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Investors are staying on the sidelines amid a broad selloff in tech stocks this year. Shares of Facebook parent Meta have fallen more than 30% this year amid a troubling macro environment and weaker-than-expected results.
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Parent company Facebook Meta was accused by EU regulators on Monday of failing to comply with the bloc's historic antitrust rules over its recently launched ad-supported social networking service.
The European Commission, the EU's executive body, called the ad-supported subscription option a “pay or consent” model — meaning users must either pay to use Meta’s platforms ad-free, or consent to have their data processed for personalized ads. The service launched for Facebook and Instagram in Europe last year.
“According to the Commission’s preliminary assessment, this binary choice 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,” the regulators said in a statement on Monday.
A Meta spokesperson told CNBC in a statement that the ad-supported subscription model “is consistent with the guidelines 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,” the spokesperson said.
Meta introduced the new model in response to a ruling last year by the European Court of Justice, the EU's highest court, that allowed a company to offer an “alternative” version of its service that doesn't rely on data collection for advertising.
Meta has previously referred to this statement as a reason for introducing the subscription offering.
The commission said in a statement Monday that Meta's ad-supported offering did not comply with the DMA for two main reasons. First, it does not give users the option to opt into a service that uses less personal data but is still equivalent to the service based on “personalized ads.”
Regulators said users should still have the right to “access to an equivalent service that uses less personal data, in this case for the personalization of ads.”
The other reason cited by the European Union is that the ad-supported Meta Service does not allow users to exercise their right to “freely give consent” to the use of their personal data to target them with online advertising.
There are huge fines at stake
The EU’s Digital Markets Act, or DMA, officially came into effect in March this year. The law aims to crack down on anti-competitive practices by big digital companies and force them to open up some of their services to rivals.
Companies can potentially face huge fines under the DMA, potentially paying as much as 10% of their annual global turnover. For repeated violations, that figure can rise to 20%.
If the commission finds in its final findings that Meta violated the DMA, the company could face a fine of as much as $13.4 billion, based on the company’s 2023 annual profit figures.
Now that Meta has received the EU's preliminary findings, she has the opportunity to defend herself in writing.
The commission's investigation, which was launched in March alongside two other probes into tech giants Apple and Alphabet, will be completed within 12 months of the start of the procedure.