Spotify Is Screwed

Just days after folks gleefully posted their Spotify Wrapped, unhealthy information got here for the music streaming large. Spotify introduced at this time that it might reduce 17 % of its workforce, a bit that equates to an estimated 1,500 folks. It’s the third time the world’s largest music streamer has reduce jobs this yr.

The information got here after Spotify posted its first worthwhile quarter since 2021. In a memo to workers, CEO Daniel Ek mentioned the corporate had expanded its workforce and choices considerably all through 2020 and 2021, due to lower-cost capital, however is now bumping up in opposition to the identical issues startups throughout industries are going through, like excessive capital prices and slowed financial progress.

Ek mentioned the cuts could appear “surprisingly large given the recent positive earnings report and our performance,” however as a consequence of “the gap between our financial goal state and our current operational costs,” Spotify would take “substantial action.”

Despite its recognition (Spotify held 30 % of the music streaming market by late 2022), the corporate has lengthy struggled to show constant income. The layoffs wrap up a foul yr: Spotify reduce 6 % of its workforce final January, adopted by one other 2 % in June because it slimmed down its podcasting enterprise. Even because the world’s most recognizable music streaming service, Spotify is suffering from an unreliable enterprise mannequin, one through which report firms sit again and rake in royalty funds whereas artists can battle to usher in sufficient money.

“Investors are increasingly impatient in 2023 for tech firms to start making money,” says Phil Bird, head of rights and royalties on the software program improvement firm Vistex. Spotify isn’t alone—tech firms have slashed jobs all year long, with greater than 250,000 folks shedding jobs worldwide in 2023, in keeping with layoffs.fyi, a website that tracks job cuts in tech.

Many main tech firms that overhired through the pandemic have taken steps to rightsize—and that’s what Ek says Spotify is doing now. But Spotify’s excessive value to license music provides to its monetary pressure. “The cost of doing business is huge for streaming companies,” Bird says.

Spotify gained momentum within the third quarter of 2023, incomes €32 million ($34.6 million) in working revenue. It now has 226 million subscribers and 574 million month-to-month customers. “On the surface, it looks great,” says Simon Dyson, senior principal analyst of music and digital audio at consultancy agency Omdia. “It’s [those] nagging costs that it can’t get on top of.”