Will Meta's $18 Billion Settlement Change Social Media?

0:05This was supposed to be the second week of a landmark trial against the biggest social media company in the world. We have now entered week two of the high profile federal trial against Meta. A judge and jury are being asked to decide if social media is intentionally addictive. The lawsuit brought by a coalition of state attorneys general alleged that Facebook and Instagram have harmed underage users. This story takes us to an Oakland, California courtroom. Testimony is underway and met as federal trial over claims its platforms have harmed youth mental health and also track children in violation of federal law.

0:44So I was planning for my week to look a lot different. Our colleague Megan Bobrowski had been attending the trial. I'm mapping out, like, I'd driven over on Tuesday, and I was like, should I drive again? Should I take public transit? I'm trying to, you know, like, that's where my head was at. But then, yesterday morning, before Megan even left her apartment... It very quickly became, oh, I'm not going to court because Metta has settled this case. And breaking just moments ago, an update on Metta's landmark trial. States that filed the lawsuit and Meta agreeing to settle claims... The settlement includes an$18 billion payout to 48 states, as well as a slate of changes to the way that young people can use Meta's platforms.

1:33Meta did not admit to wrongdoing. It definitely is the most effort that we've seen to date to stop users from building these addictive, perhaps unhealthy habits of just constantly scrolling. Meta is a company that is always looking to grow. And so it's doing something here that is going to inhibit its growth because partially they're being forced to, right? They're sort of being a little bit backed into a corner here. It now marks a new frontier because now they're in this place where they're going to be putting restrictions on their apps that have never existed before. Welcome to The Journal, our show about money, business, and power.

2:19I'm Jessica Mendoza. It's Thursday, August 27th.

2:27Coming up on the show, will Meta's multibillion-dollar settlement change social media?

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4:20Megan, you were in the courtroom in the days before the settlement. How did it look like the case was going for Meta? Yeah, so multiple former Meta employees testified, and the plaintiffs were citing internal documents that Meta knew that it was doing things that were harmful to its underage users. I think it was clear it was not going to be a, like, slam-dunk win for Metta. There was some stuff that was coming out in documents that did not paint Metta in a very favorable or innocent light. It seemed like a strong case for the states. Mark Zuckerberg himself was set to testify. Adam Masseri, the head of Instagram, had already briefly taken the stand.

5:03He had a very calm demeanor. he did make some comments about, you know, sort of wishing that the company had moved quicker on some safety things. And so I thought that's what we were going to be hearing more of on Wednesday when we were back in court. And, you know, Meta settled, and so there's no more court. The settlement comes in the context of thousands of lawsuits that Meta is facing over accusations that it knowingly made its platforms addictive. So why did Metta agree to settle this case? There's been a shift about what their strategy is. Earlier this year, they were taking these things all the way to the end, not settling them when some of their peers were choosing to settle them.

5:50In the spring, juries ruled against Metta in two pivotal trials, one brought by the state of New Mexico and the other in Los Angeles, brought by a person who alleged that Metta's products worsened her mental health problems. The case being argued in Oakland over the past two weeks was a federal trial brought by four state attorneys general. This was a very, very big case. This was bigger than either the L.A. or the New Mexico case. Meta at one point said if they lost, it could cost them more than a trillion dollars, which is close to their entire market cap. So I think for them, and you can see this in court documents, they, you know, felt like the stakes here were really high.

6:32And you also had Meta's CFO, Susan Lee, talking on their earnings call last month saying, you know, we're facing these legal threats that could be material to our business if we lose them. Like, we could face really significant losses here. According to Megan's reporting, Meta had already spent$2.4 billion on legal expenses last quarter. Does Meta's decision to settle show that the company maybe realized that the writing was on the wall? Was it just about cutting their losses? Yes, I mean, there's a lot going on there. As everyone knows, it's no secret. They have these massive, massive AI ambitions.

7:10They're trying to spend all this money to build out data centers to fuel their AI chatbots and their AI models. And they've also made private deals with some private credit firms to fund even more data center expansion. And so this is all kind of happening in the backdrop of Meta potentially having all this legal liability that could threaten their core business and the way their business works. As a key part of the multibillion-dollar payout to the states, Meta is also agreeing to some significant changes to its social media platforms. So for all underage users, so anyone who's under 18, they will have a default two hour a day time limit across Facebook and Instagram.

7:55So after you've hit your time limit, the app will just stop working for the day with the exception of messages. The other thing is the app will go dark overnight from midnight to 6 a.m. And then during the school day from 8 a.m. to 3 p.m., push alerts will be disabled. In addition, Meta has to hide the number of likes and reactions that teens can see on their posts. There's also a new option for teens and parents to turn off algorithmic recommendations. The attorneys general believe that that was part of what led to addictive engagement. A lot of these controls on teen accounts already existed, but they were optional.

