Business Maverick

Business Maverick

X to test three tiers of service in latest Musk overhaul

X to test three tiers of service in latest Musk overhaul
The Twitter logo on a laptop arranged in Germantown, New York, US, on Monday, July 24, 2023. (Photor: Gabby Jones/Bloomberg via Getty Images)

Elon Musk’s X Corp., giving bankers an update on efforts to reinvigorate growth, said that it’s testing three tiers of premium service, which would allow the company to charge customers different amounts depending on how many ads are shown. 

The premium plan, which currently costs $7.99 a month, would be split into Basic, Standard and Plus variations as part of the effort, the company told debt holders during the briefing on Thursday, according to a person who dialled into the call. X also said that — while advertisers are returning to the social media platform formerly known as Twitter — they’re bringing smaller budgets than before. 

X CEO Linda Yaccarino briefed bankers on the company’s financial situation on Thursday.

During the briefing, Yaccarino gave a generally upbeat view of the company, which she joined in June. Revenue is growing in the high single digits quarter-over-quarter across advertising, data licensing and subscriptions, she said.

Not including the cost of servicing debt, the company already is cash-flow positive, Yaccarino said. And it should reach that milestone even when including debt by the back half of 2024, the executive said.

The three-tiered plan would let the company woo consumers who may not want to pay the full price for premium service. Musk has also floated the idea of charging everyone who uses X a small fee, a move he said would help weed out bots. 

Musk’s $44-billion takeover of Twitter saddled the San Francisco-based company with $13 billion in debt, and his erratic decision making and looser content-safety rules have spooked some advertisers. Before he bought the company and rechristened it as X, Twitter was generating about $5 billion in annual sales, almost 90% from advertising. Now it has to win back that revenue, and X owes about $1.2-billion in interest payments per year on its debt, Bloomberg earlier estimated

Roughly 90% of the company’s top 100 advertisers have returned, up from 75% in June, Yaccarino said on Thursday. Ad spending isn’t at historical levels, though, and companies are ramping up budgets more conservatively, she said.

X likely still faces an uphill battle to placate lenders. After the takeover, some banks tried to offload the debt for just 60 cents on the dollar. Earlier this year, the company’s value had dropped to just a third of its purchase price, according to Fidelity.

Since Musk’s October 2022 purchase, the social network has shed more than 75% of its staff, discontinued services and launched a premium subscription in an attempt to restore financial health. Musk has been vocal about turning X into an “everything app” that could generate revenue from features like shopping and payments. 

Yaccarino was formerly the ad chief at NBCUniversal Media LLC, giving her experience courting big brands. Over the summer, she and Musk presented plans to investors to bring celebrities and political figures to the platform, and to facilitate more commerce and payments between users, the Financial Times reported

The CEO’s efforts helped X ink a new deal with Paris Hilton and 11:11 Media this week to promote the company’s live shopping and video products.

Hints of the new three-tiered service first showed up in code for the Twitter app. The code indicated that the entry-level plan will include the normal amount of ads, and the standard plan will show half as many ads. The top-level offering won’t show any ads. 

The description was discovered by a user who goes by Aaronp613, an app enthusiast who examines code within popular iPhone application to seek out future features.

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