Spotify’s
The music streaming service, Spotify, has announced that it will be cutting nearly a fifth of its workforce, amounting to approximately 1,500 jobs. This signifies the company’s third round of workforce reductions within the current fiscal year. The decision comes as Spotify has struggled to achieve consistent profitability after investing heavily in expanding its offerings beyond music streaming, such as podcasting and audiobooks.
In a note to employees posted on the company’s website, Spotify’s CEO, Daniel Ek, stated that the platform needs to “rightsize” in order to adapt to the current challenging environment. The company, based in Stockholm, will let go of about 17 percent of its staff.
Mr. Ek acknowledged the economic slowdown and the increased cost of capital as contributing factors to the need for cost reduction. Despite efforts to cut costs in the past year, the company’s cost structure is still too large for its current needs.
Spotify’s decision to cut jobs aligns with the broader trend in the technology industry, where companies are grappling with the end of a decade of rock-bottom interest rates that fueled their growth. Giants like Amazon, Meta, and Salesforce have also implemented cost-cutting measures and job reductions.
The move by Spotify is seen as a necessary step to prepare for the company’s next phase, where being lean is not just an option but a necessity, according to Mr. Ek.
Despite being the largest music streaming platform, Spotify has faced profitability challenges due to the terms of its licensing deals with record labels and music publishers. In an effort to diversify its offerings, the company ventured into podcasting, acquiring studios such as Gimlet and The Ringer, and striking expensive deals with high-profile figures like Barack and Michelle Obama, Prince Harry, and Meghan.
More recently, Spotify has expanded into the audiobook market. While these moves have helped attract listeners and subscribers, they have not translated into significant financial gains. In the first nine months of 2023, Spotify reported a loss of $462 million, more than double the loss in the same period the previous year. However, the company did achieve a small profit in the last quarter, marking an important turning point for the business.
As of September, Spotify had 226 million paying subscribers and is expected to add 30 million more by the end of the year. The company recently raised prices for its subscriptions in over 50 countries. Additionally, Spotify has over 360 million monthly active users who rely on advertising-supported accounts. While this segment has been growing faster than paid subscriptions, it generates less revenue and lower profit margins for the company.
The job cuts announced by Spotify are the largest for the company this year. In June, approximately 200 jobs, many of which were related to podcasting, were eliminated, followed by another 600 job cuts in January. Spotify has assured employees affected by the layoffs that they will receive an average of five months’ pay as part of their severance package.
Investors have shown little concern that these job reductions will impact the company’s core operations. Benjamin Black, an analyst at Deutsche Bank, stated that the layoffs were not surprising but were larger and earlier than expected. The announcement was well-received by investors, leading to a more than 7 percent increase in Spotify’s shares on the New York Stock Exchange.
This development is seen as a turning point for the company’s commitment to achieving profitability, instilling confidence among investors. Spotify’s share price has more than doubled this year, reversing a downward trend that began in early 2021.
Overall, the job cuts reflect Spotify’s strategic decision to align its cost structure with the current economic landscape and focus on achieving sustainable profitability in its expanded offerings beyond music streaming.
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