Impact of the EU Digital Markets Act on Meta Platforms

Investments
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EU fines on Meta Platforms could go as high as $1 billion, the New York Post reported

  • The European Union is expected to slap Meta with a fine that could be as high as more than $1 billion for breaching the digital markets act (DMA), the New York Post reported citing people familiar with the matter.
  • The investigation into Meta is expected to be concluded this week, with enforcement action coming immediately.
  • Earlier this month, Reuters reported that Meta could receive lighter fines over its “Pay or Consent” model.
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EU Commission fines Meta $200 million for breaching DMA, far less than stipulated by the act, says they are examining the new model

  • European Commission fined Meta €200 million for breaching the Digital Markets Act (DMA).

  • The Commission said it found Meta’s “consent or pay” model to be not compliant with DMA.

  • The fine relates to the time (March-November 2024) when Meta offered “consent or pay” model to its European users.

  • The Commission is currently assessing whether Meta’s new model-introduced in November 2024 is compliant with the DMA.

  • The Commission also excluded Facebook Messenger from the designation under the DMA.

  • The DMA gives regulators the right to impose fines of up to 10% of the firm’s global turnover.

  • Joel Kaplan, Meta’s chief global affairs officer said they would likely appeal the decision, adding that the Commission is forcing them to change their business model, a move that could amounts to a “multibillion-dollar tariff”.

    “The commission forcing us to change our business model effectively imposes a multibillion-dollar tariff on Meta while requiring us to offer an inferior service,” said

Assessment
The fine imposed on Meta is far much lower than that stipulated by the DMA. Perhaps this is an attempt to avoid provoking Trump as trade negotiations continue. However, based on the comments from the EU Commissioner, it looks like the case is not over yet. Similarly, comments from Kaplan indicates that the EU requirements could have significant impact on the business if a cease-and-desist order is imposed on the new model.

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What do you mean with the latest sentence? Can you remind me what you think overall about this case, it’s risks scenarios and probabilities for them? Are today’s developments good or negative?
Maybe we should split topics to have one topic per regulatory case to make it easier to have a good overview and scroll back to previous relevant developments.

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Regulatory Context and Meta’s Subscription Model in the EU

The EU Commission is using the DMA to argue that users in the EU have a right to choose whether to view ads or not. Meta introduced “consent or pay” model to gather for this requirement. Users who do not wish to see ads will have to pay a subscription fee of around €9.99 per month for web users and 12.99 euros per month for iOS and Android users. The Commission found this model to be non-compliant with the DMA, saying it did not give users “a specific choice to opt for a service that uses less of their personal data” and is equivalent to “‘personalized ads’ service”. It also said the model did not give users the right to freely consent for the combination of their personal data. As a result, Meta introduced a new model that gives users additional new choice to use Instagram and Facebook for free with less personalized data. Meta also significantly reduced the price of subscription for no ads by €4. Meta said it “expect that most people will choose our personalized ads service even with these expanded options.”

Lobby groups had contested Meta’s subscription fee saying it was significantly higher than the ARPU. For instance, NOYB criticized the subscription fee, saying it was 124% higher than the ARPU, which they said stood at €5.24 per month between Q3 2022 and Q3 2023. Expert’s said the higher fee was likely to prevent affluent and highly engaged users (users who are valuable to advertisers) from shifting to the subscription model since this will reduce the advertising revenue.

Impact Assessment and Regulatory Outlook

Today’s announcement is positive news, as the fine imposed on Meta was relatively modest. Citing people familiar with the matter, The New York Times had reported that the Commission was likely to impose a $1 billion fine on Meta Platforms for breaching the DMA. However, Reuters had also reported that the Commission was considering reducing fines for Meta and other tech firms due to ongoing trade tensions. Today’s outcome appears to confirm the Reuters report.

In Q4 2023 (page 70), Meta’s average revenue per user (ARPU) in Europe was €23.14 (€7.71 per month), hence the current average subscription fee ( €7.32 per month) is now slightly less than the Q4 2024 ARPU. However, considering 20% average VAT fee, the subscription fee is now around €2 per month less than the ARPU.

