Many parents will liken the command that social media has over their children’s minds to a crack-cocaine addiction – and pressure for internet firms to be accountable is growing at the global level.
A series of lawsuits against firms including Meta, Google and others began recently in the US, where a diverse array of plaintiffs allege that platforms are designed to be addictive, resulting in harm to children’s mental health.
In the UK, a government consultation launched in March seeks views on measures to increase children’s wellbeing online. It includes proposals to tackle ‘infinite scrolling’ and other functionalities on social media platforms that could drive addictive or compulsive usage.
In Singapore, there exists a Code of Practice for Online Safety that requires platforms to reduce exposure to harmful content and addictive features for minors, while most significantly in the EU, TikTok faces fines for allegedly breaching the EU’s Digital Services Act (DSA) over issues including addictive design. The Act aims to protect the digital rights of individuals, and ByteDance, the owner of TikTok, could have to pay fines equal to 6% of annual worldwide turnover.
Is it time for shareholders to act over social media addiction?
The immediate financial impact, if any, on ByteDance cannot be easily known because the company’s shares are not publicly traded. Financed partly by private equity, the illiquid and non-listed nature of this funding means any price impact would only be revealed at the next valuation, which could be every few months.
Nevertheless, might it be time to ask if civil and regulatory action resulting in fines and compensation related to social media addiction in children is potentially share-price sensitive for publicly listed internet companies?
There is plenty for shareholders to aim at. Internet firms can use a variety of methods to keep their visitors glued to their sites, such as infinite scroll, autoplay of videos, and where some form of reward is used to ensure frequent site usage.
The EU’s threat of fines for ByteDance follows a European Commission investigation that “indicates” that TikTok did not adequately assess how addictive features could harm the physical and mental wellbeing of its users, including minors and vulnerable adults.
The Commission says scientific research shows addictive features may lead to compulsive behaviour and reduce users’ self-control. Henna Virkkunen, executive vice-president for tech sovereignty, security and democracy at the EC, has said: “Social media addiction can have detrimental effects on the developing minds of children and teens. The Digital Services Act (DSA) makes platforms responsible for the effects they can have on their users. In Europe, we enforce our legislation to protect our children and our citizens online.”
DSA was launched in February 2024, and TikTok now has the right to defend itself. In a similar legal case in the US, TikTok said it believed many of the claims were “inaccurate and misleading”.
Fund managers’ low performance on social issues
At present, there appears to be little, if any, policies by investors aimed at social media companies on issues relating to addictive design.
Abhijay Sood, senior research manager at ShareAction, which campaigns for ESG standards in the investment management industry, says: “We have yet to see evidence that investors are systematically integrating concerns about addictive technologies in their decision-making.”
Research shows that performance on social issues generally remains low among asset managers, according to Sood, with significant gaps on issues ranging from controversial weapons to engagement with indigenous communities.
“Many other issues with social implications are completely neglected in investment policies,” Sood says.
It shouldn’t take an AGM to raise a child
An old proverb says: It takes a village to raise a child. But by enacting voting policies related to children’s excessive use of social media, shareholders would not be engaging in child rearing! Rather, they would be encouraging internet firms to use equity capital to implement measures that reduce the risk of lawsuits and regulatory fines. For example, the UK consultation suggests a switching-off of a platform’s addictive features during night-time hours.
This is similar to how shareholders could back risk-mitigation methods at oil companies that engage in environmentally dangerous deep-sea drilling, which is less about protecting wildlife, and more about increasing share-price value and stability.
If the financial impact on TikTok’s owner (or should that be ‘responsible parent’?) cannot be known due to ByteDance’s infrequent and in fact private valuation, then perhaps any material fluctuation in share prices at listed firms like Meta (Instagram) and Google (YouTube) once legal cases close, may make shareholders take notice. The action in the US started in February. Plaintiffs include school districts, federal government and thousands of families who allege that certain platforms harm children’s mental health, partly through addictive features.
Fuel for European competitiveness
Data security and fake news may be mentioned as shareholder concerns, but perhaps a greater harmonisation in Europe of social risk data – including risks linked to addictive technologies – is needed before more affirmative action takes place. It would be a similar measure to the EU’s Green Taxonomy for climate risk.
However, with Europe’s bid for greater competitiveness – which includes tech firms playing “catch up” with US market capitalisations – there is a question for shareholders, businesses and policymakers: How can this race be won if homegrown EU platforms cannot themselves adopt business models involving harmful, addictive features?
