In this special holiday edition of Five on Friday, we look back at the year’s top subscription stories. We share stories about the chaos at Twitter, increased enforcement by the Federal Trade Commission, and the ups and downs at Netflix. Also, we’ll talk about Epic Games’ record penalty and fine for violating child privacy laws and using dark patterns to trick customers into unplanned purchases and the multitude of layoffs as the economic downturn hits tech companies hard.

Twitter goes full tilt

Elon Musk and Twitter had a wild year, and the fun is just getting started. It all began in March when billionaire and Tesla owner and CEO Elon Musk notified the Securities and Exchange Commission that he bought 9.2% of Twitter stock, making him the social media company’s largest shareholder. Trying to make peace with the news, Twitter asked Musk to join their board of directors. Musk originally said “yes!” to the dress, but changed his mind on April 10. Three days later, the billionaire made a bid to buy Twitter for $44 billion, or $54.20 per share.

“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy. However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company…My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder. Twitter has extraordinary potential. I will unlock it,” Musk wrote.

On April 25, Twitter accepted Musk’s offer and an agreement was made that included a $1 billion termination fee if the deal did not close. Smart business move or foreshadowing? Perhaps both. Musk outlined his plans for Twitter, including less reliance on ad revenue and increase subscription revenue. Two weeks later, key leaders leave Twitter, and on May 13, Musk said the deal was “temporarily on hold” due to a “breach of contract.” Twitter sues Musk, Musk countersues, and the next six months are filled with he-said-they-said accusations and posturing.

Fast forward to October, and Musk acquiesces and agrees to buy Twitter for $44 billion, avoiding a five-day trial scheduled for the week of October 17. Just in time for Halloween, Musk takes over Twitter and immediately fired top executives and announced major layoffs, cutting about half of Twitter’s staff. There have also been issues with the social media platform’s content moderation; failure to launch of changes to Twitter Blue, including pricing; hiring, firing and rehiring; the suspension of journalists; banning free promotion of other social media platforms on Twitter; the loss of top advertisers; and the pièce de résistance, Musk’s poll asking if he should step down as CEO (57.5% said ‘yes’).

One thing is clear – Musk’s machinations aren’t boring. He may be a genius, but he is also impulsive and volatile. He claims to be a proponent of free speech, but his actions say otherwise. While he plays in the Twitter sandbox, competitors like Mastodon, Parler and Tumblr to gain followers as top Twitter users get frustrated.

Epic Games hit with $520 million in penalties

Epic Games got hit with a record $520 million in penalties and refunds from the Federal Trade Commission. Of the $520 million, $275 million is the penalty for violating children’s privacy laws and changing default settings in the popular Fortnight video game, and $245 million is for refunds for using dark patterns to trick users into making unwanted purchases.

The FTC alleging Epic Games collected personal data from children without getting permission from their parents, which violates the Children’s Online Privacy Protection Act (COPPA). After parents requested to have their children’s data deleted, Epic Games made it harder for parents to do so, or even flat out denied the parents’ requests. This fine is the largest ever seen for COPPA to date.

As part of the complaint, Epic Games enabled live on-by-default texting as well as voice communications to users. Through these communication methods, children and teenagers were matched with strangers, and could be potentially harmful to the wellbeing of those affected.

After this record fine and investigation from the FTC, Epic Games must adopt default privacy settings for children and teens that will turn off voice and text communications from the get-go. In addition, Epic Games must delete personal information collected to date that violated COPPA, unless parental consent is provided. Lastly, Epic Games needs to create a comprehensive privacy policy to ensure no further violations slip through the cracks and will be audited regularly by an external firm.

The other part of Epic Games $520 million fine is $245 million, due as refunds for using dark patterns and billing practices. This is the largest refund settlement in a gaming case to date, as well as the largest administrative order in history.

“As our complaints note, Epic used privacy-invasive default settings and deceptive interfaces that tricked Fortnite users, including teenagers and children. Protecting the public, and especially children, from online privacy invasions and dark patterns is a top priority for the Commission, and these enforcement actions make clear to businesses that the FTC is cracking down on these unlawful practices,” FTC Chair Lina M. Khan said of the matter.

The ups and downs of Netflix: a timeline

Netflix was up and down this year, between revenue loss, game studio acquisitions, layoffs and an ad-supported tier. Here’s a timeline:

January:

• After their fourth quarter of 2021 financials were released, Netflix stock took a big hit.

March:

• Netflix acquired game developer Next Games for a cool $72 million. This purchase would allow them to provide games on both Android and iOS systems.
• Login sharers, beware! Netflix announced that they would start charging for shared passwords.
• Netflix once again bet big on their gaming empire with the acquisition of Boss Fight Entertainment. This marked their third gaming studio purchase since they started investing into the gaming realm.

April:

• The company reported slowed growth. At this time, they announced that they would be considering adding in lower priced, ad-supported tiers to allow for their customers to have more choices.

May:

• Investors sued the company for subscriber loss, citing that the company missed subscriber projections as well as dramatically decreased stock value.  
• The company announced that they would be working on a livestreaming feature, which would allow them to host unscripted shows as well as comedy specials.

