Spotify is planning to lay off 17% of its staff in a move CEO Daniel Ek called an attempt to “rightsize” the company after investing too much in 2020 and 2021. This announcement comes after the streaming platform launched a new royalties model, which has been widely criticized by artists and music industry professionals.
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According to Ek, the company is trying to cut costs and slow down spending, which makes sense in the context of the new model; it is also an attempt to cut and reallocate a small amount of funds to “real artists.” In a statement posted to Spotify’s website, Ek stated that Spotify is taking “substantial action to rightsize our costs” following expansion in 2020 and 2021. According to Ek, the platform took on too many employees during those years when it was more feasible to invest into widespread team growth.
The cuts amount to around 1,500 jobs, though Spotify would not publicly comment on the exact number of jobs to be lost. “Over the last two years, we’ve put significant emphasis on building Spotify into a truly great and sustainable business,” said Ek, “one designed to achieve our goal of being the world’s leading audio company and one that will consistently drive profitability and growth into the future.”
Ek shared that there was a plan to implement smaller cuts across 2024 and 2025, but, “considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to rightsize our costs was the best option to accomplish our objectives.
“In 2020 and 2021, we took advantage of the opportunity presented by lower-cost capital and invested significantly in team expansion, content enhancement, marketing, and new verticals,” Ek explained. “These investments generally worked, contributing to Spotify’s increased output and the platform’s robust growth this past year. However, we now find ourselves in a very different environment. And despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big.”
Overall, Spotify has made significant changes to how it runs its business model, specifically in ways that have not sat well with the music industry. The new royalties model, for example, calls for a song to be streamed a minimum of 1,000 times before it can start earning money. This is fine for creators with huge fan bases (your Beyoncés and your Taylor Swifts), but not so great for emerging artists.
Recently, Weird Al Yankovic called out Spotify in his thank you message to fans, stating that fans brought in 80 million streams for him this year. That may sound like a good chunk of change, but, as Yankovic revealed, “if I’m doing the math right, that means I earned $12. Enough to get myself a nice sandwich at a restaurant. So, from the bottom of my heart, thanks for your support, and thanks for the sandwich.”
If things look that bleak for Weird Al, how bleak will they look for smaller creators or those just getting started? A U.K. professor brought those fears to light in an open letter to Ek last month. Amelia Fletcher, Professor of Competition Policy at Norwich Business School at the University of East Anglia, included claims of discrimination and anti-competitiveness in her letter, writing in part that the new model is “intrinsically unfair,” “anti-competitive,” and “seriously risks constituting an abuse of dominance under UK and EU competition law.”
“It is not only discriminatory and exploitative of music creators, but also creates an unlevel playing field in the market for music creation,” Fletcher continued. “[I]f a precedent is established here, there is nothing to stop the 0.5% cut-off point increasing over time.” If 1,000 minimum streams becomes 2,000, becomes 3,000 or more, what will the music industry landscape look like in the future?
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