Spotify is to axe around 1500 jobs or one in six of its workforce in a bid to cut costs, marking a major U-turn on CEO and founder Daniel Ek’s strategy of growth through operational expansion.
The Stockholm-based music streaming service, which has close to 1,000 staff in the UK, said the move was “not a step back [but] a strategic reorientation” because economic growth had “slowed dramatically” and capital has become more expensive. It follows an earlier round of cuts in January, in which around 6% of the workforce was laid off.
In a note to staff, Ek said: "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.
"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."
“Being lean is not just an option but a necessity.”
By the end of last year, Spotify had more than 8,000 employees worldwide, a near-doubling of 2019 staffing numbers as Ek charted a course for major expansion amid a surge in subscribers during the coronavirus pandemic.
But that strategy now appears to have reversed course as the more than 2,000 in total job cuts this year brings staffing levels back down to where they were in 2020.
Spotify has 933 staff in the UK according to its most recent annual report, suggesting around 150 jobs would be at risk.
Ek added that departing employees would receive an average of five months' severance pay plus pay in lieu of unused holiday.
Spotify reported a 370 million euro loss in 2022 as it counted the cost of its expansion plans, which included a near-450 million increase in sales and marketing expenses. In its second-quarter earnings, the firm posted an operating loss of 112 million euros, despite a 17% increase in subscribers to 220 million. But profitability recovered in the third quarter, with an operating income of 32 million euros.
In the UK, the firm posted a near-70% jump in revenue in 2022 to £225 million, but profits slipped back 11.5% to £7.4 million.
Streaming services have been battling to hold on to customers over the past 18 months as cash-strapped consumers look to pare back their spending on online subscriptions. Video streaming service Netflix last year reported its first-ever drop in subscriber numbers and has since introduced cheaper membership options and begun a crackdown on password sharing in a bid to shore up its revenues.
Despite marking a recovery since the start of the year, Spotify’s shares remain down more than 40% on their 2021 peak, while Netflix is down 32% and Disney has sunk 53%.
A slump in the online ad market may have also proved a challenge for Spotify, for whom advertising accounts for about an eighth of its revenue. Earlier this year, British broadcaster ITV warned of “the worst advertising recession since the global financial crisis” as it slashed its earnings.
Spotify is also battling the emerging threat of artificial intelligence, having removed thousands of AI-generated tracks from its library amid reports of concerns over online bots being used to inflate streaming numbers.
The tech firm has also accused Apple of causing “immeasurable” harms to consumers and developers and of having made “capricious changes to terms and conditions” as a result of its “monopoly position” in a letter to the EU.
Founder Ek has a net worth of $3.2 billion, according to Forbes.