Spotify to cut 1500 jobs, 17% of employees, with CEO Daniel Ek citing redundancy

Spotify, the music streaming service, is undergoing a significant restructuring as it has announced a 17% reduction in its workforce for the third time this year, Bloomberg reports. This move follows the company’s aim to align its expenses with its growth trajectory and economic shifts, affecting roughly 1,500 employees.

CEO Daniel Ek addressed the internal memo, expressing the necessity of reshaping Spotify to ensure long-term sustainability, despite the recent positive earnings report.

“To align Spotify with our future goals and ensure we are right-sized for the challenges ahead, I have made the difficult decision to reduce our total headcount,” Ek stated.

The decision comes amidst remarkable user growth, with Spotify on track to add over 100 million users in what seemed to be its most successful year yet. The company also recently reported a 65 million euros ($70.7 million) profit in the third quarter, citing lower spending on marketing and personnel. However, Ek emphasized the existence of persistent challenges.

“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,” he highlighted.

The announcement follows deliberations regarding gradual reductions over the coming years. Ek clarified the rationale behind the immediate substantial action:

“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.”

Spotify’s shares rose 2.5% in premarket trading on Monday before exchanges in New York opened. The company shares had closed down 2.4% on Friday at $180.69. It has long lost money because of the terms of licensing agreements with music rights holders. It spent billions of dollars on podcasting to diversify its business model but has since scaled back its investment in original audio series.

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Harsh economic realities bite on Spotify’s best year yet

Ek acknowledged the company’s expansion between 2020 and 2021, a period marked by substantial investments in team expansion, content enhancement, marketing, and new verticals, all facilitated by accessible capital. However, current economic conditions demand a more streamlined approach, necessitating a leaner structure to optimize productivity and efficiency.

The impact on departing employees was recognized, with Spotify outlining measures to support them comprehensively. These measures include severance pay, healthcare coverage, and career support. Ek stressed the importance of adapting to a more resourceful operational model for the remaining team.

“This kind of resourcefulness transcends the basic definition – it’s about preparing for our next phase, where being lean is not just an option but a necessity,” Ek noted, emphasizing the company’s commitment to strategic investments and continued innovation despite the reduction.

The Spotify CEO plans to further address the implications of these cuts in an upcoming meeting with employees, underlining the necessity for a revamped approach as Spotify navigates through this pivotal transition.

The decision to downsize the workforce has been met with a mix of reactions, with some employees expressing concern over the potential impact on the company’s culture and ability to innovate. However, Ek remains resolute in his vision for a more agile and efficient Spotify, poised to navigate the evolving landscape of the music streaming industry.

“Over the last two years, we’ve put significant emphasis on building Spotify into a truly great and sustainable business – one designed to achieve our goal of being the world’s leading audio company and one that will consistently drive profitability and growth into the future”

Daniel Ek, CEO Spotify

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The streaming giant’s strategic move to reduce workforce size aligns with broader industry trends, as many tech companies facing similar economic realities have opted for cost-cutting measures to ensure sustained growth and profitability.