My Story, Grooveshark chairman spills beans on label strategy

Grooveshark, a controversial music service, intended to use unlicensed tracks to build a following of 100 million users and then negotiate with the copyright owners from a position of strength, according to e-mails entered into court records and obtained by CNET.

Earlier this month, Universal Music Group, the largest of the four top record companies, filed a copyright lawsuit in federal court against Escape Media Group, parent company of Grooveshark, a music service that enable users to share songs with other users. In the complaint, Universal Music accuses Grooveshark's leadership of copyright infringement and claims that managers uploaded pirated songs themselves.

Grooveshark responded to Universal's allegations that managers uploaded songs by calling them a "gross mischaracterization of information."

Universal Music's complaint and exhibits have now been made public in their entirety and they include more of Grooveshark's internal e-mails. The correspondence doesn't present much more information about the alleged uploading by Grooveshark employees and managers, but they do make some startling revelations about Grooveshark's business strategy.

"The only thing that I want to add is this: we are achieving all this growth without paying a dime to any of the labels," wrote Sina Simantob, Grooveshark's chairman, in an e-mail on Dec. 1, 2009. The note was addressed to "Josh," which is presumably Josh Greenberg, one of the company's co-founders and CTO. "My favorite story related to our case is the story of a kid who appears in front of the judge for sentencing for the crime of having murdered both his parents saying judge have mercy on me cuz I am an orphan.

"In our case," Simantob continued, "we use the label's songs till we get a 100 (million) uniques, by which time we can tell the labels who is listening to their music, where, and then turn around and charge them for the very data we got from them, ensuring that what we pay them in total for streaming is less than what they pay us for data mining. Let's keep this quite [sic] for as long as we can."

To some music-industry hardliners, this will only confirm what they have believed for a long time: Some start-ups set out to to build large audiences before obtaining music licenses from record companies in the hope that acquiring lots of followers will strengthen their bargaining position once the labels take legal action. Some music execs believe some start-ups essentially dare the labels to sue.

In an e-mail written to a venture capitalist in April 2010, Simantob appears to acknowledge that this is the strategy employed by Grooveshark.

"We bet the company on the fact that it is easier to ask for forgiveness than it is to ask for permission," Simantob wrote in an e-mail to Andrew Lipsher, a partner at Greycroft, a venture capital firm. "When EMI sued, everyone thought it is the end of the company. Once we settled that suit everyone said EMI was weak anyway so the real Goliath to beat is [Universal Music Group]. Well it took the boys a bit before they could re-group but I think these guys have a real chance to settle with UMG within a year and by that time, they'll be up to 35 million unique and a force to be dealt with."

Simantob was overly optimistic. Universal Music, which filed a previous copyright suit
against Grooveshark in 2010, is now asking for damages that could top $1 billion.

But it is unclear here how Simantob's apparent acknowledgement that Grooveshark intended to build a business on unlicensed music will affect Universal's case. Nowhere in the e-mails included in Universal Music's exhibits does Simantob mention piracy or illegal file sharing.

Grooveshark says it is protected by the Digital Millennium Copyright Act's safe harbor, which protects online service providers from liability for copyright violations committed by users. The DMCA requires service providers to meet a certain criteria, which includes not having any direct knowledge of copyright violations and not profiting from infringing material.

At minimum though, Simantob's e-mails could raise questions about the company's credibility.