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AH, online free speech, the ability to speak whenever and wherever you like. Things like, The sky’s pink! To insist that President Biden is an alien from space. Is this the coronavirus George Soros started it—in a cave, in Irkutsk. Soros!

Letting people have their unfettered say may seem good—until you set out to run a multibillion-dollar business with 7,500 employees, deep-pocketed competitors, mounting debt obligations and a revenue model built entirely around ads from mainstream brands. These are the stakeholders that get annoyed about having to pay millions to have their videos and images placed next to comments claiming Biden is really a pink-sky alien. It seems that this is something Elon Musk has suggested should occur at Twitter following his $44billion takeover Closes earlier in the year.

Musk hasn’t had much to say about how he’ll run Twitter. But on the point of free speech, he’s been the clearest: Twitter should allow more speech, echoing a familiar line of Republican complaints about Twitter, criticism made vociferous after Twitter barred President Trump after the Jan. 6 riots. “I hope that even my worst critics remain on Twitter, because that’s what free speech means,” Musk tweetedThis entry was posted on Monday. On Monday an earlier tweet, he characterized himself as a “free speech absolutist.” He tried to clarify a bit later on: “By ‘free speech’, I simply mean that which matches the law.”

With an almost-anything-goes mentality, “there’s the potential for brand safety issues to arise and for brands to rethink if it’s a platform that they want to invest in and be aligned with,” says Brendan Gahan, partner and chief social officer at the San Francisco advertising agency Mekanism. This is not a frilly liberal bubble. Mekanism’s clients have included brands like Quaker oatmeal, Alaska Airlines and Georgia-Pacific (a Koch subsidiary). “I’d certainly imagine that ourselves and the brands we work with would revisit whether or not it’s a place we want to be aligned with.”

Actually, it’s rather hard to find someone on Madison Avenue who thinks Musk’s plan sounds sensible. Sarah Hofstetter (ex-chairwoman, CEO, and founder of 360i, a New York-based agency) offers an agreement. “If you’re a brand, you want an environment that is safe enough for your brand to be able to feel comfortable speaking,” says Hofstetter. Though she left 360i in 2018, she’s still thinking about this sort of thing from a seat on Campbell Soup’s board. “There’s always a conversation about navigating what is right for the safety of a brand before it agrees to play on a platform. It’s something that’s been going on, gosh, for the better part of a decade, right?”

Although it’s true, Musk is attempting to return Twitter to a earlier period. Musk may be able to reduce or eliminate the number of content-moderating measures that Twitter has added in recent years. He’s floated some real doozies since first disclosing his Twitter shareholder on April 4—like, turn Twitter HQ into a homeless shelter—but the one purposing greater free speech is the most perilous proposal, advertising executives say. It’ll scare the stuffing out of Twitter’s advertisers, and ads are essential to Twitter, accounting for the entirety of its $5.1 billion in revenue, jeopardizing it.

Mark Weaver is an expert in this area. He’s the founder of MeWe, a small social media app favored by conservatives that takes a (put politely) light-handed approach to content moderation. “Absolute free speech doesn’t work to grow a platform,” he says. What is the difference between a successful ads business and free speech? Both are incompatible if companies want to maintain their lights. MeWe made $7 million last year in revenue, but not from ads. Instead, they used monthly and annual subscriptions. “When a site is full of trolls and people espousing hate and violence and prejudice, it’s just not tolerable for good people.” And whether you think marketers fall into that category or not, it would certainly apply to the audience they hope to reach through Twitter ads.

Musk doesn’t have a lot of wiggle room unless he wants to let Twitter operate at a loss, funding it from his considerable personal fortune ($239.2 billion at last, best estimate). Twitter already struggles to monetize its users as successfully as Meta, bringing in around $25 in annual revenue per user compared to Meta’s $41. Because Twitter collects only limited user data (age, name, phone number), its ads are seen as less valuable than Meta’s, which serve up a smorgasbord of data on our lives and interests to advertisers. There are some industry-wide challenges, too, including changes to Apple’s iOS software that’ve allowed users to stop apps from tracking them—making mobile ads less valuable—as well as inflation and recession fears weighing on ad budgets.

