Spotify to eliminate 6% of its workforce to cut costs
More cuts in the tech sector as the role of private equity in the layoffs comes to light
Music streaming service Spotify is firing 6% of its workforce as part of larger cost-cutting initiatives after going on a spending binge during the pandemic.
The company employs around 9,800 workers, according to its third-quarter financial report, and the latest wave of job cuts will impact roughly 600 employees.
Chief executive Daniel Ek said in a blog post that while Spotify was able to make excellent progress in improving speed in the last few years, it did not focus as much on improving efficiency.
"And in a challenging economic environment, efficiency takes on greater importance. So, in an effort to drive more efficiency, control costs, and speed up decision-making, I have decided to restructure our organisation," Ek said.
"In hindsight, I was too ambitious in investing ahead of our revenue growth. And for this reason, today, we are reducing our employee base by about 6% across the company. I take full accountability for the moves that got us here today."
As part of the broader reorganisation, Gustav Söderström, director of research and development at Spotify, and Alex Norström, leader of the freemium business, have been named co-presidents, while Dawn Ostroff, the company's chief content and business officer, will leave.
Ostroff assisted in establishing Spotify's podcast division and led the company through the controversy around Joe Rogan's show for allegedly spreading false information about Covid-19.
Spotify says it anticipates severance-related costs to be at least €35 million (£30 million). An average departing employee will receive around 5 months of severance, which will be determined depending on local notice period requirements and employee tenure.
Despite its success in the online music market, the New York Stock Exchange-listed Swedish firm has never posted a full-year net profit.
Since its inception, the firm has made significant investments to drive development via expansion into new areas. It has invested more than a billion dollars since 2019 in the purchase of podcast networks, production tools, a hosting service, and the rights to popular shows.
Nonetheless, shares fell 66% last year as investors questioned when they would start seeing returns.
In June, Spotify executives said that the company's podcast division will turn a profit in the next one to two years.
Spotify's decision is the latest in a string of tech layoffs as the sector adjusts after expanding rapidly at the start of the pandemic.
Microsoft, Google, Amazon and Meta have all lately announced workforce cutbacks.
Amazon said at the start of the year that it will be laying off more than 18,000 employees due to "the uncertain economy" and a spike in hiring during the pandemic.
Meta said in November that it would lay off 11,000 workers, or 13% of its workforce.
Google's parent company, Alphabet, said last week that it will cut 12,000 positions, while Microsoft stated that up to 11,000 workers would lose their jobs.
The role of private equity
While tech sector job cuts are being driven by the weak global economy and the aftermath of the pandemic, the role of the investors behind the scenes has been less commented upon.
A letter leaked on social media purporting to be from Chris Hohn, CEO of London-based hedge fund TCI Fund Management Ltd, to Alphabet CEO Sundar Pichai after suggested that as many as 20% of Google's staff should be laid off. It is dated 20th January, the day the Google parent, in which TCI holds a $6 billion stake, cut 12,000 jobs at the company.
"The decision to cut 12,000 jobs is a step in the right direction, but it does not even reverse the very strong headcount growth of 2022. Ultimately the management needs to go further," Hohn writes.
He adds: "Importantly, management should also take the opportunity to address excessive employee compensation."