The Breakdown - Would a Private Twitter Owned by Elon Musk Be Better for Free Speech?

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, April 14th, and today we are talking about, yes, Elon Musk's offer to buy 100% of Twitter. Is this free speech, just plain old capitalism, or something else entirely? Before we get into that, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dig deeper into the conversation, come join the 2,000 plus awesome other people on the Breakers Discord.

Starting point is 00:00:52 You can find a link in the show notes or go to bit.ly slash breakdown pod. Also, a disclosure, as always, in addition to them being a sponsor of the show, I also work with FTX. Finally, one quick bit of housekeeping. Tomorrow is a holiday for Coin Desk. It's good Friday. Happy Easter to those of you who celebrate. And so there won't be a show, but we will be back on Saturday, Sunday, and then as normal. All right.

Starting point is 00:01:16 So you may be saying, oh, no, not another show about Elon. However, if the breakdown really is about big picture power shifts, well, we just have to dig into this one. This involves big tech, free speech, censorship, markets, even potentially, some of amount of crypto and Web 3. And frankly, as much as I didn't necessarily plan another Elon show, as I started digging into this, I ended up finding the questions that were being raised much more interesting than I might have otherwise thought. So let's start with the spectrum of opinion on Elon Musk, which is truly all over the place. Some see him as genuinely the incarnation of late stage capitalism, the richest man in the world and a dystopic billionaire incarnate who should not

Starting point is 00:01:59 exist. Others don't mind his money but see him as somehow upsetting the apple cart of the rules of propriety in financial markets. Others love that lack of propriety and these say whatever attitude even if Elon's never made them a dime. Then of course there are the folks who he's made lots of dimes, an entire set of in particular retail investors who were with them when Wall Street said that Tesla was a dumb bet and overvalued. And now there are those who see him as a champion of free speech, restore Twitter to a key function in society. And of course, others who think that that's total bullshit and that the speech would be exactly as free as Elon wants it. In short, Elon is controversial. I had a listener tell me that they thought that I covered Elon with a whiff of disdain. And I don't

Starting point is 00:02:47 think it's really disdain. I think it's more skepticism. Remember, last year, Elon gave Bitcoiners a brutal reminder of the problems of hero worship. In February, his Tesla Bitcoin buy, sent the company balance sheet narrative for Bitcoin soaring and sent Bitcoin to its all-time high above 64,000. Then a couple months later, that was ripped almost all the way back, when Elon announced that Tesla would no longer be accepting Bitcoin because of its environmental impact, causing many, including me, to wonder how he had not thought about that before he made the purchase two months earlier. Now, there were clearly lots of factors going on in the background. When Kathy Wood was on this show last year, she seemed to point to folks like Black Rock's Larry,

Starting point is 00:03:29 think and their capacity to exert pressure on someone like Elon because of ESG norms and because of how much Tesla they held in their various investment funds. So it's totally possible that it wasn't just Elon. However, I still think that if you're a Bitcoiner, there's a fair chance that part of what you like about it is that its founder totally removed themselves from the network and allowed the network to flourish in a truly peer-to-peer way. In either case, I want to be clear that I'm not an Elon hater, but I am inherently and vitriolically a skeptic of individual power. I'm allergic to over-optimistic assumptions that individuals will behave in a certain way, especially a certain beneficial way once they are given more power.

Starting point is 00:04:08 And that is not something that's Elon specific at all. But in either case, to this story, over the last few weeks, Elon has been getting a ton of engagement asking deep questions about the Twitter platform. He polled about whether the algorithm should be open source and saw 80% of people said yes. He did another poll about free speech, and whether Twitter was, in fact, a good steward of free speech, to which 70% of more than 2 million respondents said no. Then last week he announced that he had purchased,

Starting point is 00:04:34 over the past few months, 9.2% of the company. The next day, new Twitter CEO, Peragrawal, announced that Elon would be joining the board. Now, it seems like what was really going on is that Twitter was pretty nervous about seeing Elon acquire so much of the company. The board offer was a way to set boundaries on how much he could actually influence.

Starting point is 00:04:56 The board position would come with an implicit, understanding that he shouldn't do things that would potentially hurt the company in terms of perception or certainly in terms of public shareholder value, like, for example, what he did last weekend asking if the Twitter headquarters should just become a homeless shelter, but more explicitly, it would also cap how much of the company he could actually buy at around 14%. Perhaps unsurprisingly, then, a few days later, Elon withdrew. And there has been a ton of speculation on why and whether it meant that he wanted to be even more assertive with his influence on Twitter. The New York Times, The Daily, which is one of the most popular podcasts in the world,

Starting point is 00:05:31 even did a whole show speculating about exactly that that was released today hours before this announcement, which is a podcaster who has often put out a show only to have it be out of date almost instantly, my heart goes out to them. In any case, news did today break that Elon has made a bid to buy Twitter and take it private for $54.20.20 per share. Yes, that's $54.20. In total, it would be between $41 and $43 billion to take the company private. Here's the letter he sent to the board chair. I invested in Twitter as I believe in its potential to be the platform for free speech around the globe. And I believe free speech is a societal imperative for a functioning democracy.

