Mmusic streaming market leader Spotify will cut around six percent of the jobs. The Swedish company announced this on Monday. The move is likely to affect around 600 of the approximately 9,800 employees Spotify had at the end of the third quarter of 2022. In addition, Dawn Ostroff, the manager responsible for content and the advertising business, is leaving the service. Alex Norström, previously responsible for business outside of the subscription model as “Chief Freemium Business Officer”, and Gustav Söderström, currently responsible for research and development, will be given more responsibility as a result of the restructuring at the top of Spotify. Bloomberg had previously reported on planned job cuts, but did not give any numbers. The stock was up around 3.5 percent in early trading.
The increase in operating costs significantly exceeded sales growth in 2022, explained Spotify boss Daniel Ek. Like many other company bosses, he hoped to keep the tailwind of the pandemic and believed that the broad global footprint would cushion the effects of a flagging advertising business caused by the crisis. In retrospect, he was too ambitious in terms of the pace of investment. In 2022, operating expenses grew significantly faster than sales. Previous savings would not have been sufficient. At the end of 2021, the company still had 6,617 full-time employees.
Spotify had recently announced cost-cutting measures in the podcast area for its studios and in-house productions. According to the announcement on Monday, Spotify expects 35 to 45 million euros in severance payments.
Microsoft, Amazon and Meta are also cutting jobs
Of course, Spotify had recently invested heavily in the podcast area in order to differentiate itself from the other services and to increase advertising revenue with the podcast field, which is attractive for customers. Most recently they were at 13 percent of around three billion euros in quarterly sales, in the future it should be 20 to 30 percent. Last but not least, the background to the strategic alignment is the desire to become less dependent on the music industry. All services pay around two thirds of their sales to the rights holders of the songs available on the platforms.
Spotify’s move follows similar announcements from various tech giants. Facebook’s parent company Meta announced the loss of 11,000 jobs, 18,000 jobs are affected at the online retailer Amazon and 8000 at the software specialist Salesforce Microsoft cut 10,000 jobs and Google’s parent company Alphabet cut around 12,000 jobs. This corresponds to five or around six percent of the workforce. All companies had hired many new employees in the wake of the pandemic. With a view to the music business, Soundcloud had already canceled around 20 percent of its global jobs in August
While the corporations all regularly report big winners, Spotify can only look back on a few quarters in the black. While sales and the number of subscribers continue to grow strongly, investors have been keeping an eye on Spotify’s margin for some time in the wake of the crisis. As a result, Ek’s announcement that he will focus more on efficiency from now on should go down well here.
As of the end of September 2022, Spotify is the world’s largest music streaming service with 195 million paying subscribers and 456 million monthly active users ahead of Apple, Youtube and Amazon Music. The service recently gained 7 million subscribers in the third quarter. The number of monthly active listeners grew by 23 million to 456 million. Both values were slightly above the forecast previously given. Sales grew by 21 percent year-on-year to EUR 3.04 billion. However, at 24.7 percent, the gross margin was below the forecast of 25.2 percent.
Consequently, Ek also emphasized that Spotify had achieved in “almost all respects” what they had set themselves for 2022 and that business as a whole is still going well. “But a new chapter begins in 2023,” says Ek, and he believes that the tough decisions that have been made will put you in a better position for the future. Next week, Spotify will present its business figures for the fourth quarter of 2022.