Spotify to cut 6% of its workforce as tech cuts continue

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Spotify announced on Monday that it is cutting 6% of its global workforce as the music streaming company struggles with a bleak economic environment that has consumers and advertisers alike limiting their spending.

Spotify has a total workforce of around 9,800 people, which means that the cuts affect around 600 employees. According to his LinkedIn profile, the company employs 5,400 people in the US and 1,900 in Sweden.

Shares of Spotify climbed more than 3% Monday on news of cost-cutting measures.

Spotify, which is based in Sweden but listed on the New York Stock Exchange, sent an internal memo to employees on Monday announcing the layoffs.

One-on-one discussions with affected employees will begin over the next few hours, wrote Daniel Ek, CEO of Spotify, in the note, which was made public on the company’s website.

“Like many other leaders, I hoped to maintain the strong tails from the pandemic and believed that our broad global business and lower risk of the impact of a slowdown in advertising would protect us,” said Ex.

“Looking back, I was too ambitious in investing ahead of our revenue growth. And for this reason, today, we are reducing our customer base -employ about 6% across the company.”

Ek said in the note to the staff that he takes “full responsibility for the movements we received here today.”

Laid-off workers will receive an average of five months of severance and continued health care coverage, Ek said. Immigration assistance will also be available to workers whose immigration status is related to their work.

The company warned in a Securities and Exchange Commission filing that the severance payments would result in approximately €35 million ($38 million) to €45 million of severance-related costs.

Dawn Ostroff, Spotify’s head of content, is also leaving the company. Ostroff, the former president of Conde Nast Entertainment, joined Spotify in 2018 to help the company grow its new advertising and podcast businesses.

During her time at Spotify, Ostroff signed up with Barack and Michelle Obama’s production company Higher Ground Productions to have the former president and first lady work on exclusive podcasts for Spotify. She also led the deal to secure exclusive rights to Joe Rogan’s show and was responsible for negotiating exclusive podcast deals with Kim Kardashian, Prince Harry and Meghan Markle.

“As a result of her efforts, Spotify grew our podcast content by 40x, drove significant innovation in the medium and became the leading music and podcast service in many markets,” Ek said in his Monday’s memo.

On Friday, Google became the latest major tech name to announce layoffs, saying it plans to cut 12,000 jobs. Microsoft and Amazonat the same time, also announced layoffs.

Tech companies faced a reckoning in 2022 as rising interest rates from the US Federal Reserve made dividends a less attractive bet for investors.

In October, Spotify reported that total revenue in the third quarter grew 21% to 3 billion euros, driven by growth in paid subscribers, and revenue supported by advertising up 19% to 385 million euros thanks to its podcast campaign. Losses tripled to 228 million euros, which the company blamed on headcount growth and higher advertising costs for growth initiatives.

Here’s the full memo Ek sent to Spotify employees:

team,

As we say in our Band Manifesto, the only constant is change. For this reason, I keep repeating that speed is the most defensive strategy a business can have. But distance alone is not enough. We also need to work with efficiency. It is these two things together that will drive our long-term success. With this in mind, I have some important news to share today.

Although we have made great strides in increasing speed in the past few years, we have not focused as much on improving efficiency. We still spend far too much time synchronizing on slightly different strategies, which slows us down. And in a challenging economic environment, efficiency is even more important. Therefore, in an effort to drive greater efficiency, control costs, and accelerate decision-making, I have decided to restructure our organization.

For starters, we’re fundamentally changing how we work at the top. To do this, I will be centralizing most of our engineering and product work under Gustav as Chief Product Officer and the 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 running the company day to day. They will tell you more about what this means in the coming days, but I am confident that with their guidance, we can achieve great things for Spotify.

Personally, these changes allow me to get back to the part where I do my best work – spending more time working on the future of Spotify – and I can’t wait to share more about what’s to come.

As part of this change, Dawn Ostroff has decided to leave Spotify. Dawn has made a great mark not only on Spotify, but on the audio industry in general. As a result of her efforts, Spotify grew our podcast content by 40x, drove significant innovation in the medium and became the leading music and podcast service in many markets. These investments in audio provided new opportunities for music and podcast creators and also fueled 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 extremely grateful for the important role she has played and we wish her success. In the short term, Dawn will take on the role of senior advisor to facilitate this transition. Alex will be responsible for content, advertising and licensing going forward and you will hear more from him on that.

It needs to be more efficient
That brings me to the second update. As part of this effort, and to further bring our costs in, we have made the difficult but necessary decision to reduce our workforce.

Over the next few hours, one-on-one discussions will be held with all affected employees. And while I think this decision is the right one for Spotify, I understand that with our historical focus on growth, many of you will see this as a shift in our culture. But as we grow and develop as a business, so must our approach while still staying true to our core values.

To give some perspective on why we are making this decision, in 2022, Spotify’s OPEX growth exceeded our revenue growth by 2X. That would have been unsustainable in the long term in any climate, but with a challenging macro environment, closing the gap would be even more difficult. As you know, over the past few months we have made a huge effort to bring costs back, but it simply wasn’t enough. So while it’s clear that this path is the right one for Spotify, that doesn’t make it any easier – especially as we think about the many contributions these colleagues have made.

Like many other leaders, I hoped to maintain the strong tails from the pandemic and believed that our broad global business and lower risk of the impact of a slowdown in advertising would protect us. In retrospect, I was too ambitious in investing ahead of our revenue growth. And for this reason, today, we are reducing our employee base by approximately 6% across the company. I am fully responsible for the movements we received here today.

My focus now is to ensure that all employees are treated fairly when they leave. While Katarina will provide more detail on all the details of the ways we are committed to supporting these talented bands, the following applies to everyone -work affected:

  • Severance Pay: We will start with a baseline for each employee with the average employee receiving approximately 5 months of severance. This will be calculated based on local notice period requirements and staff tenure.
  • PTO: All accrued and unused vacation will be paid out to any departing employee.
  • Health care: We will continue to cover health care for employees during their separation period.
  • Immigration assistance: For employees whose immigration status is linked to their employment, HRBP is working with all affected individuals in conjunction with our transition team.
  • Career Assistance: All employees will be eligible for accommodation services for 2 months.

What next

In almost every way, we achieved what we set out to do in 2022 and our overall business continues to perform well. But 2023 marks a new chapter. My belief is that because of these difficult decisions, we will be in a better position for the future. We have ambitious goals and nothing has changed in our commitment to achieve them.

We’ve come a long way in our efforts to build a comprehensive platform for creators of all levels, but there’s still a lot to do. To truly be a destination for creators, we must continue to develop our tools and technology, explore new ways to help creators engage with their audiences , grow their careers, and fund their work.

In fact, looking at our roadmap, with the changes we’re making and what we plan to share at our upcoming Stream On event, I’m confident that 2023 is a year where consumers and creators will see a steady stream of unlikely innovations. anything we have introduced in recent 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 who are leaving, I thank you for everything you’ve done for Spotify and wish you all the best in the future.

– Daniel

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— CNBC’s Ashley Capoot contributed to this report.

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