Are Emerging Music Streaming Services Doomed or Are They a New Beginning for Smaller Artists?
Soon after Spotify Wrapped was spectacularly released and gained the usual surge of excitement on social media, Spotify shocked the industry with the news: 17% workforce layoff.
This is the third company’s round of layoffs in 2023. The first one Spotify enforced just as 2023 began — in January, the streaming service cut its workforce by 6%, which affected nearly 600 employees in an effort to be “relentlessly resourceful.” The second round of layoffs fell in June with a 2% layoff (nearly 200 jobs).
On December 4, Spotify announced they sacked yet another fraction of its workforce, which is the biggest layoff the company had this year. The new and last layoff affected 17% of the workforce, equating to roughly 1,500 staffers.
Spotify CEO Daniel Ek then explained the decision in the memo addressed to staff that “economic growth has slowed dramatically and capital has become more expensive. Spotify is not an exception to these realities. […] Considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to rightsize our costs was the best option to accomplish our objectives.”
Is the streaming industry struggling?
These layoffs were part of Spotify’s efforts to reduce costs and adapt to the changing market conditions. The company has faced challenges in managing its financial situation, with CEO Daniel Ek stating that the company had over-hired in 2020 and 2021 when capital was cheaper.
Many fans and artists met this decision with skepticism and even anger — Reddit, X (formerly Twitter), and LinkedIn were full of posts by disappointed customers. Some of them, tellingly, were even about to cancel their subscription and move to Apple Music or Tidal, explaining that Apple and Amazon won’t do the same since they have other products to profit from. Spotify, in turn, is the only product Spotify sells.
Ironically, a couple of weeks later, Bloomberg reported that Tidal also laid off 10% of its staffers, which equates to roughly 1,300 people, explaining that “the growth of [the] company has far outpaced the growth of [the] business.”
“The recent changes in Spotify’s royalty scheme, shutting down two big podcasts, and three rounds of layoffs are indicative of the company’s struggles. However, it’s important to note that these changes are not unique to Spotify. The entire streaming industry is facing challenges, including rising costs, intense competition, and changing consumer preferences,” says Collen Clark, a lawyer at Schmidt & Clark LLP, in an email interview to Kill the DJ.
Earlier this year, the company expressed its intention to venture beyond music and explore the audiobook and podcasting industries, which are currently facing financial challenges and intense competition for both listeners and advertisers.
Spotify has made a significant investment in growing its podcasting business, partnering with celebrities like Kim Kardashian, Prince Harry, and Meghan Markle and expanding its reach to most countries. This strategic move is part of Spotify’s ambitious goal of reaching one billion users by 2030. It currently has over 570 million of them — a little less than double the number of listeners the platform attracted in 2020.
Since 2019, Spotify has been actively pursuing this expansion by acquiring podcast studios, signing exclusive deals with celebrity hosts, and, most recently, investing in generative AI for ad creation.
This multifaceted approach shows Spotify’s commitment to diversify its offerings and capture a wider audience than other streaming services do. But soon after these endevours, seemingly taking a cost-cutting approach, Spotify ditched two big podcasts, “Heavyweight” and “Stolen,” that will be cancelled after their current seasons are complete, as per Bloomberg’s report.
Another thing that drew the industry’s attention to Spotify earlier this year is its changes to the royalty scheme which reportedly aimed to fight against illegitimate artists and let musicians earn more. The update, however, met backlash, with many independent artists not being happy with the new order. These moves, despite a slight subscription fee increase, make Spotify a nice place for a customer but not for an artist if this artist isn’t a big pop star with millions of monthly streams.
Despite the challenges faced by the audio industry, the streaming market continues to expand globally. In 2020, the IFPI reported that music streaming generated $13.4 billion, representing a remarkable 62.1% of all recorded music revenue for that year, and the growth isn’t likely to goanywhere this year, either. This growth is attributed to the increasing popularity of standalone streaming services, as well as telcos incorporating streaming apps into their offerings.
