The reports this morning were correct: Spotify has announced a round of layoffs as part of what CEO Daniel Ek called an effort “to bring our costs more in line”.
In an email sent to staff and subsequently published on Spotify’s ‘For The Record’ site, Ek also announced a reorganisation within Spotify’s senior management.
Chief content officer and advertising business officer Dawn Ostroff is departing, with chief business officer Alex Norström taking on her responsibilities for content, advertising and licensing. Engineering and product areas will now be ‘centralised’ under chief product officer Gustav Söderström. We understand that Ostroff’s decision to leave was her own, and that she will be staying on in an advisory role.
“Speed is the most defensible strategy a business can have. But speed alone is not enough. We must also operate with efficiency,” wrote Ek in the memo.
“While we have made great progress in improving speed in the last few years, we haven’t focused as much on improving efficiency. We still spend far too much time syncing on slightly different strategies, which slows us down. 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 organization.”
Ek also announced “the difficult but necessary decision to reduce our number of employees”, later clarifying that this is around 6% of the company’s workforce. Spotify ended 2021 with 6,617 employees, but it has not yet published its headcount figure for 2022.
Music Ally understands that today’s news affects around 600 staff, based across the business rather than concentrated in any particular division.
Ek expanded on the reasons for the cuts: specifically Spotify’s growth in operating expenses (OPEX) over recent years not being matched by comparable growth in revenues.
“To offer some perspective on why we are making this decision, in 2022, the growth of Spotify’s OPEX outpaced our revenue growth by 2X. That would have been unsustainable long-term in any climate, but with a challenging macro environment, it would be even more difficult to close the gap,” wrote Ek.
“As you are well aware, over the last few months we’ve made a considerable effort to rein-in costs, but it simply hasn’t been enough,” he continued.
“Like many other leaders, I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us. 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.”
This has been a common refrain from tech CEOs in recent weeks and months: that they expected the growth they saw during the pandemic would continue, invested heavily, and were then caught out by subsequent economic headwinds.
With Spotify a public company, we’ll see how the market reacts to the changes over the course of today. Its market cap peaked at more than $69bn in February 2021, but has since declined to just under $19bn.
After stressing Spotify’s determination to treat employees fairly if they are laid off, Ek offered optimism for the year ahead.
“In almost all respects, we accomplished what we set out to do in 2022 and our overall business continues to perform nicely. But 2023 marks a new chapter. It’s my belief that because of these tough decisions, we will be better positioned for the future,” he wrote.
“We have ambitious goals and nothing has changed in our commitment to achieving them.”
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