Optimus Not-Ready-for-Prime-Time?
May 3, 2022
Twitter latest filing admits to risk of losing advertisers and staff due to Musk takeover
May 4, 2022
Just ahead of its presentation to media ad buyers later this week at the 2022 NewFronts, Twitter acknowledged in a new SEC filing that its core advertising business could now be at risk as a result of the Elon Musk takeover, in addition to employee hiring and retention efforts and other factors. While Musk’s vision for Twitter is one of a more free speech-focused platform, he hasn’t offered assurances to Twitter’s advertiser base that Twitter will remain “brand safe,” post-acquisition. To the extent that he’s clarified his vision, Musk said only that he believes any speech not deemed illegal by a government will soon be permitted on Twitter.
Of course, Twitter today already moderates a wide range of prohibited types of content beyond what’s considered illegal. An Axios list suggests moderation policies that could be rolled back include those focused on certain types of misinformation, deepfakes, impersonation, targeted attacks, hateful content, graphic violence, self-harm, platform manipulation, and others.
Meanwhile, a lighter touch on Twitter’s existing content moderation policies already has advertisers worried as it could permit more bullying, violent speech, hate speech, misinformation, and other abusive content to gain ground. And if there’s anything advertisers don’t like, it’s having their business promoted alongside divisive and hateful content.
They may just decide that reaching Twitter’s small-ish user base — at least in comparison with the larger social giants like Meta and TikTok — is not worth the risk. Twitter ended its most recent quarter with 229 million monetizable daily active users; Facebook alone has 1.96 billion daily active users.
Will advertisers flee a ‘free speech’ Twitter?
Twitter’s latest SEC filing agrees advertiser loss is a possible risk.
Among the many new risks related to the transactional nature of the Musk deal– like if the merger is delayed or doesn’t close (the latter which comes with a billion-dollar financial hit to Twitter, for instance) — the company said it’s exposed to new risks related to its “business relationships, financial condition, operating results, cash flows, and business,” including “whether advertisers continue their spending on our platform.”
As the company explains further in the filing, amid its ongoing risk factors, it continues to generate the “substantial majority of our revenue from advertising” and its loss could harm the business. It notes as well that if its reputation among advertisers declined, it may be less competitive.
“We believe that our ability to compete effectively for advertiser spend depends upon many factors…,” Twitter stated, including “our reputation and the strength of our brand relative to our competitors, including advertisers’ perception of the health and safety of our platform.”
While this is not necessarily a new risk for Twitter, by any means, it’s one that advertisers are more carefully considering as they budget for the months ahead.
Elon Musk’s Twitter deal includes a $1 billion termination fee on both sides
Twitter’s advertisers have already been spooked by the news of the Musk acquisition, reports have indicated.
According to AdAge, the immediate reaction from advertisers was one of anxiety and confusion. Brands began reaching out to agencies to help them understand and prepare, the report noted, and one agency exec said advertisers were preparing to stop spending after Musk’s takeover if things seemed to be progressing in an unwanted direction.
The FT also recently reported Twitter had emailed reassurances to advertisers to help quell those fears, but automakers were particularly concerned about giving Musk, who also runs Tesla, deeper access and insight into their marketing agendas.
While Musk has plenty of ideas to reduce Twitter’s reliance on advertisers for monetization, none are immediate solutions that would be able to keep the business financially afloat amid a broad advertiser exodus.
Elon Musk has reportedly lined up a new Twitter CEO, shared ideas for monetizing tweets
Related to advertiser interest in the platform is Twitter’s ability to grow its user base — an area where the company has historically struggled. And though Musk believes a shift in Twitter’s content moderation policies will bring many more people to Twitter, it’s not yet clear if Twitter will also lose existing users following the deal’s close. It’s possible existing users could delete their accounts or decrease their engagement, which could impact the company’s ability to grow the daily active user metric that its advertisers care about.
And, in the filing, Twitter suggests growth could be impacted if influential accounts stop contributing content — a possibility if Twitter becomes a haven for hate speech is the unwritten subtext here. Content partners failing to renew their agreements with the company was another possible concern.
Much of what Twitter presents as risks, of course, are those that are applicable to any company doing business in its industry. And for the time being, advertisers are taking a wait-and-see approach to the social network.
However, the company also acknowledged a more immediate threat of employee departures and an inability to effectively recruit as other potential ramifications of the merge, and noted that “current employees could be distracted, and their productivity decline as a result, due to uncertainty regarding the merger.”
Musk downplayed any worries over employee departures when speaking to reporters on the red carpet at the annual Met Gala in New York, Reuters noted, saying that “it’s a free country,” and that: “Certainly if anyone doesn’t feel comfortable with that, they will on their own accord go somewhere else. That’s fine.”
