Spotify CEO Daniel EK on Monday announced that the company is undergoing their third layoff in 2023, with the latest round of job cuts rounding to 17%, around 1500 people, to save on costs. Daniel EK highlighted that despite being the largest music streaming platform, the company has struggled to become consistently profitable after spending aggressively to expand beyond music streaming into areas such as podcasting.
For context, Spotify has lost $462 million in the first nine months of 2023, more than double the loss in the same period in 2022, as they tried to venture into podcasting by buying out podcast studios Gimlet and The Ringer for large sums of money. Moreover, Daniel EK stated that Spotify’s expansion into audiobooks and deals with famous figures such as former President Mr Barack Obama and Ms Michelle Obama also cost them a fortune.
Daniel EK in a memo to the staff stated: “Economic growth has slowed dramatically, and capital has become more expensive. Spotify is not an exception to these realities. Despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big.”
Daniel EK Explains Layoff Decision in Memo to Staff
In his memo also published on the company website, Daniel EK stated that the company has planned to make smaller reductions throughout 2024 and 2025. However, due to the gap between the company’s financial goal state and their current operational costs, he decided that a substantial action to rightsize our costs was the best option to accomplish the objectives.
Therefore, in the company’s effort to cut costs and make Spotify leaner, Daniel EK stated: “When preparing for the next stage, being lean is not an option but a necessity. We now find ourselves in a very different environment. 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. Therefore, it brings me to a decision that will mean a significant step change for our company.”
When talking about the offloading, Daniel EK remained straightforward but thankful to all the staff accompanying the company’s journey. “To be blunt, many smart, talented and hard-working people will be departing us. For those leaving, we’re a better company because of your dedication and hard work. Thank you for sharing your talents with us. I hope you know that your contributions have impacted more than half a billion people and millions of artists, creators, and authors around the world in profound ways.”
Lastly, Daniel EK added that the affected employees will have a one-on-one conversation with HR today to discuss the process. As for the bandmates, the impacted employees will receive five months of severance pay, PTO, healthcare, immigration and career support from the company.
Also Read: Top 6 Studios with the Most Layoffs
Spotify Has Made Three Layoffs This Calendar Year Alone
As mentioned above, this latest round of layoffs is Spotify’s third in 2023 alone, as the company had previously cut staff in January and June. On January 23, Daniel EK announced that Spotify is laying off 6% of its staff, totalling around 600 staff. In addition, Dawn Ostroff, the head of content and ads who has been instrumental in growing Spotify’s podcasting business also quit the company, with Daniel EK claiming responsibility for what appeared to be an overambitious revenue growth.
Then, five months later, in June, Sahar Elhabashi, Spotify’s VP and head of podcast business announced that the music company is laying off approximately 200 roles from its podcasting division as part of a strategic realignment. She stated: “We are expanding our partnership efforts with leading podcasters from across the globe with a tailored approach optimised for each show and creator.”
However, to do so, she highlighted that the company needed to make more changes regarding the struggling podcasting division. “This fundamental pivot from a more uniform proposition will allow us to support the creator community better. However, doing so requires adapting. Over the past few months, our senior leadership team has worked closely with HR to determine the optimal organisation for this next chapter.”
Also Read: YouTube Creators Will Have to Reveal the Use of Gen AI in Videos or Risk Suspension in 2024
Why Are Major Companies Undergoing Layoff in 2023?
For starters, tech companies made aggressive hirings during the coronavirus pandemic to meet growing demand from households and businesses for services such as online shopping and video conferencing. But since then, inflation and rising interest rates have weighed on consumer spending, squeezed the supply of debt and equity funding, and made it costlier, leading many tech companies such as Meta, Amazon and Microsoft to announce deep job cuts. Moreover, these tech companies couldn’t keep up the growth momentum after the Covid-related restrictions eased up in key markets.
Furthermore, gaming companies such as Electronic Arts, Unity, Riot Games and Epic Games have also undergone layoffs in 2023, with a rough estimate of 6,500 video game workers globally impacted since January. Other than gaming and big tech firms, companies operating in other sectors such as health tech and edtech have also conducted major job cuts.
As for Spotify’s future heading forward, EK mentioned that the company is moving back towards its core principle of resourcefulness, where its ingenuity and creativity set it apart from its competitors. He lastly reinforced that Spotify being lean doesn’t mean small ambitions; it means smarter and more impactful paths to achieve them.
For more Tech, AI and gaming-related articles, follow our Facebook and Instagram social media pages for breaking news circulating the web.