Opinion
Twitter didn’t, can X survive Elon Musk?
Summary
- The trigger for the pullout by advertisers was Elon Musk’s recent endorsement of a weird conspiracy theory associated with racist antisemitic groups
Apple, IBM, Disney, Warner Brothers, Comcast/NBCU, Paramount, Discovery - that's only some of the major advertisers who have abandoned X (formerly Twitter) en masse in the past few days. Most of these companies say they have “paused" advertising on X, but this is the busy season and there's no timeline to suggest how long these pauses might last.
It is estimated that ad revenues this year on X will drop at least 50% compared with 2022. The social media platform is heavily dependent on ad revenues which contributed around $4 billion of its total revenues of $4.4 billion in 2022.
While advertisers had already turned cautious about X due to its unsatisfactory moderation processes, the trigger for the pullout was Elon Musk’s recent endorsement of a weird conspiracy theory associated with racist antisemitic groups. We aren’t keen to amplify what he said and aren’t, therefore, repeating it here but for those interested, the details can be accessed across the mainstream media.
IBM pulled out after explicitly citing the statement, calling it “unacceptable". Even the White House issued a condemnation, “It is unacceptable to repeat the hideous lie".
Instead of retracting the statement, Musk has threatened to sue media watchdogs and organizations that have pointed out issues with moderation.
It's not surprising that X has problems flagging hate speech since Musk has sacked 80% of the workforce, including most of the erstwhile moderation team. This has resulted in plenty of hate speech remaining on the platform for long periods. Musk has threatened to sue the Anti Defamation League, a Jewish NGO that combats antisemitic sentiments for pointing out the rising trend of hate speech on X.
The last straw for many advertisers might have been ad-placement. Watchdog organisation Media Matters recently released a study that showed how major advertisers had their ads placed in proximity to Pro-Nazi posts. Musk has also publicly threatened to sue Media Matters while admitting this has actually happened.
Ads in proximity to inappropriate content are the kiss of death for advertisers. It is especially important not to get this wrong online, where context is so crucial. The European Commission cited concerns on this front in freezing ads on X “we have concerns that such content appears in an inappropriate context and thus affects the effectiveness of our communication." This is why platforms like YouTube and X “demonetise" controversial content and refuse to place ads in proximity to such content, even when they don't remove the content.
X CEO Linda Yaccarino says the offending content has been demonetised. Yaccarino herself is from an advertising background and several senior advertising professionals have reportedly advised her to resign instead of trying to rein her boss in.
The festive period around Christmas and New Year is the biggest season for advertising and marketers. X would need to institute a lightning image makeover to convince advertisers that it can meet their concerns.
But the question remains: Can X survive Musk? In October 2022, Musk paid around $44 bn to take over Twitter after a long and complicated legal battle. He had first made a takeover bid in April 2022. He started a large-scale reorganisation, sacked most of the employees, introduced the concept of a paid blue tick, long posts, etc. He also changed the name in April along with the logo as part of the rebranding.
In 2021, Twitter declared revenues of $5bn and a loss of $221 million. Around $4.5 billion came from advertising. In 2022, it had $4.4 billion in revenues and about $4 billion was from advertising. This year (2023) ad revenues could shrink by 50% or more according to industry estimates. The company has a debt service burden of about $1 billion on $13 billion borrowed by Musk against its anticipated cashflows.
In May 2023, Fidelity (which owns a stake from before the Musk takeover) valued the company at $15 billion. In October, Bloomberg cited the pricing of stock options given to employees to calculate a valuation of $19 bn. That was before the big advertisers walked out. That's an epic story of value destruction.
Elon Musk remains the richest man in the world but even for him, this would hurt. A surge of 60% in Tesla’s market cap since January has helped to balance the losses in X. And, yes, large shareholders in Tesla have suggested Musk should be sent on leave or suspended as CEO because of the negative impact of his posts on the carmaker’s brand. That would certainly sting.