8:36Users had to find them and activate them. Under the terms of the settlement, these controls have to be the default, and teens will need a parent supervising the account to change those settings for them. This is, again, this is what's being proposed here, and we will sort of see how this actually shakes out. But, you know, in Meta's world, this is what they're saying they're going to do. There's one more piece of the settlement I wanted to talk about, which is the TikTok and YouTube piece. Yes. Can you explain that? Yes, this is really interesting. I have never seen anything like this before. So Meta signs their agreement.

9:13It's$18 billion, but they won't pay out the full$18 billion unless TikTok and YouTube agree to a default daily one-hour time limit and pay$5.3 billion to these states. If they don't do that, Meta will only pay out, I believe, like$12 billion, not the full$18. In an open letter published yesterday, Metta called on TikTok and YouTube to join them in making changes to their products, saying, quote, We know that when teens are restricted on one app, they simply move to another. Metta added, quote, For meaningful progress to happen, we urge our peers to join us. Do you have a sense of whether TikTok and YouTube are going to sign on to this?

9:57This is the million-dollar question. This is what I've been asking everyone all day. do you know what YouTube and TikTok are going to do? I've reached out to both of those companies. Neither of them have said anything to me about what they intend to do here. Despite mandating all these big changes to Meta's platforms, the settlement is facing criticism. That$18 billion payout, which the settlement says can be paid out over 10 years across the 48 states, doesn't really make a dent in Meta's business. It's not that much. Think about how much money they make in a quarter. They make about$60 billion in a quarter.

10:35Meanwhile, in the New Mexico lawsuit, which went all the way to a verdict, Meadow wound up having to pay nearly a billion dollars. So if you look at it this way, New Mexico, a relatively small state compared to other states in this country, got nearly a billion dollars. That's part of the case. I've heard from people today who were like, New Mexico netted out better here. One state that agrees with the criticism is Florida. In a post on X, the state attorney general called the payouts, quote, peanuts. He added that it's, quote, a slap on the wrist for a trillion-dollar corp that'll pay more to lawyers than to the states.

11:13We'll see them at trial. In their lawsuit, the four states had sought$200 billion in damages. So why settle for$18 billion? The most important part of this case is we are changing. their business practices. We talked to one of the key negotiators of the settlement. When we got the ability to have a settlement with those key protections, I couldn't walk away from that. That's after the break.

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12:22There were four plaintiffs in the federal suit against Metta. California, Kentucky, New Jersey, and Colorado. Can I just ask you for the record to introduce yourself, please? I'm Phil Weiser, Colorado's Attorney General. Phil Weiser co-led the negotiations for the settlement announced yesterday. You went to trial. The trial was in its second week. When did you decide to start negotiating a settlement? This question is more complicated than it might sound because from the very beginning, I said to Meta, and I've said these other companies too, TikTok, for example, Instagram, can you guys do the right thing?

12:57Can you take responsibility? Just let's be clear. They didn't get serious until we had a trial and they were looking at a verdict and they recognized our case was incredibly compelling. We were going to win this trial. Metta said it has been engaging in good faith negotiation with the attorneys general for months. I mean, okay, you said it yourself that you felt like you were going to be winning this trial. You had key witnesses line up, Adam Masseri, Mark Zuckerberg himself. So why did it make sense to settle now? The relief that we got to protect kids is what we were asking for. They gave us the relief that we asked for.

13:35We'll never know what the trial verdict would have been in terms of how much money, because obviously that's a factor. But for us, it wasn't about the money. It was about getting the protections that we wanted. When we got the ability to have a settlement with those key protections, I couldn't walk away from that. So you're saying that the assurance of a settlement was better than the risk of what you may or may not get if you pursued the trial to its end. And I'll put a finer point on it. Let's just say we pursue the trial to its end. We get a mandated set of protections. We get whatever money.

14:05They then appeal. And it could be years before kids get the protections that they so desperately deserve. So not only do we get the set of protections that we believe are necessary and appropriate, we get them right now. Under the terms of the settlement, Meta has to make these product changes in the next six months. And the company is supposed to distribute payments to states over the next decade. Ultimately, we look at$18 billion over 10 years, by the way. It's really not a lot for a company like Meta. So what's to stop Meta from proceeding with business as usual? First and foremost, the mandatory protections are not like an option or a suggestion.

14:48They're a legal requirement. They're entered by the court. We're going to have an independent auditor to ensure that Meta does what they say they're going to do. Number two on the money, just to give you some context here, this is one of the largest consumer protection settlements. the amount of money, or litigated judgments in U.S. history. So this is not a small amount of money. Some of the changes that Meta is being required to make, the limits to screen time and push notifications, are for teenagers between 13 to 18. But the settlement also has provisions for kids under 13. And those rely on what's called age assurance.

