When Twitter announced on Monday that it had agreed to sell itself to Elon Musk, its press release included a statement from Musk about his hopes for the acquisition. It was a statement from which one word was conspicuously missing: “profit.” While Musk did mention his plans to improve the Twitter user experience, he made it clear that he isn’t spending $46 billion to acquire the company because he wants to get rich (or, rather, to get richer than he already is). He’s spending it because he thinks the “digital town square” needs more “free speech.” And while it’s always hard to tell what Musk really thinks, in this case it’s hard not to take him at his word, because in economic terms, this deal makes little sense. And if he actually follows through on his plan to turn Twitter into a free-speech free-for-all, it’ll make getting a reasonable return on his massive investment harder, not easier. Start with the numbers. Musk is putting up $21 billion of his own cash as part of the deal. And he’s also borrowing around $25 billion. Half of that money is a margin loan collateralized by Tesla shares, on which Musk will be paying an interest rate of around 4%. And half of the money is in the form of bank loans collateralized by Twitter’s cash flow. Those loans have interest rates ranging from 6% to 10%, meaning that the annual interest costs will be almost $1 billion, which is actually more than Twitter earned before interest, taxes, depreciation, and amortization last year. The interest on the margin loan will be close to another $500 million. So most of what Twitter makes will go just to pay the interest on its new debt. If Musk wants to go past that and get even an adequate return on his $21 billion cash investment, he’ll have to figure out how to dramatically increase Twitter’s profitability. Not surprisingly, pundits have floated plenty of ideas for ways in which he might do that. Among the most popular is the idea of charging users a fee to use Twitter, or at least to post on it. It’s an intuitively appealing concept (for the business, not for users)—Twitter has around 220 million regular users, so if you could get each of them to pay $3 a month, that would be around $7 billion, which would more than double Twitter’s current annual revenue. That’s the theory. The reality is likely to be a lot messier. First, a big chunk of Twitter’s regular users are not in the developed world, but in the developing one, and are unlikely to be willing—or, in many cases, able—to pay $3 a month for the service. Second, myriad studies have shown that putting a user fee in place will eliminate a sizable percentage of users—at least 30% to 40%. Since Twitter’s appeal to users—particularly the high-follower power users who account for a disproportionate amount of the engagement on the site—is largely dependent on its reach, shrinking the number of people on the site will make it less attractive. Some have suggested Musk could make Twitter free for ordinary users but charge power users based on their number of followers. But Twitter’s whole business model depends on the content its users generate. To ask them to pay to produce content that Twitter then monetizes might be a stretch. So if Twitter is limited in how much money it can milk from current customers, one obvious solution is to expand the number of people who use the site. And supporters of Musk’s “free speech” crusade often suggest that if Twitter stops trying to censor conversations and banning people for offensive or false statements, it’ll see its user numbers spike. The problem is that there’s no actual evidence to suggest this is the case. First, for all of the complaints that conservatives in particular have been making about Twitter’s content-and-moderation policies, there are few political or ideological points of view that are off-limits on the site right now. And over the past two years, a number of social-media platforms have sprung up as explicit alternatives to Twitter, trumpeting their supposed commitment to “free speech.” None of them has become more than a niche site for the right, and the most high-profile of them, Donald Trump’s much-vaunted Truth Social, has failed to take off yet. So it’s not clear that the massive flock of right-wingers waiting to return to Twitter once Musk is in charge actually exists. Second, and more important, Musk seems to believe social-media platforms moderate content solely out of an ideological desire to restrict content they find problematic. And, as he tweeted on Tuesday, he thinks the answer is just to allow any speech that’s legal (or, as he put it, that “matches the law”). But the reality is much more complicated than that. The content-moderation decisions of companies like Twitter and Facebook are inevitably shaped by ideology. But simply eliminating content moderation isn’t an option, unless you want your site to become 4chan. Platforms moderate content mostly because they have economic incentives to do so: moderation makes their user experience more enjoyable to most people, and makes the platforms more appealing to advertisers, who generally don’t want their ads appearing next to a tweet by a Nazi or someone using the N-word. To be sure, there’s an appealing simplicity to Musk’s solution: Let people say what they want, and let the chips fall where they may. But whatever you think of that approach in a philosophical sense, from a business point of view, making it easier for people to use racist and homophobic slurs, and to harass and dox people, will almost certainly cost Twitter more users than it will attract. It’ll also alienate many advertisers. And there’s another issue, which is that the European Union recently passed a law holding platforms responsible for hate speech and misinformation on their sites, and allowing the E.U. to issue fines equal to as much 6% of a company’s annual revenue. It’s totally unclear how an anything-goes approach to content moderation won’t quickly run afoul of the E.U. rules. There’s a fundamental tension, in other words, between Musk’s insistence that people should be able to say what they want and what Twitter needs to thrive as a platform. That’s why, in the end, it’ll be surprising if he really embraces an absolutist free-speech position, and much more likely that he’ll end up just loosening the rules (allowing, say, more political debate, and paying less attention to the issue of misinformation) without actually getting rid of content moderation. To be sure, Musk has said that this deal is not about economics at all. And he has the money—at least as long as Tesla’s stock price holds up—to lose $1 billion dollars a year if that’s what he wants to do. But even if Musk doesn’t care about the money, he didn’t spend $46 billion to preside over Twitter’s “digital town square” becoming less populous and less influential. So, in the end, he’ll likely do what it takes to keep people around, even if that means sometimes declaring, “You can’t say that here.” James Surowiecki is the author of The Wisdom of Crowds, and has written business columns for The New Yorker and Slate, and written for a wide range of other publications.
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