Spotify CEO Daniel Ek recently announced that 1500 employees or roughly 17% of its total workforce would be downsized in an effort to “right-size” the company costs.
This action was a surprise to many because the company had recently announced its first profitable quarter since 2021 with earnings topping $30 million for Q3.
The music streaming service has grown internationally over the last few years with average monthly users of the service topping half a billion.
Ek admitted in a company blog, “I realize that for many, a reduction of this size will feel surprisingly large given the recent positive earnings report and our performance.”
He went on to explain the reasoning behind the reduction saying, “Considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to right-size our costs was the best option to accomplish our objectives.”
The company had already downsized 8% of its team in two rounds of cuts earlier in 2023.
The music streaming service holds a dominant 30% of the online music market, but this has not translated into consistent profits.
Similar to Amazon Music and Apple Music, Spotify charges $10.99 for monthly access to its huge library of songs, but unlike video streaming, the record labels don’t just stream through one channel.
This makes it hard for Spotify to charge a premium or differentiate its services but it is clear that it is difficult for it to operate effectively for the low monthly service fee that it charges.
In recent years, Spotify has begun to invest more in original content, including books and podcasts in hopes of building out that differentiation from competitors.
But for now, the company will attempt to find the balance between growth and expenses but with 25% less of its workforce.