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MarketWatch First Take: Elon Musk’s battle with Apple puts Twitter at greater risk

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Elon Musk’s latest brouhaha, with Apple Inc., is a risky strategy that could potentially backfire and put Twitter in even more peril of imploding.

On Monday, Musk wrote a series of tweets in which he said that the world’s most valuable company has “threatened to withhold Twitter from the App Store.” Musk added that they won’t tell him why, and also noted that Apple
AAPL,
-2.11%

has mostly stopped advertising on Twitter.

He also tweeted that Apple gets a 30% cut of all transactions on its App Store, which he labeled as a “secret tax.” Apple’s high App Store fees have been the crux of much controversy, including most recently the lawsuit from Epic Games Inc., which has just gone before an appeals court in San Francisco.

In response, some among Musk’s 119.5 million Twitter followers speculated that it was because Apple was politically biased and made donations to the Democratic Party, while others claimed it was because of hate speech and content moderation concerns. Apple has been known to remove apps from its App Store because of content issues.

“Musk is playing with fire by taking Apple on,” said Joshua White, an assistant professor of finance at Vanderbilt University’s Owen Graduate School of Management. “If Twitter gets kicked out of the App Store either for hate speech or because of this battle, then it is probably game over for Twitter.”

But the move is also apparently Musk’s attempt to get Apple Chief Executive Tim Cook to lower Twitter’s App Store costs, as he seeks to shift Twitter’s core revenue stream to a subscription model instead of ad sales. Musk’s deal to buy Twitter and take it private has created a huge debt burden of about $13 billion on the company, with the New York Times estimating that the debt servicing cost is about $1 billion a year, far exceeding Twitter’s current free cash flow.

“He has this ticking time bomb of debt,” said Eric Talley, the Isidor & Seville Sulzbacher Professor of Law at Columbia Law School. “This particular kerfuffle is an attempt to see if he can tailor a special deal for Twitter that others don’t have.”

“Musk is also strategic, when you see these things that are seemingly irrational, there has to be a reason for it,” White said. “Apple and others are under scrutiny by the EU, at a time when there is a large concern about Big Tech…Google and Apple have a duopoly.”

And how are Musk’s Twitter outbursts being received over at Apple’s spaceship headquarters in Cupertino, Calif.? Apple did not respond to emails for comment.

Talley said that it’s possible the whole controversy will end up being a “nothing burger.”

“Apple might figure a way to keep Twitter on board, or allow Musk to extract something,” he said, noting that the dominant users of Twitter are tweeting from their iPhones (including Musk himself). “These two platforms need each other, the question is how.”

The soap opera that is Musk’s Twitter acquisition has clearly gone in many directions that were not even imaginable when the deal was completed just one month ago. Whether Musk wins a battle with the company that also holds a key to many of Twitter’s users is a huge question, but he clearly thinks it is the right time to launch the first strike.

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