Hey!

Facebook’s “paid subscription (ad-free)” or “free (personalized ads using personal data)” model under Meta has been preliminarily deemed by the European Commission as potentially violating the EU’s Digital Markets Act. If found in violation, this will cause significant changes to Facebook’s business model and affect most social media platforms.

But is Facebook really destined to lose?

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Regulatory Background

  • The EU Digital Markets Act came into effect in 2024, aiming to prevent large companies from abusing market power and promote competition. Platforms designated as important by the EU must follow a specific task list (including not limiting consumer choice, not technically favoring their own products, etc.).
  • Violations can result in fines of up to 10% of the company’s global turnover, increasing to 20% for repeated and severe violations.
  • For more on how large enterprises can create unequal treatment after gaining market advantage, see the previous newsletter about Apple’s technical favoritism to strengthen its ecosystem.

European Commission’s Stance on Facebook’s Binary Choice

  • In April 2024, the European Data Protection Board issued an opinion on what constitutes effective consent, stating that in most cases, it’s difficult to consider user consent valid when large digital platforms only offer binary options.
  • In July 2024, a European Commission press release suggested that Meta’s Facebook’s binary choice of “paid subscription (ad-free)” or “free (with ads, data collection)” in the European market violates Article 5(2) of the Digital Markets Act. The Commission stated that Meta’s model:
    1. Doesn’t allow users to choose a service that uses less personal data but isn’t overall inferior.
    2. Doesn’t allow users to exercise their right to freely consent to the combination of their personal data.

Opposition Voices

  • Led by Ben Thompson, critics argue that the EU’s move directly attacks social media platforms’ business models, approaching the conversion of private property into public goods. Facebook has always profited by collecting personal data and serving ads. Requiring Facebook to let users use the service for free while allowing them to refuse personal data use would prevent precise ad targeting, leading to significant operational losses.
  • Meta spokesperson Matt Pollard has stated that paid subscriptions and free ad-supported business models have long been used across various industries.

However, in EU law, imposing public and social obligations on private property has been common for years. The key question is whether these public obligations are too strict.

Can Meta and Facebook Still Be Optimistic?

  • The EU Court has recognized charging appropriate fees as reasonable. In its Bundeskartellamt decision on July 4, 2023, regarding Facebook’s personal data protection issues, the Court of Justice of the European Union (CJEU) opened a door, suggesting that it’s reasonable for social platforms to charge appropriate fees when necessary if users don’t consent to data collection.
  • In this decision, the European Commission didn’t state that Meta’s requirement for users to pay is wrong or an infringement on user freedom. Instead, it focused on users not having access to an equivalent service when they don’t consent to data use. So, the key isn’t that Meta can’t charge, but what kind of service users can access when they don’t consent to personalized ads based on their data.
  • Neither the European Commission nor the Digital Markets Act states that companies must provide free services when users don’t consent to data use. Meta still has the opportunity to avoid violations by offering more options. For example, ad-free membership for €10/month, non-consent to data use for €1/month, and free for those who consent to data use. (This proposal needs further research and is presented only as a possibility.)

Meta Has Been Fined Billions of Euros by the EU. Will Meta Exit the EU?

Meta has been treated like an ATM by EU authorities for personal data and tax issues. Last May, the EU even issued a record-breaking fine of about 1.3 billion euros to Meta. Will Meta exit Europe under continuous EU attacks?

This is almost impossible because the most important aspect of large social networks is that friends and followers are on the platform. Losing EU users would weaken the natural moat of social networks (user numbers, engagement), potentially driving users to seek other global social platforms.

Since Meta can’t exit the EU market, its response to the EU’s challenge to the “paid subscription (ad-free)” or “free (with ads, data collection)” business model will be quite interesting.