This article originally appeared on Business Insider.
Spotify celebrated its annual Wrapped campaign with an exclusive party at a London superclub in November.
Sam Smith took to the stage and sang her popular hit ‘Unholy’ at the 3,500-capacity event at Drumsheds, a former Ikea store. Headliners also included Charli XCX and Chase & Status, while drinks flowed freely at the bar.
The celebration was attended by employees, celebrities, media and fans who were among the artists’ top listeners on Spotify. That evening there was another Wrapped party in Houston, headlined by rapper Gunna.
Four days later, the company cut 1,500 jobs, including some employees who had worked at Wrapped. CEO Daniel Ek sent a clear memo to employees announcing the layoffs, saying Spotify’s cost structure was still too bloated.
“Economic growth has slowed dramatically and capital has become more expensive,” Ek wrote. “Spotify is no exception to this reality.”
Daniel Ek. Dave Bennett/Getty Images
Like many other companies, Spotify has overhired during the pandemic. Between 2019 and 2022, the company almost doubled its number of employees. Last year, 2,300 jobs were cut through three rounds of layoffs in January, June and December.
Some employees believe Spotify is spending too much on parties and events, especially as the company lays off thousands of employees and seeks further cost savings. Business Insider spoke with 14 current and former workers who shared details about what they said were ill-timed, extravagant parties. They asked not to be identified discussing sensitive matters.
Since Spotify is in the entertainment business, a series of extravagant events are part of the deal. But those employees said the event spending went too far given the company’s overall frugal efforts.
“It was surprising to me that they said they would cut costs but then continued spending,” a former employee told BI.
Keep wrapping
A Spotify spokesperson said the company will continue events such as Wrapped, Stockholm Intro Days and the Best New Artist Grammy party.
The spokesperson said these are “key to promoting artists, engaging listeners, fostering collaboration between employees and highlighting our services,” adding: “Spotify is a global company dedicated to celebrating creators, the Dedicated to fostering a collaborative employee culture and recognizing 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 employees, is viewed by employees as an example of wasteful spending.
The last Spotifest took place in August. Hundreds of employees gathered for the event at the Brooklyn Mirage in New York. Laser lights shined on attendees’ faces in the outdoor courtyard while headliners Diplo and T-Pain performed on a massive stage. Elsewhere, acrobats performed, drag actors danced and beer was served from backpack kegs, according to those in attendance.
The room was lit by orange and blue spotlights, and there was a bar along one wall serving drinks, a YouTube video from the event shows. Attractions included a hair salon, photo booths, music listening stations, a range of games and a temporary tattoo parlor where staff were branded with the Spotify logo.
Concerns were dismissed
Two months before Spotifest, the company cut 200 jobs. And earlier this 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 “significant efforts to contain costs.”
While one worker said Spotifest was a good way to boost employee morale, another said the event came at an inopportune time as layoffs began.
A former employee who worked on budgets said he tried to raise the issue that the company needed to improve its spending, but his concerns were shrugged off.
Introductory days
Employees at a meeting at Spotify headquarters in Stockholm in March 2014. Melanie Stetson Freeman/The Christian Science Monitor via Getty Images via BI
Spotify’s events largely fall into two categories. There are parties and events that are open to the public and are essentially for brand marketing. Then there are events just for employees.
“Whether it’s a team party, a Grammy party, a holiday party, branded parties or additional parties that are kept relatively under wraps, a lot of money is definitely spent at parties,” a former employee told BI.
The company is headquartered in Stockholm and sends many new employees there for “Intro Days” where they can network, listen to speakers and familiarize themselves with Spotify culture.
A former employee described it as the company that “spends a lot of money flying people to Sweden to drink the Kool-Aid.” Several people who took part in the trips told BI that the company would put employees up in a hotel for three to five days and cover all meals.
“You literally just sit in a room and listen to executives talk for three days and at the end there’s a party,” one person said. “It’s just such a stupid waste of money.”
Another employee said: “I’ve really questioned managers’ decision-making and how they spend money, and I think induction days are a good example.”
This person said Spotify continues to spend money on parties and travel despite the economic headwinds.
Beyond music streaming
Alicia Keys and Daniel Ek at The Future of Audiobooks with Spotify 2023 event in New York City in October. Noam Galai/Getty Images via BI
Part of this generous event spending will go toward solving a problem that has plagued Spotify for years.
According to a company blog from early 2023, Spotify pays out around 70% of its revenue to music rights holders due to the difficult economic situation in the music streaming business. Generally, the more music streamed on the service, the higher these payouts increase at a similar rate. So as the company grows, costs also increase. This is a concern for investors who prefer software business models that typically make much more money as revenue increases.
One way for Spotify to address this challenge is to expand beyond music streaming to include other companies with more scalable economic benefits, such as podcasts, audiobooks and concert tickets.
The company has spent more than $1 billion on podcasts and embarked on an acquisition spree in 2019 by purchasing three podcast studios for a total of $375 million. Spotify says it takes a 50% commission on revenue from ads on podcasts.
Since October 2023, Spotify has also been offering audiobooks to premium subscribers and the catalog has since grown to over 250,000. Before it was launched, Spotify executive Gustav Söderström said the company expected “healthy margins of over 40%” from this new business.
To mark the launch, Spotify executives, including Ek, flew to the company’s New York office, where Alicia Keys gave a private performance for an intimate audience, two people with knowledge of the event said. Attendees received a photo book and the company distributed Spotify-branded merchandise.
A “new modus operandi”
With giant competitors like Apple and YouTube lurking, Spotify is relying on these new ventures to succeed while trying to keep investors happy by tightening its belt.
“We consistently think about efficiency,” Ek told analysts during a February earnings call.
“We started this in early 2023 and I think we are gradually improving quarter over quarter and I think investors should expect much of the same in 2024,” he added. “We will continually seek to be more resourceful with the resources available to us. This is just the new approach we have.”