Netflix Sued for Alleged Secret Deal with Meta to Cede Streaming Market.

Meta, formerly known as Facebook, faced significant challenges in its advertising sector, particularly with a slowdown in ad pricing growth due to a lack of sufficient data for its advertising algorithms. To address this issue, Meta launched its own streaming platform, Facebook Watch, in 2017, with plans to invest over $1 billion. The platform secured high-profile deals for original programming, featuring stars like Elizabeth Olsen, Bill Burry, and Catherine Zeta-Jones, alongside premium content aimed at positioning Facebook Watch as a top-tier TV destination. Meta envisioned the service as a valuable source of user data to enhance its targeted advertising capabilities.

Last year, Meta discreetly discontinued its original programming division for the streaming service. A proposed class action lawsuit, submitted in federal court in Illinois on Monday, alleges that the closure of this service is part of an anticompetitive arrangement made by the company to relinquish the video-streaming market to Netflix by undermining Facebook Watch. The lawsuit asserts that, in return, Netflix provided customer data and advertising expenditures to Meta.

In response, Meta refuted the claims, stating, “This suit is baseless, and there is no evidence that any such agreement exists,” according to a company spokesperson. Netflix chose not to provide any comments.

For almost ten years, Meta and Netflix maintained a distinctive relationship, particularly during the tenure of Reed Hastings as Netflix's chief executive, who was also a member of Facebook’s board. Netflix invested hundreds of millions of dollars in advertising and entered into tailored partnerships designed to enhance Meta’s advertising targeting and ranking algorithms, while simultaneously gaining exclusive access to user data from the social media platform, which included insights into users’ private messages.

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However, this collaboration faced challenges due to Meta’s foray into streaming services. At an industry conference in 2017, Hastings suggested the possibility of future competition. “There’s not a big conflict yet,” he said.

The lawsuit alleges that Hastings orchestrated an agreement in the background. In exchange for Facebook limiting its streaming operations, Netflix would provide subscriber information to Facebook and invest substantial amounts in targeted advertising on the social media platform, as stated in the complaint.

“Facebook was willing to kneecap its Watch video service in exchange for extremely valuable consumer data from Netflix as well as Netflix’s dramatic increase in its spending on Facebook advertising,” the lawsuit states.

Until 2019, Hastings served as the head of Facebook’s compensation and governance committee. This association facilitated various data-sharing agreements between the two organizations. Netflix was among three companies granted access to Facebook users’ private messages, which included the capability to read, write, and delete these messages, as well as to view all participants in a conversation. In exchange for this access, Netflix reportedly provided Facebook with detailed reports regarding the videos its users were recommending to their friends, as outlined in the complaint.

In light of a sudden shift in Facebook’s video strategy, the data partnership between Facebook and Netflix reportedly “reached new heights,” with both parties entering into a series of new agreements, as indicated by unsealed court documents related to a class action lawsuit from advertisers against Meta referenced in Monday’s lawsuit. Additionally, Netflix is said to have increased its advertising expenditure on Facebook from approximately $40 million in 2017 to $150 million the following year, coinciding with Facebook's decision to dismantle its original content business.

The lawsuit asserts that the agreement enabled Netflix to raise its prices while solidifying its position as a leader in the streaming industry. The proposed class action aims to represent all individuals who have subscribed to Netflix since 2017 and alleges a breach of Section One of the Sherman Act, an antitrust statute that prohibits trade restraints and permits the recovery of triple damages.

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