Given that there is now a free model with less personalized ads- which is likely to appeal more to users than the subscription model- and that management did not include the impact of the new subscription offering in its Q2 2025 guidance, I think the headwind from the DMA is low (confidence level: 60%). I estimate the headwind from switching to the subscription model to be low as well (Weighted headwind: €850 million, Best case: €455 million) in 2025. However, if the EU Commission were to require Meta to lower the subscription fee further, the revenue headwind would increase significantly. Insights into user preferences between the subscription model and the ad-supported model will help strengthen my confidence level.

Given that the current subscription fee is already below Meta’s average revenue per user (ARPU), the need to appease the U.S. in tariff negotiations, and the fact that EU courts allow platforms like Meta to charge a ‘reasonable fee’ for an ad-free experience, I believe the probability that the Commission will accept the revised model is relatively high- perhaps around 70%.

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Hmm i was actually not looking for an extensive overview like this, as i remembered the details of the case but rather an explanation what you mean with the last sentence

Similarly, comments from Kaplan indicates that the EU requirements could have significant impact on the business if a cease-and-desist order is imposed on the new model.

as well as an impact estimate, which you provided.

Do you think this impact estimate needs to be updated given the warning in Meta’s Q1 2025 results? In your post above you also quoted Joel Kaplan that a change in business model could amount to a “multibillion-dollar tariff”.
Given that the decision might actually have been quite negative for Meta regardless of the small initial fine?

In addition, we continue to monitor an active regulatory landscape, including legal and regulatory headwinds in the EU and the U.S. that could significantly impact our business and our financial results. The European Commission (EC) recently announced its decision that our subscription for no ads model is not compliant with the Digital Markets Act (DMA). Based on feedback from the EC in connection with the DMA, we expect we will need to make some modifications to our model, which could result in a materially worse user experience for European users and a significant impact to our European business and revenue as early as the third quarter of 2025. We will appeal the EC’s DMA decision but any modifications to our model may be imposed before or during the appeal process.

Note: I saw that you split the topics which is great. In this case it is always good to rename this topic.

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Yes, the impact appears to be higher than my estimate. I never fully trusted Kaplan’s statement given his role in the company is to play politics and Meta had said they still expect many of its users to use the ad supported model. But now that they are pegging it into the guidance raises the financial risk. Hopefully, the company will provide more clarity during the earnings call.

This topic still has unrelated topics, so I am thinking of moving the DMA topic to its own topic.

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A quick GPT search appears to confirm how high the risk is.

What does the eus commision decision mean for metas business model? What do they need to change?

The European Commission’s decision regarding Meta (Facebook and Instagram) under the Digital Markets Act (DMA) has significant implications for its business model, particularly its ad targeting, data combination practices, and user consent mechanisms. Here’s a breakdown of what it means and what Meta needs to change:

:white_check_mark: What the EU Commission Decision Means

  1. Unlawful Combination of Personal Data Across Services:

    • The EU found that Meta’s practice of combining user data from Facebook, Instagram, WhatsApp, and third parties without proper consent violates the DMA.
    • Users were not truly given a choice to say “no” without negative consequences.

  2. Gatekeeper Obligations Under the DMA:

    • Meta is a “gatekeeper” under the DMA and must allow users to use its services without being forced to consent to data tracking across services.
    • Any consent must be freely given, specific, and informed – not bundled with access to the platform.

  3. Ad Personalization Must Be Optional:

    • Users must be able to use Facebook or Instagram without being tracked for behavioral advertising.
    • Meta’s “pay or consent” model (i.e. subscribe to avoid ads) is under scrutiny for not offering a free, ad-supported version that doesn’t rely on personal data.

:wrench: What Meta Needs to Change

  1. Data Consent Model:

    • Meta must redesign how it requests user consent for data collection and ad personalization.
    • It must offer a real opt-out without degrading the user experience or requiring a paid subscription.

  2. Data Separation Across Services:

    • Meta must stop automatically linking user data across its platforms unless a user explicitly agrees.
    • For example, Instagram data can’t be used to target ads on Facebook without separate, explicit user consent.

  3. Ad Targeting Practices:

    • Meta must provide an ad-supported version that uses only contextual data (e.g., post content, not personal history or cross-platform behavior).
    • Behavioral advertising based on detailed profiling is only allowed with full user opt-in.

