Spotify To Downsize Workforce by 17%

Spotify, a prominent music streaming platform, recently revealed a substantial downsizing initiative affecting 17% of its workforce. CEO Daniel Ek, surprising employees just ahead of the holiday season, explained that this move aims to address the company’s financial challenges and align operational costs with its financial objectives.

Despite a positive earnings report and robust performance, Ek clarified that Spotify faced a crucial decision: gradual reductions over the next two years or immediate and decisive action. Opting for the latter, he emphasized the need for a significant adjustment to streamline the company’s costs and meet its goals, acknowledging the impact on the affected team.

The context for this decision lies in Spotify’s rapid expansion in 2020 and 2021, fueled by lower capital costs. While these investments contributed to growth, Ek highlighted that, even after previous layoffs in early 2023 and May (cutting approximately 8% of its workforce), the company’s cost structure remained too large for its future requirements.

Around 1,500 employees will be affected by this latest round of layoffs. In an effort to ease the transition, Spotify plans to provide an average of five months of severance pay, healthcare coverage during this period, and support for immigration and career transitions.

Ek’s announcement underscores the necessity for Spotify to adopt a leaner operational model in its upcoming phase. This move follows the introduction of a revamped royalty model, designed to increase payouts to artists while reducing fraudulent streams.

Despite consistently growing its user base, now totaling 574 million monthly active users (a 26% increase year-over-year), Spotify has struggled to achieve sustained profitability, with recent quarters showing rare profits. Ek promises more details on the implications of these changes in the coming weeks.

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