Meta’s addiction settlement looks like Tobacco Part 2

Meta’s $18 billion settlement with U.S. states bears a strong resemblance to the $200 billion tobacco settlement in 1998, down to terms that could strengthen the position of Meta in the social-media market and discourage new competitors.Buried in the 130-page agreement are references to “Industry-Wide adoption” and “New SMP Entrants” that refer to what Meta and the states hope will happen next. In case there’s any confusion, Meta Chairman Mark Zuckerberg spelled it out in “An Open Letter to TikTok and YouTube” calling for them to adopt the same limits on teen use and notifications that Meta and Facebook agreed to in the settlement.
Behind that plea is at least $5 billion in cash, the amount Meta will reduce its payments to the states if TikTok, YouTube and Snap don’t adopt similar restrictions. And if a new social-media platform enters the market with more than 5 million users, the terms with the states will be similarly reduced.
It’s all very similar to the agreement state attorneys general struck with the tobacco industry in the late 1990s. The Master Settlement Agreement required the cigarette companies to pay hundreds of billions of dollars to the states – and some $14 billion in fees to their private attorneys – but industry leader Philip Morris got a fantastic deal in return.
The agreement included provisions that placed prohibitively high financial costs on anyone who tried to get into the cigarette business in the future. Cigarette sales have fallen 70% since then in the U.S., driven partly by the marketing restrictions in the settlement agreement but also by broader lifestyle changes and increasing use of vapes and other nicotine products. Philip Morris’ profits per pack surged, however, and today successor Altria makes several times as much profit in the U.S. market as it did in 1997.
Meta may have made a similar calculation with the state settlement. The agreement places similar restrictions on how Facebook and Instagram can place advertisements in front of teens and children, including a two-hour daily limit on use, turning off all apps at night and no notifications during school hours. It will also pay a minimum of $12 billion to the states over 10 years. Meta reported $61 billion in net income in 2025.
If Meta’s competitors agree to similar restrictions, the two-hour limit will be cut to 60 minutes and Meta will pay another $5 billion to the states. But if competitors balk, or if a new entrant signs up more than 5 million users and refuses to adopt similar restrictions, the $5 billion and tighter restrictions go away.
Parents can override any of the restrictions on the app, limiting their effectiveness if their teens convince them to turn them off.
The settlement also includes a clause that insures Meta gets to write off at least half of what it pays the states under Section 162(f) of the Internal Revenue Service code, which allows companies to deduct expenses associated with “compensatory restitution and remediation.” At Meta’s historical tax rate of about 15%, that’s a cash savings of more than $100 million a year.
By moving first, Zuckerberg has given the states a strong financial incentive to drag Meta’s competitors into similar agreements, or even to legislate rules to regulate the industry along Meta’s lines. New social media platforms, meanwhile, will be directly in the crosshairs of state attorneys general and legislators because they will threaten the billions of dollars Meta and possibly its biggest competitors are paying into state coffers. To achieve that kind of protection, $18 billion may be a very small price to pay.

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