View from Washington: Be careful what you wish for, Elon
Image credit: REUTERS/Dado Ruvic/Illustration
Elon Musk's Twitter acquisition is high on price and low on detail.
After a few weeks of ‘Will he buy it?’, we are now at the ‘Should he (be allowed to) buy it?’ stage – and that is not as much of a done deal as you might think. But we seem to be going through Elon Musk’s plan to buy Twitter without any real reference to ‘What is he actually going to do with it?’
We know what Musk wants from Twitter philosophically. The world’s richest man is a “free speech absolutist”. He wants the social media platform to be even more of a free-for-all than, say, Hyde Park’s Speakers’ Corner – the digital “public square”.
We also know a few of the changes he wants to make: an edit button, time-outs for egregious behaviour, a bot clean-out, and some type of subscription option. I’m not sure how the last one dovetails with the idea of a public square, but we’ll come to that.
Then, Musk has been clear that he does not see profit as a priority. Assuming regulators follow Twitter’s board in agreeing to the $44bn deal, he will take the company private, get Wall Street ROI-focused investors off its back, and expose the algorithms that largely determine how content is promoted.
But with deals of this size, you would usually expect to hear a lot more, even where it was about taking a listed company private. By contrast, a private equity firm will typically dig into extreme detail about a target before making an offer to its shareholders.
I’ll be honest, though. I like the sound of quite a bit of what Musk has said. Not all (never much cared for absolutism), but a fair amount. Twitter has not been run well, and its value compared to other social media leaders is and long has been puny. The further problem is that too much of what Musk has outlined looks like it will be extremely hard to accomplish.
Let’s start with the obvious one: free speech. Most people in democracies are in favour of it but there are almost as many personal definitions as the many that exist in various national and soon – with the EU now muscling in on the debate – supranational law.
The US has largely stood apart. Section 230 of the Communications Decency Act effectively absolves digital platforms from liability and responsibility for what users post on them, but political support for that waiver is also much less solid today.
The EU, though, has set out its plans in the last few days. Its Commission, Parliament and member states have broadly agreed new rules that will require Big Tech to police more strictly what appears on its sites.
The Digital Services Act is expected to become law some time in 2024 and specifically targets content that promotes terrorism, the sexual abuse of children, hate speech, and fraudulent schemes, as well as some types of advertising.
Platforms must be able to show that users can quickly report such material and that they will respond quickly to remove it, in addition to their own content moderation efforts. Failures to do so will initially be subject to fines of up to six per cent of a company’s turnover (a maximum of roughly $300m based on the $5bn revenues in Twitter’s 2021 results) and beyond that a ban in the EU.
Musk has a history of being willing to confront regulators head-on. In more recent times, he has had angry and very public spats with the State of California over local taxation and Covid-19 regulation for Tesla’s operations there, and with the US Security and Exchange Commission over market-sensitive comments on Twitter itself (most notably, around taking Tesla private). And there is the temptation to say that $300m is chump change to a man of his wealth and beliefs.
However, it is not the only financial risk that could limit Musk’s ambitions. His takeover is “fully funded” but a large chunk of that, $25.5bn, is in the form of “fully committed debt and margin loan financing”. The resulting interest payments are thought to be in the region of $1bn a year, and the whole package is linked to the Tesla stock price.
Just how free of Wall Street is he?
Musk’s holdings across Tesla and other ventures such as SpaceX and The Boring Company are estimated to give him a ‘wealth’ of around $270bn, but he is thought to have comparatively little outside that in terms of hard cash. In banker-speak, he has “limited liquidity”. So what if the acquisition actually does turn into ‘Twitter flight’ (though while many users are coming out against the deal, there is little evidence of it so far) or, arguably worse, has a domino-effect on Musk’s other businesses?
Even for the richest man currently on the planet, the value of your investments can go down as well as up. Just ask Mark Zuckerberg. He recently saw $30bn of his wealth wiped out in a single day as Facebook’s shares plummeted after its first ever fall in users.
A couple of Twitter-linked threat scenarios are already being discussed.
If Musk oversees an “absolutist” Twitter, could it not merely face sanction by regulators but damage his public standing to the extent that it drives car buyers away from Tesla – a brand with which he is inextricably linked? Could it see governments – and particularly agencies like Nasa - come under public pressure not to use SpaceX? One potential beneficiary of that last outcome, Jeff Bezos with his rival Blue Origin company, has highlighted the second scenario.
After Twitter’s board accepted the offer, Bezos wondered - in a Tweet, naturally – “Did the Chinese government just gain a bit of leverage over the town square?” He later added, “Probably not. The more likely outcome in this regard is complexity in China for Tesla, rather than censorship at Twitter.”
New York Times China expert Mike Forsythe had earlier captured reasons why this could be a factor, “Tesla's second-biggest market in 2021 was China (after the US). Chinese battery makers are major suppliers for Tesla's EVs. After 2009, when China banned Twitter, the government there had almost no leverage over the platform. That may have just changed.”
All this stands in addition to the possible consequences for Twitter’s ongoing perception as an “open” platform for debate should Musk look at subscriptions.
If these were sought from all 200 million or so current active users, it ceases to be a public square (and it’s fair to wonder how many would be willing to pay $2 a month to keep sales at about the current level).
If, as has also been suggested, subscriptions were imposed only on its most-followed accounts, the whining already seen over ‘blue ticks’ could be turbocharged. Twitter already has a reputation as a place where “some animals are more equal than others”.
Oh yeah, and then there’s the ‘unban Donald Trump’ thing.
The question must stand: Can Elon Musk get what he wants?
His on-stage clowning and some of his comments do give the impression of Musk as intemperate, mercurial and impulsive. But several acquaintances who have worked for him describe someone far more thoughtful and a strategic thinker in private, albeit also aggressive around delivery.
So, you wouldn’t bet against Musk. But the practicalities that stand in potential opposition to the Twitter he seems to want mean that, this time, it’s hard to feel comfortable about betting for him.
Based on what we know so far, it’s going to take a lot of his genius (and perhaps more time than investors in his other companies would like) for Musk to ensure that he does not end up with a Twitter neither too many of its users nor he himself wants – and one that could wreak collateral damage on his other achievements.
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