Starting point is 00:06:10 However, since making my investment, I now realize the company will neither thrive nor serve the societal imperative in its current form. Twitter needs to be transformed as a private company. As a result, I am offering to buy 100% of Twitter for $54.20 per share in cash. a 54% premium over the day before I began investing in Twitter, and a 38% premium over the day before my investment was publicly announced. My offer is my best and final offer, and if it is not accepted, I would need to reconsider my position as a shareholder. Twitter has extraordinary potential. I will unlock it. So let's break it down. If you were inclined to take Elon at its

Starting point is 00:06:44 word, he believes Twitter is a global commons, and to him, that means Twitter has to be a place where free speech is enshrined. That means presumably erring on the side of the problems of unfettered speech rather than the problems of censorship. He's rejecting pretty clearly that it's a private company they can do what they want argument and saying that its functional role in society is much too important for that. By the way, there are many in government who have said the same things about these social networks. He also seems to be suggesting that private markets aren't the right context for that sort of free speech preservation.

Starting point is 00:07:17 He doesn't get into the specifics on why, but it reads to me like the private versus public company thing matters, and that's something that we'll get into in a minute. Looking for ways to step up your crypto game? Then go with Nexo. For starters, you get free crypto for each purchase or swap. How about earning guaranteed yields? Up to 17% paid out daily. Ideal for you hardcore hodlers. You don't even need to sell.

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Starting point is 00:09:03 Download the FTX app today and use referral code breakdown to support the show. There is also clearly within this letter a bit of a threat as well. Don't accept this and I'll dump my 9.2%, which of course would inherently mean tanking the stock price. So he's put the board in an extremely difficult position. Accept an offer for a meaningful premium over current market value or reject it and see the stock tank. Keep in mind, the new Twitter team has not been in power very long so they might be particularly vulnerable. And indeed, this is one dimension of the story, just the straight-up corporate power story, which is fascinating. The folks who are saying that Elon is trying to pull an economic

Starting point is 00:09:40 fast one are pointing to his cherry-picking the timing of the date he references the 54% premium number from. The 54-20 offer is up 54% from the Twitter price at the end of January, which was near its lowest level since mid-2020. The average share price over the past 200 days was around $57. dollars. Scott Galloway, who's previously been a critic of people like Jack Dorsey as well, says, not a serious offer but cloud cover for sale of shares. Best and final offer, no deal happens on the first offer. No vision or strategy, just free speech blather. Offer at or below 52-week average, was it $54 in November, 73 in July. Bored to reject by end of week, volatility versus value. However, Wall Street might not see it that way. From Bloomberg, quote,

Starting point is 00:10:24 the key question for investors is whether they could make better returns if they held onto their stock. Analysts don't seem to think they could, at least not anytime soon. On average, their 12-month price target for Twitter stock, i.e. the price they expected to hit at some stage in the next year is just 44-42, and it has been a rough three years for investors. The stock has returned just 4.6% a year, massively underperforming the S&P 500's 18% average returns. You could forgive them for thinking must's offer might be a good opportunity to cash out. So what are Twitter to do? Well, Mark Cuban entered the chat with this bomb saying, every major tech company, Google, Facebook at all, is on the phone with their antitrust lawyers

Starting point is 00:11:04 asking if they can buy Twitter and get it approved. And Twitter is going to be on the phone with their lawyers asking which can be their white night. Going to be interesting. Cuban also tweeted, want to see the whole world lose their shit? Get Peter Thiel to partner with Elon and raise the bid for Twitter. Which gets at another question here, which is where is the money going to come from? Remember, Elon is the world's richest man, but it's basically all stock of Tesla and some SpaceX. He only has about $3 billion worth of cash. So naturally, people are wondering, one, is he going to sell Tesla shares to buy Twitter? Two, is he going to be able to take out a loan of that size against his shares? In either case, while Twitter stock went

