Elon Musk has threatened legal action against an alliance that includes some of the largest companies globally over the “advertising boycott scheme.” Significantly, after the contentious billionaire took over the platform, numerous major advertisers ceased their ads on Twitter (which Musk subsequently rebranded as X). This resulted in a significant decline in X’s revenue, and the company’s worth is now just a small portion of what he paid for it.

In his tweet, Musk said, “Having seen the evidence unearthed today by Congress, X has no choice but to file suit against the perpetrators and collaborators in the advertising boycott racket.” He also hoped that some states would consider “criminal prosecution.”

Elon Musk Threatens to Sue Advertisers Boycotting X

Musk’s comments were in response to a video of Daily Wire founder Ben Shapiro’s Congressional testimony about the alleged advertiser cartel against platforms that are right-leaning. The hearing mostly revolved around him and several Republican Congressmen complaining that companies weren’t advertising on conservative sites like the Daily Wire.

Earlier this week, the House Judiciary Committee released a report titled “GARM’s Harm: How the World’s Biggest Brands Seek to Control Online Speech.”

The report said, “Through GARM (Global Alliance for Responsible Media), large corporations, advertising agencies, and industry associations participated in boycotts and other coordinated action to demonetize platforms, podcasts, news outlets, and other content deemed disfavored by GARM and its members.”

It cited several alleged instances where GARM has supposedly tried to stifle conservative voices. Among others, the investigation showed that “GARM directed its members to boycott Twitter after Elon Musk acquired the company.”

The report added, “Although Rob Rakowitz, the leader of GARM, denied having done so in his transcribed interview before the Committee, a GARM member documented discussions about the boycott, noting that the company had pulled advertisements from Twitter based on GARM’s recommendations.”

These claims and the entire hearing was all very strange as it’s clear to legal scholars (and just about everyone else) that boycotting a website like X is not illegal in any way. In fact, the 1st Amendment protects speech which explicitly includes boycotts.

However, intense lobbying has lead to legislation (and executive orders) in 38 states that bans or strongly discourages boycotts of the state of Israel for both businesses and individuals. These are all unconstitutional by definition, but they passed anyway, often with overwhelming bipartisan support, so it’s vaguely possible that Musk and Shapiro’s complaints will be taken seriously nonetheless.

Musk Has Lashed Out at Advertisers on Several Times

To be sure, this is not the first time that Musk has lashed out at advertisers who are boycotting X and have stopped advertising on the platform. While he rued the exodus of advertisers multiple times, his ire reached boiling point last year at the Deal Book conference in November where he used some really harsh words.

“If somebody is going to try to blackmail me with advertising, blackmail me with money, go fuck yourself. Go fuck yourself. Is that clear? I hope it is,” said Musk when speaking with interviewer Andrew Ross Sorkin.

The mercurial Tesla CEO particularly called out Disney’s CEO Bob Chapek. While Musk has since somewhat toned down his rhetoric against advertisers, the boycotts have taken a toll on X’s revenues – and, by extension, the company’s valuation.

X’s Revenues Have Fallen Sharply After Musk Acquired the Company

Since he acquired Twitter, Musk has laid off roughly 80% of the workforce while cutting expenses elsewhere also.

Perhaps his worst mistake was to dive into conservative politics and conspiracy theories (including the antisemitic “Great Replacement” theory). His antics have lost him quite a bit of support from users and advertisers alike. He has struggled to convince advertisers to stay on the platform ever since.

He tried shifting the focus away from advertising to subscription and Twitter started offering paid subscriptions as well as started charging for APIs.

None of these strategies paid off and advertising continues to remain the bread and butter for X – just as it was before Musk acquired the company. At the Deal Book conference last year, Musk warned that X might fail because of the boycott from advertisers.

He said, “what this advertising boycott is going to do is it’s going to kill the company.” Musk added, “We’ll be gone, and it’ll be gone because of an advertiser boycott.”

Since X is no longer publicly traded, we don’t get its financials. However, Bloomberg reported that the company’s revenues in the first half of 2023 were 40% lower than the corresponding period in 2022.

Instances of Hate Speech on X Have Risen

To be sure, advertisers have reasons to stop advertising on X. Multiple reports have suggested that instances of hate speech have increased on Twitter since Musk took over – even though he has denied so. Several leading personalities have also quit Twitter after Musk’s acquisition.

Since he acquired Twitter, Musk has warmed up even more to conservatives, restoring many suspended accounts including that of Donald Trump.

Musk restored Kayne West’s account after it was suspended for posting several antisemitic comments (including saying that he “loves Hitler”). Musk himself was at the center of controversy when in response to a tweet that accused Jews of hating whites, he said, “You have said the actual truth.” While the billionaire later apologized for his antisemitic tweet, the damage was already done and this wasn’t his first time promoting antisemitic tweets and theories.

Hate speech seems to have risen significantly on the platform as well, likely due to more lax moderation policies and encouragement from Musk.

There have been several instances of ads being placed on hateful content on X, prompting several companies to stop advertising altogether on the platform.

x valuation

Source:

X’s Valuations Have Plummeted Too

X’s valuations have also plummeted amid the falling revenues, and most recently, Fidelity valued the company at a mere $12.5 billion. The fund, which owns a small stake in X, has been gradually lowering its valuation. Notably, when Musk bought the company in 2022 it was valued at $44 billion. Musk himself admitted that he overpaid for Twitter and even tried walking away from the deal but a lawsuit from Twitter forced him to buy the social media platform.

Incidentally, last year, Musk lowered Twitter’s valuation to $20 billion while offering ESOPs to employees. He, however, expressed hope that eventually Twitter would be valued at $250 billion – a figure that looks increasingly out of bounds looking at the current scenario.

Would Musk Actually Go Ahead and Sue Advertisers?

Musk is no stranger to legal battles and is involved in several litigations. However, it seems unlikely that attempts to sue advertisers would get much traction. Last year, he warned of a “thermonuclear lawsuit” against a non-profit watchdog Media Matters for America (MMFA) and others after multiple companies stopped advertising on X after a flood of antisemitic content on the platform.

Musk went ahead with the lawsuit against MMFA and the Center for Countering Digital Hate (CCDH). However, the lawsuit against CCDH was dismissed (as expected). Charles Breyer, the US district judge said in his ruling, “Sometimes it is unclear what is driving a litigation, and only by reading between the lines of a complaint can one attempt to surmise a plaintiff’s true purpose.”

He added, “Other times, a complaint is so unabashedly and vociferously about one thing that there can be no mistaking that purpose. This case represents the latter circumstance. This case is about punishing the defendants for their speech.”

Musk – who is a self-proclaimed “free speech absolutist”- doesn’t seem to agree that boycotts are a form of speech so he has appealed the dismissal of that appeal. Meanwhile, even MMFA has argued that the suit against it be dismissed because of a “fatal jurisdictional defect,” while adding “dismissal is also required for lack of venue.”

Would the outcome be different this time as Musk prepares to take in GARM? We’ll have to wait and see.