Netflix faces Legal Action for Abandoning 'Ad-Free' Pledge

Texas Attorney General Ken Paxton has filed a lawsuit against Netflix, alleging the company abandoned its public commitments to offer users protection from big tech surveillance practices. 

The complaint centres on claims that the streaming platform operates a data collection system that generates revenue from subscriber viewing patterns.

According to the filing submitted on 11 May, the prosecutor argues Netflix employs design tactics that encourage extended platform use while capturing billions of data points. 

Netflix has rejected these allegations and stated it will contest the legal action.

Surveillance allegations emerge

The lawsuit opens with the assertion that user interactions on Netflix translate into collected data points. 

Paxton alleges the company records and monetises these interactions despite prior public statements suggesting otherwise.

A Netflix spokesperson tells the BBC the case has no merit and relies on misrepresented information. 

"Netflix takes our members' privacy seriously and complies with privacy and data protection laws everywhere we operate," they said.

The legal filing references statements from Reed Hastings, former Chief Executive Officer of Netflix, who previously stated the company would not collect or monetise user data. Reed tells Guggenheim Securities that Netflix wanted to be a safe respite for consumers.

According to Reed, a simpler business model avoids the privacy pitfalls of Google or Meta. 

In Netflix's 2019 Q2 earnings letter, he wrote: "We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false."

Ad tier follows subscriber decline

Netflix experienced its first quarterly subscriber decline in more than one decade in April 2022. 

The company's market value dropped by 65% over one year, prompting executives to announce plans for an advertising tier to attract new users.

The platform launched Basic with Ads in November 2022 across 12 countries, including the UK and the US. The tier cost £4.99 (US$6.37) in the UK and US$6.99 in the US at launch.

The ad-supported tier expanded to reach more than 250m people globally by May 2026. According to Netflix, the company earned US$1.5bn from advertising in 2025 and is extending the tier to 15 additional countries.

Netflix plans to introduce adverts within the vertical video feed launched on its mobile app starting next year. The company has also expanded commercial content placement across its service, including a podcast lineup added in late 2024.

Legal claims target data practices

The Texas lawsuit claims Netflix's shift to advertising uses data collected from children and families. According to Paxton, this information is shared with commercial brokers to generate billions of dollars in revenue.

The filing states Netflix uses design features such as auto-playing content to extend user sessions. These features could allow for detailed logging of user activity, according to the complaint.

Paxton argues the company has violated the Texas Deceptive Trade Practices Act. The Act prohibits false, misleading or deceptive actions in commerce.

The lawsuit requests the court order Netflix to delete all data allegedly collected deceptively from Texas residents and stop processing user information for targeted advertising purposes. 

The filing also asks the company to disable the auto-play feature by default for all children's profiles and pay civil penalties of up to US$10,000 per violation.

Legal observers note a California lawsuit against Meta and YouTube regarding addictive design practices could influence this case.

Netflix is testing a personalisation tool that modifies which adverts subscribers see based on their viewing behaviours.