Your take is correct. Twitter would be decimated by requiring $4/month to use it, and that might be generous. Could they even get 5-10 million paying subscribers? Probably initially, however the network would erode rapidly and those paying subscribers would drop off.

Someone else would simply step in and fill their shoes with an ad model. The ad model works exceptionally well. Twitter's primary problem is and always has been cost bloat. They should have 30-40% operating income margins; instead it's more like 7%. They have always been very poorly operated and very poorly structured as a business. They did $357m in operating income on $4.8b in sales the last four quarters. When Facebook was that size they had 25-30% operating income margins (while growing very fast), there's no reason Twitter shouldn't be able to at least match that at this stage of their business life (there isn't some great 80% growth surge coming next year that they need to be prepared for, staffing up ahead of time).