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%.