#SocialStocks: EU rules against Meta, despite attempts to settle

Twitter and Apple make amends, the battle for short form video predominance, and other notable stories from this week

Welcome to "#SocialStocks," The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

BOARD PACT: Pinterest (PINS) announced it has entered into a long-term cooperation agreement with Elliott Investment Management., including the appointment of Marc Steinberg, Senior Portfolio Manager at Elliott, to the Board of Directors effective December 16, 2022. "We’d like to welcome Marc to the Pinterest Board following our collaborative dialogue with Marc, Jesse Cohn, and Elliott over the past few months," said Bill Ready, CEO, Pinterest. "We appreciate the perspective the team brings, as well as their commitment to our Company and mission. We believe in engaging our key stakeholders consistently and this one-of-a-kind agreement with Elliott is a result of that. We look forward to working together as we execute on our strategy to increase engagement with users, deepen monetization per user, and build personalized experiences on Pinterest that go from inspiration and intent to action – all while creating a more positive and inspiring place online."

CROSS CHECK TARGETED BY OVERSHIGHT BOARD: The Oversight Board of Meta Platforms (META) said in a statement, "In October 2021, following disclosures about Meta’s cross-check program in the Wall Street Journal, the Oversight Board accepted a request from the company to review cross-check and make recommendations for how it could be improved. This policy advisory opinion is our response to this request. It analyzes cross-check in light of Meta’s human rights commitments and stated values, raising important questions around how Meta treats its most powerful users. As the Board began to study this policy advisory opinion, Meta shared that, at the time, it was performing about 100 million enforcement attempts on content every day. At this volume, even if Meta were able to make content decisions with 99% accuracy, it would still make one million mistakes a day. In this respect, while a content review system should treat all users fairly, the cross-check program responds to broader challenges in moderating immense volumes of content. According to Meta, making decisions about content at this scale means that it sometimes mistakenly removes content that does not violate its policies. The cross-check program aims to address this by providing additional layers of human review for certain posts initially identified as breaking its rules. When users on Meta’s cross-check lists post such content, it is not immediately removed as it would be for most people, but is left up, pending further human review. Meta refers to this type of cross-check as "Early Response Secondary Review". In late 2021, Meta broadened cross-check to include certain posts flagged for further review based on the content itself, rather than the identity of the person who posted it. Meta refers to this type of cross-check as "General Secondary Review". In our review, we found several shortcomings in Meta’s cross-check program. While Meta told the Board that cross-check aims to advance Meta’s human rights commitments, we found that the program appears more directly structured to satisfy business concerns. The Board understands that Meta is a business, but by providing extra protection to certain users selected largely according to business interests, cross-check allows content which would otherwise be removed quickly to remain up for a longer period, potentially causing harm. We also found that Meta has failed to track data on whether cross-check results in more accurate decisions, and we expressed concern about the lack of transparency around the program. In response, the Board made several recommendations to Meta. Any mistake-prevention system should prioritize expression which is important for human rights, including expression of public importance. As Meta moves towards improving its processes for all users, the company should take steps to mitigate the harm caused by content left up during additional review, and radically increase transparency around its systems."

The Meta Oversight Board continued, "To comply with Meta’s human rights commitments and address these problems, a program that corrects the most high-impact errors on Facebook and Instagram should be structured substantially differently. The Board has made 32 recommendations in this area.. As Meta seeks to improve its content moderation for all users, it should prioritize expression that is important for human rights, including expression which is of special public importance. Users that are likely to produce this kind of expression should be prioritized for inclusion in lists of entities receiving additional review above Meta’s business partners. Posts from these users should be reviewed in a separate workflow, so they do not compete with Meta’s business partners for limited resources. While the number of followers can indicate public interest in a user’s expression, a user’s celebrity or follower count should not be the sole criterion for receiving additional protection. If users included due to their commercial importance frequently post violating content, they should no longer benefit from special protection. Radically increase transparency around cross-check and how it operates. Meta should measure, audit, and publish key metrics around its cross-check program so it can tell whether the program is working effectively. The company should set out clear, public criteria for inclusion in its cross-check lists, and users who meet these criteria should be able to apply to be added to them. Some categories of entities protected by cross-check, including state actors, political candidates and business partners, should also have their accounts publicly marked. This will allow the public to hold privileged users accountable for whether protected entities are upholding their commitment to follow the rules. In addition, as around a third of content in Meta’s cross-check system could not be escalated to the Board as of May-June 2022, Meta must ensure that cross-checked content, and all other content covered by our governing documents, can be appealed to the Board. Reduce harm caused by content left up during enhanced review. Content identified as violating during Meta’s first assessment that is high severity should be removed or hidden while further review is taking place. Such content should not be allowed to remain on the platform accruing views simply because the person who posted it is a business partner or celebrity. To ensure that decisions are taken as quickly as possible, Meta should invest the resources necessary to match its review capacity to the content it identifies as requiring additional review."

