Hey!
Meta’s Facebook has rolled out a “paid subscription (ad-free)” or “free (with personalized ads using personal data)” model, which the European Commission has preliminarily deemed may violate the EU’s Digital Markets Act (DMA). If found in violation, this could drastically alter Facebook’s business model and impact most social media platforms.
But is Facebook doomed to lose?
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Regulatory Background
- The EU Digital Markets Act (DMA) came into effect in 2024, a regulation aimed at preventing large companies from abusing market power and promoting competition. Platforms designated as significant by the EU must follow specific obligations (e.g., not limiting consumer choice, not technically favoring their own products, etc.).
- Violations can result in fines of up to 10% of a company’s global revenue, or up to 20% for repeated and severe violations.
- Regarding how large companies leverage market dominance to create unfair conditions, refer to the previous newsletter, where Apple used various technical biases to bolster its ecosystem.
The European Commission’s Stance on Facebook’s Binary Choice
- In April 2024, the European Data Protection Board (EDPB) issued an opinion on what constitutes valid consent. It concluded that in most cases, large digital platforms offering only binary options to users can hardly be considered as obtaining valid consent.
- In July 2024, the European Commission stated in a press release that Meta’s Facebook, with its binary choice in the European market—“paid subscription (ad-free)” or “free (with ads, collecting personal data)”—is deemed to violate Article 5(2) of the DMA. The press release highlighted that Meta’s model:
- Does not allow users to choose a service that uses less personal data but is not overall inferior.
- Does not allow users to exercise their right to freely consent to whether their personal data is combined.
Opposing Voices
- Critics, led by Ben Thompson, argue that the EU’s actions directly attack the business model of social platforms, akin to converting private property into public goods. Facebook has traditionally profited by collecting personal data and delivering targeted ads. If required to let users access the platform for free while also allowing them to refuse data usage, Facebook would struggle to serve precise ads, leading to significant operational losses.
- Meta spokesperson Matt Pollard has stated that the paid subscription and free-with-ads model has long been standard across industries.
However, in the EU legal framework, imposing public or social obligations on private property is a well-established practice. The key question is whether these obligations are overly burdensome.
Can Meta and Facebook Remain Optimistic?
- The EU Court Has Ruled That Charging Reasonable Fees Is Acceptable
The EU Court (The CJEU’s Bundeskartellamt decision) ruled on July 4, 2023, regarding Facebook’s data protection issues, opening a door by stating that when users do not consent to data collection, it’s reasonable for social platforms to charge a suitable fee if necessary. - The European Commission’s current decision does not claim that Meta charging users is wrong or an infringement on user freedom. Instead, it frames the violation as users not being able to access an equivalent service when they refuse data usage for personalized ads. The issue isn’t that Meta charges a fee, but what service users can access when they opt out of data usage.
- Neither the European Commission nor the DMA mandates that companies must provide free services if users refuse data usage. Meta still has a chance to avoid violations by offering more options. For example: ad-free membership at €10/month, non-consenting data usage membership at €1/month, and free membership for consenting users. (Whether this approach is feasible requires further research; it’s presented here as a possibility.)
Meta Has Been Fined Billions by the EU—Will Meta Exit the EU?
Meta has been repeatedly fined by EU authorities over personal data and tax issues, essentially becoming a cash cow for regulators. In May last year, the EU issued a record-breaking fine of approximately €1.3 billion to Meta. With the EU continuously targeting Meta, will it exit Europe?
This is highly unlikely. For large social networks, their core value lies in having users, followers, and friends on the platform. Losing EU users would weaken the natural moat of a social network (user base and engagement), potentially driving users to other platforms that can cater to a global audience.
Since Meta cannot exit the EU market, how it responds to the EU’s challenge regarding the “paid subscription (ad-free)” or “free (with ads, collecting data)” model will be quite intriguing.
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