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 go anywhere 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.
This makes music streaming a potentially lucrative avenue for expansion, not just for established international giants like Spotify and Apple Music but also for niche services catering to emerging markets with untapped potential. The growth of music streaming has transcended geographical boundaries, yet regional preferences remain important, driving the demand for localised services tailored to specific cultures and tastes. Speaking of which.
New streaming services emerge in response
"As much as huge streaming platforms like Spotify try to appeal to all audiences, there is simply no way to hit them all. With the right marketing and incentives, new emerging streaming companies can thrive. Not to the extent of Spotify, but enough to be a preferred service to die-hard fans. Not every demo is hit when it comes to huge streaming companies, so getting to hit a specific audience hard can become very lucrative if done right," says Bianca Alvarado, publicist at TLK Fusion, in an email to Kill the DJ.
Although Spotify's example clearly isn’t an entirely successful role model these days, new streaming platforms emerge, all with a noble mission: to make streaming artist-centric and put an end to the exploitation of artists.
Rokk—a new rock and metal-centred streaming platform
Developers of Rokk, a new streaming service focused on rock and metal music clearly aren’t concerned about all the struggles and going to launch the platform in January 2024. It will be firstly launched across the UK and Europe and then expand to North and South America, Japan, and Australia. The service was founded by Kamelot drummer Alex Landenburg and Mentalist guitarist Peter Moog, and is currently available on iOS, Android, and web for select users with early access.
One of the main things that sets Rokk apart from other music streaming services is its focus on paying artists and bands more money for their streams.
"By not catering to average users we avoid mass consumption of this 'popular' music. This guarantees a more evenly distribution of money amongst artists on the ROKK platform. Which results in a much more significant portion of your subscription, to go to the bands you actually listen to. [...] Our goal is that every stream will pay significantly more, up to 2-3 times more in fact. Even more exciting, ROKK allows you to directly support an artist of your choice with up to 10% of your subscription!" says Rokk on their crowdfunding campaign page on Indiegogo.
Addressing how unfair big streaming platforms are with their low subscription costs and extremely high streams for a select group of artists, leading to low per play rates, Rokk has emerged.
"Your money, regardless of who you are listening to, goes into a single pool that's distributed to artists based on their streams in relation to total platform streams. When you consider that 90% of streams go to the top 0.8% of artists (according to research by analytics company Alpha Data), you begin to understand why this mostly benefits megastars. As a result, a huge part of your subscription goes to acts that you will never listen to, while your favourite bands will go almost empty-handed," Rokk shares.
Sona Stream—an artist-centric streaming platform with no ads
Another example is Sona Stream, which rewards fans for buying "digital twins" of their favourite songs and allowing artists to have more control over their royalties with a unique rewards model, ad-free streaming, and auctions.
Unlike other streaming platforms, Sona Stream operates on blockchain technology and utilises decentralised finance (DeFi) principles.
There are two ways to earn on Sona [Stream]: you earn per stream based on the song’s pro-rata share of total streams, and by selling SONAs, which are one-of-a-kind digital twins of specific songs that split streaming rewards with their owners.
The platform doesn't have ads or subscriptions whatsoever but there's a marketplace where artists can share their art and "auction off" digital twins of songs exclusively to only one person at a time.
This is also a deeper way to support the artists you love by buying your favorite songs as SONAs and building a collection of your top tracks.
The owner of the digital twin gets 70% of the streaming payout rewards, while artists get a 30% share. Sona Stream takes a 7% fee, which is then split into two buckets: 2% for the company and 5% to fund the streaming rewards pool.
The service currently boasts a library of 12 million songs by 5,000 artists, among whom are Sara Hartman, CRi, Rochelle Jordan, Dakytl, Gavin Turek, and others.
"The challenge is always going to be making sure audiences know you exist. For example, did you hear Napester is back? Yeah, not a lot of people have. Opportunities include taking advantage of genres that don't get much love, helping artists more so they tell their fans to stream from you, and so much more," Alvarado says.
"Streaming is the future, and the future is now, I don't see streaming platforms going anywhere. As much as huge streaming platforms like Spotify try to appeal to all audiences, there is simply no way to hit them all. With the right marketing and the right incentives, new emerging streaming companies can thrive. Not to the extent of Spotify, but enough to be a preferred service to die-hard fans," says Bianca Alvarado.
This trend is particularly evident in emerging markets, where new avenues for music consumption are open and local players are taking advantage of this opportunity by offering services that cater to the unique preferences of their audiences. For instance, Boomplay, a prominent music streaming platform in Africa, focuses on local artists and genres, while JioSaavn in India has capitalised on the popularity of Bollywood music.