Starting point is 00:11:40 up slightly on the news, Tesla's has done the opposite. It had fallen 3.8% around 11 a.m. Eastern time, and in total, the stock has dropped 5.7% since Musk revealed his stake last week. The concern, in addition to just the potential hit to the share price if he does sell some Tesla stock, is his focus. David Traynor, the CEO of an investment research firm New Construct, says, as the CEO of a trillion-dollar company, Elon Musk should focus on Tesla and not waste time attempting to acquire and manage a $43 billion company. The concern, of course, is that Elon's time and focus are already split, given that he runs SpaceX as well, and he isn't necessarily a person whose leadership gift is around delegation. But let's assume that this happens. The question is

Starting point is 00:12:22 then what happens after that? Specifically, what about this free speech argument? Columnist Matt Levine says at the risk of taking this too seriously, I will say it's kind of weird for the richest man in the world to say this is the public square, I will take it private. For what it's worth, crypto lawyer Gabe Shapiro hated that argument. He writes, today is a bad day to be a former M&A lawyer reading Twitter. Even someone like Matt Levine equating private ownership of stock to the website itself somehow ceasing to be a public square? Huh? As if the public shareholders somehow managed the Twitter day-to-day now? Then there was this take which has also gotten a ton of attention.

Starting point is 00:12:57 Max Boot tweets, I am frightened by the impact on society and politics if Elon Musk acquires Twitter. He seems to believe that on social media, anything goes. For democracy to survive, we need more content moderation, not less. Now, Max is an interesting political character. He outlined his political views in an op-ed for foreign policy in 2017 saying, I am socially liberal. I am pro-LGBQ rights, pro-abortion rights, pro-immigration. I am fiscally conservative. I think we need to reduce the deficit and get entitlement spending under control. I am pro-environment. I think that climate change is a major threat we need to address. I am pro-free trade. I think we should be concluding new trade treaties

Starting point is 00:13:33 rather than pulling out of old ones. I am strong on defense. I think we need to beef up our military to cope with multiple enemies. I am very much in favor of America acting as a world leader. I believe it is in our own self-interest to promote and defend freedom in free markets as we have been doing in one form or another since at least 1898. Boot has in the past been a proponent of the private sector having editorial judgment. In late 2020, he wrote, Facebook and Twitter are private sector companies and they have no obligation to pass along possible Russian disinformation. That's not censorship, it's editorial judgment. And it's something we need more of online. Now, removing the argument specifically

Starting point is 00:14:07 from Boot himself, there is an interesting tension here in that a lot of the, they're a private company, they can do what they want crowd, is budding up against that, yeah, but I don't want Elon to buy them if he's going to bring back Trump crowd. There is an inherent tension there. Bruce Fenton, a bitcoiner who's running for the Senate in New Hampshire, wrote a full-throated free speech thread this morning about the Elon News. Why the Elon Twitter news is one of the greatest things we could see happen in American markets. Today, Elon Musk announced a hostile takeover bid for 100% of Twitter and specifically mentioned free speech in his SEC filing. Corporate America, specifically big tech and big media, have increasingly made terrible decisions

Starting point is 00:14:44 for shareholder value and abandoned core missions of good companies in an effort to appease a fringe contingent of woke activists. This must be set right, and this is the way. A hostile takeover is when someone buys controlling shares of a company even when the board disagrees. Publicly traded companies like Twitter are owned by public shareholders. They have the ultimate vote on whether to sell and who the board members are. This is huge. Hostile takeovers go through phases of popularity. In the 80s, there were several notable hostile takeovers. In recent years, they have been much less common. They happen when they needed most. This is one of the largest and highest profile offers of this kind in history. Shareholder rights are the ultimate mechanism for the actual owners of a company to vote on the

Starting point is 00:15:23 direction they want the company to take. Boards and CEOs have power, but they are all under the final authority of the owners and shareholders. It's a beautiful check and balance. Shareholders can flex and remove board members and CEOs just like Atlas shrugging the earth off his shoulders. This move will change not just Twitter, but it places all public companies on notice. Neglect your owners and you may be sent packing. Wokeism massively harmed Twitter and the ability of users to be truthfully informed. Twitter broke user trust and shareholder trust. Horrible decisions were driven by broken ideology.

Starting point is 00:15:53 This move can right the ship and be a model for U.S. corporate governance. Markets win today. Now, coming at this from a different angle, Erie Paul is just not really buying the notion that ownership by an individual is going to mean more free speech. He writes, Twitter is a centralized for-profit company. That means like nearly all such entities, it became more close. over time, removing open APIs, etc. Companies get acquired, taken private, just capitalism stuff.