June:

• Netflix becomes the latest tech company to suffer cutbacks.  In their first round, they laid off 150 full-time workers. In their second round, they laid off 300 staff, which made up about 3% of the company’s workforce.

July:

• Netflix announced they would partner with Microsoft in building out their-ad supported subscription. Microsoft is the exclusive advertising technology and sales partner for the new offering.
• They reported better than expected results for their second quarter of this year. As a result, the company’s stock rose nearly 27%, with investors happy to see a positive swing.

August:

• Disney passed Netflix in subscriber count. The House of Mouse has amassed 221.1 million paid subscribers globally.

October:

• Netflix came back strong in their third quarter, promising a strong content slate and an ad-supported tier. The streaming giant slightly exceeded their own forecast, seeing increases in revenue, operating income and membership.

November:

• The streaming service acquired game developer Spry Fox to help expand their gaming assets.

December:

• Netflix started to refund advertisers after their viewership targets fell short of what was expected. They gave guarantees to advertisers, and they failed to hit their mark. Advertisers will only be paying for the actual viewers they reach.

Tech layoffs

Tech proved that they were not as resilient to an economic headwind as they once thought. Amazon, Meta, Microsoft and Twitter all made headlines this year when it came to layoffs.

Amazon brought the most recent round of layoffs to the table, announcing that they would be laying off 10,000 employees in both the corporate and tech spheres. For those in the tech sector, they would be looking at laying off employees in the devices division, including Alexa. They looked at laying off retail and human resources employees. Their layoffs make up about 3% of their total workforce.

Mirroring that number was Meta, laying off 11,000 employees. However, this number represents a larger chunk of the tech giant’s workforce. Layoffs at Meta represented 13% of the workforce. Meta also said they would look at “significant changes” across the board to help them to save money and operate more efficiently. They will be keeping some teams the same size, shrinking some, and investing in those that need it the most.

Microsoft has also condensed their teams quite a bit, with two layoffs since their initial wave in July. Their July layoffs came as a “strategic realignment.” Divisions affected in this round include consulting and customer service. With their most recent wave, fewer than 1,000 jobs were impacted. Impacted divisions include Xbox, legal, strategic missions and technology, as well as other unnamed teams. As far as workforce impact, this affects 1% of Microsoft’s total global workforce.

FTC steps up enforcement of FTC Act, Section 5

After warning hundreds of companies in late 2021 that they would not tolerate anticompetitive behavior, the Federal Trade Commission stepped up their enforcement this year. In addition to the Epic Games’ settlement noted above, there were other top stories involving subscription companies. Here are a few highlights:

FTC vs. Microsoft – Earlier this month, the FTC sued Microsoft to block their $69 billion all-cash acquisition of Activision Blizzard. The FTC alleges that Microsoft could potentially suppress Xbox competitors as Microsoft makes investments in subscription content and cloud-gaming, a violation of Section 5 of the FTC Act. In the FTC’s December 8, 2022 complaint, the FTC says that Activision is one of the most valuable game developers and the merger would be the largest in video game history. The deal would, in effect, “continue Microsoft’s pattern of taking control of valuable gaming content.” It would impact the gaming console, subscription gaming, and cloud gaming markets.

FTC vs. Google and iHeart Media – Consistent with the FTC’s 2021 warnings, the FTC is suing Google and iHeart Media for airing false testimonials by radio personalities at least 29,000 times. Google asked iHeart Media to promote products, specifically Google’s Pixel 4 phone, that they had not used. Seven states – Arizona, California, George, Illinois, Massachusetts, New York and Texas – also sued the pair of companies. The state judgments totaled $9.4 million.

FTC vs. Vonage – The Federal Trade Commission settled a claim with internet phone provider Vonage for $100 million. The federal agency alleges that Vonage made it easy for individuals and small businesses to sign up for their communication services, including VOIP, but they used “dark patterns” to make cancellation difficult. Vonage billed customers between $5 and $50 per month, automatically charging their credit and debit cards or bank accounts, unless customers took affirmative action to cancel the service by a specified date. The FTC alleges that Vonage’s behavior violated both the FTC Act and ROSCA (Restore Online Shoppers’ Confidence Act). To settle the case, Vonage must pay $100 million to cover customer refunds. They will also be required to implement a simpler cancellation process that is “easy to find, easy to use, and available through multiple channels.”

Meta vs. the FTC – In July 2022, the Federal Trade Commission filed a complaint to block Meta’s proposed merger with Within Unlimited, an independent virtual reality development studio that designed and built Supernatural, a VR fitness app. From the very first day, Meta has spoken out against the action, saying the FTC has gotten the facts and the law wrong. The battle continues, and Meta is fighting back. Meta filed a motion to dismiss the amended complaint in the U.S. District Court of the Northern District of California, San Jose Division. Nikhil Shanbhag, vice president and general counsel of competition and regulatory for Meta, argued against the FTC point for point. His primary argument is that Meta’s accquisition of Within Unlimited would “inject new investment into the VR fitness space, improve the Quest platform to better support all fitness apps and expand the VR ecosystem as a whole – all to the benefit of people and developers alike.”