Will content moderation scrutiny weigh on Meta’s share price?

Meta has come under fire from its independent oversight board for failing to moderate content fairly and favouring high-profile users that are likely to generate more revenue. The social media giant is also under pressure to share more of its ad revenue with news publishers.

- Meta is giving preferential treatment to high-profile users who are likely to generate money and keep users engaged

- The US Journalism Competition and Preservation Act could force Meta to share more of its ad revenue with news publishers

- The Global X Social Media ETF is up 7.5% in the past month

The independent oversight board at Meta [META] has called for an overhaul of its cross-check moderation programme.

Moderation of social media content has been in the spotlight since Elon Musk completed his Twitter takeover in late October. In response to Musk tweeting that “Twitter will be forming a content moderation council with widely diverse viewpoints”, Meta’s independent Oversight Board said it would “welcome the opportunity” to sit down with Twitter and discuss its content moderation plans.

Oversight Board, which keeps tabs on moderation across Meta’s platforms including Facebook and Instagram, published a report earlier this month in which it criticised the way the company’s system is designed to favour high-profile users. Those whose posts are suspected to have broken rules are eligible for extra reviews, while some content may not be moderated for hate speech, misinformation, nudity or violence at all.

The release of Oversight Board’s report on 6 December was followed by a 6.8% drop in the Meta share price, which is down 65.9% year-to-date through 12 December, but up 1.5% in the past month.

High-profile users are key to user engagement

The Oversight Board’s report pointed out users discussed a category of users referred to as “business partners”, which according to Meta include “health organisations, news publishers, entertainers, musicians, artists, creators and charitable organisations” with “dedicated points of contact at Meta”. According to the Board, this category of users “are likely to generate money for the company, either through formal business relationships or because they draw users to the platform and keep them engaged there”.

Engagement is critical to Meta’s revenue. While daily active users edged up from 2.81 billion in the third quarter (Q3) of 2021 to 2.93 billion in Q3 2022, average revenue per user (ARPU) has been under pressure. Worldwide, ARPU was $9.41 in the three months to the end of September, down from $10 in Q3 2021. In the US, ARPU slipped from $52.34 to $49.13 over the same period, while ARPU in Europe fell from $16.50 to $14.23.

The US and Canada region is Meta’s most lucrative market. According to the report, “users in lucrative markets with heightened risk of public relations implications for Meta enjoy greater entitlement to protection for their content and expression than those elsewhere”.

Social media news publishing faces fresh challenge

Ensuring that users remain active and engaged on Meta’s various platforms is critical for the company at a time when its bottom line is under pressure due to Mark Zuckerberg’s commitment to lead the building of the metaverse.

Meta’s business model, along with that of Alphabet [GOOGL], currently faces another challenge: the Journalism Competition and Preservation Act. The US legislation, which has bipartisan support, would compel Facebook and other social media platforms to negotiate licensing deals with publishers, broadcasters and news outlets.

While the proposed legislation has drawn criticism on all sides, a similar law introduced in Australia last year has reportedly resulted in the social media giants paying out over A$200m to news companies. Meta has threatened to pull news from appearing in the Facebook feeds of US users if the Journalism Competition and Preservation Act passes.

A letter signed by Public Knowledge, Common Cause, Free Press Action and Wikimedia in February says that the legislation would effectively be “allowing a news media cartel by statute,” and that “news giants with the greatest leverage would dominate the negotiations and small outlets with diverse or dissenting voices would be unheard if not hurt.”

ETFs in focus

Meta is currently the second-largest holding in the Global X Social Media [SOCL], with a weighting of 8.48% as of 9 December. The fund is down 42% year-to-date, but up 7.5% in the past month.

It’s also the fifth-biggest holding in the Global X Metaverse ETF [VR], with a weighting of 6.10%. The fund is down 21.3% since launching this year on 26 April, and flat over the past month.

The stock is the third-biggest holding in the iShares Global Comm Services ETF [IXP], with a weighting of 8.40% as of 9 December. The fund is down 31.5% year-to-date, and up 1.5% in the past month.