15:25That's technology meant to confirm a user's age, like software that tracks use patterns and facial geometry. In the past, Meta has said that age verification is difficult to integrate into its apps. And there have been many examples of kids finding their way around these restrictions.

15:44What is to stop a teenager from just signing up for a regular account? I mean, you said you have an auditor and that's like looking at the Meta side. But from the consumer perspective, you know, a teenager, in the same way that they might ask somebody who's of age to go into a liquor store and buy them some beer, how does that work? for this. Let me start with what Meta had been doing, and this was part of our case. If you're a 12-year-old and 11-year-old, you're not supposed to be able to sign up for Instagram under a law called the Children's Online Privacy Protection Act. The law says parents have to consent to their kids being marketed to by an online platform.

16:22If I were 11 or 12 years old and I put in my actual age to sign up for Instagram, it would say, you can't sign up, put in a valid age. The same exact person, the user who met and knows who that person is at this point, just puts in a different age, say 10 years older, it lets them have an account. The turning a blind eye to minors on the platform was wrong. It was illegal. And we're now going to stop it. But doesn't that sort of rely on kids being honest about their age on the platform? Not at all, because the age assurance technologies can really be highly effective in learning information about kids, whether or not they share it or not.

17:05There's now going to be an affirmative requirement to build and to implement age assurance technology so that as they get evidence that there's someone on the platform who's under 13, they're going to have to say, you can't be on this platform. Metta said the changes it's making will impact millions of parents and teens. This case, Attorney General has drawn some comparisons to the big tobacco settlement in the 90s. I'm sure you've heard that many times. And that settlement struck a pretty big blow to the tobacco industry. Do you see the settlement in the same vein? There are a lot of similarities.

17:41First, and this is one I'm really proud of, this is a bipartisan action. Pretty much every state in the union is part of this litigation and is part of this settlement. A second point that's true, Congress has failed. Congress has been on notice for years that we have a youth mental health crisis. Perhaps now, like what happened in tobacco, by the way, Congress can follow our lead. Meta disagrees with its settlement being compared to the tobacco industry settlement. You know, one thing that made the tobacco win so impactful was the regulation of media and advertising around it. And it changed the culture around tobacco.

18:19Ads that made smoking look cool were outlawed. But in this case, you know, social media is the culture. So how can regulation actually impact what young people do if they still see social media as something that is cool, as something that they want to use, and if they're still allowed to use it ultimately? Jess, I see us having a broader societal challenge. It's very important that Meta and other companies like a TikTok or YouTube do their part and take responsibility. But I will acknowledge your point. That won't be enough. social media has created a cultural problem that will require a fix that will need to include changes of behavior from the online platforms but that won't be sufficient those changes to the culture are going to take leadership from school administrators from parents from communities we need to realize that we are in a hole we have a crisis and it's going to take multiple steps and multiple actors to get out of it.

19:23So what's next, Attorney General? I mean, is this the end of the legal battle with social media companies? No, this is not the end. This is a very significant step. And we have other companies. There's some active litigation involving some of them. There's some investigations. They are now on notice that they can step up. They can do what's right. or our litigation team, our investigation team, will move on and will make sure that one way or the other, we hold them to account. The settlement ended the majority of legal challenges brought against Meta by the states. But the company is still facing thousands of lawsuits from school districts and individuals, including one that goes to trial in October.

20:13Megan, do you think this feels like a new era for social media? Yes, I think it is a new era. I think we've never seen this before. You know, as someone who grew up with social media, it's like, this is very funny. But when I was in middle school, everyone knew if you wanted to get the most amount of likes on your picture, you post it on Sunday evening, because that's when everyone's on Instagram. They're at home, they're like getting ready for the week. And that's like, when everyone's out on Saturday nights, people are out. So you don't post on Instagram then. We have a pre-social media world and a post-social media world.

20:49But what is a social media world where you can't go on social media for more than two hours a day or you can't go on it overnight? Like, what does that look like? And what behaviors is that going to drive? And also, I think the underlying question here, though, is, is any of this even effective? Right. Does any of this even work? Right. We're like, this could just be wishful thinking. Will it even change anything? Exactly. Is nothing going to change? Like, is it the genie's out of the bottle? You can't put it back in now. And people will just always find workarounds now. Certainly, people find ways to have illicit accounts online.

21:25And so the onus is, at that stage, going to be on Meta to continue cracking down on this and figuring out how to keep, specifically, children under 13 off the platform and then make sure children under 18 are using the appropriate accounts that they should be using. And so that's what I'm personally really interested to see, is how this actually takes shape and whether or not it actually is effective.

22:00That's all for today, Thursday, August 27th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting of this episode from Julie Jargon.

22:15Thanks for listening. See you tomorrow.