In light of Elon Musk’s controversial offer to buy Twitter, let’s take a look at the current state of the media, including select social media.
For years, if not decades, we have known that the way people are being reached and influenced has been changing rapidly.
The New York Times has a current circulation of approximately 350,000 print copies which, predictably, is down from 1.3-million a decade. Its successful website has about five million Daily Active Users.
The Sunday Times of London has a weekly print copy run of about 700,000 weekly copies and about $16-million Monthly Active Users on its website.
Canada’s Globe and Mail has about six million Daily Active Users between print and digital.
So what about Twitter? Well, Twitter simply dwarfs all of them with $217-million Daily Active Users.
Twitter is not a newspaper but it is, I would argue, the largest user-sourced Town Square. Its Daily Active Users represent more circulation than any newspaper, anywhere in the world.
So how does Twitter change if Musk were to wrangle control of it?
What if Twitter were financed by the issuance of a Token (Musk Coin, anyone?)
As the richest person on the planet these days, I would bet that Elon Musk is not necessarily in it for the money. A few billion would be a mere consolation prize to him. So what does he want? Almost certainly he wants what media moguls like Rupert Murdoch and Ted Turner before him and William Randolph Hearts wanted before him: control of the narrative. But how does he get there? How does he achieve the kind of autonomy that those men had?
First of all, It will be interesting to learn if the backers of his bid include other billionaires, VC types or Silicon Valley denizens. Or it may prove to be all him (including a bunch of leverage). Of course, borrowing a pile of money right now, with rates reliably expected to rise might be a little aggressive with rates about to rise.
But Musk is a creative one. In one scenario he could launch a Decentralized Autonomous Organization (DAO). A DAO is a structure that is, according to Forbes writer Cathy Hackl, an “organization represented by rules encoded as a transparent computer program, controlled by the organization members, and not influenced by a central government”. If you are thinking bitcoin, you are right on track, as its generally accepted to be the first functioning DAO.
What if Twitter were financed by the issuance of a Token (Musk Coin, anyone?) in which holders of the tokens vote on things like whether to make public the twitter algorithm? Publish it, or write it to the Blockchain, with any future changes determined by a vote of the DAO.
The primary issuance of Musk Coin would be the funding for the takeover bid of Twitter itself, with the current announced bid funded by Musk himself, and leverage, maybe a few sympathetic billionaires.
In cases where concentration of media ownership has been an issue in the past, it was more straightforward than today: no one individual could control more than a certain number of newspapers or media outlets. But the The Telecommunications Act of 1996 was demonstrably weakened when in 2017 when FCC chairman Ajit Pai reversed a long-standing rule on concentration in what the New York Times referred to as the death knell in a “deregulatory blitz”.
With the world’s largest Town Square megaphone controlled by a DAO – a democratic vote of the equity owners of the tokens issued by the Decentralized Autonomous Organization permitted to vote on certain specifically identified decisions – would we choose to limit the ownership to a maximum percentage of the DAO?
A colleague recently commented to me that the management of Twitter may not go for it because it would be an admission of failure by that leadership team. My response is that the management team has absolutely no say in the matter whatsoever. Other than being able to voice an opinion, they don’t own any equity. They have an opinion but they don’t get to vote.
While Elon Musk is the largest shareholder at 9.2%, the rest are institutional investors paid to deliver a return to their fund holders. Listed below, their ownership collectively sums to nearly 50%. When someone offers to buy their shares for cash at a reasonable premium to their current trading price, and at a valuation of 60x P/E, in an environment where high growth tech stocks have no near-term future and inflation + interest rates are high and about to rise materially, those funds are definitely sellers into that cash bid.
Morgan Stanley 8.4%
Black rock 4.6%
[next 7 funds] 17.6%
Total = 48.6%
That ownership position is control of a public company with this capital structure. It is certainly what I would refer to as negative control because any percentage greater than ⅓ can block almost any shareholder vote. And with 3% more than the ownership of the funds listed in this table, the buyout group has majority control. It could launch a vote to delist from the public markets if it chose to. This is unprecedented, but what other outcome could arise? Jeff Bezos, already steaming from Musk for slapping him down in the world of rockets, not to mention being supplanted as the richest individual on the planet, could launch his own competing bid. Doesn’t he already own the Washington Post? In fact, Bezos has more media ownership experience than Musk.
This could be a very interesting battle.