news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

"We tried to keep peace for two years, but all we got was empty words, and now it's war."

Recently, American billionaire Elon Musk tweeted that he had officially "clashed" with a coalition of advertisers. His company X (formerly known as Twitter) filed a lawsuit in court against the World Federation of Advertisers (WFA) and several brands, who boycotted X on a large scale through a group called the Global Alliance for Responsible Media (GARM), causing X to lose billions of dollars in advertising revenue.

A few days after X filed the lawsuit, GARM announced its dissolution and explicitly denied any violation of competition rules. In response, X said it would continue to file antitrust lawsuits in the hope of repairing the "broken" advertising ecosystem.

Dissatisfied with the removal of ads from Platform X, will Musk's antitrust card work? How will the advertisers named as defendants respond? Everything has just begun.

After being acquired by Musk,XThe company's advertising revenue declined

It’s not surprising that Musk has declared war on advertisers.

In October 2022, Musk spent $44 billion to buy Twitter. After taking over Twitter, Musk took a series of drastic reforms, such as renaming this globally influential platform to X and laying off thousands of employees to reduce costs and increase efficiency. These measures demonstrate Musk's control over X, but also make the outside world worry about the stability of the company.

To make matters worse, Musk has offended a number of advertisers. The billionaire, who has 193 million fans on X, has caused dissatisfaction several times due to some controversial remarks. Last November, he supported an anti-Semitic post on X, which immediately led to major companies including IBM, Apple, Lionsgate, Disney and Warner Bros. suspending advertising on X.

Later, Musk apologized under pressure, but he seemed unwilling to give up. At a public event at the end of last year, he bluntly "blasted" advertisers - don't try to blackmail or threaten with money through advertising, "the whole world will know that it was those advertisers who killed the X platform, and we will record it in detail."

As we all know, advertising is the main source of income for social platforms. Musk's tough attitude has strained his relationship with advertisers and made the profit prospects of the X platform even bleaker. A document submitted by X to regulators showed that in the first half of 2023, X's revenue was US$1.48 billion, a year-on-year decrease of nearly 40%. In the first quarter of 2023, X lost US$456 million.

On the other hand, why are advertisers so dissatisfied with the new takeover of Company X? One important reason is that Musk himself hopes to create a global social platform for freedom of speech, allowing people with different opinions to fully express themselves, while advertisers emphasize that the platform needs to take restrictive measures on content containing violent, hateful and other information to avoid having their own brand ads appear with these inappropriate information.

For Musk, free speech takes precedence over advertising revenue, so he chose to stand on the opposite side of advertisers. After trying to maintain peace for two years, Musk said it was time to declare war.

XClaiming treble damages and seeking injunctive relief

On August 6 this year, Company X filed an antitrust lawsuit in a Texas court, claiming that it was collectively boycotted and lost billions of dollars in advertising revenue. The defendants listed by Company X are the World Federation of Advertisers (WFA) and several major brands - Unilever, Mars, CVS Health, a US drug chain, and Orsted, a Danish renewable energy company.

X’s indictment published on the court’s official website.

According to Nandu Antitrust Frontier, WFA is an internationally influential alliance of advertisers, representing more than 150 large brands and more than 60 advertising associations around the world. WFA claims to be the spokesperson for global marketers, and its members invest about $900 billion in marketing each year, accounting for 90% of global marketing and communication expenditures. WFA members are spread all over the world, including the four companies that were jointly accused this time, as well as well-known brands such as McDonald's, Microsoft, Procter & Gamble, Disney, and IKEA.

Nandu Antitrust Frontier learned from a 44-page complaint obtained from the court's official website that Company X accused several defendants of conspiring through the established GARM Advertising Alliance and collectively agreeing to withhold X's advertising fees to force X to comply with GARM's brand safety standards, which constituted an abuse of market dominance.

Some evidence provided by Company X indicates that after Musk took over X, GARM members quickly took action to stop or significantly reduce their advertising spending on the X platform, which was a significant change from their previous purchasing patterns.

Company X also pointed out that the defendants exchanged sensitive information about their intentions and plans to boycott Twitter through GARM, and that such information exchange may have facilitated collusive conduct in violation of antitrust laws.

Under Section 1 of the U.S. Sherman Act, agreements that restrict trade are prohibited, including price-fixing agreements, joint boycotts, market allocation, bid rigging and tie-in sales.

