Texas Fights Netflix in a Deceptive Data Collection Lawsuit

Attorney General Ken Paxton has filed a lawsuit against Netflix in Texas. The case centres on claims that the streaming platform operates a surveillance system that monetises user viewing habits.

According to the complaint filed on 11 May, the prosecutor claims that Netflix uses addictive designs to keep users engaged while recording billions of pieces of information. 

Netflix has rejected the claims, saying that it will challenge the lawsuit in court.

Data collection allegations

The lawsuit opens with the phrase "When you watch Netflix, Netflix watches you". Ken claims every interaction on the platform becomes a data point revealing information about the user.

According to the filing, Netflix records and monetises these interactions. This could contradict public statements it has made about its data practices.

A spokesperson for Netflix told the BBC that the lawsuit lacks merit and is based on distorted information. "Netflix takes our members' privacy seriously and complies with privacy and data protection laws everywhere we operate," they said.

The filing quotes Reed Hastings, former CEO of Netflix. Reed previously stated it would not collect or monetise user data.

Reed has rejected the notion of an ad-supported company multiple times in the past. He told 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. He spelled out the reasoning during Netflix's 2019 Q2 earnings letter.

"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," he wrote.

In April 2022, Netflix saw its first quarterly decline in subscribers in more than a decade. Its market value slumped by 65% within a year.

Advertising tier launch

Executives announced plans for adverts to attract new users following the subscriber decline. Netflix launched Basic with Ads in November 2022 in 12 countries, including the UK and the US.

The plan cost £4.99 (US$6.37) in the UK and US$6.99 in the US at launch. The ad-supported tier grew to reach more than 250 million people globally by May 2026.

According to Netflix, it earned US$1.5bn from ads in 2025. Netflix is now expanding the tier to 15 more countries.

From next year, Netflix plans to show adverts within the vertical video feed it very recently launched on its mobile app. This could represent a strategic push to monetise content on smartphones.

Legal claims filed

The lawsuit in Texas claims Netflix's pivot on ads leverages mountains of data quietly extracted from children and families. According to Ken, this data is shared with commercial brokers to help raise billions of dollars in revenue.

The filing notes that Netflix uses a combination of addictive design features, such as auto-playing content, to keep people on the site. These features allegedly allow for extensive logging of user activity.

According to Ken, the company has violated the Texas Deceptive Trade Practices Act. The Act forbids false, deceptive or misleading acts and practices in the course of commerce.

The lawsuit requires the court to order Netflix to delete all data deceptively collected from Texas citizens. It also requests that Netflix cease the processing of user information for the purposes of targeted advertising.

Penalties and precedent

The legal filing requests that the company turns off the auto-play feature by default for all children's profiles. It also seeks civil penalties of up to US$10,000 per violation.

Industry experts note that a successful California lawsuit against Meta and YouTube regarding addictive design could also influence this case.

The lawsuit comes at a tricky time for Netflix, with the company currently testing a personalisation tool that adjusts what ads subscribers see based on their viewing behaviours.