EU RULES ON AD MODEL: European Union privacy regulators have ruled that Meta Platforms shouldn’t require users to agree to personalized ads based on their online activity, a ruling that could limit the data that Meta can access to sell such ads, The Wall Street Journal’s Sam Schechner reported, citing people familiar with the matter. A board representing all EU privacy regulators approved Monday a series of decisions ruling that EU privacy law doesn’t allow Meta platforms, such as Instagram and Facebook, to use their terms of service as a justification for allowing such advertising, the people said. The new EU decisions can be appealed, which could lead to their being suspended pending potentially lengthy litigation, the author noted. Meta reached out to E.U. antitrust regulators some time ago in an attempt to settle these investigations on how it uses customer data and the ties its classified advertisements service has to Facebook, Foo Chee of Reuters reported, citing people with direct knowledge of the situation. The discussions were very preliminary and did not made any progress.

PARTNERSHIPS: Sprout Social (SPT) announced a new integration with Tableau, the world’s leading analytics platform. The integration enables organizations to make more proactive and data-driven decisions by making it easier to incorporate social data from Sprout Social into Tableau for a cohesive view of business-wide insights. The addition of Tableau, a Salesforce (CRM) company, is the latest in a series of integrations Sprout Social has developed as part of its global partnership with Salesforce. Sprout Social’s focus on co-creation enables functionality that fits within joint customers’ workflows so brands can extract the most value from their customer data without worrying about a difficult product implementation. "In order to build proactive, industry-leading brands, organizations need a 360-degree view of their customers and their performance. This is a vision that we share with Salesforce and we are thrilled to have deepened our partnership to deliver on it," said Ryan Barretto, President of Sprout Social. "The Tableau platform is known for taking any kind of data from any system and turning it into actionable insights with speed and ease. And, with Sprout’s integration, this now includes social data. Together, we are providing decision makers with a unified source of truth that allows them to more easily leverage powerful social data and insights to build their strategy. In an increasingly crowded and constantly changing market, this is how customers can compete to win."

In a Monday blog post, Snapchat (SNAP) announced it is partnering with H&M to launch a digital collection powered by the Snap Camera. The company said, "Just in time for the holiday shopping season, Snapchat is partnering with leading fashion retailer, H&M, to launch a digital collection powered by the Snap Camera. Starting December 5, you can try three AR Try-On Lenses via H&M’s mobile app on iOS and Android, as well as globally on Snapchat.Co-designed by H&M and the Institute of Digital Fashion, the London-based digital atelier and think tank, these Lenses highlight a partly digital collection featuring two outfits and one accessory to try on. The matching physical collection will be for sale online and in select stores starting December 8."

STOP SPREADING THE NEWS: In a Monday tweet, Andy Stone, communications at Meta Platforms, posted the company’s statement on the Journalism Competition and Preservation Act: "If Congress passes an ill-considered journalism bill as part of national security legislation, we will be forced to consider removing news from our platform altogether rather than submit to government-mandated negotiations that unfairly disregard any value we provide to news outlets through increased traffic and subscriptions. The Journalism Competition and Preservation Act fails to recognize the key fact: publishers and broadcasters put their content on our platform themselves because it benefits their bottom line – not the other way around. No company should be forced to pay for content users don’t want to see and that’s not a meaningful source of revenue. Put simply: the government creating a cartel-like entity which requires one private company to subsidize other private entities is a terrible precedent for all American businesses."

SLOW YOUR ROLL: Pinterest has cut parts of its recruiting team and will slow down hiring for the remainder of this year, Mahira Dayal of The Information reported. "We made great hires at Pinterest this year and have strong talent in place to support the needs of our business," a spokesperson for the company told the website.

WHATS MY AGE AGAIN?: Meta said it is expanding its age verification test to Facebook Dating in the U.S. "We require people to be at least 18 years old in order to sign up for and access Facebook Dating, and age verification tools will help verify that only adults are using the service and help prevent minors from accessing it," the company said in a blog post. "We’re also continuing our partnership with Yoti, a company that specializes in online age verification, so that people have more than one option to choose from to verify their age."

