Analysis:Meta's social media settlement leaves its money machine unscathed

Aug 27 : Meta Platforms emerged from its biggest legal challenge in the U.S. with its core business intact.

The social media giant agreed on Wednesday to pay as much as $18 billion over a decade and limit how teenagers use Facebook and Instagram under a sweeping agreement with nearly all U.S. states to resolve claims that it designed those platforms to addict children. Meta denied wrongdoing in agreeing to settle.

While the headline figure is among the largest ever settlements paid by a technology company, it is unlikely to strain a business that earned more than $60 billion last year. The settlement left untouched the personalized feeds and ad targeting that underpin its profits.

Instead, the settlement removes a significant regulatory hurdle that has weighed on Meta's stock and allows the company to avoid a potentially lengthy trial that could have exposed more internal documents about its treatment of young users, according to over a dozen analysts and legal experts.

It also sent Meta's shares about 1 per cent higher, suggesting investors welcomed an outcome that will cost the company far less than the $1.4 trillion in penalties it said the states were seeking before trial.

Roughly a month ago, Instagram head Adam Mosseri had a meeting with representatives of the attorneys generals in which he said Meta would appeal any adverse verdict, as it is already doing following a billion-dollar child safety ruling won by New Mexico, according to people familiar with the matter. 

But Mosseri said Meta was ready to make constructive changes to its platform, assuming it could work out a deal, the sources added, requesting anonymity as the meeting was private.

Hanging over the conversation was uncertainty about Section 230, a longstanding U.S. law that shields web platforms from liability for user-generated content. While the states had survived Meta's bid to dismiss the case on those grounds, they would likely pose a formidable challenge on appeal.

"This is a business decision — it will cost them more to finish the trial and lose than to pay just over $1 billion every year for ten years," said Mary Graw, law professor at the Catholic University of America. "Moreover, they will no doubt use this settlement to further lobby against any meaningful regulation that Congress is contemplating," Graw added.

Pressure had been building on Meta before the settlement.

Beyond a wave of lawsuits globally claiming it knowingly sought to addict children and caused a mental health crisis, Meta has also been under scrutiny over sexualized AI chatbot interactions with ​children. The legal threats, long shrugged off by shareholders, drew fresh attention after Meta warned in April of potential losses from a global youth backlash against social media, including bans seen in countries like Australia.

PRESSURING RIVALS 

Some legal experts said Meta structured the settlement to put pressure on competitors including TikTok, YouTube and Snapchat. 

About 30 per cent of the payout, along with stricter limits on teen usage, become due only if rival platforms accept comparable obligations and payments in settlements of their own.

The move puts "Meta and the state attorney generals on the same side against Meta's competitors," said Eric Goldman,  a professor at Santa Clara University School of Law. "I can't imagine Meta's competitors are thrilled with its moves." 

Alphabet's shares closed down 1.4 per cent, and those of Snap, a social media platform especially popular among teenagers, ended 8.4 per cent lower.  

There were also doubts about the effectiveness of the guardrails Meta will roll out including restrictions on viewing the number of "likes" on a post and its plan to limit usage for children.

Internal tests showed Meta's daily user base would likely fall by around 0.09 per cent if it disabled the like count, according to internal documents made public via leaks and legal discovery.

Still, Meta's legal troubles are not over. Both New Mexico and Florida were not part of the settlement, while the European Commission has threatened to fine Meta after preliminarily finding it in breach of a 2022 content-moderation law. 

"The bellwether trial is over, but Meta's trials are just beginning," said James Grimmelmann, professor of digital and information law at Cornell University.