Elon Musk’s Twitter takeover has stirred many emotions. The deal also illustrates the unprofitability of media bias, which claims of media bias must consider.
The drama began with Mr. Musk announcing on April 4 a 9% stake in the company. After turning down a seat on the Board of Directors, Mr. Musk proposed on April 9 buying Twitter at $54.20 per share, or about $44 billion, and taking it private. The Board accepted the deal on April 25, which is currently paused over concerns about robot accounts.
The stock was under $40 a share at the end of March, so Mr. Musk offered 35% above market value. Stock markets are forward-looking with prices reflecting investors’ projections of future profitability. Mr. Musk likely believes he can make Twitter worth more than $44 billion. We do not know all the changes he intends. In addition to committing to free speech, Mr. Musk has mentioned the pricing of premium service, eliminating advertising and open-source algorithms.
Plausibly some of the expected increase in the value of Twitter is from eliminating political bias. This illustrates the general point: media bias should reduce profits. Allegations of liberal bias must address this challenge, as I argued in a 2001 Cato Journal paper.
Liberal bias reduces profits by alienating conservative or moderate users, readers or viewers. Revenue is lost by alienating potential customers, or in Twitter’s case, banning one of its most followed users, Donald Trump.
The economics of bias in the era of the Big Three TV networks were even more problematic. If CBS, NBC and ABC were as liberal as alleged, they would lose conservative viewers and divide the liberal viewers three ways. A network could increase its audience and profits by leaving the liberal news cartel.
Economists assume businesses maximize profit. In part, this helps in building models to study the economy. But it also reflects self-interest. People start businesses to make money, so most entrepreneurs should choose more profit if possible.
The separation of ownership and control in corporations creates one challenge to profit maximization. Owners get the profits while the managers doing the work may receive little of the extra profit. I will not consider this important topic in economics and finance today.
One acceptable deviation from profit maximization is highly relevant for media bias.
Imagine a TV station owner who cares about politics, say election of the next mayor. We might expect the owner to slant news coverage and only run ads for the favored candidate.
Why do economists accept this? Normally the best way to get things we want is buying them. Make money running your business and then buy yachts or ski villas. But sometimes you can “buy” what you want more readily through your business. A $10,000 reduction in profit from biasing coverage of the mayor’s race may affect the outcome more than a $10,000 campaign contribution.
Persistent media bias involves owners choosing politics over profit. David Halberstam in The Powers that Be detailed the influence of major news company owners in the 1950s, yet more owners leaned right than left. One owner is far more likely to trade profit for politics than many. Some stockholders will prefer profit while not all choosing politics will be liberal.
Twitter, Facebook and Google (Alphabet) are all publicly traded corporations.
Extreme social media bias should also be very costly. Thousands of corporate investors must choose liberal politics over profit. Bias also invites entry by “fair and balanced” or conservative rivals, either as with Rupert Murdoch and Fox News or through a corporate takeover.
Precise definition and measurement of bias remains elusive. Psychology warns that our impressions of bias may be biased. The economic difficulty of sustaining liberal bias suggests carefully scrutinizing the evidence. And if a social media company committed to free speech is more valuable, some good capitalists should provide one for us.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.