The European Commission yesterday informed Meta of its preliminary findings that the company’s subscription-based “pay or consent” advertising model fails to comply with the Digital Markets Act (DMA). According to the Commission, Meta’s approach, which offers EU users of Facebook and Instagram a choice between a paid ad-free experience or a free, ad-supported version, does not meet the DMA’s requirements for user consent and data protection.

This ruling comes just a week after the Commission targeted Apple for its App Store policies, highlighting the EU’s rigorous approach to regulating tech giants. The DMA, a key instrument in the EU’s digital policy, aims to prevent large tech companies from using their market dominance to impose unfair terms on users and stifle competition.

The Commission’s investigation highlighted that Meta’s model forces users to either pay a subscription fee or consent to extensive data collection for personalized advertising, without providing an equivalent service that uses less personal data. Under Article 5(2) of the DMA, gatekeepers like Meta must offer an alternative service that does not require users to surrender their personal data for ads.

“Our investigation aims to ensure contestability in markets where gatekeepers like Meta have been accumulating personal data of millions of EU citizens over many years. Our preliminary view is that Meta’s advertising model fails to comply with the Digital Markets Act. And we want to empower citizens to be able to take control over their own data and choose a less personalised ads experience.” – Margrethe Vestager, Executive Vice-President in charge of competition policy

Preliminary Findings and Implications

The Commission’s preliminary view indicates that Meta’s subscription model violates DMA stipulations by:

1. 1. Not allowing users to opt for a service that uses less of their personal data but is otherwise equivalent to the ad-supported version.
   
   
2. Forcing users to consent to data collection as a condition for using the service.

The Commission will finalize its decision within 12 months from the opening of proceedings on March 25, 2024. If Meta is found non-compliant, potential fines could reach up to 10% of its global revenue, approximately $13.5 billion, with increased penalties for repeat offenses.

“Today we make another important step to ensure full compliance with the DMA by Meta. Our preliminary view is that Meta’s ‘Pay or Consent’ business model is in breach of the DMA. The DMA is there to give back to the users the power to decide how their data is used and ensure innovative companies can compete on equal footing with tech giants on data access.” – Thierry Breton, Commissioner for Internal Market

In response to regulatory changes in the EU, Meta has stated that the subscription option aligns with the highest court in Europe’s directions and complies with the DMA. Meta expressed its intent to engage constructively with the Commission to resolve the investigation.

INSIDER TAKE

The EU Commission’s preliminary findings against Meta center on the heart of the issue: Meta’s subscription-based “pay or consent” model. This model was introduced as a solution to regulatory challenges, offering users the option to pay for an ad-free experience or continue using a free version supported by personalized ads. However, the Commission’s stance is that this model fails to provide an equivalent service that respects user privacy by minimizing data usage.

For the subscription industry, this case is particularly significant. It underscores the critical balance between monetizing services and complying with stringent data protection regulations. The potential fines and regulatory scrutiny Meta faces highlight the importance of aligning subscription models with regulatory expectations. Companies operating in the EU and other regions with similar laws must prioritize user consent and data privacy, ensuring that subscription options do not inadvertently force users into unwanted data-sharing agreements.

This situation serves as a reminder that while subscription models can offer flexible revenue streams, they must be carefully designed to comply with evolving legal frameworks, particularly those focused on data protection and user autonomy.