let me choose between Amazon and iTunes for purchase.
    The DMCA guidelines you posted here are correct, however they are for a specific category of service called a “webcaster.” Grooveshark is not a webcaster in the way that internet radio is. Thusly, these rules meant for internet radio are not applicable to Grooveshark. If you read the DMCA, there is actually no mention of these guidelines. These came later in the “Performance Complement” and apply only to webcasters such as internet radio stations. Grooveshark’s Radio feature is a recommendation engine. It is not pre-programmed “Internet Radio” so does not fall under the guidelines of Internet Radio that you listed above. Spotify is also not a Webcaster for the same reason and does not have to make sure it’s playlists comply with these rules. The Performance Complement does not apply to Grooveshark or Spotify. The core of DMCA is the only applicable law here and Grooveshark, if it complies with it’s stated policy at grooveshark.com/dmca , is 100% DMCA compliant. No one has ever brought any formal complaint to the contrary.
    I know your argument on the YouTube issue as it appears below and will answer it here. Grooveshark’s DMCA compliance can be found at grooveshark.com/dmca . Notice how it mirrors YouTube’s compliance notification almost word for word. http://www.youtube.com/t/dmca_policy
    Your assertion that YouTube is made up of only original content is false. YouTube is a mixed environment of content provided by copyright owners and content provided by users who are not copyright owners. Very often, a YouTube user will upload copyrighted material to the service. It only is removed if a DMCA takedown request is filed by the copyright owner. This is exactly the same way Grooveshark operates as far as I can tell. If a copyright owner would like a song removed from Grooveshark, the DMCA states that it must issue a valid notification; just like it would to YouTube. Both of these services are mixed environments of preprogrammed playlists, recommendations, and on demand. They are also both mixed in how they acquire content.

  12. Well, I like the services, but many of the issues they have seem to be avoided by some new competitors. For example, I just started using Snoost, because… well, the playback may not be as good as GS, but in my opinion, it’s way more organized and I like the fact that it’s totally ad free.

  13. Handbags…
    So what I am curious to more than anything is with its success spanning territories how does global success work?
    I presume DMCA being an American copyright law is only is applicable to the Northern America Territory? And with many labels dealing with their own territories and not world-wide, obviously presuming 99.9999% of content is legal, how can they get legally stream music globally and from the sounds of it, effortlessly?

  14. Well, Captain Obvious, what you don’t seem to know is that UMG’s lawsuit is only for pre-1972 content, which is what was excluded from the DMCA. Go on the Internet and you can find a copy of the lawsuit. If Grooveshark was in copyright violtion of UMG’s newer and much more profitable acts, don’t you think they would have sued them for tha as well? Also, you obviously ignore the fact that they not only have WORLDWIDE agreements with EMI, Merlin and Ingroove (a UMG division that own about 1/3 of it’s content), but they also have executed stand still agreements wit Sony and Warner as long as they abide their take down requests (the core of he DMCA). Seems to me like it’s evolving in the right way to become legit, and the industry seems to be moving in that direction with them. The only reason UMG is tryig to win this lawsuit is to give them a little bit more negotiating power to finalize an agreement. Labels have had their butts handed to them lately in courts and are simply looking to gain some lost ground…

  15. Jay, more often than not, when people insult another party (you must be a complete moron) during a discussion, it is usually to hide their own shortcomings or simply because they are wrong. You must know something that record labels lawyers don’t know since the only lawsuit UMG was able to bring to Grooveshark was only for pre 1972 songs (look it up, it’s on the Internet), currently not protected by the DMCA. So, putting aside your legal explanation (or better said, legal opinion) explain to me why UMG only sued for content outside of the DMCA. If UMG was trying to prove GS was ilegal, don’t you think they would have sued for current artist? I mean that is were the real value is as far UMG’s content (and all other labels)? Rather than use a personal legal opinion (don’t know if you are lawyer or a lawyer wannabe) and say as if it was a matter or fact, you could probably better argue that Grooveshark took a very bold approach in their legal strategy. Yes, even though you don’t seem to agree, they are using the same legal strategy as Youtube. However, it does not matter if you agree, the labels seem to agree since they are NOT suing GS for current content. Or maybe you’re just much smarter than the legal teams at these mayor law firms the record labels have hired. Maybe you should approach them with your legal expertise and see if they hire you. By the way, I really like your last parragraph, you must have not been thinking about it too much when you wrote this last comment.

  16. Bart, I can tell you as a matter of fact, GS’s financials are in great shape…don’t know the source of Captain Obvious’s information…but he’s wrong if that’s what he said. Continue to enjoy GS, it will be around long time!

  17. Captain Obvious, aside from being incredibly rude, you have no idea what you’re talking about as far as Groovesharks financials. They could afford to pay on demand music streaming withoug a problem at all. This is not my opinion, or some wild guess (as I’m sure yours is), it is a mathematical fact from someone that knows the current situation.
    Don’t understand how people could make such affirmations without the slighest bit of real and factual information. But ultimately that just makes those comments and the people making them look a little bit dumb.

  18. Kyle, Seems like consumers will pay a small fee to be able to enjoy content on-demand vs. random content, which is usually advertising driven. Pandora works much like a radio, therefore makes sense to be driven by advertising. Grooveshark is more like a jukebox or CD in the car. Consumers always paid for CDs.
    I think iTunes proved that people are willing to pay for on demand content, since they are over 11B download. That’s over $11B in just a few years, and that’s just one provider worldwide. iTunes was the best service for on-demand radio until Grooveshark. At first, Apple had a hard time (and it’s still a hard relationship at today), but althogh late (as labels always are in the digital business), record labels finally agreed to it.
    The idea is to build scale now on the Web, and as these services continue to flousish on mobile devices such as tablet and mobile phones look to charge them for the mobile version. I’m betting that it will happen.
    Grooveshark has a legal suit with UMG over pre 1972 songs. Labels have always acted contrarian to their own interest and acted with sue first and then see what the business is about later, missing millions in revenue in the process. However, they will come to terms at one point I’m sure. Even they will eventually see the benefits of following consumer mentality rather than trying to steer them to their corners…however, you’re right, that’s aside the point.

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