BRUSSELS — The European Union opened formal proceedings against Meta Platforms and TikTok over features deemed to foster addictive design in children, creating immediate compliance risks for social media companies operating in the 27-nation bloc.
Regulators will investigate algorithms, notification systems and rabbit hole content features that keep young users engaged for extended periods under the Digital Services Act. The probe targets Instagram's substantial under-18 user base, raising direct threats to Meta's European advertising revenue.
Meta stock traded at $598.86, down 1.8 percent, as investors weighed potential compliance costs and reduced engagement. The regulatory pressure could impact Meta's advertising revenue streams tied to younger audiences across the EU, where the company generated approximately $45 billion in 2023 revenue.
The action sets precedent for broader sector scrutiny. Alphabet's YouTube could face similar regulatory challenges given its extensive content for children, though the platform was not named in initial EU proceedings. The regulatory sentiment against addictive design creates risk for the entire social media sector.
Non-compliance fines can reach up to 6 percent of global annual turnover under the DSA — potentially $7.6 billion for Meta based on 2023 revenue. Mandatory design changes could reduce user engagement, directly impacting advertising impressions and revenue. Social media companies will need to invest in redesigning user interfaces and algorithms to meet new standards.
The European Commission expects initial responses and proposed corrective actions within coming months. We expect preliminary findings and potential remedies by late third quarter, shaping future product development and monetization strategies for platforms operating in Europe.
