Midem Blog: Spotify, Grooveshark and LimeWire Walk into a Bar

by Ted Cohen

It’s two weeks before the end of 2010 and three of the major digital music services continue to find themselves in varying degrees of chaos. I would have hoped by now that the smoke would have cleared for two of them, but I have little sympathy for the third.

Spotify’s co-founders, Daniel Ek and Martin Lorentzon have, ostensibly, done everything the right way. To properly secure their European launch, they approached labels & publishers, paid the required advances, established strong ties with the digital marketing teams and promoted theirdebut with both fanfare and class. It seemed, at the time, that an imminent U.S. coming-out party was a no-brainer. Who couldn’t like these guys and the world-class service that they had crafted? Apparently, almost everyone in a decision-making position in the American music industry. At the same time that senior label & publishing execs were requesting Spotify U.S. test accounts to amaze and impress their friends, they were refusing to let Spotify roll out in the States, citing concerns that conversion rates from the ‘freemium’ service wouldn’t be high enough and that Spotify would continue to erode the value of music. Warner Music Group Chairman Edgar Bronfman sated back in February, “The ‘get all your music you want for free, and then maybe with a few bells and whistles we can move you to a premium price’ strategy is not the kind of approach to business that we will be supporting in the future.”

While WMG just renewed Spotify’s European deal, they have yet to provide a U.S. license. Universal Music Group has been one of Spotify’s biggest supporters in Europe yet remained uncommitted in America. That may change now with the U.S. arrival of Rob Wells, UMG’s former European digital wizard. He has been consistently bullish on Spotify, “Spotify is a very sustainable financial model – full stop,” Wells said in January. I would predict that when UMG comes on board in the States, the rest of the pack will follow. I certainly hope so, Spotify is an excellent consumer offering that, with a few tweaks, can give Apple some serious competition for the U.S. music fans’ mind and wallet. There is continuing concern over Spotify’s cashflow, as a private entity it’s hard to get a good look under the hood. While the debate over their viability rages on, they deserve their chance to compete in the West.

Grooveshark is in a different position: Having started out as an unlicensed service, they now struggle to clean up their act. While they have achieved some success in going legit, they face what appears to be an insurmountable uphill battle with UMG, who has been heretofore unwilling to forgive and forget. At this time, it’s not looking very promising for them, and that’s a real shame. They’ve got probably the best UI/interface of any of the services. On more than one occasion, I’ve been on a flight or in a restaurant and noticed someone nearby happily grooving on Grooveshark. I’ve leaned over to ask why & always get the same answer, “it rocks!” According to Digital Music News, Google Zeitgeist 2010 concurs, listing Grooveshark as the 9th-fastest-rising search in the Entertainment category, in the company of Justin Bieber, Netflix and Lady Gaga. They’ve indicated they are sorry, that they want to be a good partner, it’s time for the music industry to show some corporate wisdom and compassion, this could be a win-win outcome.

In August of 2006, LimeWire hired me to “take them legal”. I proceeded to set up meetings with the majors and others to advance that goal. In February of 2007, I wrote a guest editorial for Billboard Magazine. It was a plea for the industry to get past its prejudices and license LimeWire in its then-current state, monetize consumer behavior on the service and not fret about its validity, but accept the fact that fans were flocking to it. It had quickly filled the void left by the demise of Kazaa and Grokster, it needed to be reckoned with in a different way. I stated that LimeWire wanted to pay, the music business should evolve, take the money and embrace change. I had buy-in from some industry execs, wholesale rejection came, however, from an unexpected source. Mark Gorton, LimeWire’s owner, called me to express his displeasure with my editorial position. He said he had no intention of paying a dime to artists, labels or publishers & I should not be stating anything to the contrary. When I reminded him that he’d hired me to get LimeWire agreements with the rightsholders, he said all he wanted me to do was to get them to leave him alone. I told him that wasn’t going to happen & wished him well, though I knew it was not going to be a happy ending.

I will concede that there were some good efforts over the past two years by LimeWire executives George Searle and Zeeshan Zaidi to salvage the situation, but they were never fully empowered to do what was necessary. The eventual legal outcome was expected, and LimeWire subsequently announced that they will shut down on December 31st.

It’s a bit sad, it didn’t have to play out this way.

See all of Ted’s Midem blogs at: http://blog.midem.com/category/ted-cohen

Posted by Ted • Friday, December 17, 2010 .