Why Musk's Twitter 2.0 Will Test EU's Resolve
Why Musk's Twitter 2.0 Will Test EU's Resolve
In this long read, Chris O'Brien breaks down exactly what drove Elon Musk's hostile takeover of Twitter, what happened when he took over, and why he has a problem with the EU and Thierry Breton.
is a journalist and acting editor of The French Tech Journal, a publication covering the transformation of the French Tech ecosystem, as well as the reinvention of the entrepreneurial and innovation culture in the hexagon
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Elon Musk’s erratic leadership of Twitter seems to be driving a company that was already badly wounded straight into a ditch. In less than a month, he has muscled out almost two-thirds of its employees, alienated advertisers, and disheartened users who, in many cases, have been on the platform for more than a decade.
Perhaps more relevant for readers of The French Dispatch, his mercurial management of Twitter seems to have put him on a direct collision course with European regulators at the EU and state levels, as well as in the U.S. (though enforcement of platforms there has been more toothless than in Europe).
In recent years, Musk has become increasingly strident in his disdain for government and regulation. But the wave of changes he’s made in just a few weeks seems to make a showdown with Europe inevitable. European politicians have already been firing warning shots across Musk’s bow, but there’s little sign that he’s getting the message.
More likely, European politicians are going to face a test sooner, rather than later, over their resolve to enforce their content and disinformation policies against an owner who seems to relish the prospect of a political cage match, especially when it would allow him to paint himself as a victim.
Before we delve into the potential policy confrontations, there is some important context and how and why it has come to this.
Is This Thing On?
Almost 15 years ago, I was working on a project in my Silicon Valley newsroom with a colleague who was constantly sending text messages. When I asked him what was going on, he explained somewhat vaguely that he was posting and reading messages on something called “Twttr”.
In the throes of the Web 2.0 phenomenon, dropping vowels from company names had become a ghastly trend that was quickly used to death, as is common with Silicon Valley excess. Still, as a technology columnist, I needed to be on top of these things. And so, in December 2007, I created a Twitter account and posted my first “tweet,” which is a classic of the lame-first-tweet genre:
At the time, text messages were one of the primary ways to post to Twitter, thus the 140-character limit was imposed to limit carrier charges. Like many (if not most) who initially joined Twitter, I couldn’t quite grasp what it was, or what I should be doing there. It would be several months before I “got” Twitter, and then I was hooked.
The platform quickly became a cultural phenomenon as politicians, journalists, and celebrities flooded in to interact with each other and their fans-readers-voters. What Twitter never became, however, was a platform that was a regular habit for the average internet citizen. Last year, Pew Research found that “25% of Twitter users in the US produce around 97% of all tweets.”
Basically, core power users drive the platform, and most people experience Twitter by either occasionally browsing the service, stumbling across an embedded tweet on another site, or reading stories about newsworthy tweets that have touched off a firestorm of controversy in one of Twitter’s many silos.
While Facebook has more than 2 billion users, Twitter has only around 330 million. The latter has suffered its entire existence under a string of inept founders and executive leaders whose collective failure of imagination has failed to capitalize on Twitter’s influence to generate either reliable product development or a steady business model that could be consistently profitable.
The company, and its part-time CEO and co-founder Jack Dorsey, had already been under attack by activist shareholders due to stalling user growth and lack of reliable profits when he was forced to step down (for the second time!) in November 2021. This ineptitude left Twitter, already embattled over its failure to tame disinformation and hate speech, vulnerable from a financial perspective.
Enter Elon Musk.
Musk, the world’s wealthiest man by some estimates, is a revered figure in Silicon Valley thanks to his success with Tesla, SpaceX, and PayPal. In the case of the first two, the government has played a critical role. The Obama administration bailed out a struggling Tesla with a $465 million loan in 2009. And SpaceX depends on hundreds of millions worth of government contracts. These are the kind of public-private partnerships that would be familiar to anyone who follows the industrial policies of the EU and its member states.
But instead of becoming a poster child for such a model, Musk has become increasingly harsh in his anti-government rhetoric in recent years. This followed his quixotic attempts to take Tesla private in 2018 out of frustration with short-sellers who he felt were talking the stock down. He tweeted in August 2018 that he had secured the funding to do so when he hadn’t. He later settled allegations of securities fraud with the U.S. Securities and Exchange Commission by agreeing to both step down as Tesla chairman and pay a $20 million fine. (Tesla paid an additional $20 million).
The incident also seems to have hooked Musk even more deeply into Twitter’s allure. Despite the settlement, he continued to bash the SEC at times and seemed to flaunt agreements that his tweets be approved in advance by Twitter’s board. He also began to complain about Twitter’s content moderation policy, embracing the political right’s war cry of “free speech!” as the company became more aggressive about removing some of the most extreme users.
Earlier this year, his obsession with Twitter drove him to start acquiring its stock until he passed the 5% ownership level that required him to disclose his position publicly. This triggered a war of words with Twitter executives who tried to appease Musk with a board seat, which he at first accepted and then rejected. After musing about whether he might build a Twitter alternative, he then announced he would make a $44 billion hostile bid to acquire Twitter and take it private.
This amount was so far above Twitter’s value that its board had little choice but to negotiate and accept the terms. (US corporate law places a company’s obligations to make money for its shareholders above all other considerations). Musk signed a binding agreement, but failed to do the traditional financial due diligence in advance that experienced M&A people would conduct. Over the summer, as tech stocks sank amid weakening economies, Musk tried to weasel out of the deal by claiming problems with bots, but Twitter’s board sued to make him close the deal and it was clear he was going to lose in court.
