Yesterday, we had an item headlined "Twitter Is Now Emitting a Musky Odor," about Elon Musk's now-completed takeover of Twitter. It's been just 24 hours, but it's already clear that things are turning rotten in the state of Denmark. Well, Texas actually, since that's where Musk lives these days.
To start, Musk has had great success as an entrepreneur with Tesla, and with SpaceX, and even with his company that makes silly flamethrowers that are actually just propane torches. Given all of this, he surely knows what a bad balance sheet looks like. And he's now got one with Twitter. Actually, "bad" is probably a bit too generous. Disastrous, godawful, frightening or nauseating might be more correct.
According to new reporting from The New York Times, Twitter has lost money in 8 of the last 10 years. Last year, it had a cash flow of a little over $600 million to cover all of its expenses, including $50 million in debt service. Now, with all the debt Musk took on in order to buy the platform, debt servicing alone is going to exceed $1 billion annually. That means all of the cash that the platform is generating plus another $400 million, and that's before a single server or bit of bandwidth or salary is paid for.
If that were not enough, Musk just cashiered the senior management of Twitter, naming himself as the sole director of the company. The folks he just terminated all had giant golden parachutes, meaning that he is going to have to write them nearly $200 million in checks as they exit stage right. Maybe they'll be open to taking that in Tesla stock?
The upshot is that Musk simply must find a way to increase revenues, or Twitter is going to hemorrhage cash so badly you'd think it was a Trump golf course. The user base has been basically static for years, so adding more users (and, thus, more eyeballs for advertising) is not a promising option. And the amount of money spent on digital advertising has also been in decline for years, so increased sales is also not terribly promising.
But Musk is a brilliant entrepreneur and we're not, so perhaps he's got something up his sleeve? Maybe not. Yesterday, Musk advised his staff of the first step that will be taken to increase revenue: charging premium users $19.99 a month for various minor perks, most obviously keeping their blue "verified" check mark. This is a mind-bogglingly bad idea. Some premium users will resent the shakedown and won't pay for that reason. Many others will decide they don't really need the check mark. After all, people who care about tweets from Joe Biden or The Washington Post or Adrian Wojnarowski (breaking NBA news) know full well which account is the real one. Meanwhile, folks in search of legitimacy, including scammers, will be happy to pony up the money. And since Twitter needs that cash, their vetting process is sure to be lax. Basically, it's the cyberspace version of The Star-Bellied Sneetches
If all of this were not enough, Musk not only announced this colossally bad idea, he also told his new employees at Twitter that they have until November 7 to make it happen or they are fired. The new CEO who marches in and lays down the law and says that those who don't like it can hit the road is such a cliché. And we guess it must work... sometimes? But it doesn't work very well in Silicon Valley, where employees are used to a different sort of relationship with management. If these folks were not already polishing up their résumés and their LinkedIn pages, they certainly are now.
In short, between the issues we noted yesterday and the ones we note today, Musk has bought himself a giant headache. And for the vast majority of us who don't much care for Twitter, and don't really like what it's done to public discourse, it will be entertaining to sit back and watch as we see if the platform sinks faster than the Edmund Fitzgerald. Where is Gordon Lightfoot when you need him? (Z)