Hundreds of Spotify staff stream out the door in latest layoffs

CEO Ek admits he never stopped to consider whether pandemic boom was temporary

Stop us if you've heard this one before: the CEO at a well-known technology company writes a letter to staff, laying off hundreds. Said CEO accepts responsibility for assuming a pandemic boom year would mean higher sustained growth rates, but it didn't, so sacrifices must be made.

By the rank-and-file, of course, not by said CEO. 

Of course you've heard it – the sound of layoffs has been echoing around Silicon Valley for months, nary a company has been unaffected, and the justifications all sound similar. This time, it's Spotify whose CEO has said it's time for the company to become leaner and more efficient – by restructuring at the top and firing 6 percent of its approximately 9,800 staff.

Boss Daniel Ek even admitted he was guilty of the same sin other tech leaders have been copping to recently – getting ahead of themselves.

In his letter to Spotify staff, Ek said he had hoped "strong tailwinds" from the COVID-19 pandemic and Spotify's "broad global business" would insulate the company from ad spending slowdowns.

That hasn't been the case, though. Ek said Spotify's operating expenses outpaced revenue growth by a factor of two last year.

"In hindsight, I was too ambitious in investing ahead of our revenue growth… I take full accountability for the moves that got us here today," Ek said. His letter didn't include plans to step down.

Employees being fired in the cuts were scheduled to find out "over the next several hours," Ek said, in one-on-one meetings with supervisors. Those being terminated will get five months of severance pay and healthcare coverage, will be paid for all accrued and unused vacation time, and get two months of career assistance. Foreign workers on a visa will get specialized support from Spotify as well, the company said. 

Ek's letter made no mention of where the cuts would fall. 

Along with layoff announcements, Ek said he was restructuring Spotify to elevate Gustav Söderström, the company's chief R&D officer who doubles as CTO and CPO, and Alex Norström, Chief Freemium Business Officer, to co-presidents.

Per Ek, that move will mean the pair are "effectively helping me run the company day-to-day."

Dawn Ostroff, who joined Spotify in 2018 as its head of content, "decided to depart Spotify… as a part of this change," Ek wrote, adding that she grew Spotify podcast content by 40x in her time at the company as well as doubling advertising business revenue.

In his letter, Ek said Ostroff's responsibilities "for the content, advertising and licensing" are passing to Norström.

A royal pain for profits

We've asked Spotify to explain how its opex increases outpaced profit growth by double last year, but haven't heard back.

One possible source of concern for Spotify, though it's unlikely to have affected the company much yet, are the increases in streaming royalty payments that the Copyright Royalty Board approved in December and which went into effect on January 1.

The new rule, known as "Phonorecords IV," supplemented a decision from earlier last year that saw royalty rates planned to increase from just 10.5 percent to 15.1 percent going backwards from 2018 to 2022.

Now streaming royalty rates would start 2023 at the aforementioned 15.1 percent, with increases to 15.2 percent, 15.25 percent and 15.3 percent happening in 2024, 2025 and 2026. A final rate increase in 2027 would set streaming royalties at 15.35 percent.

A second decision late last year also raised royalties for non-interactive streaming (where listeners can't pick songs), which Spotify offers alongside traditional selective streaming. ®

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