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ABC News
ABC News
National
Nicholas McElroy, with wires

Elon Musk has taken on eye-watering debt to buy Twitter. It could explain the chaos of the takeover, staff cuts and blue tick fees

It's fair to say Elon Musk has a lot on his plate at the moment.

The world's richest man has taken out $US20 billion (more than $30 billion) in loans to buy Twitter — a relatively unprofitable social media website many have idealised as being a "global town square".

The interest bill for Twitter alone is expected to be about $US1.5 billion per year, according reports by the New York Times, Bloomberg and the Financial Times.

But throughout the chaos of the takeover, Mr Musk has not stopped posting to updates on the platform.

How did Musk buy Twitter? 

It's probably worth noting form the outset that Twitter sued Mr Musk during the process in an attempt to force him to complete the sale. 

But the saga kicked off in January, when Mr Musk began buying a lot of Twitter shares.

He was the company's largest shareholder by April, when he agreed to join Twitter's board. But he backed out at the last minute.

Instead Mr Musk offered to buy the company and eventually reached a deal without carrying out any due diligence on the company's confidential information.

In the weeks that followed, Mr Musk had second thoughts. He complained publicly about the number of Twitter spam accounts.

His lawyers then accused Twitter of not complying with his requests for information on the subject.

The spat resulted in Mr Musk telling Twitter in July he was terminating the deal.

But four days later, Twitter sued Mr Musk to force him to complete the acquisition.

By then, the stock market had plunged on concerns about a potential recession.

Twitter accused Mr Musk of buyer's remorse, arguing he wanted out of the deal because he thought he overpaid.

Most legal analysts thought Twitter would likely prevail in court.

In October, Mr Musk did another U-turn and offered to complete the deal as promised, just a day ahead of a deadline to avoid going to trial against Twitter.

Mr Musk tweeted "the bird is freed" as he took control of the company and sacked CEO Parag Agrawal and other top executives.

How profitable is Twitter?

It isn't very profitable compared to other big social media companies.

Although it has been a valuable online location used by celebrities, governments and news organisations globally, Twitter has rarely been profitable. 

Former Facebook executive warns of the commodification of digital spaces

Since becoming a publicly traded company in 2013, its only profitable years were in 2018 and 2019.

This is despite millions of users and revenues reportedly in the billions — $US7.7 billion last year, for example.

The vast majority, about 90 per cent, of this money comes from advertisers, and some have started to pull advertising.

Why do advertisers seem to be abandoning Twitter? 

United Airlines is the latest major brand to pause advertising on Twitter after Mr Musk's takeover, joining companies including General Motors, outdoor retailer REI, food company General Mills and Audi.

Reports that Mr Musk planned to sack staff from the outset raised concerns about the spread of hate speech and misinformation on the website.

He tried to see off these concerns by saying that he was buying the platform to help humanity and did not want it to become a "free-for-all hellscape".

So why did Musk sack half of Twitter's workforce?

Mr Musk says he had "no choice" but to sack staff to cut costs in an attempt to make the company profitable.

"Regarding Twitter’s reduction in force, unfortunately there is no choice when the company is losing over $4M/day," he said.

But wouldn't Twitter staff cuts scare away more advertisers?

The social media company's head of safety and integrity, Yoel Roth, said the platform's content moderation capabilities remain in place amid the sackings. 

Twitter sacks half of staff as Elon Musk launches overhaul

He added that the Twitter's front-line content moderation staff was the group the least affected by the job cuts.

Mr Roth said combating misinformation on the platform ahead of the US midterm elections was important.

"Efforts on election integrity — including harmful misinformation that can suppress the vote and combating state-backed information operations — remain a top priority," he said.

Mr Musk blamed the drop in advertising on "activists". 

"The activist groups have been successful in causing a massive drop in Twitter advertising revenue, and we've done our absolute best to appease them and nothing is working," he said on Twitter.

He's also responded to posts on Twitter suggesting a "counter-boycott" of companies by saying "a thermonuclear name & shame is exactly what will happen if this continues".

How does Musk plan to make money from Twitter?

Mr Musk said in an interview way back in April that owning Twitter "is not a way to sort of make money".

"Twitter has become kind of the de facto town square. So it’s just really important that people have both the reality and the perception that they’re able to speak freely within the bounds of the law," he said in an interview.

But since the takeover Twitter announced a subscription service for $US7.99 a month that includes a blue check.

That would mean only $17 million a year in extra revenue for Twitter — not enough to move the dial for a company whose last reported quarterly revenue was $US1.82 billion.

Another idea floated seems to be charging users to view videos on the platform, according to reports by the Washington Post.

There are also reports of Twitter resurrecting Vine, a social short-form video app seen as a precursor to emerging social media giant TikTok. 

The subscription blue tick service is expected to end Twitter's current verification system, which was launched in 2009 to prevent impersonations of high-profile accounts such as celebrities and politicians.

It's upset high-profile Twitter users, like author Stephen King who has suggested that the site should be paying him.

AP/Reuters

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