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

An investigation conducted by the European Commission 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 reported by the regulator on 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."

Failure to abide by the ex-ante market contestability regulation, which 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, and even 20% for repeat offences.

More saliently, Meta could finally be forced to abandon a business model that demands users agree to surveillance advertising as the entry "price" for using its social networks.

The EU in March opened a formal DMA investigation into Meta's "pay or consent" offer, following months of lobbying from privacy advocacy and consumer protection groups. The groups also argued that a subscription to not see ads does not comply with the bloc's data protection or consumer protection rules either.

Back in March, the Commission said it was concerned Meta's binary choice may not provide "a real alternative" for users who do not consent to its tracking. Meta was essentially asking users to either agree to being tracked so it could continue serving targeted advertising, or fork out almost €13 per month (per account) to access ad-free versions of the services.

The EU's goal with the DMA is to level the playing field by targeting various advantages that gatekeepers can exploit using their dominance.

In Meta's case, the Commission thinks the company's dominant position in social networking lets it extract more data from users to profile them, which gives its ad business an unfair advantage versus its competitors. To reset the dynamic, the EC introduced a requirement in the DMA that gatekeepers must obtain people's permission before they can be tracked for ads.

The regulator's case against Meta contends the adtech giant is failing to provide people with a free and fair choice to deny tracking.

In a briefing with journalists ahead of the announcement, senior Commission officials emphasized that as long as Meta's social networking services are free, the equivalent versions it offers to users who do not wish to consent to 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. Facebook, Instagram and Meta's ads business have been designated as CPS since September 2023, so the company needs users' permission to track and profile their activity and run "personalized" ads.

Users who refuse Meta's tracking have the right to access a less-personalized but equivalent alternative, and the Commission's preliminary view after around three months of investigations is that 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 a statement attributed to a company spokesperson. Meta repeated a defense of the approach by citing an earlier EU court judgment, 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.”

When asked about this defense, senior Commission officials pointed out that 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, 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. The EU pointed out that Meta could offer an alternative service with ads that do not rely on any personal data for targeting — such as contextual advertising.

Meta has never explained why it has not offered users a free, contextual ads option.

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 noted that Meta could still offer a subscription option, but any paid choice would need to be an additional offer (i.e. a third choice) on top of a free equivalent that does not demand users consent to being tracked.

The EU's investigation isn't over yet, and Meta will 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.