Spotify announced on Monday that it was cutting 6% of its global workforce as the music streaming company grapples with a bleak economic climate in which both consumers and advertisers are cutting back on spending.
Spotify’s total workforce is around 9,800, which means the cuts will affect around 600 employees. According to its LinkedIn profile, the company employs 5,400 people in the US and 1,900 in Sweden.
Spotify shares rose more than 3% on Monday on news of the cost-cutting measures.
Spotify, which is based in Sweden but is listed on the New York Stock Exchange, sent an internal memo to employees on Monday announcing the layoffs.
Individual conversations with affected employees will begin within the next few hours, Daniel Ek, Spotify’s CEO, wrote in a note posted on the company’s website.
“Like many leaders, I hoped to weather the strong tailwinds from the pandemic and believed that our broad global business and lower exposure to the effects of an advertising slowdown would insulate us,” Eck said.
“Looking back, I was too ambitious in investing before our revenue grew. And for that reason, today we are reducing our employee base by approximately 6% across the company.”
In a memo to staff, Eck said he takes “full responsibility for the actions that have led us today.”
Laid-off employees will receive an average of five months of severance pay and continued health insurance, Eck said. Immigration support will also be available to workers whose immigration status is related to their employment.
In a filing with the Securities and Exchange Commission, the company warned that the severance payments would result in between 35 million and 45 million euros in severance payments.
Don Ostroff, Spotify’s head of content, is also leaving the firm. Ostroff, the former president of Conde Nast Entertainment, joined Spotify in 2018 to help the company grow its fledgling advertising and podcasting businesses.
While at Spotify, Ostroff signed with Barack and Michelle Obama’s production company, Higher Ground Productions, for the former US president and first lady to work on exclusive podcasts for Spotify. She also led the deal to obtain exclusive rights to Joe Rogan’s show and was responsible for negotiating exclusive podcasting deals with Kim Kardashian, Prince Harry and Meghan Markle.
“Thanks to her efforts, Spotify has grown our podcast content 40x, introduced significant innovation on Wednesday, and become the leading music and podcast service in many markets,” Eck said in a note on Monday.
on friday Google became the latest major technology company to announce layoffs, saying it plans to cut 12,000 jobs. Microsoft and Amazonmeanwhile, layoffs were also announced.
Tech firms face a reckoning in 2022 as interest rate hikes by the US Federal Reserve make stocks less attractive to investors.
In October, Spotify reported a 21% increase in total revenue in the third quarter to €3 billion, thanks to growth in paid subscribers, while advertising revenue rose 19% to €385 million thanks to podcasting. Losses tripled to €228m, which the company blamed on headcount growth and higher advertising spend for growth initiatives.
Here’s the full memo that Eck sent to Spotify staff:
As we say in our band manifesto, change is the only constant. For this reason, I keep repeating that speed is the most justified strategy a business can have. But one speed is not enough. We also need to work efficiently. These two things together will contribute to our long-term success. With that in mind, I want to share some important news today.
While we’ve made great strides in speed over the past few years, we haven’t focused too much on efficiency. We still spend too much time synchronizing slightly different strategies, which slows us down. And in difficult economic conditions, efficiency becomes more and more important. Therefore, in order to increase efficiency, control costs and speed up decision-making, I decided to restructure our organization.
For starters, we’re fundamentally changing the way we work at the top. To do this, I will centralize most of our engineering and product work under Gustav as Chief Product Officer and business areas under Alex as Chief Business Officer. I’m happy to say that Gustav and Alex, who have been with Spotify for a long time and have done a great job, will lead these teams as co-presidents, effectively helping me run the company on a day-to-day basis. They’ll tell you more about what that means in the coming days, but I’m confident that with their guidance, we’ll be able to achieve great things for Spotify.
Personally, these changes will allow me to get back to where I do best — spending more time on the future of Spotify — and I can’t wait to share more about what’s to come.
As part of these changes, Dawn Ostroff has decided to leave Spotify. Dawn has made a big mark not only on Spotify, but on the audio industry as a whole. Thanks to her efforts, Spotify has grown our podcast content 40x, introduced significant innovations on Wednesday, and become the leading music and podcast service in many markets. This investment in audio opened up new opportunities for music and podcast creators, and sparked renewed interest in Spotify’s audio advertising potential. Thanks to her work, Spotify was able to innovate the advertising format itself and more than double the revenue of our advertising business to €1.5 billion. We are very grateful for the key role she has played and wish her the best of luck. In the near term, Dawn will take on the role of senior advisor to help facilitate this transition. Alex will take responsibility for the future work on content, advertising and licensing, and you will hear more about this from him.
The need to become more efficient
This brings me to the second update. As part of this effort and to bring our costs into line, we have made the difficult but necessary decision to reduce our workforce.
Individual interviews will take place with all affected employees over the next few hours. And while I believe this decision is the right one for Spotify, I understand that given our historical focus on growth, many of you will see this as a shift in our culture. But as we evolve and grow as a business, so must the way we work, while staying true to our core values.
To offer some perspective on why we’re making this decision, in 2022, Spotify’s operating expense growth was 2 times faster than our revenue growth. This would be unsustainable in the long term in any climate, but with a difficult macro-environment it would be even more difficult to close the gap. As you well know, we’ve made significant efforts to contain costs over the past few months, but it hasn’t been enough. So while it’s clear that this path is the right one for Spotify, it doesn’t make it any easier, especially when we think about the great contributions these colleagues have made.
Like many CEOs, I had hoped to weather the strong tailwinds from the pandemic and believed that our broad global business and lower exposure to the effects of an advertising slowdown would insulate us. In retrospect, I was too ambitious in investing before our income grew. And for that reason, we’re reducing our employee base by about 6% across the company today. I take full responsibility for the actions that brought us here today.
Right now, I’m focused on making sure every employee is treated fairly when laid off. While Katarina will provide more details on how we are committed to supporting these talented team mates, the following will apply to all affected employees:
- Severance Pay: We will start with a base level for all employees, on average an employee will receive about 5 months of severance pay. This will be calculated based on local requirements for the notice period and the employee’s tenure.
- PTO: All accrued and unused vacation time will be paid to any departing employee.
- Health Care: We will continue to pay for medical services for employees during their severance period.
- Immigration support: For employees whose immigration status is related to their employment, HRBPs work with each affected individual in conjunction with our mobility team.
- Career Support: All employees will be eligible for employment services for 2 months.
In almost every respect, we achieved what we set out to do in 2022, and our business as a whole continues to perform well. But 2023 marks a new chapter. I believe that thanks to these tough decisions, we will be better positioned for the future. We have ambitious goals and our commitment to achieving them has not changed.
We’ve come a long way in our efforts to create a comprehensive platform for creators of all levels, but we still have a long way to go. To truly become the premier destination for creators, we need to continue to improve our tools and technology, find new ways to help creators engage with their audiences, grow their careers, and monetize their work.
In fact, looking at our roadmap, the changes we’re making, and what we plan to share at our upcoming Stream On event, I’m confident that 2023 will be the year that consumers and creators see a constant stream of innovation, unlike from everything we’ve introduced over the past few years. I will share more about these exciting developments in the coming weeks.
Finally, I hope you’ll join me tomorrow for Unplugged.
And again, to those of you who are leaving, I thank you for everything you’ve done for Spotify, and I wish you the best of luck in the future.
— CNBC’s Ashley Capote contributed to this report.