Meta Says About 10% of its Global Ad Revenue at Risk From EU Data Flows Order — Meta’s earnings call yesterday was upbeat, with revenue for the quarter above expectations. However, tucked in its investor disclosures is a harsh warning about the approaching regulatory danger it faces in Europe — where a judgement is likely in a matter of weeks (by May 12) that might compel the internet giant to cease its transatlantic data transfers.
“We expect the Irish Data Protection Commission (IDPC) to issue a decision in May in its previously disclosed inquiry relating to transatlantic data transfers of Facebook EU/EEA user data, including a suspension order for such transfers and a fine,” Meta’s CFO wrote in its Q1 2023 report. The (very) long-running drama, which is based on a clash between US surveillance laws and EU privacy rights, has been covered previously.
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People are already aware that one of the important developments Meta is expecting will save its bacon in Europe is the approval of a new high level data transfer deal aimed at resolving the legal uncertainties surrounding EU data exports. However, the replacement agreement negotiations have taken longer than planned, and EU institutions are still considering the draft decision announced by the Commission in December.
So, while the EU had predicted that the deal would be finished by the end of 2022, it was compelled to change its forecast, announcing in December that it anticipated everything would be in place by July. Since then, numerous EU institutions participating in the deal’s examination have raised concerns, so there’s still no news on when it might be completed. (Or, indeed, whether a new agreement will withstand the inevitable legal challenges, considering that the two previous agreements were annulled by the EU Court of Justice.)
In its earnings report, Meta tells investors that it is hopeful that the new EU-US data framework will arrive soon enough to be implemented before the deadline for a suspension of its EU transfers — meaning that if the stars align, it could restart its claim to have an authorized mechanism for its EU transfers and flick the suspension order away — but the company also warns that it “cannot exclude the possibility” that adoption will not occur soon enough to prevent such an order.
“Our ongoing consultations with policymakers on both sides of the Atlantic continue to indicate that the proposed new EU-U.S. Data Privacy Framework will be fully implemented before the deadline for suspension of such transfers, but we cannot exclude the possibility that it will not be completed in time,” Meta writes. “We will also evaluate whether and to what extent the IDPC decision could otherwise impact our data processing operations even after a new data privacy framework is in force.”
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During a call with investors, the social networking giant was asked about the potential impact on revenues if it is compelled to cease EU-US data flows on regulatory order. Responding, CFO Susan Li reiterated the company’s hope that the new high-level framework will save it. However, if this sought for escape hatch fails to open in time, she warned investors Meta is facing a hit of around a tenth of its worldwide ad revenue — saying “roughly 10%” of this comes from ads delivered to Facebook users in EU countries.
Li added a caveat to the disclosure, stating that due to the lack of information on the final order and the length of any potential suspension, it is challenging for Meta to predict the overall impact of an EU data suspension at this point. During the call, Meta’s CFO provided a breakdown of ad revenue growth across regions. The strongest growth was seen in the “Rest of World” segment at 9% for the quarter, followed by North America and Asia-Pacific at 6% and 4%, respectively. However, it should be noted that Europe experienced a decline of 1%.