Spotify cuts more than 1,500 jobs amid rising costs in third round of lay-offs

Spotify cuts more than 1,500 jobs amid rising costs in third round of lay-offs
  • PublishedDecember 5, 2023

It’s the world’s biggest music streaming service, but just one week on from dominating social media with its annual Wrapped campaign, Spotify has done some unwrapping of its own: laying off about 17 per cent of its workforce.

Spotify is cutting more than 1,500 jobs in a bid to clamp down on rising costs. Daniel Ek, the Swedish-based company’s billionaire founder and chief executive, announced in a staff memo on Monday, December 4, that “right-sizing” the company was crucial to staying “productive and efficient”.

“Economic growth has slowed dramatically and capital has become more expensive,” Mr Ek said.

“Despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big.

“Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact.

“More people need to be focused on delivering for our key stakeholders – creators and consumers. In two words, we have to become relentlessly resourceful.”

He added that the “difficult” decision to cut jobs would be “incredibly painful for our team”.

“I recognize this will impact a number of individuals who have made valuable contributions,” he said.

“To be blunt, many smart, talented and hard-working people will be departing us.”

This is Spotify’s third and biggest round of lay-offs this year. In January, Spotify cut 6 per cent of its staff — about600 employees — and then an additional 200 roles in June.

Spotify’s public-facing success

The staff downsizing seems in contrast to Spotify’s strong user growth.

By the end of 2022, more than 30 per cent of music-streaming subscribers used Spotify — almost double the size of subscriptions to Apple Music, and dwarfing competitors such as YouTube Music and TIDAL.

That brings Spotify’s current user base to 601 million worldwide, up nearly double from 2020, and pushing toward its goal of hitting a billion users by 2030.

The influx of monthly active users, combined with an increase in subscription rates for paid subscribers, saw Spotify making a profit of €65m ($106 million) in the most recent quarter – its first quarterly profit in over a year.

However, in the first nine months of 2023, Spotify reported a loss of €426m ($698m). Plus, the platform’s user base of ad-supported ‘free’ subscribers has been growing faster than its paid subscribers (thus the price hike).

Monday’s cuts, Mr Ek said, were about “preparing for our next phase, where being lean is not just an option but a necessity”.

“I realize that for many, a reduction of this size will feel surprisingly large given the recent positive earnings report and our performance. We debated making smaller reductions throughout 2024 and 2025,” Mr Ek wrote.

“Yet, considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to rightsize our costs was the best option to accomplish our objectives.”

Since launching in Australia in 2012, the tech company has prioritised spend on growing the business rather than turning profits, including making heavy investments in podcasting.

It’s secured multi-million-dollar deals with the likes of Michelle and Barack Obama, Prince Harry and Meghan, Duchess of Sussex, and continued its controversial deal with Joe Rogan. It’s also bought up podcast studios Gilmet (for $347m in 2019) and The Ringer (approximately $300m).

However, results were mixed. June saw Spotify cutting 200 jobs from its podcast division.

“The truth of the matter is some of it has worked, some of it hasn’t,” Mr Ek told the BBC in September.

More recently, Spotify has expanded into audiobooks, taking on titans like the Amazon-owned Audible by offering paying customers up to 15 hours of audiobooks.

A delicate relationship with artists

Despite being the #1 music streaming platform, Spotify has long struggled to be profitable because of pricey licensing deals with major record labels and music publishers. It’s also long been criticised by musicians, especially independent artists, for royalty payouts they see as too low.

Case in point: As part of this year’s Spotify Wrapped campaign, some artists recorded video messages to be shared with their top-streaming fans, and “Weird Al” Yankovic used his as an opportunity to critique Spotify’s poor pay.

The satirical musician calculated that earning 80 million streams in 2023 was enough for him to buy “a nice sandwich”.

Each stream on Spotify is worth about $US0.003 and, starting in early 2024, Spotify is changing the rules so that a track needs at least 1,000 streams in a year before it’ll pay out royalties.

Currently, Spotify usually pays royalties to a collection agency (such as APRA AMCOS in Australia) which then distributes the money to artists. But under the new model, Spotify will hold paying out the money until it hits the 1,000-streams threshold, roughly $US3, leading to an extra step in the payment process for most artists.

The company claims the changes will “drive an additional $1 billion toward emerging and professional artists” by increasing the minimum track length of “functional noise” (eg. white noise, nature and sleep sounds, ambient and non-spoken ASMR) to 2 minutes and, more crucially, curbing fraudulent streams — automated bots that boost streaming figures and siphon royalty payments.

Spotify says it will charge labels and distributors linked to such activities, motivating them to take greater responsibility for their content.

SOURCE: ABCNEWS

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