A European Commission investigation has found that Meta’s ‘pay or consent’ offer to Facebook and Instagram users in Europe does not comply with the bloc’s Digital Markets Act (DMA), according to preliminary findings released by the regulator on Monday reported.
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 with the ex-ante market stability regulations, which have applied to Meta and other so-called “gatekeepers” since March 7, could be extremely costly for the adtech giant. Fines for confirmed violations can reach 10% of global annual turnover, and even 20% for repeat violations.
More importantly, Meta could eventually be forced to abandon a business model that requires users to agree to surveillance ads as an “entry price” for using the social networks.
The EU opened a formal DMA investigation into Meta’s “pay or consent” offering in March, following months of lobbying from privacy advocates and consumer protection groups. The groups also argued that an ad-free subscription also fails to comply with the bloc’s data protection or consumer protection rules.
In March, the Commission said it was concerned that Meta’s binary choice could not provide a “real alternative” for users who do not agree to its tracking. Meta essentially asked users to either agree to be tracked so it could continue serving targeted ads, or spend nearly $13 per month (per account) to access ad-free versions of the services.
The EU’s aim with the DMA is to create a level playing field by targeting the various advantages that gatekeepers can exploit through their dominant position.
In the case of Meta, the Commission believes that the company’s dominant position in social networks allows it to extract more data from users to profile them, giving its advertising business an unfair advantage over its competitors. To reset the dynamic, the EC introduced a requirement in the DMA that gatekeepers obtain people’s consent before they can be tracked for advertising.
The regulator is filing a lawsuit against Meta, claiming the ad tech giant is not offering people a free and fair choice to opt out of tracking.
At a briefing with journalists ahead of the announcement, senior Commission officials stressed that as long as Meta’s social networking services are free, the equivalent versions the company offers to users who opt out of tracking should also be free.
The relevant DMA article here is Article 5(2), which requires gatekeepers to obtain users’ consent to combine their personal data across designated core platform services (CPS) and other services. Facebook, Instagram and Meta’s advertising business have been designated CPS since September 2023, so the company needs users’ consent to track and profile their activity and serve “personalised” ads.
Users who decline Meta’s tracking are entitled to access a less personalized but equivalent alternative, and the Commission’s preliminary position after approximately three months of investigation is that Meta is in breach of this requirement, as a paid subscription is not a valid equivalent of free access .
The regulation also stipulates that gatekeepers may not make a service or certain functionalities dependent on user consent.
Meta spokesperson Matthew Pollard responded to the EU’s findings in a statement attributed to a company spokesperson. Meta reiterated a defense of its approach, citing an earlier ruling by the European court, writing: “The no ads subscription 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 conclude this investigation.”
When asked about this defence, senior Commission officials pointed out that the judgment Meta refers to meant that the Court of Justice expressed a reservation against the suggestion that a paid-for version of a service could be offered as an alternative to ad-tracking, and that an “appropriate fee” should only be charged “where necessary”.
In the DMA context, the bloc’s enforcers say that a gatekeeper would therefore have to argue why a fee is necessary. The EU pointed out that Meta could be provide an alternative service with ads that do not rely on personal data for targeting, such as contextual ads.
Meta has never explained why it doesn’t offer users a free, contextual advertising option.
It looks like the EU will force Meta to offer a non-binary, privacy-safe choice in the coming months.
“To ensure compliance with the DMA, users who do not consent should still be given access to an equivalent service that uses less of their personal data, in this case for advertising personalization,” the Commission said in the press release.
Commission officials noted that Meta could still offer a subscription option, but any paid choice would have to be an additional offering (i.e. a third choice) on top of a free equivalent that does not require users to agree to be tracked.
The EU investigation has not yet been completed and Meta will have the opportunity to formally respond to the preliminary findings. But there is a limited time frame in which things can play out: the bloc has given itself a 12-month timeline to complete the investigation, suggesting it needs to finish the job before or in March 2025.
The European consumer organisation BEUC welcomed the preliminary findings and urged the EU to take swift enforcement action.
“It is good news that the Commission is taking enforcement action under 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 and data protection law, which consumer organisations have filed in recent months. We now urge Meta to comply with laws designed to protect consumers,” Agustin Reyna, Director General of BEUC, said in a statement.