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Spotify employees question lavish spending on events while the company lays off thousands

Jyoti Mann   

Spotify employees question lavish spending on events while the company lays off thousands
  • While Spotify is trying to cut costs, some employees criticize lavish spending on events.
  • It's in the entertainment business, so a certain number of extravagant events are part of the deal.

Spotify celebrated its annual Wrapped campaign with an exclusive party at a London superclub in November.

Sam Smith took to the stage and sang their popular hit "Unholy" as part of the 3,500-capacity event at Drumsheds, a former Ikea store. Headliners also included Charli XCX and Chase & Status as drinks flowed at the bar.

The celebration was attended by employees, celebrities, the media, and fans who were among the performers' top listeners on Spotify. Another Wrapped party took place in Houston that night, headlined by the rapper Gunna.

Four days later, the company cut 1,500 jobs, including some staff who worked on Wrapped. CEO Daniel Ek sent employees a blunt memo announcing the layoffs and said Spotify's cost structure was still too bloated.

"Economic growth has slowed dramatically and capital has become more expensive," Ek wrote. "Spotify is not an exception to these realities."

Like many companies, Spotify over-hired during the pandemic. It nearly doubled its head count between 2019 and 2022. Then, last year, it cut 2,300 jobs through three rounds of layoffs in January, June, and December.

Some employees think Spotify is spending too much on parties and events, especially when the company is laying off thousands of people and looking to cut more costs. Business Insider spoke with 14 current and former workers who shared details of what they described as poorly timed, extravagant parties. They asked not to be identified discussing sensitive matters.

Spotify is in the entertainment business, so a certain number of extravagant events are part of the deal. But these employees said event spending had gone too far, given the company's broader efforts at frugality.

"It was surprising to me that they stated they're on a cost-cutting drive but then continued spending," one former staffer told BI.

Keep Wrapping

A Spotify spokesperson said the company would continue events such as Wrapped, Stockholm Intro Days, and the Best New Artist Grammy party.

The spokesperson said these were "key to promoting artists, engaging listeners, encouraging collaboration amongst employees, and highlighting our services," adding: "Spotify is a global company dedicated to celebrating creators, fostering a collaborative employee culture, and recognising team achievements."

The company declined to comment when BI asked how much it spent on parties and events.

Spotifest 2023

Spotifest, a music festival just for Spotify staff, stands out in employees' minds as an example of lavish spending.

The latest Spotifest took place in August. Hundreds of employees gathered at The Brooklyn Mirage in New York for the event. Laser lights beamed onto attendees' faces in the outdoor courtyard as the headliners Diplo and T-Pain performed on a huge stage. Elsewhere, acrobats performed, drag performers danced, and beer was served out of backpack kegs, according to people in attendance.

The space was lit up by orange and blue spotlights, with one wall lined by a bar serving drinks, a YouTube video from the event shows. Attractions included a barbershop, photo booths, music-listening stations, a series of games, and a temporary-tattoo studio that branded employees with Spotify's logo.

Concerns shrugged off

Two months before Spotifest, the company cut 200 jobs. And earlier in the year, during the first round of cuts, Ek told employees in a memo that the company needed to "control costs" and that it had made a "considerable effort to rein-in costs."

While one worker said Spotifest was a good way to boost employee morale, another said the event was poorly timed once layoffs began.

A former employee who dealt with budgets said they attempted to raise the issue of the company needing to be better with spending, but their concerns were shrugged off.

Intro Days

Spotify's events largely fall into two categories. There are parties and events that are open to the public, which essentially function as brand marketing. Then there are employee-only events.

"Whether it's a team party, Grammys party, Christmas party, branded parties, or extra parties that are relatively under the wraps, there's certainly a ton of money being thrown at parties," one former employee told BI.

The company is headquartered in Stockholm, and it sends many new hires there for "Intro Days," during which they network, hear from speakers, and get up to speed on Spotify culture.

One former employee described it as the company "spending tons of money flying people to Sweden to drink the Kool-Aid." Several people who went on the trips told BI the company would put employees up in a hotel for three to five days and cover all their meals.

"You literally just sit in a room and listen to executives talk back-to-back for three days, and then there's a party at the end," one person said. "It's just such a stupid waste of money."

Another worker said, "I really questioned executive leadership's decision-making and where they spend money, and I think Intro Days are a good example."

This person said it showed poor leadership for Spotify to continue spending on parties and trips despite economic headwinds.

Beyond music streaming

Some of this lavish event spending is focused on solving a problem that has loomed over Spotify for years.

The tough economics of the music-streaming business mean Spotify pays out about 70% of its revenue to music rights holders, according to a company blog from early 2023. As more music is streamed on the service, these payouts generally increase at a similar rate. So as the company grows, expenses climb, too. This has been a concern for investors who prefer software business models that typically make a lot more money as sales rise.

One way for Spotify to tackle this challenge is to expand beyond music streaming and embrace other businesses with more scalable economics, such as podcasts, audiobooks, and concert tickets.

It has spent more than $1 billion on podcasts and went on an acquisition spree in 2019 through buying three podcast studios totaling $375 million. Spotify says it takes a 50% commission on revenue from ads on podcasts.

Spotify also started offering audiobooks to premium subscribers in October 2023, and the catalog has since grown to more than 250,000. Before it was rolled out, the Spotify executive Gustav Söderström said the company expected this new business to "have healthy margins, above 40%."

To mark the launch, Spotify executives, including Ek, flew to the company's New York office, where Alicia Keys put on a private performance for an intimate audience, two people with knowledge of the event said. Attendees got a photobook, and the company gave out Spotify-branded merchandise.

A "new modus operandi"

With giant rivals such as Apple and YouTube lurking, Spotify needs these new businesses to work out while also trying to keep investors happy by tightening its belt.

"We're consistently thinking about efficiency," Ek told analysts during a February earnings call.

"We started doing it in early 2023, and I think we are gradually becoming better quarter by quarter, and I think investors should expect much the same for 2024," he added. "We are going to continuously look at being more resourceful with the resources we have. That's just the new modus operandi that we have."

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