When Grooveshark's co-founder and CEO Sam Tarantino talks about what happened to his music startup between 2011 and early 2012, he doesn't hold back: It was, he says, "a year of getting punched in the face 10,000 times."

During that period, the music streaming service was essentially hit with back-to-back-to-back blows. Google pulled Grooveshark's mobile app in early 2011, after Apple had done the same the previous year, effectively snuffing out its potential on mobile. Spotify launched in the U.S. in July, 2011 with the blessing of the major record labels and started stealing away Grooveshark's users. And then came the knockout blow: Universal Music Group filed a federal lawsuit against Tarantino and his employees for uploading copyrighted songs. Sony Music and Warner Music Group joined the lawsuit the following month and EMI filed a lawsuit of its own in early January, meaning that all four major record labels were simultaneously suing the company.

Grooveshark, which had been considered one of the most promising music startups in the late 2000s, suddenly saw its monthly user numbers crash from around 30 million to 12 million in early 2012, according to Tarantino. With the lawsuits looming, he had little choice but to start laying off employees and closing up offices. Grooveshark's staff was more than halved from 145 to around 60 at its lowest point, with some let go and others choosing to leave on their own.

"Luck comes around in two ways: It comes in bad luck and it comes in spurts of good luck," Tarantino told Mashable in a recent sit-down interview at Grooveshark's New York office. "It amazes me how in early 2012 it poured bad luck."

Grooveshark Plans Its Comeback

The situation started to improve somewhat halfway through 2012 as Grooveshark scored a legal victory against Universal. Grooveshark has since focused on keeping costs low and developing new features to stay competitive. In September, it released an HTML5 player to circumvent the bans on its mobile apps, which now has 3 million monthly users and adds 200,000 new users each month. The following month, Grooveshark redesigned its website to focus more on recommended stations and social profiles — similar to Spotify and Pandora. The startup's user numbers are now back at around 30 million.

Even with these new features and the progress that it has made, the distance between Grooveshark's business and its competitors is painfully clear. Pandora went public in mid-2011 and now has a market cap of more than $2 billion. Spotify closed a $100 million funding round late last year and is valued at $3 billion. Grooveshark has consolidated its operations to one small office above a dive bar in midtown New York and another larger space in a cheap town in Florida; the company is still fighting to prove to the labels and users that it can and should survive in the changing music landscape and Tarantino says he makes just $60,000 a year and is broke.

"We all don't get paid a lot," he says. "I can speak for myself: I am literally broke. I am like literally broke and I am trying to lower my rent."

On Monday, Grooveshark unveiled its latest big update — user-generated radio stations — which may take it from recovery mode to growth mode. The new feature, which it calls Broadcast, lets users transform a playlist into a live broadcast with the click of a button. The DJ can select songs, record 30-second audio interludes and see real-time listening stats; listeners can engage with one another and offer feedback and song suggestions to the DJ through a live chat feature on the side.

Tarantino bills the new service as a way to "democratize" radio broadcasting so anyone can do it, which is something that he believes falls into Grooveshark's larger mission to better connect fans with artists. "The same way artists have been broken for years — terrestrial radio — is still the same way you break artists today," he says. "That hasn't been uprooted yet." He compares this to the way that YouTube channels have given individuals a way to broadcast video content to a large audience without having to rely on a traditional television network.

Embracing the radio format for online music streaming may also help Grooveshark to finally negotiate a licensing deal with the major labels, which is of course the black cloud that continues to loom over the company. Tarantino says the labels have "expressed excitement" about the radio feature as it provides an alternative to terrestrial stations and he says Grooveshark is now in discussions with the labels, which is more than he could say a year ago. Where were they a year ago? "Nowhere. Being sued into oblivion," he says. "It's a much different conversation now."

Tarantino also doesn't try to hide the fact that he believes this service could compete head-on with what Pandora offers. "Ultimately, Pandora is great, but it throws people off all the time," he says. "[Broadcast] is truly the people you trust."

Is The Worst Over?

Of course, Pandora isn't the only big company Grooveshark must compete with in the music streaming space. Apple, Google and Amazon are all rumored to be entering the market in the future. Tarantino believes this could actually help Grooveshark by putting more pressure on the labels to have "sustainable" licensing rates, but it remains to be seen what kind of impact the arrival of these players in the market would have on Grooveshark's user numbers.

Regardless of how it plays out, the mood in the Grooveshark office right now is very positive. The staff may be smaller, the brand may be a little tarnished and the CEO may be shopping for discount shoes at Nordstrom Rack because he's broke, but the members of the team we met all seem to believe that Grooveshark has made it through the worst of the storm.

"It has taken seven years," Tarantino says. "But here we are at the door of the music industry saying, 'Look how effective we've been with headwinds. Now imagine what we could do with tailwinds.'"

Images courtesy of Grooveshark and Jesse Lash