  4. Transparency and Controls:

    • Meta will need to improve its user-facing tools to give people clearer choices and better control over what data is collected and how it’s used.

:boom: Business Model Impact

  • Core ad revenue at risk: Meta’s ad business relies heavily on behavioral targeting, which will be limited without consent.
  • User engagement tradeoffs: If users opt out of tracking or refuse to pay, ad performance and monetization could decline.
  • Competitive pressure: Smaller or more privacy-focused platforms might gain ground in the EU.
  • Legal compliance costs: Rebuilding systems to comply with the DMA will require significant engineering and legal investment.

Would you like a visual summary or timeline of these changes and deadlines for compliance?

I obvs. don’t need to say that spotting and correctly assessing those kind of risks is the most crucial and essential part as an analyst and i would expect your assessment always to be superior than ai and taken ai assessments into account.

Agreed on moving the DMA topic into it’s own topic

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It’s not like I didn’t considered what AI said or look into the topic in detail.

I don’t necessarily agree with what AI has said in your post because the new model that Meta came up with in November fixed most of those issues. My estimates are based on the November publication by Meta and the EU Commission that said they are examining the new model to see if it fixed their concerns.

My assessment concluded that Meta’s new model largely met the EU Commission’s requirements. The commission had said the old model did not give users “a specific choice to opt for a service that uses less of their personal data” and was equivalent to “‘personalized ads’ service”. However, based on today’s statement, it appears there are new requirements for Meta, which will significantly impact the business. As CFO Susan Li noted, they are having ongoing negotiations with the commission and it’s hard to tell the impact. I mentioned this uncertainty in the Q1 earnings outlook.

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Yeah it is kinda strange/stands out that Meta is saying with such a clarity that they expect to need make changes to their model as early as Q3 2025, while the EU is still assessing the newest model (with less advertising) introduced in November 2024.

Are there any additional insights, reports etc. that the EU will reject the current model with less advertising and Meta needs to make more drastic changes?

As always I would be looking for a full analysis of the matter incl. potential impacts coming from it to our valuation model to have a way to think more clearly about how Meta is developing.

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Based on comments from activists groups and legal experts, I now believe there is a high probability (maybe 70%) that the European Commission will reject the less personalized ads or ask for another option. Legal scholars note that the Commission is leaning heavily on the EDPB’s strict interpretation of “consent or pay” under the GDPR. GDPR states that consent must be given voluntarily and that this sense of voluntariness may be undermined if users are only given a choice between accepting data processing or paying a fee, without being offered a genuinely free option that avoids such data use. The less personalized ads misses this mark.

Alba Ribera Martínez, a lecturer in competition law, recently wrote that “if the EC is going to take the case with all seriousness and make the EDPB’s reasoning good, there is a great chance that Meta will face further challenges from the enforcer.” Similarly, Max Schrems—founder of NOYB and the litigant behind the landmark Schrems CJEU cases—has described the model as “less illegal,” suggesting the Commission is unlikely to accept it. His assessments tend to precede regulatory action.

Apple’s App Tracking Transparency (ATT) which took effect in 2021 can be used as proxy to model the impact of no personalized ads model on Meta’s revenue since both have some similarities such as causing customer opt-outs.

Meta had said the ATT would lead to an headwind of $10 billion on Meta Platforms. Given the DMA affected region contributes 16% of Meta’s revenue, that would be an headwind of $1.6 billion. However, ATT applied only to Apple users (roughly 40% of users) and only limited third-party data. In contrast, the DMA affects all users and restricts *first-party data—such as user behavior on Facebook and Instagram, making the expected impact materially larger.

Since the alternative to providing personal ads is introducing unskippable ads such as those in YouTube. Given the annoyance factor, many users may prefer personalized ads—especially since most people don’t consciously notice personalization. Therefore, I am giving more weight to the fact that around 30% of Meta users will opt out of the ads, leading to a decline in CPM by around 20%. The impact on CPM is based on estimated impact of Apple ATT on Meta’s CPM in 2022. I estimate this would translate into a weighted revenue headwind of:

  • $3.7 billion in 2025 (2% of total revenue), starting in Q3
  • $8.3 billion in 2026 (4% of projected revenue)

These estimates assume ad volume remains constant—lower CPMs could encourage advertisers to maintain, increase spend or shift spend to other platforms, but this isn’t guaranteed and is difficult to quantify.