RETURN OF THE ADS: Elon Musk said Apple (AAPL) has "fully resumed" advertising on Twitter (TWTR), further de-escalating a brewing war between two of the world’s most influential tech companies, Bloomberg’s Kurt Wagner reports. Musk made the comments during a Twitter Spaces conversation on Saturday, adding that Apple is the largest advertiser on the social media network. Elon Musk tweeted last week that that he had a "good conversation" with Apple CEO Tim Cook, saying the two "resolved the misunderstanding about Twitter potentially being removed from the App Store." "Tim was clear that Apple never considered doing so," Musk added.

Additionally, Twitter has offered incentives to advertisers to boost their spending on the social network in an attempt to bolster the business after Elon Musk’s acquisition prompted many companies to remove ads from the platform, the Wall Street Journal’s Patience Haggin reported, citing people familiar with the matter. The company offered advertisers incentives such as matching their ad spending, the author says, citing a company email to ad agencies. Companies that reportedly halted or pulled ads from Twitter recently include Macy’s (M), Chipotle (CMG), Mondelez (MDLZ), General Mills (GIS), Pfizer (PFE), and Allianz (AZSEY).

BAD APPLE: Meta CEO Mark Zuckerberg told The New York Times’ Dealbook conference that Apple’s policies that let the company unilaterally control which apps can be installed are not sustainable and cause a conflict of interest, Axios’ Sara Fischer reported. "I think the problem is that you get into it with the platform control, is that Apple obviously has their own interests," Zuckerberg said, adding that "he fact that companies have to deliver their apps exclusively through platforms that are controlled by competitors – there is a conflict of interest there." Zuckerberg’s comments came days after Tesla and Twitter CEO Elon Musk publicly attacked Apple, alleging the company’s app store policies are an abuse of power.

TRACKING MUSK’S TWEETS: Twitter CEO Elon Musk has taken to Twitter often to provide background to news and events happening within his new company. Some tweets from this week are as follows

• The intelligence of this hive-mind will improve significantly as signal/noise, effective cross-linking of tweets & speed of tweets all improve"
• "The more Twitter improves its signal to noise ratio, the less relevant conventional news becomes"
• "Pretty wild that you can engage in back-and-forth dialogue with over 100k people live on Twitter Spaces!"
• "Just a note to thank advertisers for returning to Twitter"
• "Here we go!! 🍿🍿" read a Musk Quote Tweet above a thread containing The Twitter Files, the first installment of a series containing thousands of internal documents obtained by sources at Twitter
• "What really happened with the Hunter Biden story suppression by Twitter will be published on Twitter at 5pm ET!"
• "Major Twitter system improvements were implemented this week to drop hammer hard on spam/scam accounts. Taking just past 24 hours, does it seem like there are far fewer?"
• "Twitter is now serving almost 90 billion tweet impressions per day! Just how incredibly alive the system actually is will become obvious as we show view count on all tweets."
• "There are about 500M tweets per day & billions of impressions, so hate speech impressions are <0.1% of what’s seen on Twitter!"
• "Hate speech impressions (# of times tweet was viewed) continue to decline, despite significant user growth! @TwitterSafety will publish data weekly. Freedom of speech doesn’t mean freedom of reach. Negativity should & will get less reach than positivity."
• "You know Twitter is being fair when extremists on far right and far left are simultaneously upset! Twitter aims to serve center 80% of people, who wish to learn, laugh & engage in reasoned debate. ❤️"

BATTLE FOR SHORT FORM: BofA analyst Justin Post noted that all leading social media platforms, including YouTube (GOOGL), Facebook and Instagram are investing billions in their short form video, or SFV, platforms and aggressively ramping up content. In 2021, the analyst estimates that TikTok obtained 2.9% of all U.S. online time spent, and SFV as a whole was at 5.4%. Post told investors that while there is risk of SFV consumer fatigue, he estimates SFV could grow to 12% of all Internet time spent by 2024, with category share gains by YouTube Shorts and Reels. TikTok has a monetization ramp ahead, which could lead to a 200 basis points headwind for competitor growth in FY23. The analyst thinks platforms will pay for exclusive content from top creators, which could be 5%-10% gross margin headwind on SFV content vs social. TikTok, Meta and YouTube are competing to be a top Western markets. TikTok reportedly has an established brand in the sector as the disruptor, and best usage data to target users. Based on their user scale, and usage traction data points provided by Meta and Alphabet in 2022, Post expects category share gains vs TikTok. He told investors that he expects usage growth, monetization, and regulation of SFV to have a material impact on Meta and Snap stock performance, and could be a sentiment driver for Alphabet. The analyst concluded Meta’s ability to capitalize on its large capex investment in the SFV category is one of the "most interesting" investment themes in the sector.

Keywords: Elliot, board, Oversight Board, EU, ruling, antitrust, integration, partnership, news, journalism bill, hiring, age verification, ad revenue, incentives, short form video