Analysts, pundits and private investors are clueless about valuing Twitter Inc. because they don't look at the fundamentals. I don't mean the potential for user growth, the likely earnings dilution from huge stock option programs, or even whether Twitter advertising is any more effective than junk e-mail. The real nitty gritty fundamentals are not in Twitter's IPO prospectus but they were on trial in a courtroom in Paris this week. Google Inc. was ordered to install special filters to its search engine to remove images of a Formula One racing chief at an orgy.
The privacy case was brought by Max Mosley, former president of Federation Internationale de l'Automobile, the F1 governing body, and relates to pictures published by the now-defunct British tabloid, News of the World. Mr. Mosley successfully sued when the newspaper accused him of participating in a "Nazi orgy." He has admitted that he had attended the party but denied it had a Nazi theme (Mr. Mosley's father was Oswald Mosley, the British fascist leader) and the Paris court ordered Google to block links to the images from appearing in searches on Google's worldwide platforms.
From the pinnacle of its corporate pomposity, Google said the ruling had "serious consequences for free expression" and promised to appeal. Needless to say, Google is blustering; the company could not care less whether anyone sees the grainy pictures of Mr. Mosley disporting himself. However, Google is dead right that the case has serious consequences, because the Paris precedent will be looked at closely by a German court where Mr. Mosley is also suing. More importantly, it will also affect a debate over a draft European law which would give consumers greater rights to remove content from the Internet.
These are the first battles in an ideological war which is now being fought in Europe between libertarians and advocates of social responsibility on the Internet. But for companies like Google and Twitter, the issue goes much deeper, because it touches the money. The Paris case begs the question of what these companies are all about. Google (and Twitter) would have you believe that their business is just a platform, a piece of software, a fibre-optic network on which users play for good or ill. The politically correct idea is that Google, Twitter and Facebook provide no content, no editorial control, no input whatsoever. The user is the publisher.
If the Paris judgment is upheld and the European bill becomes law, that safe assumption becomes redundant, kaput. If, as a matter of course, Google becomes a search policeman; if Twitter must scan Tweets for racist abuse and libel; if Facebook succumbs to the lobby of outrage and decides to ban pictures of a beheading to appear on its pages; then they will engage in an editorial process. Ask yourself what you would call the dissemination of written material to the public which has been edited and monitored as to its content? You would call it publishing. A publisher is liable for content – and liability means huge cost.
This is more than legal semantics. If this idea gets wings, the social media tycoons will no longer be able to hide behind the preposterous notion that they are no more dangerous than the phone company. In the U.S., the movie industry is on Google's case, demanding more effective bars to the publishing on Google searches of links to pirated movies. Ken Dodd, the former US. .Senator and now chairman of the Motion Picture Association of America wants Google to stop listing pirated movies. It means filtering, blocking and only listing material from legitimate sources – a form of editorial control. It is ludicrous that anyone still believes Google is not a listings publisher.
Whatever you do believe, you cannot avoid the conclusion that the costs of these legal proceedings will escalate rapidly for any company operating an internet platform. The lawyer's bills will mount and insurance premiums will soon start to rise. Of course, you may still think the First Amendment and the libertarian lobby will protect Twitter and Google from a publishing black hole. But don't forget that in America, every jury loves an injured plaintiff.
Carl Mortished