Meta’s ‘pay or consent’ model fails EU competition rules, Commission finds

Preliminary findings by the European Commission investigating a controversial binary choice Meta has forced on regional users of its social neworks, Facebook and Instagram, since last fall does not comply with the bloc’s Digital Markets Act (DMA).

Failure to abide by the ex ante market contestability regulation, which has applied on Meta and other so called “gatekeepers” since March 7, could be extremely costly for the adtech giant. Penalties for confirmed breaches can reach up to 10% of global annual turnover or 20% for repeat offences.

More saliently, Meta could finally be forced to abandon a privacy hostile business model that demands users to agree to surveillance ads as the entry ‘price’ of its social networking services.

The EU announced the opening of a formal DMA investigation into Meta’s implementation of a “pay or consent” offer to users on March 25 — following months of criticism from privacy advocacy and consumer protection groups who also argue the subscription does not comply with the bloc’s data protection or consumer protection rules either.

Back in March the Commission, which is the sole enforcer of the DMA, said it was concerned the binary choice Meta was offering — whereby users of its social networks were asked to agree to its tracking and profiling of them so it could continue serving microtargeted advertising or else fork out up to almost €13 per month (per account) to access ad-free versions of the services — may not provide “a real alternative” for users who do not consent to it being able to collect and combine their data for ads.

The EU’s goal with the DMA is to level the competitive playing field by targeting various advantages gatekeepers can exploit on account of their dominance — including in the arena of data.

In Meta’s case, a dominant position in social networking translates into an ability to extract more data from web users to profile them — giving its ad unit an unfair advantage vs competitors as the EU sees it. Its tool to reset the dynamic is a requirement in the DMA that gatekeepers obtain people’s permission for ad tracking. Its case against Meta contends the adtech giant is failing to provide people with a free and fair choice to deny tracking.

Reporting its preliminary findings Monday, the Commission wrote in a press release that the binary choice Meta offers “forces users to consent to the combination of their personal data and fails to provide them a less personalised but equivalent version of Meta’s social networks”.

In a briefing with journalists ahead of the announcement, senior Commission officials emphasized that as long as Meta’s social networking services are free for people to access the equivalent versions it offers to users that do not wish to consent to its tracking must also be free.

The relevant DMA article here is Article 5(2) which requires gatekeepers to seek users’ consent for combining their personal data between designated core platform services (CPS) and other services.

Both Meta’s social networks, Facebook and Instagram, and its ads business, have been designated as CPS since September 2023 — meaning the adtech giant needs to ask permission from users to track and profile their activity to run what it refers to as “personalized” ads.

Users who refuse Meta’s tracking have a legal right to access a less personalised but equivalent alternative and the Commission’s preliminary view after around three months of investigating is Meta is breaching this requirement as a paid subscription is not a valid equivalent to free access.

The regulation also stipulates gatekeepers cannot make use of a service or certain functionalities conditional on users’ consent.

Meta spokesman Matthew Pollard responded to the EU’s findings by sending us an emailed a statement, attributed to a company spokesperson. In it Meta repeats a defence of the approach by citing an earlier EU court judgement — writing: “Subscription for no ads follows the direction of the highest court in Europe and complies with the DMA. We look forward to further constructive dialogue with the European Commission to bring this investigation to a close.”

Senior Commission officials were asked about this defence during today’s briefing with press. The EU pointed out the judgement Meta is referring to involved the Court of Justice caveating the suggestion that a paid version of a service may be offered as an alternative to tracking ads — by saying that only “if necessary” could an “appropriate fee” be charged.

In the DMA context, the bloc’s enforcers say a gatekeeper would therefore have to argue why a fee is necessary. And the EU points out that in Meta’s case it could offer an equivalent alternative to a fully consented service that features ads which do not rely on processing any personal data for targeting — such as contextual advertising.

Meta has never explained why it chose not to offer users a free contextual ads option — and instead opted for a binary “pay or consent” demand.

But the EU looks to be on a road to forcing Meta to provide a non binary, privacy-safe choice in the coming months.

“To ensure compliance with the DMA, users who do not consent should still get access to an equivalent service which uses less of their personal data, in this case for the personalisation of advertising,” the Commission noted in the press release.

Commission officials also note that Meta could still offer a subscription option — but they emphasize that any paid choice would need to be an additional offer (i.e. a third choice etc) — i.e. on top of non-paid equivalent that does not demand users consent to its tracking.

The EU’s investigation isn’t over yet. And Meta will now have a chance to respond formally to the preliminary findings. But there’s a limited window for things to play out here: The bloc has set itself a 12 month timeline to complete the probe — which suggests it needs to finish the job by or before March 2025.

BEUC, the European consumer organization, welcomed the preliminary findings, urging the EU to push through to speedy enforcement.

“It’s good news that the Commission is taking enforcement action based on the Digital Markets Act against Meta’s pay-or-consent model. It comes on top of the complaints against Meta’s model for breaches of consumer law and data protection law which consumer organisations have raised in the last few months. We now urge Meta to comply with laws meant to protect consumers,” said Agustin Reyna, BEUC’s director general, in a statement.