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Elon Musk ‘is in over his head’ with Twitter deal, expert says

MIT Initiative on Digital Economy Director Sinan Aral joins Yahoo Finance Live to discuss expectations for Twitter under Elon Musk’s leadership, free speech on Twitter, and the outlook for the platform.

Video Transcript

JULIE HYMAN: The two parties, each of them is facing a billion dollar breakup fee if it doesn't end up going through. An SEC filing reveals that Musk would need to pay a termination penalty if he doesn't get enough debt financing to complete his $44 billion acquisition of the company, and Twitter would be subjected to the same fee if they end up ending the deal perhaps by accepting an offer from another suitor. In both of those cases, it would be a billion dollar fee. It's interesting here, wherever it goes, Jack Dorsey set for a windfall.

The former CEO of Twitter reportedly stands to make $978 million if the Twitter acquisition closes. And something else that we learned from the filing was that while the process of closing it is ongoing, before it closes, Elon Musk isn't supposed to make disparaging comments about Twitter or its management via Twitter. Now, it's not clear what would happen if he did, and there's some argument about whether, in fact, he already has.

He replied to a tweet regarding one of the company's top lawyers, Vijaya Gadde, by saying, "Suspending the Twitter account of a major news organization for publishing a truthful story was obviously incredibly inappropriate." And this has to do with-- I won't get into all of the details, but it had to do with a story that she allegedly contributed to pulling off of the platform. She also reportedly cried in the meeting where she discussed Elon Musk's acquisition of the company.

Now, is this disparaging the management of the company? She, on her Twitter account, got an enormous amount of online abuse in the wake of all of this. And to talk about all of this, what, obviously, is a pretty complex issue, is Sinan Aral. He is author of "The Hype Machine," and also David Austin professor of management at the MIT Sloan School of Management.

Sinan, thanks for sharing with me through that big explanation of everything that is going on here as we try to follow it. What does Musk's initial sort of tweets about individuals inside the company, what does that tell you about how he's going to run it and what Twitter is going to look like?

SINAN ARAL: Well, we know-- thank you first of all, Julie. It's good to see you. Thanks for having me. We know that Elon Musk likes to talk. He has an unbridled microphone. It is rare that he holds his tongue. I think that he should remain quiet during this period. I don't really foresee any major roadblocks in this deal going through, as long as he doesn't do anything egregious.

Certainly, a billion dollar penalty for the richest man in the world may not seem that much, but it's still a hefty sum. So I think that laying low would be a good idea. This is all a sideshow, though, because I think that the deal itself and what it means for democracy, what it means for social media, what it means for the global town square is a really important topic.

BRIAN SOZZI: Sinan, is the world a better place with Elon Musk owning Twitter?

SINAN ARAL: You know, I think the jury's out, Brian. Thanks for having me, and good to see you as well. The jury's out because, you know, he's had so many different statements over the years about Twitter, some of them contradictory, most of them vague, a lot of them bluster. But eventually, when you take over a company, the rubber meets the road, and you have to run it. You have to make tough decisions, you have to make policy calls.

And in this case, I think that Elon Musk is in over his head this time because running Twitter isn't as easy as colonizing Mars or electrifying the automotive industry around the world. He's going to have to make some very difficult decisions. And that's only a little bit in jest, but in all seriousness, he made this announcement about a no censorship platform in the form of Twitter the same week that the European Union passed the Digital Services Act, which creates a lot of fines and penalties for companies that don't moderate their content.

That law requires that social media platforms engage in content moderation, remove hate speech, remove disinformation, misinformation, and war propaganda, and they fine 6% of all revenue, if you don't do it. And if you continue to not do it, then you're banned from Europe. He can't create a European Twitter and a US Twitter. These are not decisions that you can talk your way around. You actually have to run the company. And the rubber is going to meet the road when we see which decisions he actually makes.

JULIE HYMAN: Well, amidst all of the various other tweets, he has tweeted about following the local laws and sort of adhering to some of the regulations that you're talking about. But if all of this is the case, how does this then play out? I mean, will Twitter actually be that different a year from now than it is right now?

SINAN ARAL: I think it's very difficult to imagine Twitter as a platform that has no content moderation or is, in his words, sort of this extreme no censorship platform. And the reason for that is because he says he's going to follow local laws. It's very difficult in a global network where a tweet from Europe is read in the United States and vice versa to create different versions of the platform for different localities. It's a global platform. It is extremely expensive to run different rules across the platform in different localities, expensive for the company itself.

And so I think there will be moderation. I think what you'll see is high level decisions that look like less moderation. So for instance, you might see Donald Trump reinstated on the platform. But if it's not moderated, it's going to run into a lot of commercial and legal difficulties that's going to make it difficult to run as a business.

So I think, overall, you're going to continue to see content moderation with some less maybe invasive or less-- I think there are going to be some high level decisions that he touts as being examples of him not censoring individuals or leaning towards less censorship. But overall, most of the content moderation is going to have to remain in place.

BRIAN SOZZI: Sinan, how concerned are you about Elon's ties to China? Tesla has a stronghold in China market, leading in the EV space, but now he's going to own Twitter. Do you have concerns about that?

SINAN ARAL: Well, I mean, we saw Jeff Bezos tweet about this the other day, and he said, oh, well, maybe there's leverage there for China over Twitter because, obviously, China is concerned about what is said on Twitter, and China holds a lot of sway over the fate of Tesla in the very large Chinese market. That's a big question. Will he sort of bend at the knee to Chinese pressure over how to run Twitter, given the leverage they have over him in China? We'll see.

Obviously, China wants to have homegrown electric vehicle companies serving their market. And so they may use pressure over Twitter as an excuse to slow Tesla's growth in China. And it depends on what Elon ends up doing. My best estimate is that in order to run Twitter efficiently and make it a growth company, to make it a company that lasts, to make it really a more and more important part of the public town square, he's going to have to abide by local rules and regulations in Europe and China. And I think that that's going to end up contradicting the bluster of his initial plans for what he wanted to do with Twitter.

BRIAN SOZZI: All right, let's leave it there for now. Sinan Aral, the author of "The Hype Machine," always great to get some time with you. We'll talk to you soon.

SINAN ARAL: Thanks, Brian.