Nandu Antitrust Frontier noted that Company X also cited a report released by the U.S. House of Representatives Judiciary Committee in its indictment. The report was released on July 10 this year and mainly discussed how the world's largest brands seek to control online speech through GARM, such as using their own market power to coordinate members to boycott specific platforms including Twitter, which was acquired by Musk, and recommending members to stop advertising.

This report also became one of the main arguments of the plaintiff. Company X claimed in the complaint that the defendant's actions caused a significant decline in the company's advertising revenue, which not only caused economic losses, reduced its equity value and goodwill, but also restricted free competition in the advertising service market. In accordance with the Clayton Act, Company X claimed triple damages and asked the court for injunctive relief.

After being sued, GARM announced its closure

The advertising alliance that was sued quickly responded to the lawsuit filed by Company X.

On August 9, local time, the WFA official website released an announcement announcing the suspension of GARM operations. The announcement mentioned that some recent accusations have misunderstood the purpose of GARM's establishment and the activities it has carried out, causing certain financial and resource losses and making it unable to focus on operations. Therefore, WFA made a difficult decision to suspend GARM activities.

GARM's closure announcement.

According to the announcement, the establishment of GARM is related to the shooting in Christchurch, New Zealand in March 2019, when the attacker live-broadcasted the attack on Facebook. In such high-profile cases, brand advertisements appear alongside illegal or harmful content, affecting the brand's reputation.

To this end, WFA took the lead in establishing GARM in 2019, aiming to provide brand safety standards or other tools to increase the transparency of digital advertising to avoid brand advertising being adjacent to illegal or harmful information. Under the advocacy of GARM, such advertising has been reduced from 6.1% in 2020 to 1.7% in 2023.

"This decision was not made lightly." WFA CEO Stephan Loerke said that GARM is a non-profit organization with limited resources and is unable to continue operating during the lawsuit with X. At the same time, he denied that GARM's behavior was illegal, "I believe the results will prove that all our activities fully comply with competition rules."

When seeing this case, You Yunting, a lawyer who has been paying attention to antitrust for a long time, said that his eyes were "brightened". He told Nandu Antitrust Frontier that the joint boycott by advertisers has a high antitrust risk. Although they may argue that this move is not intended to restrict competition, but to maintain a more responsible online environment, protect brand safety and advertising effectiveness, which is a reasonable business reason.

But in comparison, You Yunting believes that the plaintiff's claim may be more powerful. Because the advertisers' joint boycott has indeed caused Company X to lose billions of dollars, with obvious anti-competitive intentions. With the reduction of advertising revenue, Company X's ability to invest in improving user experience and platform functions will also decline, which indirectly limits consumers' choices.

In addition, despite Platform X’s claim that its brand safety practices have “met or exceeded” GARM’s standards, the boycott continues. You Yunting told Nandu Antitrust Frontier that companies should have reasonable limits when using their market power, and if advertisers continue to launch joint boycotts, it may be considered an abuse of their market power.

After being sued by Company X, GARM announced its closure. In You Yunting's opinion, this is a sign that the defendant wants to reduce disputes, and it can be inferred that they are aware of the compliance risks involved. "Musk's lawyers really hit the weak spot of advertisers," he said.

However, some antitrust experts believe that the lawsuit is unlikely to succeed.

According to foreign media reports, Christine Bartholomew, a professor at the University of Buffalo School of Law, believes that X needs to prove that "every advertiser truly agrees to the boycott," which is "not easy." Others pointed out that even if the lawsuit is won, Musk will not be able to force advertisers to return to the X platform.

Due to the complexity of antitrust litigation, such cases usually last for several years. It is still unknown how Musk's game with advertisers will end and whether the two sides will reach a settlement. Based on the existing information, Musk and Company X do not seem to intend to back down.

Recently, Linda Yaccarino, CEO of X, said in an interview with the media that she will continue to file antitrust lawsuits. She said that this lawsuit is not only about damages, but also about repairing the advertising ecosystem.

Previously, Linda Yaccarino posted on X that no small group should use its power to monopolize monetization. This is an important recognition and a necessary step in the right direction. I look forward to the reform of the entire ecosystem coming as soon as possible.

At the same time, some industry insiders believe that the closure of GARM and the lawsuit may further alienate Company X from advertisers. Claire Atkin, co-founder of Check My Ads, a digital advertising watchdog, said one reason is that "they don't want to interact with Musk, it's that simple."

Produced by: Nandu Digital Economy Governance Research Center

Written by: Nandu reporter Li Ling from Beijing