In spite of much sound and fury from the chattering classes, Elon Musk has signed an agreement to purchase Twitter for 46.5 billion dollars. Musk has long complained that Twitter is too strictly moderated. As the platform’s new owner, Musk has the right to run it as wishes. However, to remain Twitter’s owner, Musk will have to keep Twitter profitable enough to pay its creditors. Musk’s desire to liberalize Twitter’s rules may be in conflict with his prerogative to keep advertisers happy and revenue flowing. To “free” speech while maintaining Twitter’s profitability, Musk will have to accelerate efforts to decentralize the platform, seek other sources of revenue, or find a way to separate political demands from user experience concerns.
Musk has used Twitter to troll critics and delight fans since 2010. He seems to enjoy the platform’s raucous, freewheeling atmosphere. However, the features that have made Twitter, in Musk’s words, “the de facto public town square” have also made it hard for the platform to maintain user growth or turn consistent profits. Not everyone wants to be the man in the arena. Twitter’s default openness makes it harder for advertisers and celebrities to avoid criticism and abuse.
In an effort to mollify advertisers, attract users, and stave off regulation, Twitter has steadily increased both the scope of its rules and the resources dedicated to enforcing them. Although these changes were intended to improve “user experience” by serving more relevant content and hiding or removing offensive speech, Musk thinks they have made the platform worse. He has criticized Twitter’s opaque algorithmic content rankings and its lack of commitment to free speech. If Musk had purchased Twitter entirely in cash, he could reverse these changes, consequences be damned (although he would still have strong financial reasons not to run the company into the ground).
However, Musk has borrowed 25.5 of the 46.5 billion dollars he needs to buy Twitter. Half is borrowed against Twitter, but the other half is borrowed against Tesla stock. Twitter’s debt service will cost nearly a billion dollars a year, about two thirds of Twitter’s current earnings, and Musk’s Tesla-backed loan will cost him a similar amount to carry. Thus, Elon Musk’s Twitter will have strong incentives to maintain or increase its profits both to pay its own debts and return dividends to Musk. In the past, this has meant keeping advertisers and prominent users happy.
Musk will have to walk a fine line between keeping his commitments to liberalize Twitter’s moderation, and keeping the ad income flowing, or seek other sources of revenue. In the end Twitter will likely pursue some combination of the two. It might somewhat relax its policies while replacing some ad revenue with subscriptions. Twitter could draw more users to its paid Twitter Blue app, or charge power-users and companies for access to the platform. Given the platform’s history of unprofitability, it is far from clear that advertising is the best way to monetize Twitter.
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