Meta Platforms has agreed to a major settlement with almost all U.S. states for claims that Facebook and Instagram were intentionally engineered to be addictive for children and teens. The deal, which will cost the firm up to $18 billion over 10 years, is one of the highest payouts from a tech firm. However, the reason might be that even with the scale of the figure, the deal does not seem to have the potential to rattle Meta’s hugely profitable business model, especially its automated feeds and ad-driven offerings.
As part of the deal, Meta will put in place more limitations on teen use of Facebook and Instagram and pay up to $18 billion over 10 years. The company has not pled guilty to misconduct in the settlement. The result resolves an important case for Meta without requiring the company to go through a possible trial with the possibility of releasing more details regarding how it treats minors.
The financial repercussions also seem not that serious given the overall revenue of Meta. The company last year made over $60 billion in profit, so even this settlement would be paid out over 10 years. But from the investor’s point of view, there’s not much in the agreement that strikes them as a serious threat to Meta’s financial stability, much less a significant liability.
The important thing is what the settlement does NOT change. Meta’s custom recommendation and targeted advertising functions are mostly intact. They are the backbone of Facebook and Instagram’s business, ensuring the company continues to keep users on its sites, and enabling advertisers to access highly targeted audiences. The deal introduces new limits on teens using the platform, but it is not designed to end the operations of the major revenue-generators for Meta’s ad business.
That’s one reason why financial markets haven’t reacted as intensely. Also the announcement of the settlement sent a positive message to investors as their shares jumped by about 1% after the news, implying that people preferred the deal over going to court for a long time. The states reportedly had been asking for penalties of about $1.4 trillion, which would have been an unusual financial challenge for the company. That potential exposure is not as clear of a financial route for Meta as an agreement that lasts for ten years.
The settlement also lifts a significant regulatory hurdle that had been looming over Meta. A trial could have gone on for years, and it’s possible that more internal documents and communications regarding the company’s targeting of younger audiences could have come into light. The potential savings in the final cost may not be the only important factors for Meta in avoiding that process.
The company had already been anticipating a bad verdict. Instagram CEO Adam Mosseri spoke with attorneys general from state governments a month prior to the deal. At that time, Mosseri said that Meta would be appealing a negative decision; the firm has done so after a different child safety lawsuit in New Mexico led to a $1 billion judgment. Meanwhile, Meta has indicated that it would be happy to make positive adjustments to its platforms if a deal could be made.
One of the more complex questions raised by the controversy is about Section 230, which is a decades-old U.S. law that usually shields online service providers from liability for posts by their users. The states were able to thwart Meta’s bid to have the case dismissed on those grounds, but if the case had been appealed there would have been another challenge to overcome. Going with that uncertainty was the resolution of settling, and that was avoided by Meta.
Mary Graw, a law professor at the Catholic University of America, said the settlement was a “business calculation.” “This is a business decision — it will cost them more to complete the trial and lose, than pay just over $1 billion per year for 10 years. Meta could use the settlement as part of its political gambit, Graw also suggested. “Plus, they will surely continue this way to lobby against any real regulation that Congress is considering, she added.
The deal follows increased pressure on Meta from multiple sources. The company has been sued in various countries for knowingly promoting addictive behavior among children and exacerbating an overall crisis of mental health among youth. In recent years, there has also been some attention focused on the issue of sexual advances made by children towards AI chatbots linked to Meta. These conflictions have led to the company’s youth safety becoming more serious than in the past.
Investor interest also picked up after Meta earlier this year issued a warning that it could see a “financial impact” from a rising backlash against social media among young people. There are countries where restrictions on children’s access to social media have already been in place or are being proposed. Creators of social media platforms, for instance, are debating whether they should hold more responsibility for keeping children safe, as Australia has taken steps to place tougher restrictions on underage users.
One of the more serious aspects of the settlement is the likely impact it will have on the competition of Meta. The remainder of the payout, as well as some of the stricter terms for the under 18 age group, will kick in once the other platforms agree to the same terms and payouts.
It could put pressure on companies like TikTok, YouTube and Snapchat on that structure. The deal doesn’t just leave restrictions limited to Meta, it actually provides an incentive for states to consider similar deals with other big tech firms. The surprising situation, in the view of the professors, comes down to this, says Eric Goldman, a professor at Santa Clara University School of Law: “The move brings Meta and the state attorneys general together as a coalition against Meta’s rivals.” “It’s hard to believe that Meta’s rivals are pleased with its steps,” he added.Meta Platforms has agreed to a major settlement with almost all U.S. states for claims that Facebook and Instagram were intentionally engineered to be addictive for children and teens. The deal, which will cost the firm up to $18 billion over 10 years, is one of the highest payouts from a tech firm. However, the reason might be that even with the scale of the figure, the deal does not seem to have the potential to rattle Meta’s hugely profitable business model, especially its automated feeds and ad-driven offerings.
As part of the deal, Meta will put in place more limitations on teen use of Facebook and Instagram and pay up to $18 billion over 10 years. The company has not pled guilty to misconduct in the settlement. The result resolves an important case for Meta without requiring the company to go through a possible trial with the possibility of releasing more details regarding how it treats minors.
The financial repercussions also seem not that serious given the overall revenue of Meta. The company last year made over $60 billion in profit, so even this settlement would be paid out over 10 years. But from the investor’s point of view, there’s not much in the agreement that strikes them as a serious threat to Meta’s financial stability, much less a significant liability.
The important thing is what the settlement does NOT change. Meta’s custom recommendation and targeted advertising functions are mostly intact. They are the backbone of Facebook and Instagram’s business, ensuring the company continues to keep users on its sites, and enabling advertisers to access highly targeted audiences. The deal introduces new limits on teens using the platform, but it is not designed to end the operations of the major revenue-generators for Meta’s ad business.
That’s one reason why financial markets haven’t reacted as intensely. Also the announcement of the settlement sent a positive message to investors as their shares jumped by about 1% after the news, implying that people preferred the deal over going to court for a long time. The states reportedly had been asking for penalties of about $1.4 trillion, which would have been an unusual financial challenge for the company. That potential exposure is not as clear of a financial route for Meta as an agreement that lasts for ten years.
