Grooveshark Provides a Blueprint for a Government-Mandated Compromise Between Free Media and the Economic Rights of Copyright Holders

-- By ChristopherCrismanCox - 20 Feb 2010

Background: Explanation of Grooveshark (listen.grooveshark.com)

The Service Grooveshark Provides: Free Streaming Music On Demand

Grooveshark users, at their own discretion, upload music files to Grooveshark. All users can freely search all files uploaded to Grooveshark and stream any music file on Grooveshark on demand. Grooveshark's library is enormous and diverse. Grooveshark is supported by advertising revenues and by the sale of “premium accounts.”

Grooveshark Compensates Copyright Holders Every Time a Copyrighted Song Is Streamed

Every time a user streams a song, Grooveshark compensates the copyright holder for that song an amount determined by Grooveshark. Thus, Grooveshark is not giving away music for free; however, the amount it compensates the copyright holder might be unsatisfactory to the holder. Grooveshark notes that it will remove any copyrighted music from its website at the request of the copyright holder, but that it would prefer to compensate the copyright holder for the use of the copyrighted material.

If the Current Legal Environment Remains in Place, There Are Three Possibilities for On-Demand Free Streaming Services Similar to Grooveshark

1) Grooveshark or a Competing Service Secures Licenses With Every Copyright Holder Necessary to Make its Service Completely Legal

As noted above, Grooveshark's service faces a legal problem. It compensates copyright holder every time a user streams a copyrighted song. However, Grooveshark compensates the copyright holder on Grooveshark's own terms. In order to be abide by the current law, Grooveshark would have to negotiate the terms of compensation with the copyright holder and obtain a license to distribute the copyrighted material. In the current legal environment, one solution to this problem would be for one entity - Grooveshark, a competitor, or even a major music label - to secure enough licenses to make operation of a Grooveshark-like site legally viable. However, given the vastness of music selection currently available on Grooveshark, it is simply unlikely that any one entity could obtain enough licenses to allow for on-demand free streaming of all the content currently available on Grooveshark. This is especially true given the high transaction costs in licensing all of this content.

2) Copyright Holders and Other Entities Could Individually Create Their Own Competing On-Demand Free Streaming Music Websites

If it is unlikely that one entity will be able to amass enough licenses to create a legal version of Grooveshark, then perhaps competing websites could arise. For example, EMI could create a website, supported by advertising and the sale of "premium accounts," that allows users to stream any song in its catalog for free. Likewise, Sony could create its own counterpart website. However, this would be an undesirable state of affairs. Users would have to go to different websites to find different songs. Moreover, copyright holders would always have the right to cease on-demand free streaming of their copyrighted media if they felt they could make more money by directly charging for streaming.

3) Copyright Holders Aggressively Attempt to Shut Down Grooveshark and Eliminate On-Demand Free Streaming Music

Under the current legal environment, a third scenario could occur. Large copyright holders could simply decide not to play ball with on-demand free streaming. They could actively remove copyrighted content from Grooveshark and make only very limited content available for free on their own websites. This would be a highly undesirable scenario for the consumer.

Instead of the Three Options Above, the Legal Environment Should Be Redesigned to Allow the Creation of a Government-Supported On-Demand Free Streaming Service for All Media

How a Government-Run On-Demand Free Media Streaming Service Would Work and How Copyright Holders Would be Compensated

All three of the above options are unsatisfactory for consumers. None of the three options above provides better utility than the current (illegal) version of Grooveshark does. The solution to this problem is to change copyright law. The federal government should create a government-run version of Grooveshark. That is, the federal government should create a government-run website that provides on-demand, free streaming of all media. (There is no reason to limit this concept to music.) The government site would compensate copyright holders every time a copyrighted piece of media is streamed. The rate of compensation would be mandated by the government, and the goal would be to set it at a minimal rate, but enough not to discourage the production of media. The site would be supported by tax revenues.

The Merits of Such a System

The above system would be a compromise between the economic rights of copyright holders and consumer demand to consume free media. It would fairly compensate copyright holders, thus encouraging continued production of media. Additionally, it would end the culture of media piracy that is prevalent in modern America by eliminating the need for it. In short, such a government system would bring the law back into accord with the practices of society.