(DailyDig.com) – Spotify, the undisputed leader in online music streaming, received some bad news on December 4 when it revealed plans to release 1,500 employees, or 17% of its staff. This is the third round of layoffs for the biggest music streaming service in the world this year.
The CEO of Spotify, Daniel Ek, noted that the layoffs may seem big in light of the company’s recent strong performance and profit report, but that they are necessary because of the disparity between Spotify’s operating expenses and their financial target.
The announcement followed Spotify’s first quarterly profit since 2021. In an internal message, Ek informed employees that the firm had grown substantially in 2020 and 2021 due to cheaper financing, but that it is now seeing the same challenges that startups in other sectors are encountering, such as slowing economic growth and high capital expenses.
The firm has traditionally had trouble turning a regular profit, despite its enduring popularity. Even though it’s the most popular streaming service for music in the world, Spotify has a problematic economic model that allows record labels to reap royalties, but musicians have a hard time making ends meet.
According to Phil Bird of software development business Vistex, investors are becoming more and more eager in 2023 for digital companies to begin producing money. Ek claims that Spotify is now following the lead of other large tech businesses that over-hired throughout the epidemic and are now attempting to scale back. However, Spotify’s financial burden is exacerbated by the high cost of music licensing. Streaming services have a high cost of conducting operations, according to Bird.
According to senior analyst Simon Dyson of the consulting company Omdia, Spotify seems to be a fantastic option at first glance. Those pesky expenses are what it can’t seem to claw back. He said that ten dollars a month is too cheap for access to all of the music that has ever been published or will be published. Labels and listeners benefit from the industry, but artists and streamers suffer.
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