Layoffs, Losses, AI Disruption - Spotify CEO Daniel Ek Has a Broken Profit Record to Fix
26.12.2023 - 08:05
/ tech.hindustantimes.com
/ Ai
It's 15 years since Sweden's Spotify Technology SA, co-founded by Daniel Ek, launched its music streaming service as a legal all-you-can-eat middle ground between online piracy or paying $20 for an album. At the time, the music industry was slashing jobs and struggling with the MP3's rise: In the digital domain, “copies are not just cheap, they are free,” technologist Kevin Kelly wrote in 2008.
Today, Ek is a billionaire, and streaming has helped the music biz get back to its pre-MP3 size. Yet Spotify is now cutting 1,500 jobs as the industry's foundations get rocked again. Even with more than half a billion unique users, technology that seems to understand our listening tastes better than we do ourselves (the annual Spotify Wrapped is said to be cognitively “irresistible”), and more content than we could listen to in a lifetime, Ek faces an existential challenge: Is Spotify a financially sustainable business?
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This question has long dangled over Spotify — and every streaming platform — as those $9.99 subscription fees (now $10.99) are reinvested in the service of Silicon-Valley-style user growth by buying more content. The slick tech engine at the core of its business needs R&D, but it also still depends on the Taylor Swifts and Drakes of this world for its fuel — as Swift herself proved when she temporarily yanked her music from Spotify in 2014, criticizing the fractions-of-a-cent royalties paid to artists. As tiny as those payouts are — Vulfpeck's Jack Stratton calls them “pities” — the negotiating power of labels has capped Spotify's profitability.
Swift's songs have made her a billionaire, but streaming remains a very unequal model for artists and a costly one for Ek, who has splurged even more to expand into lucrative non-musical content such as podcasts. Results have been decidedly mixed, as shown by the eye-watering $1 billion spent on swish studios and celebrity hosts including the Obamas. Yes, there's been growth, with Spotify's revenue twice what it was in 2018, but at the cost of perennial losses and new headaches like content moderation — such as when Joe Rogan's podcast sparked outrage over Covid misinformation. In a world of higher interest rates, investors are impatient for change; Spotify has underperformed the S&P 500 by more than 50 percentage points on a total return basis since going public.
Hence why Ek is frantically pulling all possible levers to change course. Cost savings worth $300 million are expected to bring the company into the black next year, according to Macquarie Group Ltd. analysts, and Ek's memo announcing 1,500 job cuts — even his CFO has gone — shows how the tone from the top is becoming more businesslike. Subscription fees are