Bank of America estimates a 4% ($8.45 billion) revenue hit in 2026, based on a 30% opt-out rate and 40% CPM decline. Goldman Sachs sees a 5–6% impact by 2027 under a 40% opt-out rate and 50% CPM decline.

Given that Meta’s core AI team executes well, as seen during Apple’s ATT, I expect them to come up with workarounds that could offset a large part of the losses from 2026. This is probably why analysts are not giving much attention to the impact of the DMA.

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EU Commission said the changes made by Meta to its November 2024 model are limited and that if it fails to meet the DMA it could face daily fines from June 27, 2025

  • EU Commission warned that Meta could face daily fines if the limited changes it has proposed do not meet the requirements of DMA.

    “The Commission cannot confirm at this stage if these are sufficient to comply with the main parameters of compliance outlined in its non-compliance Decision,” a spokesperson said.

    “With this in mind, we will consider the next steps, including recalling that continuous non-compliance could entail the application of periodic penalty payments running as of 27 June 2025, as indicated in the non-compliance decision.”

  • Meta accused the commission of always changing the goalpost and discriminating against the company, pointing out that the changes they have made comply with the EU rules.

https://www.reuters.com/sustainability/boards-policy-regulation/meta-will-only-make-limited-changes-pay-or-consent-model-eu-says-2025-06-27/

Assessment
Meta said in its Q1 2025 earnings that the changes being championed by the EU Commission will change how they deploy ad-targeting to EU users, significantly impacting earnings from Q3 2025. The statement by the EU Commission signals that they may reject the changes made by Meta in November 2024, making the company to launch a model with no ads so as to comply with the EU rules. I estimated that such severe changes could lead to a $3.8 billion revenue headwind in 2025. Given Meta’s core team execution speed (as seen during Apple ATT) and benefits of AI (e.g. the recently announced ad creation tools), I still think that this is a temporary headwind for Meta.

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Meta is very unlikely to make further changes to its EU pay-or-consent model leading to daily fines of around $22.5 million, Reuters reported

  • Meta is very unlikely to make further changes to its EU pay-or-consent model leading to fines, Reuters reported citing people with direct knowledge of the matter.
  • EU Commission warned last month that Meta could be hit with daily fines since it has made limited changes to the model.
  • Meta reiterates that the model complies with the DMA.
  • Meta faces daily fines of up to 5% of its average daily worldwide turnover (around $22.5 million per day based on 2024 revenue of $164.5 billion).
  • The DMA gives EU Commission the power to impose non-financial measures such as divestiture in cases of repeated infringements.

https://www.reuters.com/sustainability/boards-policy-regulation/meta-wont-tweak-pay-or-consent-model-further-despite-risk-eu-fines-sources-say-2025-07-11/

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EU Commission confirms that Meta’s pay or consent model needs further reworking

  • EU Commission wrote to Meta Platforms last week informing it that its pay or consent needs further reworking, EU executive told Bloomberg.
  • Meta reiterates that the choices it offers EU citizens "goes well beyond” DMA’s requirements.
  • Reuters reported last week that Meta doesn’t plan to make further changes to the model leading to daily fines and in a worst-case scenario non-financial measures such as divestiture.
  • The commission already said last month that the changes made by Meta appear limited.

https://www.bloomberg.com/news/articles/2025-07-15/meta-faces-new-eu-tech-antitrust-clash-after-200-million-fine

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Are your projection based on Metas current model or are they assuming further changes to be implemented by Meta?

I recently got new terms and conditions from Meta in which I could choose less personalized ads with non skip-able ad breaks.
My assumption would be that almost no one would go for this option due to the annoyance factor.

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My projection assumes further changes, possibly a third option that’s completely free from personalized ads but with non-skippable ad breaks.

The terms and conditions you got are for the model launched in November 2024 which the EU Commission is saying it’s still uncompliant with the DMA.

Yeah, probably most people will prefer ads (which they may not even notice) to the non-skippable ad breaks.