A proposed class-action lawsuit accuses Meta (formerly Facebook) of deliberately undermining its Facebook Watch streaming service in a secretive agreement with Netflix. The lawsuit filed in the U.S. District Court for the Northern District of Illinois alleges that the two companies conspired to split dominance in their respective markets. Facebook exited the video-streaming competition in exchange for Netflix’s user data and increased ad spend.
Allegations of a Collusive Agreement
The lawsuit claims that shortly after Facebook launched Watch in 2017, offering premium content such as Buffy the Vampire Slayer and House of Cards, Netflix CEO Reed Hastings, who was on Facebook’s board of directors at the time, brokered a deal with Meta CEO Mark Zuckerberg. This agreement purportedly ensured Facebook would “starve” its Watch platform, eliminating it as a competitive threat to Netflix. In return, Netflix allegedly agreed to provide customer data to Meta and increase its advertising expenditure on Facebook.
Court documents suggest that Netflix’s annual ad spend on Facebook jumped from $40 million in 2017 to between $150 million and $200 million by 2019, coinciding with Facebook’s decision to scale back Watch. By 2020, Facebook had largely ceased renewing original programming for Watch, effectively ending its presence in the video-streaming market.
Data Sharing and Targeted Advertising
The lawsuit also details the unique access Netflix allegedly had to Facebook user data. This included the ability to view, write, and delete private messages and access details about participants in message threads. Netflix reportedly provided Facebook with reports on which videos its users recommended to friends. These insights helped Facebook refine its targeted advertising algorithms, enabling Netflix to target users more effectively while boosting Facebook’s ad revenues.
“This model was precisely the kind of targeting that Facebook would have needed to do in order to promote its own Watch product, but instead, it was undertaking the effort to promote Netflix’s streaming product in exchange for user data to supercharge and train its advertising systems,” the lawsuit states.
Impact on Consumers
The lawsuit alleges that this “anticompetitive agreement” reduced consumer choice in video-streaming services and allowed Netflix to raise subscription prices without market resistance. Netflix reportedly increased its prices shortly after the alleged deal was finalized in 2018, benefiting from its cemented dominance in the streaming market.
Facebook Watch’s Decline
Initially touted as a potential competitor to Netflix, Facebook Watch was supported by a $1 billion budget and featured high-profile original content from stars like Elizabeth Olsen, Catherine Zeta-Jones, and Bill Murray. However, by May 2018, Zuckerberg had significantly slashed the platform’s budget, and by 2020, Watch’s original programming was largely abandoned. Publicly, Zuckerberg framed Watch as a marketing initiative rather than a serious competitor to established streaming platforms. However, the lawsuit claims its demise was part of a “quid pro quo” arrangement with Netflix.
Legal Implications
The lawsuit cites violations of Section 1 of the Sherman Act, which prohibits anticompetitive agreements that restrain trade. It has sought to represent all Netflix subscribers since August 2017 and has demanded treble damages. The plaintiffs argue that the alleged collusion inflated Netflix’s prices while preventing competition in the streaming market.
In response, Meta has denied the allegations, stating, “This suit is baseless, and there is no evidence that any such agreement exists.” Netflix has declined to comment.
The lawsuit references documents unsealed in Klein v. Meta Platforms, another antitrust case, which allegedly reveal that Facebook intentionally undermined Watch to strengthen its advertising monopoly. The suit argues that Netflix’s cooperation with Facebook intensified after Watch’s decline, with the two companies entering agreements to enhance targeted advertising models using Netflix content.
If proven, the alleged collusion between Meta and Netflix raises significant concerns about corporate power dynamics in the digital marketplace. The case underscores the potential consequences of backroom deals on consumer choice and pricing, highlighting the importance of transparency and fair competition in the tech and entertainment industries.
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