“Sociable” is the latest commentary on important social media developments and trends from industry expert Andrew Hutchinson of Social Media Today.
Let’s be clear: X cannot sustain a long-running advertiser boycott.
Over the weekend, various big-name advertisers announced that they would be halting their ad campaigns on X due to third-party reports which suggest that X is failing to provide adequate brand safety, along with Elon Musk’s own commentary on political issues.
The former relates specifically to a report from Media Matters, which found that X’s ad system is running ads alongside racist, neo-Nazi, anti-Semitic content, in varying forms, which X claims it has systems to prevent. X’s creator ad revenue share program could even be facilitating the monetization of such material, essentially incentivizing users to post divisive, harmful posts.
Musk’s own commentary, meanwhile, last week included overt praise of a well-known antisemitic conspiracy theory, which, for many, was seemingly the final straw for their time, and money, in the app.
As a result of this, some of X’s biggest ad partners, including Sony Pictures, NBCUniversal, Paramount, Warner Brothers, Discovery, Disney, Apple, and Lionsgate announced that they’re pausing their spending on the platform.
Some have even gone further, with ESPN, a subsidiary of Disney, even suspending their entire posting process, with all of ESPN’s X handles going dark on Saturday. Which will undoubtedly have an impact on X engagement, as sports remains a key focus for the app, with X reporting earlier this year that 42% of its users are sports fans.
X's troubles have also effectively given Meta a free kick, with many users turning to Threads instead. But the ongoing impacts for X in this are far more significant.
As an example, Apple alone reportedly spent $100 million on X ads in 2022. X’s ad revenue, meanwhile, had already been cut in half year-over-year, due to broader concerns around the direction of the platform under Musk, and hesitations from brands. Which means that X, before this new boycott, had likely been on track to bring in around $2 billion in annual ad revenue for the year, based on the platform’s 2022 performance.
It’s safe to assume, then, that when factoring in the combined spend of these other big spenders, the overall impact here will be significant, potentially cutting another 25% off of X’s annual total. That’s even more relevant given the timing, with the holiday push elevating ad spend in the final months.
Of course, X does have other revenue streams, like subscriptions and API charges. But they’re not anywhere close to replacing such a significant loss.
Based on the latest estimates, X’s subscription and data sales are now on pace to generate around $600 million per year for the company, which is a significant alternative income stream. But it’s still a marginal element in comparison to its main ads business.
And if this is compounded over time, the losses will stack up very quick, which could indeed make X an unviable business based on operating costs, along with the additional debt that Musk saddled the company with as part of his acquisition funding.
At a rough estimate, X’s operating costs are currently between $2 billion and $2.8 billion per annum, while Elon’s additional debt load will add an extra $1.5 billion a year to that total.
So income before this incident was looking to be around $2.6 billion, versus outgoings of $3.5 billion.
As you can see, even before this latest issue, X was looking at posting a significant loss, and that’s despite all of its cost-cutting efforts. And this probably doesn’t factor in the additional costs of GPUs and other systems required to power XAI’s new “Grok” chatbot, another of Elon’s pet projects.
Essentially, X was already staring down a billion-dollar annual loss, and now, it is definitely headed in that direction. And if it can’t right the ship, and get those top ad spenders back, quickly, it’s hard to see how X can recover from this latest hit, especially when you also factor in the steady flow of users away from the app.
So what should X do?
Well, the regular corporate playbook would dictate that Elon should apologize for any hurt that his comments may have caused, and attribute such to a misinterpretation, or a misunderstanding on his part.
Nope, that’s not the path that Elon’s taking.
Instead of acknowledging that his comments may have been ill-conceived, Musk has gone on the attack, reiterating that he is in no way racist, because all of his friends say that he’s not, while also, inexplicably, branding X’s key ad partners as “oppressors of free speech.”
So he’s essentially saying that his major ad partners, who make up 70% of X’s revenue intake, are trying to use their power to silence users.
Probably not the ideal way to endear himself to those that pay the bills.
In addition, Musk has promised that a “thermonuclear lawsuit” is in the pipeline for Media Matters, whom he claims have fabricated their evidence that X is displaying ads alongside potentially offensive content.
According to Musk, Media Matters cheated the system, by creating fake profiles, then repeatedly refreshing the timeline till ads from major companies were displayed alongside offensive content.
Which would still be a valid way to prove that this is possible under X’s current system, but Musk and Co. say that this is disingenuous, and not indicative of the rate of failure in its system. Which I’m not sure was the point, but that’s what Elon and Co. are going with.
Musk has also amplified posts which claim that Media Matters may actually have fabricated screenshots to make their claims, while he’s also labeled the organization as “evil incarnate” in response to their reporting.
It’s worth noting here that Elon also threatened similar legal action against the Anti-Defamation League (ADL) in September, after it also produced a report which suggested that anti-Semitic posts were more prevalent in the app under Musk, while he also launched legal action against the Center for Countering Digital Hate (CCDH) in August after its research suggested that X had “systematically failed to remove anti-Semitic, anti-Palestinian and anti-Muslim content.”
So this is pretty much Elon’s mode of operation, which does seem to run counter to his own “free speech” ethos.
Free speech, so long as you’re not criticizing Elon or his companies, apparently.
In any event, X’s approach is basically the opposite of the normal corporate strategy, which would more likely have seen X acknowledging such issues and looking to work with these groups to improve its systems.
Because Musk’s own view on what should and should not be allowed to be posted online is different to most. Elon’s view is that the best way to address divisive issues is to allow everyone to say whatever they think, no matter how offensive, incorrect, or misguided it may be, then we can all have it out in the comments, and come to a greater understanding based on more open-minded debate.
But history suggests that this is not how the internet works.
Musk himself is also amplifying such claims to an audience of 160 million people via his own profile. Elon has long failed to understand the implications of his massive following, and the weight that his words carry in this respect. That was true in 2018, when Musk labeled a British cave diver a pedophile for no reason, other than he’d pushed back on Elon’s offer of assistance in a rescue situation.
Musk saw absolutely no problem with this, even though this man has been unfairly smeared with the suggestion ever since.
When Elon says something, it stands out, people listen, and that has an impact. Elon knows this, yet seems happy to be willfully ignorant of such when it comes to things he wants to comment on.
Which is why X is now in trouble, though again, Elon is looking to use the threat of legal action, and his vast resources, to quash critics.
Which has also been his mode of operation at Tesla, and SpaceX as well, working to discredit and crush critics if they dare to oppose his plans.
The problem in this case is that advertisers don’t have to use his platform. X is not an essential tool for any brand, and is becoming less relevant every time he posts another controversial opinion, which drives more users to alternative apps.
And if these big-name brands don’t resume spending once again, and if they go to the next step, like ESPN, and stop posting entirely, Elon’s X project could be over before it even really begins.
And as noted, the margins for error are much thinner than it may seem.
Threatening legal action may prompt some to take pause in their critiques, but with an ongoing stream of reports suggesting that X’s approach isn’t working, it seems like X, and Musk, would be better placed acknowledging potential flaws, rather than picking fights in public.
But, as Elon says, X is never boring. And he seems determined to keep it that way, even if it results in that means tanking the business as a result.
