A third round of Spotify layoffs this year will see some 1,500 employees lose their jobs in the run-up to the holidays. This follows the loss of 600 jobs at the start of the year, and several hundred more in the summer.
Spotify CEO Daniel Ek described the move as a ‘strategic reorientation,’ but the company’s fundamental problem remains unchanged …
Latest Spotify layoffs
Ek explained his reasoning in an email to all employees, which was subsequently shared as a blog post.
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 by approximately 17% across the company. I recognize this will impact a number of individuals who have made valuable contributions. To be blunt, many smart, talented and hard-working people will be departing us […]
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. While I am convinced this is the right action for our company, I also understand it will be incredibly painful for our team.
He said that the company has become “more productive but less efficient,” and suggested the company has too many staff in non-core roles.
While we have done some work to mitigate this challenge and become more efficient in 2023, we still have a ways to go before we are both productive and efficient. 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.
Ek claimed that this wasn’t a sign of failure.
This is not a step back; it’s a strategic reorientation. We’re still committed to investing and making bold bets, but now, with a more focused approach, ensuring Spotify’s continued profitability and ability to innovate. Lean doesn’t mean small ambitions; it means smarter, more impactful paths to achieve them.
9to5Mac’s Take
While Ek is understandably unwilling to admit that the company is struggling, the reality is that it has a very tenuous business model.
In any streaming music business, the vast majority of the revenue – at least 75% – goes straight to the music labels, and is split between the artist and the songwriters. Trying to extract a profit after paying all the business costs from the balance is a tough ask.
That’s not a problem for competitors like Apple Music, Amazon, and YouTube; none of those companies needs to be able to make a profit from what is a small part of their overall business. In Apple’s case, Apple Music is simply a way to further hook people into the ecosystem.
Beats co-founder Jimmy Iovine made exactly that point back in 2017.
“The streaming services have a bad situation, there’s no margins, they’re not making any money,” he said. “Amazon sells Prime; Apple sells telephones and iPads; Spotify, they’re going to have to figure out a way to get that audience to buy something else.”
Spotify’s move into podcasting was primarily driven by the fact that – a few high-profile exclusives aside – the content doesn’t cost the company anything.
I very much hope that Spotify survives in the long-run. For me, the shared playlists are a key part of the appeal, and it’s good for Apple Music to have a bigger competitor to drive innovation. I’m happy to be a Spotify customer – but wouldn’t want to be an investor.
Photo: Logan Weaver/Unsplash
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