Starting point is 00:16:19 Anyone thinking this is a path to decentralization hasn't been paying attention. You can look at basically anything Dorsey or Musk ever touched or almost any company ever. We won't get censorship, resistance, or freedom as a gift from a capitalist. We'll get it by building alternatives. PayPal was initially pitched by Musk similar to Bitcoin. Twitter was pitched as open and free social media by Dorsey. Facebook's Zuck promised no fees on app devs, etc. Could this time be the great exception? Possible, but I'd lay 20 to 1 against. It's not that any of these guys are necessarily evil or liars.

Starting point is 00:16:50 It's that a corporate structure almost inevitably prioritizes profits as it grows. Even an idealistic founder is under immense pressure from shareholders, employees, etc. To be clear, Musk's play on Twitter is just a corporate action to me, not meaningful. Musk may change Twitter in any direction that's just a centralized company adjusting policy. Hoping for one of these shifts to produce the public square you desire, behold into a CEO, there's a real path to the world you want. We now have the tech tools to build truly decentralized platforms, and we have early experiments in economic structures to make that sustainable.

Starting point is 00:17:20 Don't put your hopes for freedom in the hands of one capitalist. Go decentralized. Now, I think the really interesting thing here is that a lot of the hope for this becoming an even better public square rests on what Elon's incentives are. Justin Amash, who's been a libertarian candidate for president, writes, Elon Musk's buying Twitter may be the best thing to happen to social media in years. The algorithm promotes audience capture and drives people towards extremes. It's biased in

Starting point is 00:17:47 favor of furthering biases. Taking the company private curtails incentives that impair free discourse. I think the most important word there is incentives. What Amash is basically saying is that in the public markets, an advertising-based business model for social media is going to necessarily force that social media company to increase its engagement. Increasing its engagement, as we've seen, often means prioritizing extreme views. We can get into a long discussion of how much that's human nature, but in any case, it's clear that there is this tension between these platforms' desire to have ever-increasing engagement and thus ever-increasing advertising revenue, and whatever their obligations might be to not just highlight the most extreme perspectives. I think it's a fair

Starting point is 00:18:31 question to ask whether Elon could really take a $43 billion company private and not be subject to the same pressures? Could he totally shift the business model in a way that didn't rely on advertising? Would he be willing to take the hit to his personal fortune to make that transition? It's entirely possible that the answer is yes, and that the benevolent dictator course of taking existing network effects and reapplying them is the best way to get what we want out of the public square that is Twitter. But then there's the Web3 alternative argument. Tron's Justin's son stepped in to say that they would offer $60 a share because this needed to be rebuilt on Web3 principles, although nobody's taking that super seriously. Fred Wilson from Union Square Ventures

Starting point is 00:19:12 says Twitter is too important to be owned and controlled by a single person. The opposite should be happening. Twitter should be decentralized as a protocol that it powers an ecosystem of communication products and services. Raul Paul writes Twitter is one of the single biggest opportunities to get Web3 right and scale it. There's a small window of opportunity and I sense from thought leaders on Twitter this morning, there are many people thinking the same way about it. The challenge, of course, is individual user behavior. The reason no Twitter alternatives ever take off is that the network effects are too strong. Being where everybody is just matters more than any other factor to the vast majority of people. Sam Bangman-Fried from FTX hints at this in a thread today on social

Starting point is 00:19:52 media. He talks about how it would be possible to build an on-chain alternative to something like Twitter and what it would require from existing blockchain technology. But then he comes to this tweet. How hard would it be to build this? Hard, but not that hard. We could do it. And if there was sufficient demand, we would do it fast. But that sufficient demand is everything, and it's why all of the attempts, the Gabs and Mastodons and everything else, have stopped before they've even started. My favorite tweet on this came from Carol Roth, who wrote, I'm going to leave Twitter if Elon Musk takes over, is the new I'm going to move to Canada if Trump wins. Now, this story is going to evolve a lot and very quickly. A Saudi Prince, who's one of Twitter's largest

Starting point is 00:20:35 shareholders, for example, has reportedly just rejected Elon Musk's bid, according to reports. On the one hand, this is all very noisy, and it's just one more thing to scream at each other about on Twitter. On the other, I sort of think these questions around big tech platforms that serve as central meeting points for huge trunks of the world are pretty fundamental to the society that we are and the society that we want to be. If Elon does nothing else with this, he will serve certainly as a catalyst to actually have this debate. And I tend to think we're better off having it than not. And the thing that's for sure is that we are going to have it. So what do you think?

Starting point is 00:21:11 This is a perfect time to come join us over on the Breakers Discord. It's exactly the type of thing that gets discussed there. But regardless, I want to say thanks again one more time to my sponsors, nexo.i. Arculus and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, Breakdown listeners.

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The Breakdown - Would a Private Twitter Owned by Elon Musk Be Better for Free Speech?

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