An investigation by the European Commission found that Meta’s “pay or agree” offer to Facebook and Instagram users in Europe did not comply with the Digital Markets Block Act (DMA), according to preliminary findings announced by the regulator on Monday.
The commission wrote in a press release that the binary choice offered by Meta “forces users to consent to the combination of their personal data and does not provide them with a less personalized but equivalent version of Meta’s social networks.”
Failure to comply ex-ante with the market competition regulation, which applied to Meta and other so-called “gatekeepers” from March 7, could be extremely costly for the adtech giant. Penalties for confirmed violations can reach up to 10% of global annual turnover and even 20% for repeat offences.
More significantly, Meta may finally be forced to abandon a business model that requires users to agree to tracking advertising as an entry “price” for using its social networks.
The EU in March opened a formal investigation into DMA’s pay-or-take-it deal with Meta after months of lobbying by privacy and consumer protection groups. The groups also argued that the no-ads subscription did not comply with the block’s data protection or consumer protection rules.
In March, the Commission said it was concerned that the Meta binary option may not provide a “genuine alternative” for users who do not agree to follow it. Essentially, Meta asked users to either agree to be tracked so that it could continue serving targeted advertising, or shell out nearly €13 per month (per account) to access ad-free versions of the services.
The EU’s aim with the DMA is to level the playing field by focusing on the various advantages that gatekeepers can exploit through their dominance.
In the case of Meta, the Commission believes that the company’s dominant position in social networks allows it to obtain more data from users in order to profile them, giving its advertising business an unfair advantage over competitors. To reset the dynamic, the EC introduced a requirement in the DMA that gatekeepers must obtain people’s permission before being watched for advertisements.
The regulator’s lawsuit against Meta claims the adtech giant is failing to give people a free and fair choice to opt out of tracking.
In a press briefing ahead of the announcement, senior Commission officials stressed that if Meta’s social networking services are free, then the equivalent version it offers to users who don’t want consent to be tracked must also be free.
The relevant article of the DMA here is Article 5(2), which requires gateway operators to seek users’ consent to combine their personal data between designated Core Platform Services (CPS) and other services. Facebook, Instagram and Meta ads are marked as CPS from September 2023, so the company needs users’ permission to track and profile their activity and run “personalized” ads.
Users who opt out of Meta tracking have the right to access a less personalized but equivalent alternative, and the Commission’s preliminary view after about three months of investigation is that Meta is in breach of this requirement because a paid subscription is not a valid equivalent of free access.
The regulation also stipulates that gatekeepers cannot use the service or certain functions subject to the users’ consent.
Meta spokesman Matthew Pollard responded to the EU findings by sending a statement attributed to a company spokesperson. Meta reiterated its defense of the approach, citing an earlier EU court ruling, writing: “Ad-free subscriptions follow the guidelines of the highest court in Europe and are in line with the DMA. We look forward to further constructive dialogue with the European Commission to bring this investigation to a close.
When asked about this defence, senior Commission officials pointed out that the judgment referred to by Meta included the Court of Justice warning against the suggestion that a paid version of the service could be offered as an alternative to watching ads, stating that only “if necessary” a “reasonable fee” could be charged.
In the DMA context, block enforcers argue that the gatekeeper would therefore have to argue why the fee is necessary. The EU pointed out that Meta could offer an alternative service with advertisements that do not rely on any personal data for targeting – such as contextual advertising.
Meta never explained why it didn’t offer users a free option for contextual ads.
The EU appears to be on track to force Meta to provide a non-binary and privacy safe option in the coming months.
“To ensure compliance with the DMA, users who do not consent should still be able to access an equivalent service that uses less of their personal data, in this case for personalizing advertising,” the Commission said in a press release.
Commission officials noted that Meta may still offer a subscription option, but any paid option would have to be an additional offering (i.e., a third option) beyond a free equivalent that does not require users to consent to tracking.
The EU investigation is not over yet, and Meta will have a chance to formally respond to the preliminary findings. But there’s a limited window in which things can play out: Blok has set a 12-month timeline for completing the probe, suggesting it needs to finish the job by March 2025 or sooner.
BEUC, the European consumer organisation, welcomed the preliminary findings and called on the EU to push for swift enforcement.
“It is good news that the Commission is taking enforcement action under the Digital Markets Act against Meta’s payment or consent model. It is the culmination of complaints against the Meta model for breaches of consumer law and data protection law that have been made by consumer organizations in the past few months. We now urge Meta to comply with laws designed to protect consumers,” BEUC CEO Agustin Reyna said in a statement.