Misinformation ‘a fundamentally tough challenge’ for social media platforms: Analyst

Evercore ISI Senior Managing Director & Head of Internet Research Mark Mahaney discusses misinformation on internet platforms, what’s next for Twitter under Elon Musk, softness in advertising, and the outlook for social media stocks.

Video Transcript

AKIKO FUJITA: Well, let's continue the conversation on social media with Mark Mahaney. He's Evercore ISI senior managing director, head of internet research. Mark, good to talk to you. I know you tend to look at the equity side of things and where some of these stocks are moving. But I'm curious to just get your take on how much improvement we've seen on this issue of tackling misinformation. It's not just Meta. It's all these social media companies that continue to get hit by those who say, look, you're simply not doing enough.

MARK MAHANEY: Well, that may be true. I think it's just a fundamentally tough challenge for all these companies. I think Elon Musk is going to learn that the hard way. You make these social media platforms open. And even if 99% of the content is well-intentioned, is not divisive, it is not controversial, if you have 3 billion people on your platform, 1% of 3 billion people is a large number. And so that means you're going to have content that is almost impossible to stop.

So, anyway, that's-- I think it's just endemic with social media. It's been an issue for-- at Facebook and also at YouTube and Snap, at Twitter. It's been an issue with these companies from the beginning. 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, particularly the hate speech and things that incite violence.

And there's a pretty clear list of activities that are not allowed, content that's not allowed on these sites. So I don't think-- I think it's a never-ending battle. They-- I think they, under-- my guess is that in hindsight, I think Facebook underappreciated how big the challenge really is. And so they've had to dramatically increase their expenses to match it. I think it's going to be a constant drag on their P&L. It's going to be a constant challenge for all social media companies for the foreseeable future. I don't see how it changes.

AKIKO FUJITA: And Mark, to your point, Elon Musk already learning just, what, about 10 days since acquiring Twitter about just the challenges of moderating content. I'm curious, you know, obviously, it's not a publicly traded company anymore, but I'm curious how you've been watching the changes that have been implemented so far, whether it is the mass layoffs, whether it is the $8 charge for that blue checkmark. I mean, what's your sense of how this platform is likely to evolve under this new leadership?

MARK MAHANEY: Well, I don't think those changes that have been announced so far should be a surprise to anybody. I mean, I think Musk was very clear from the beginning, he thought that the place-- that Twitter was overstaffed and he wanted to pursue a subscription policy-- generate revenue through subscriptions. I think that was two of the clearest statements he's made since he first announced an interest in Twitter.

The content moderation is going to be a challenge for him, as it would be for anybody running Twitter. My personal opinion is you just have to have a lot of adults in the room. There are going to be a lot of judgment calls, and you're never going to get everybody to agree on them. So hopefully you get [INAUDIBLE] sort of thoughtful and that you give people who get bumped off the site a chance to make some sort of appeals. It'll be a challenge for them.

Where it comes down to the business is and what Musk is now concerned about is that advertisers are fleeing the site. But this has also been a long standing issue for advertisers. Brand advertisers want their content and want their brands associated with good content. They certainly don't want it put up against harmful, violent content-- hateful, harmful, violent content. And that's been a challenge for YouTube for a decade. And it's been a challenge at Facebook for a decade. And it's been a challenge for Twitter, too.

So I think he's complained a little bit about that, Musk has. But it's-- the advertisers, they have the right to take their money and put their brands next to content that they really feel can be safe. And I think there's going to have to be a lot of work that Twitter does to-- if they take that seriously, if they address the advertisers' concerns, I think advertisers will still spend plenty of money on Twitter, like they have 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 considering putting the entire platform, Twitter, behind a paywall. I mean, you talk about advertisers already being a little jittery. I mean, is the paywall the answer? And what's your response to something like that?

MARK MAHANEY: Well, it's an interesting idea. In part, yes, I think you would probably-- if you make it-- if you require people to pay to use Twitter, you'll certainly have many fewer users on the site. And my guess is that that step by itself probably would clean up a lot of the hateful, harmful, violent content that could be on Twitter.

The downside is, I think the percentage of people that based on our surveys that would really be willing to pay for access to Twitter is very low. I'm talking about like single digit percentage of users and maybe even a small low single digit percentage of users that would be really willing to pay for Twitter.

And then it probably would 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 ideas market. Let's create another Twitter where people can have different content moderation policies-- hopefully as light as possible. We want content to be free, for the most part. And then that would be ad-supported.

And I don't think there's anything wrong with an ad-supported business model. I know Musk has complained about the fact that so much of Twitter's revenue is advertising-based, but there's nothing wrong with that. That's how almost all media in this country and in the world generates its revenue, is through advertising. There's nothing wrong with that, so.

And Twitter actually was a decent business model. In the past, it generated 5 billion a year in ad revenue, with mid-teens, 15% free cash flow margins. That's a solid business. It's not Facebook or Google, but it's a solid business. And I think-- I hope that's not lost in translation here and in transition here.

AKIKO FUJITA: Finally, Mark, really quickly, we're rounding out to the earnings season. We've obviously got all the numbers in from the social media companies. Really, the headline here is that digital ads are slowing down and likely to slow down even further. When you look across the landscape here, who do you think is still best positioned to ride out some of these headwinds?

MARK MAHANEY: I'm not sure anybody is. In the advertising space, we should all assume that advertising trends are going to continue to soften. We just started to see them soften over these last two quarters. We're only seeing Google talk about weakness in 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 are going to get worse before they get better. That will affect all advertising names. Any ad executive who says that he or she's not seeing softness, I wouldn't believe them, or they haven't seen it yet, but they're going to see it in the next six months. Hopefully, the economy bases out at some point, the next six to nine months. And then ad revenue basis can start growing again. I don't think there's any-- I don't think any company is going to be able to get away from that.