Meta Hit By EU Warning Over Ad-Free Instagram, Facebook

Signage outside Meta headquarters in Menlo Park, California, US, on Thursday, April 20, 2023. Meta Platforms Inc. is set to start cutting jobs across the company as it restructures teams and works toward founder Mark Zuckerbergs goal of greater efficiency this year.

(Bloomberg) -- Meta Platforms Inc. has been slapped with a warning over its subscription model for ad-free services on Instagram and Facebook, risking potentially heavy fines in the European Union's latest attack on Big Tech under tough new rules.

EU regulators announced Monday that the so-called pay-or-consent policy falls foul of the EU's Digital Markets Act, because the new model “forces users to consent to the combination of their personal data,” while not being offered a less personalized version of either Facebook and Instagram.

“Our preliminary view is that Meta's advertising model fails to comply with the Digital Markets Act,” said Margrethe Vestager, the EU's antitrust chief. “We want to empower citizens to be able to take control over their own data and choose a less personalized ads experience.”

The DMA lays out a series of dos or don'ts for some of the world's largest tech platforms. The EU's move is a preliminary step. But eventual fines for breaches can be as high as 10% of global annual revenue, or 20% for repeated violations.

Meta introduced separate, ad-free versions of Facebook and Instagram in November, to ward off growing regulatory pressure over its processing of users' personal data. The company said in a statement that the new model complies with the DMA and that the company looks forward “ to further constructive dialog with the European Commission to bring this investigation to a close.”

Meta shares fell 1.3% at 10:05 a.m. in New York while the Russell 3000 Index Computer Services Subsector advanced.

Under EU rules, Big Tech firms must must seek users' consent for combining their personal data across platform services. If a user refuses such consent, they should have access to a less personalized version. The commission says that the likes of Meta cannot make the use of Facebook or Instagram conditional on users' consent.

The EU regulator's warning comes just a week after it issued a complaint over Apple Inc.'s DMA compliance, telling the iPhone maker that it must allow app developers to steer users to cheaper deals and offers outside of the App Store, in order to step into line with the rules.

As part of the DMA, it's illegal for certain services operated by the likes of Apple, Alphabet Inc.'s Google, Meta, Microsoft Corp., and Amazon.com Inc. to favor their own services over those of rivals. They are barred from combining personal data across their different services, prohibited from using data they collect from third-party merchants to compete against them, and have to allow users to download apps from rivals platforms.

(Updates with shares in sixth paragraph)

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