And so, on Oct. 27, Musk became the owner of Twitter
The Financial Ties That Bind
The month that Musk has run Twitter has felt like 10 years. He’s arbitrarily fired almost two-thirds of employees while announcing and then backtracking on various product announcements related to user verification. At the centre of this chaos are the onerous financial terms by which Musk financed the deal.
Musk personally coughed up $27 billion, including the $15 billion he raised by selling his Tesla stock. Another $5 billion or so came from private investors such as Oracle founder Larry Ellison, venture capital firm Sequoia Partners, and Qatar Holding (controlled by Qatar’s sovereign wealth fund, the Qatar Investment Authority). Prince Alwaleed bin Talal of Saudi Arabia rolled the 35 shares of Twitter he owned (worth about $1.9 billion) into the new Twitter, as did the aforementioned Jack Dorsey.
That brings us to the remaining $13 billion, which was financed via debt provided by a syndicate of banks. That group included French banks BNP Paribas and Societe Generale provided 5% and 2.1154% respectively. This debt is now the responsibility of Twitter the company and not Musk. It’s what’s known as a leveraged buyout (LBO), which saddles the company being bought with the debt being used to buy it.
Here is the key takeaway of all those financial machinations: Twitter must pay about $1 billion in interest on that debt. So Musk has taken a wounded bird and tied a financial anchor around its neck. This is why Musk, who had no real plan to run Twitter, is running the company with a sense of desperation. He has to slash expenses (layoffs) and generate new income (user fees) asap.
The apparent result of all this has been to make things worse. One report suggested Twitter has lost half of its biggest advertisers, many of them upset over the spike in accounts impersonating their official corporate accounts. Just two weeks into his tenure, Musk hinted to employees that revenue had already fallen so much that bankruptcy is possible. Still, Musk claims new user signups are soaring and progress is being made against the spike in hate speech in early November. And though he fired a big chunk of Twitter’s content moderation team, he insists he will comply with any U.S. and E.U. regulations.
But his actions have raised eyebrows and the EU is already going public with its concerns.
This starts with his own tweets, which increasingly seem to involve interacting with and responding to various right-wing accounts and memes. Such posturing is further scaring advertisers.
"There is a European rulebook, and you should live by it," Margrethe Vestager told NPR. "Otherwise, we have the penalties. We have the fines. We have all the assessments and all the decisions that will come to haunt you."
Indeed, the EU’s long-gestating Digital Services Act just went into effect in November. The legislation imposes requirements on big tech platforms to protect users by quickly removing illegal content and hate speech. If Twitter fails to company, the EU can fine the company up to 6% of its annual revenues and the company “could risk being banned by Brussels as part of the new rules,” according to the Financial Times.
Musk’s response? He’s reportedly closed Twitter’s Brussels office.
Irish Data Protection Commissioner Helen Dixon, Europe’s data police chief, has already said her office has been raising questions with Twitter executives about the impact of the product changes and massive culling of employees. The office has the power to levy hefty fines which would only add to Twitter’s weakened state.
On Wednesday, Thierry Breton, Commissioner for the Internal Market, met with Musk via video conference to discuss the DSA. He reportedly reminded Musk about the possibility of a European ban and big fines and asked Musk to commit to an audit of Twitter next year to confirm DSA compliance.
After, Breton posted a clip on Twitter...as well as on upcoming Twitter rival Mastodon!
"I am pleased to hear that he has read it carefully and considers it as a sensible approach to implement on a worldwide basis. But let’s also be clear that there is still huge work ahead, as Twitter will have to implement transparent user policies, significantly reinforce content moderation and protect freedom of speech, tackle disinformation with resolve, and limit targeted advertising."
Meanwhile, French Digital Minister Jean-Noël Barrot warned that Twitter could face €300 million in fines if it fails to company with his nation’s content moderation and protection rules.
Barrot isn’t kidding around. A few weeks ago, conservative blogging platform Rumble shut down its access in France because French authorities were warning that it must cut ties with the Russian propaganda platform RT Today.
At the same time, one U.S. Senator is threatening hearings on Twitter over its botched verification changes.
It’s worth noting that Twitter is already bound by a consent decree it signed back in May with the U.S. Federal Trade Commission and Department of Justice which has accused the company of deceptive practices. As part of its settlement, Twitter agreed to “implement robust compliance measures to protect users’ data privacy.”
The FTC said publicly this month it is monitoring Musk’s management of Twitter closely.
“We are tracking recent developments at Twitter with deep concern,” an FTC spokesperson wrote to NBC News. “No CEO or company is above the law, and companies must follow our consent decrees. Our revised consent order gives us new tools to ensure compliance, and we are prepared to use them.”
Yet even in the face of these warnings, Musk has continued to make changes at a whim, based on such flimsy rationals as Twitter polls which are easily gamed by bots. He used one poll to justify the reinstatement of President Trump, who had been banned in the wake of Jan. 6, as well as offering a general amnesty to all accounts that had been suspended for violating rules on harassment and disinformation.
For all of its flaws and failures, Twitter remains an influential platform among politicians, journalists, and business leaders. But the platform, like much of social media, has favoured conservatives (despite their protestations!) and become a powerful tool for spreading far-right messaging. In the guise of protecting “free speech” and embracing MAGA talking points, Musk seems poised to give these forces even greater free reign.
While that could be bad for Twitter’s business, it could also have a corrosive impact on society by sowing greater hate and division. At the moment, the EU is positioned as the main bulwark against the work-case scenario for Twitter content. We’ll see soon enough whether they are up to the challenge.
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