Big Tech-EU Regulatory Battle Is ‘A New Chapter in an Old Movie’

Meta Platforms (META) is under fire from EU regulators who say 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 for use in targeted ads. Tommaso Valletti, professor of economics at Imperial College Business School, joins Catalysts to discuss the regulation of Big Tech in the EU.

Valletti notes that the European Commission has tried to use antitrust rules to curb the market power of some big tech companies. But that approach has been slow to take hold, so they’ve decided to regulate companies under the Digital Markets Act (DMA), a new policy aimed at cracking down on companies identified as “gatekeepers.” Meta has been identified by the Commission as a “gatekeeper” and could face fines for violating the Digital Markets Act in its advertising model.

Companies charged under the Digital Markets Act could respond, which would open up a regulatory dialogue. Valletti says: “I suspect the stakes are so high because the European Commission’s philosophy is that they want some of the big tech companies to change their business model. In the case of Meta, it’s about collecting data. In the case of Apple (AAPL), they have an ecosystem that’s completely closed and they want to disrupt it. But these companies are making so much money that it’s better for them to fight it legally than to change their business model.”

He explains that the penalties for violating the act are more of a “slap on the wrist” compared to the revenues generated by such major tech companies as Apple, Meta, and Alphabet (GOOG, GOOGL):

“These fines don’t help at all if you want to change certain behaviour. You have to impose higher fines than the DMA is allowed to impose up to 10% of global turnover. They would actually be fines that hurt more. But then you have to go through the courts to see whether that happens or not. What’s more important to me is not that the fines are imposed, but that the behaviour of companies changes immediately, because you don’t want to fine people when they’re speeding. You want people to start slowing down.”

For more expert opinions and the latest market news, click here to watch the full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcription

Big tech companies are once again in the EU’s crosshairs. Meta has become the latest company to come under fire from regulators who say it uses a subscription model, a pay-for-content scheme that requires users to choose between paying a fee or giving Meta more personal data that is used to target ads.

The story continues

Join us to discuss not only my situation in the EU, but also other big tech companies that have been targeted.

We have Tomaso, professor of economics and business school.

He is also a former Chief Economist for Competition at the European Commission.

So thank you very much for being here with us.

So tell me what you think about the EU’s strategy in terms of targeting several big tech companies at once, especially given that we’ve seen this video before.

This is already a recurring theme in the EU. I wonder what you think of their strategy on this, given your experience in the EU.

So as you said, there is an old movie, but within the old movie there is a new chapter.

The European Commission has for many years tried to use antitrust rules to restrict the market power of certain dominant companies that abused their position.

As you said, I worked in the European Commission for several years.

And then I joined the group of people holding an academic position.

Well, it didn’t work.

So cases took too long to process.

The Google shopping case lasted seven years. As a result of the dissatisfaction with this approach, they decided to regulate some companies, appoint them as gatekeepers and passed a new law.

What you’re seeing now are cases being brought under the new law called the D MA, Digital Markets Act.

As expected, this bill was passed in March after a long discussion and here we see its first results.

So you see positives and negatives, depending on whether you’re pro-enforcement or anti-enforcement.

So at least the speed of intervention is a good aspect.

This case dates back to early March, and now, at the end of July, the European Commission has already presented its preliminary position.

So compared to Google Shopping, let’s say it took seven years.

In my opinion this is some progress, the disadvantage is that European legislation was supposed to be self-executing.

So the language, the legal jargon, should be clear enough about what companies can and cannot do that they can do it themselves.

And people believe it for a while.

But we now see that this was in some ways a pipe dream, as the companies actually claim that they complied with the spirit and letter of the law, and the European Commission says that’s out of the question.

What you are proposing now is illegal.

In short, we will witness a long legal battle again, right?

So this is my next question.

What’s next?

So the idea that there could be a regulatory dialogue is, by the way, just an interim arrangement that would allow companies to respond.

They can conduct such a regulatory dialogue.

I suspect the stakes are so high because the philosophy of the European Commission is that it would like some companies, some big tech companies, to change their business model.

When it comes to metadata, it’s about Apple collecting data.

They have an ecosystem that’s completely closed, and they want to, you know, revolutionize it.

However, companies make so much money that it is better to fight legally than to change the business model.

Exactly.

And we saw it.

EU regulatory pressure has resulted in financial penalties in the past that these companies, which have some of the highest free cash flow in corporate history, are happy to pay and move on.

Given that you were a regulator before, how frustrating is that?

Well, okay.

For example, I personally conducted an economic analysis of three cases against Google.

That was shopping.

This applied to both Android and AdSense.

Ultimately, the European Commission imposed more than $8 billion in fines in these three cases, which is a very large amount for an average citizen.

But Google makes $300 billion a year from advertising, so this is like a slap on the wrist, so these penalties don’t help at all.

If you want to change a certain behavior, you must impose a higher fine.

The DMA has the power to impose a fine equal to 10% of global turnover, so in reality the penalties would be more severe.

But then you have to go to court to find out whether that will happen or not.

For me, what is more important is not imposing fines, but changing the behaviour of companies from the very beginning, because we don’t want anyone to drive too fast.

If you want it, you want people to start slowing down.

If you think that speeding is indeed dangerous, I’d like to change the subject a bit and ask you about this in a video that sources have told Reuters and in a video that is expected to be released in the context of the French antitrust charges: How likely do you think it is that this phenomenon will spread more widely, both in the EU and globally?

Before I answer this question, I don’t have much information because, as I said, there are some rumors going around.

We don’t have the results yet, so first of all, it’s not just about Europe against US companies, because if we take Google into account, there are over 100 different cases going on around the world in 25 different jurisdictions.

OK, so the problem with big tech companies is not just a European problem.

This is something much broader.

Another interesting case of French intervention is that not only the EU Digicom, which is the competition regulator at European level, but also national competition authorities are expressing their position.

So, for example, the first case against Facebook is not the one against Meta, it’s not the one now.

But Germany started this a few years ago, and France is looking at NVIDIA.

So we look at the cloud services market.

We’re looking at, you know, it’s not even the next, next generation.

This is already happening with I.

This market is already highly concentrated, so researchers are looking for places where there are bottlenecks.

Therefore, it makes sense to conduct an investigation.

They have carried out raids, but as I said, I don’t have enough information to give you my take on the substance of the matter because the French authorities haven’t said anything yet, but you certainly have enough information to give us a good idea of ​​how the EU and the regulators view these companies.

And it was a great conversation.

So we really appreciate it.

Thank you very much.

It was Tommaso Valetti.

He is Professor of Economics at Imperial College Business School and previously worked at the European Commission.

Thank you very much.