Music-streaming giant Spotify has announced that it will lay off approximately 1,500 employees, marking the company's third round of job cuts within a year. CEO Daniel Ek described this move as a "significant step change" for the business in an open letter to staff posted on the company's website. Ek cited the economic slowdown and the increased cost of capital as the reasons for the layoffs, stating that Spotify is not immune to these challenges.

In the letter, Ek revealed that the company had considered making smaller cuts in the coming years but ultimately decided that a substantial action to reduce costs was necessary to achieve their financial objectives. He admitted that many "smart, talented, and hard-working people" would be departing from the company. Ek also mentioned that one-on-one meetings with affected staff would be conducted before the end of the day on Tuesday, and employees would receive an average of five months of severance pay.

This decision comes after Spotify laid off more than 500 employees in January and cut 200 employees from its podcasting unit in June. Similar to other major tech companies such as Microsoft and Amazon, Spotify is responding to the global economic slowdown by reducing its workforce. While these companies experienced a surge in demand during the COVID-19 pandemic, inflation and rising interest rates have impacted consumer spending and made debt and equity funding more expensive.

Although Spotify reported robust growth and added six million subscribers between June and September, its efficiency has decreased over time. Ek noted that too many employees were focused on support work rather than delivering for content creators and consumers. Despite its recent profitability, with a profit of ?‚¬32 million ($34.8 million) in that time frame compared to a loss of ?‚¬228 million ($248 million) in the same period last year, Spotify believes there is still room for improvement.

By implementing this round of layoffs, Spotify aims to become both productive and efficient. Ek assured employees that this is not a step back but rather a strategic reorientation. The reduction in staff will require a change in the company's ways of working, and more details about these changes will be shared in the coming weeks.

In response to the announcement, Spotify's shares fell by approximately 2% in early trading. The company currently employs over 9,000 people but will now operate with a leaner structure to ensure sustained profitability. Despite the challenges, Spotify remains one of the leading music streaming services, with 226 million subscribers worldwide.