Netflix and Meta Sued Over Alleged “Quid Pro Quo” Deal to Neutralize Facebook Watch Video Service

A new class-action lawsuit filed against Netflix and Meta Platforms (formerly Facebook) has sparked controversy over an alleged deal between the two companies to eliminate Facebook Watch as a competitor to Netflix’s streaming service. The lawsuit claims that the companies engaged in a “quid pro quo” arrangement, with Facebook purposely downplaying its video-streaming platform in exchange for Netflix’s advertising dollars and user data. This alleged collusion, which would violate antitrust laws, is said to have reduced consumer choices in the video-streaming market and increased prices for Netflix subscriptions.

The Allegations: According to the lawsuit, which was filed in U.S. District Court for the Northern District of Illinois, Netflix and Meta entered into an agreement that gave Netflix a clear advantage in the increasingly competitive video-streaming market. The lawsuit points to documents from a previous case, Klein v. Meta Platforms, which allegedly show that Facebook (Meta) intentionally “starved” its Watch platform of resources to eliminate it as a competitor to Netflix.

The complaint claims that Netflix CEO Reed Hastings, who was a member of Facebook’s board at the time, and Meta CEO Mark Zuckerberg made a deal that Facebook would scale back its Watch service in exchange for Netflix continuing to share valuable subscriber data and advertising revenue with Facebook. The lawsuit argues that this collaboration undermined competition in the streaming industry by reducing the choices available to consumers and artificially inflating Netflix’s prices.

The Impact on Consumers: The lawsuit claims that Facebook’s decision to cut funding for Facebook Watch, which launched in 2017, was not due to a lack of interest in video content, but rather as part of this supposed anti-competitive agreement. The documents reveal that Facebook drastically reduced its budgets for original content and sports programming, despite the initial investment in acquiring TV rights for popular shows like Buffy the Vampire Slayer and House of Cards, the latter of which was a Netflix original series.

Facebook’s reduction in investments into Watch culminated in the platform eventually abandoning most of its original content by early 2020, signaling the true intention behind Facebook’s actions: to eliminate its streaming service as a direct threat to Netflix.

The plaintiffs argue that by neutralizing Facebook Watch, Netflix was able to increase subscription prices, exploiting the reduced competition. This, according to the lawsuit, has caused consumers to pay more for Netflix’s streaming service than they would have if Facebook had remained a viable competitor in the streaming market.

Advertising Model and Data Sharing: The lawsuit also delves into the business arrangements between the two companies surrounding advertising. It claims that Netflix continued to pay Facebook millions in targeted advertising fees, allegedly using Facebook’s ad platform to promote Netflix’s content. The agreement also reportedly involved Facebook gaining access to valuable user data from Netflix subscribers, which it then used to refine its advertising algorithms.

In exchange for Netflix’s continued ad spend on Facebook and the sharing of data, Facebook supposedly agreed to neutralize Facebook Watch, focusing its efforts on driving Netflix’s growth rather than competing with it in the streaming video market.

This alleged arrangement is described as a “quid pro quo,” in which Netflix benefited from a less competitive streaming landscape, while Facebook enhanced its ad-targeting capabilities by using Netflix's data. The lawsuit further highlights that Netflix increased its annual ad spend on Facebook from $40 million to $150-200 million after Facebook scaled back its investment in Watch.

The Timeline and Downfall of Facebook Watch: Facebook Watch initially gained attention for its acquisition of TV series and original programming, with plans to rival services like Netflix and Hulu. Shows like Buffy the Vampire Slayer and Scandal were initially expected to find a home on Facebook Watch, but the platform’s failure to capture consumer attention led to a sharp decline in its content budget by 2018.

By 2020, Zuckerberg announced that most of Facebook Watch’s original programming would be discontinued. He defended the move by stating that Facebook Watch had always been more about marketing the Facebook platform rather than competing with streaming giants like Netflix. However, the lawsuit argues that the true motive was a strategic decision to prop up Netflix at the expense of Watch’s future.

Legal Implications and Call for Action: The class-action lawsuit claims that this anti-competitive agreement caused significant harm to consumers by limiting the availability of streaming services and raising subscription costs. The plaintiffs are seeking a jury trial and damages on behalf of Netflix subscribers who have been impacted since 2017.

The case could have wide-reaching implications for both companies if found guilty of engaging in anti-competitive behavior. It highlights concerns over the growing concentration of power in the tech and media industries, where large corporations may engage in deals that limit competition and harm consumers.

The Future of Facebook Watch and Netflix: Despite the allegations, both companies have not yet commented on the lawsuit. However, if the claims hold up in court, it could signal a shift in how streaming platforms approach competition and market dominance.

As Netflix faces increasing competition from other services like Amazon Prime, Disney+, and Apple TV+, this lawsuit underscores the importance of fair competition in the streaming industry. The rise of new entrants like HBO Max and Peacock only adds to the competitive pressures Netflix faces, potentially leading to a more diverse and dynamic market if the industry remains free of anti-competitive practices.

Conclusion: This lawsuit shines a light on alleged behind-the-scenes deals between Netflix and Meta, which could reshape the video-streaming landscape. As antitrust concerns continue to mount in the tech world, this case represents a significant challenge to the business practices of two of the world’s largest media companies. It serves as a reminder of the importance of transparency and fair competition in the digital age.