But what could make Twitter’s financial situation truly untenable is the debt, the $12.5 billion in loans taken by Musk to fund his acquisition that Twitter Inc. will need to pay for. (Adding debt to an acquired company’s balance sheet is a standard buyout tactic.) With the loans’ rates around 4% to 5%, Twitter will need to pay between $1.15 billion to $1.3 billion a year just in interest. Last year, it didn’t manage to make more than $167 million in earnings before interest and taxes.

OK, to recap: If Musk did nothing to change Twitter, he’d still need to substantially raise profitability to afford the company’s increased debt. But if he makes significant changes to Twitter’s revenue model by allowing more questionable speech there, driving away ad dollars, he will need to replace that lost revenue somehow while You can also see it hereTo make the debt-financed payments, profit must be increased. This doesn’t account for a mind-numbing third scenario where Musk would (1) promote free speech, lowering ad revenue, (2) replace the lost revenue and grow sales in a way that doesn’t involve ads and (3) increase profitability to pay for the debt. His best tools to increase profitability are cost cutting (layoffs) and the development of a higher-margin product.

If Musk doesn’t want ads, the obvious media-business ploy is a subscription product. Twitter Blue costs $2.99 per month and was launched last year by Twitter. The features it provides are limited, including the ability to see the most shared links between people you follow as well as an Undo button and a timed editing function. Twitter hasn’t disclosed how many Twitter Blue subscribers there are, but it certainly hasn’t added a “subscriptions” item to its income statement. You would expect companies to make that kind of move around fast-growing lines. Meta recently did this with the metaverse unit. To give Musk some credit, he is the person behind the world’s most popular electric cars and some of the only operable spacecraft on Earth. So if anyone can dream up new services people will actually pay for, he’s as good as anyone to give it a try.

Yet even Musk won’t be able to change the reality that even the best subscription-based businesses generally can’t convert more than 7% to 8% of users into paying subscribers, according to conversations with investors and executives active in the space. Let’s say Musk just wanted to replace half of Twitter’s annual revenue—call it $2.5 billion—by selling a monthly $9.99 subscription. (That’s what Discord, a social messaging company, charges for its successful Nitro program.) Musk needs 21.5million subscribers for 265,000,000 total users. Twitter’s last report stated that 217 million people used Twitter, which is less than half what it needs to cover ads revenue. To even get just halfway, Musk would need to boost Twitter’s user base by 22%—even as he makes fundamental changes to the platform that will likely lose him at least some users

Let’s end with a sobering story from someone who has spent even longer thinking about how Twitter should monetize than Musk: Anamitra Banerji. Banerji, a founder and managing partner of Afore Capital (a San Francisco-based VC company), is now a manager. Banerji used to be employee number 25. 26 at Twitter. He was the company’s first product manager, and also the person tasked to think about Twitter’s monetization strategy. He was appointed shortly after Jack Dorsey, the founder of Twitter, had resigned and Ev Williams took over as CEO.

“Twitter at that point is already a cultural thing,” he recalls, “but it doesn’t make any money.” He brainstormed several revenue streams, perhaps charging users to add a verification mark on their profile (Musk has suggested something similar) or charging for a back-end dashboard. Perhaps something more: Disney reached out to Twitter asking if they could use the Twitter logo as a promotional tool for its 2010 campaign. Alice in WonderlandRemake, substituting the last Ts from T-w-i -t-e -r to make room for Tweedle Dum or Tweedle Del. The problem was the same with both the Disney and the add-ons for bundling dashboards and verification, however. “How can you scale something like that? How successful will you be?” he says. Banerji thought it through and concluded that maybe 1% might be willing to pay for a Twitter subscription.

To solve the problem of Twitter’s missing revenue, Banerji returned again and again to the same answer. “Advertising,” he says. He left Twitter in 2011 as Twitter was losing ground to Meta (then TikTok), when it came time for more profitable photo-and video-based ads. “But I still think it’s the best way to monetize Twitter—bar none.”