Misinformation ‘a fundamentally difficult challenge’ for social media platforms: analyst
Mark Mahaney, Evercore ISI Senior Managing Director and Head of Internet Research, discusses misinformation on internet platforms, the future of Twitter under Elon Musk, soft advertising and the outlook for media stocks social.
AKIKO FUJITA: Well, let’s continue the social media conversation with Mark Mahaney. He is senior general manager of Evercore ISI, responsible for Internet research. Mark, it’s good to talk to you. I know you tend to look at stocks and where some of those stocks are going. But I’m curious to hear your thoughts on the improvements we’ve seen on this issue of countering misinformation. It’s not just Meta. It’s all these social media companies that keep getting hit with people saying, listen, you’re just not doing enough.
MARC MAHANEY: Well, that may be true. I think it’s just a fundamentally difficult challenge for all of these companies. I think Elon Musk will find out the hard way. You make these social media platforms open. And even if 99% of the content is well-intentioned, non-divisive, non-controversial, if you have 3 billion people on your platform, 1% of 3 billion people is a big number. And so that means you’re going to have content that’s almost unstoppable.
So anyway, it’s… I think it’s just endemic with social media. It’s been a problem for– on Facebook and also on YouTube and Snap, on Twitter. This has been a problem with these companies from the start. And so it’s going to be a constant black hat, white hat struggle for these companies. Yes, they… I think Meta now has 30,000 independent contractors that they hire just to track content, especially hate speech and things that incite violence.
And there is a pretty clear list of activities that are not allowed, content that is not allowed on these sites. So I don’t think– I think it’s a never-ending battle. They – I think they, under – I guess in hindsight, I think Facebook underestimated the real scale of the challenge. And so they had to dramatically increase their spending to achieve that. I think this is going to be a constant drag on their P&L. This is going to be a constant challenge for all social media companies for the foreseeable future. I don’t see how that changes.
AKIKO FUJITA: And Mark, to your point, Elon Musk is already learning just, what, about 10 days since acquiring Twitter about the challenges of content moderation. I’m curious, you know, obviously it’s not a publicly traded company anymore, but I’m curious how you’ve observed the changes that have been implemented so far, whether it’s the mass layoffs, let it be the $8 charge for that blue check mark. I mean, how do you think this platform is likely to evolve under this new management?
MARC MAHANEY: Well, I don’t think these changes that have been announced so far should come as a surprise to anyone. I mean, I think Musk was very clear from the start that he thought the place – that Twitter was overstaffed and wanted to pursue a subscription policy – was generating revenue from subscriptions. I think those are two of the clearest statements he’s made since announcing his interest in Twitter.
Content moderation is going to be a challenge for him, as it would be for anyone using Twitter. My personal opinion is that it’s enough to have a lot of adults in the room. There’s going to be a lot of judgment calls, and you’ll never get everybody to agree on that. So I hope you get [INAUDIBLE] kind of thoughtful and that you give people who get kicked off the site a chance to make some sort of appeal. It will be a challenge for them.
Where it comes down to business, and what Musk is now concerned about is that advertisers are fleeing the site. But it’s also been a long-standing problem for advertisers. Brand advertisers want their content and want their brands to be associated with good content. They certainly don’t want it to be opposed to harmful and violent content — hateful, harmful and violent content. And that’s been a challenge for YouTube for a decade. And that’s been a challenge for Facebook for a decade. And that has also been a challenge for Twitter.
So I think he kinda complained about it, Musk did. But it’s… advertisers, they have the right to take their money and put their brands next to content that they think is really safe. And I think Twitter will have to do a lot of work to — if they take this seriously, if they respond to advertisers’ concerns, I think advertisers will continue to spend a lot of money on Twitter, as they have done in the past. But it’s going to be a challenge.
AKIKO FUJITA: And on that front, Mark, there are these reports from the platform or that Elon Musk is planning to put the whole platform, Twitter, behind a paywall. I mean, you say advertisers are already a little nervous. I mean, is the paywall the answer? And what is your response to something like that?
MARC MAHANEY: Well, that’s an interesting idea. In part, yes, I think you probably would – if you could manage it – if you required people to pay to use Twitter, you would definitely have a lot fewer users on the site. And I guess that step alone would probably eliminate a lot of the hateful, harmful, and violent content that might be on Twitter.
The downside is that I think the percentage of people who, according to our surveys, would really be willing to pay to access Twitter is very low. I’m talking about a single-digit percentage of users and maybe even a small single-digit percentage of users who would actually be willing to pay for Twitter.
And then that would probably lead to the rise of another Twitter, somebody – and that’s probably the best thing for the market as a whole, anyway, for the financial markets and for the market of ideas. Let’s create another Twitter where people can have different content moderation policies – hopefully as light as possible. We want the content to be free, for the most part. And then it would be ad-supported.
And I don’t think there’s anything wrong with an ad-supported business model. I know Musk complained that a lot of Twitter’s revenue is ad-based, but there’s nothing wrong with that. This is how almost every media outlet in this country and the world generates its revenue through advertising. There’s nothing wrong with that, then.
And Twitter was actually a decent business model. In the past, it generated $5 billion a year in ad revenue, with teens through mid-teens earning 15% free cash flow margins. It’s a solid company. It’s not Facebook or Google, but it’s a solid company. And I think… I hope it’s not lost in the translation here and in the transition here.
AKIKO FUJITA: Finally, Mark, very quickly, we’re approaching earnings season. We obviously have all the numbers from the social media companies. Really, the headline here is that digital ads are slowing down and are in danger of slowing down even more. When you look across the landscape here, who do you think is still best positioned to ride out some of these headwinds?
MARC MAHANEY: I’m not sure anyone is. In the advertising space, we should all assume that advertising trends will continue to soften. We’re just starting to see them soften over the last two quarters. We only see Google talking about weak search advertising for the first time in the September quarter. And search advertising is probably the most resilient part of internet advertising, frankly, of all advertising.
So I think things will get worse before they get better. This will affect all advertising names. Any advertising executive who says they don’t see sweetness, I wouldn’t believe it, or they haven’t seen it yet, but they will in the next six months. Let’s hope the economy bottoms out at some point, the next six to nine months. And then the ad revenue base can start growing again. I don’t think there’s…I don’t think any company can get away with it.