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Late last week Elon Musk withdrew Twitter from a European Union voluntary code of practice against disinformation. Twitter could soon face massive fines or a ban in Europe that would threaten its already shaky business.
Twitter, along with most of the big global tech firms such as Meta (Facebook and Instagram’s parent), Google, Microsoft and TikTok, signed up to the code in 2018, before Musk acquired the company. Last Friday, without explanation, it opted out.
Elon Musk has withdrawn Twitter from the European Union’s code of practice against disinformation.Credit: Getty
That prompted an aggressive response from the EU internal market commissioner, Thierry Breton, who used Twitter to announce the platform’s exit.
“Twitter leaves EU voluntary Code of Practice against disinformation. But obligations remain. You can run but you can’t hide,” he tweeted.
That last sentence was reference to the EU’s Digital Services Act (DSA). From August 25,“very large online platforms” (Twitter is one of the 19 platforms in that category) will be legally obliged to mitigate the risk of disinformation, election manipulation, cyber violence against women and harm to minors.
They will also be required to provide warnings about political advertising, have the resources to check facts, be able to curb the spread of bots and fake accounts and submit annual risk assessment reports to the European Commission.
Those obligations will, therefore, no longer be voluntary.
Having slashed Twitter’s workforce from about 8000 when he took control of the platform last October to about 1500, Musk has denuded Twitter of most of its capacity to moderate content. Previously it had a team dedicated to identifying co-ordinated disinformation campaigns and others policing harmful content.
Not surprisingly, given the gutting of its capacity to monitor what’s being published on the platform, there has been a significant increase in false and misleading information, fake accounts, bot activity and extreme speech.
Musk has responded in the past when challenged on the extent to which conspiracy theories, disinformation, hate speech and foreign state-sponsored propaganda have flourished on the platform since he acquired it by pointing to the “community notes” feature, where users submit corrections and amplifications to suspect tweets. That won’t, however, be sufficient to comply with the looming EU legislation.
If Twitter doesn’t, or can’t, meet the requirements of the DSA it could either be banned from offering its service within the European Union or fined up to 6 per cent of its global annual revenues, which are estimated to be around $US3 billion ($4.5 billion). That would equate to a fine of about $US180 million.
It’s unclear how many users Twitter has in Europe, although its designation as a very large online platform means it has at least 45 million monthly active users in the region. Given that worldwide Twitter has roughly 400 million active monthly users, that is a significant slab of its user base and commercial value.
Musk hasn’t commented on the decision to withdraw from the disinformation code although, as a self-described free-speech absolutist, it isn’t surprising that he would be uncomfortable complying with the EU’s code, or the DSA, even if Twitter had the capabilities to do so.
The threatened banning of Twitter, however, might give him pause for thought. Earlier this year, in the lead up to Turkey’s recent election, Twitter announced that it was restricting access to some content for users in Turkey (while leaving it visible to users elsewhere) “in response to legal process.” It has similarly censored content in India at the behest of the Indian government.
Musk has defended the decision to restrict access to content in Turkey on the basis that he was faced with the choice of having Twitter’s Turkish content “throttled in its entirety” or limiting access to some tweets.
He now confronts a similar but far more consequential choice at a delicate time for a business whose viability remains questionable.
US funds management giant Fidelity was one of Musk’s equity partners when he acquired Twitter for $US44 billion, using $US25 billion of his own money, last year. It contributed a modest $US20 million of equity.
Since November, Fidelity has been consistently writing down the value of its Twitter stake and, in a recent filing, reduced it to only $US6.55 million, or less than a third of what it originally invested.
That implies the original $US33.5 billion of equity that Musk and others contributed to the acquisition funding is now worth only about $US11 billion, and Musk’s stake a little over $US8 billion.
That’s materially lower than Musk’s own $US20 billion valuation of the business in a memo to staff earlier this year; a valuation used for an issue of stock-related compensation for employees.
While Musk recently said the business was trending towards a cash flow-positive outcome this quarter after slashing $US1.5 billion a year from its cost base, its efforts to generate subscription revenues to offset the loss of more than US1 billion of advertising revenues (as companies distanced themselves from the new Twitter’s content) has been less than successful.
Losing more than 10 per cent of its user base in one stroke of a pen if the EU bans the platform would inevitably have significant financial consequences and implications for the value of a business that has $US13 billion of debt, which burdens it with $US1.5 billion a year in interest costs.
Musk’s saving grace is that the value of Tesla, his primary source of wealth, has bounced back after being initially savaged as his preoccupation with acquiring Twitter became apparent last year. After losing 65 per cent of its value late last year, Tesla shares have since recovered and are now only just over a third below their Twitter pre-acquisition levels.
That’s a potential source of further equity for Twitter, should Musk or his bankers need it. If the platform is shut out of Europe, that need might well arise.
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