Meta Platforms (META) is under fire by EU regulators who claim the company's ad subscription model is a pay-for-content scheme that requires users to choose between paying a fee or handing over more personal data to use for targeted advertising. Imperial College Business School professor of economics Tommaso Valletti joins Catalysts to discuss Big Tech's regulation issues in the EU.
Valletti notes that the European Commission tried to use antitrust laws to curb the market power of some Big Tech companies. However, that approach moved slowly, so they decided to regulate companies under the Digital Markets Act (DMA), which is a new policy that is designed to target companies identified as "gatekeepers." Meta was identified by the Commission as a "gatekeeper" and could be faced with fines for violating the Digital Markets Act in its advertising model.
Companies charged under the Digital Markets Act may respond, which would kick off a regulatory dialog. Valletti says, "I suspect that the stakes are so high because the philosophy of the European Commission is that they would like some Big Tech companies to change the business model. So in terms of Meta, it's about data collection. In terms of Apple (AAPL), they have an ecosystem which is completely closed and they want to have a revolution there. But these companies are making so much money that for them, it's better to fight on legal grounds instead of changing the business model."
He explains that fines for violating the act are more like a "slap on the wrist" compared to the revenue generation of Big Tech names like Apple, Meta, and Alphabet (GOOG, GOOGL):
"Those fines don't really help at all if you want a certain conduct to be changed. And so you have to impose higher fines that DMA has the power to impose up to 10% of the global turnover. So actually this would be fines that hurt more. But then you have to go through courts to see whether this is going to happen or not. To me, it's more important, not that the fines are imposed, but the behavior of firms changes up-front because you don't want to fine people after they drive too fast. You want people to start slowing down."
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