Netflix Faces Lawsuit over Allegedly Deceiving Consumers

Texas Attorney General Ken Paxton has filed a lawsuit against Netflix on 11 May, accusing the streaming company of operating what he describes as a surveillance system that monetises user viewing habits. The complaint alleges Netflix reversed earlier promises to provide users with a safe alternative to big tech data collection practices.

Netflix has rejected these claims and stated it will contest the lawsuit in court. The case could affect how the company pursues its advertising revenue strategy, which has generated US$1.5bn in 2025 according to Netflix.

Data collection allegations emerge

The lawsuit opens with the phrase "When you watch Netflix, Netflix watches you" and claims every platform interaction becomes a data point that reveals user information.

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

A Netflix spokesperson tells the BBC 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, for previously stating the company would not collect or monetise user data. Reed rejected the concept of an ad-supported model multiple times in the past.

He 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.

Revenue strategy shift follows subscriber loss

In April 2022, Netflix experienced its first quarterly decline in subscribers in more than a decade. The company's market value slumped by 65% over a year, prompting executives to announce plans for advertisements to attract new users.

Netflix launched Basic with Ads in November 2022 in 12 countries, including the UK and the US – the plan costing £4.99 in the UK and US$6.99 in the US at the time of launch.

The ad-supported tier grew to reach more than 250 million people globally by May 2026. Netflix reported earning US$1.5bn from ads in 2025 and is now expanding the tier to 15 more countries.

During Netflix's 2019 Q2 earnings letter, Reed wrote about the reasoning behind remaining ad-free. "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.

New monetisation channels under development

Starting next year, Netflix plans to show adverts within the vertical video feed it launched on its mobile app, representing a push to monetise content on smartphones.

The company is finding more areas to place commercial content across its service, including a new line up of podcasts added late last year.

The Texas lawsuit claims Netflix's advertising strategy uses data extracted from children and families. Paxton says this data is shared with commercial brokers to help raise billions of dollars in revenue.

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

Paxton believes 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 wants the court to order Netflix to delete all data deceptively collected from Texas citizens and cease the processing of user information for targeted advertising purposes.

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

Experts note that a successful California lawsuit against Meta and YouTube regarding addictive design could influence this case. Netflix is currently testing a new personalisation tool that adjusts what ads subscribers see based on their viewing behaviours.

The outcome could affect Netflix's ability to grow its advertising business, which has become a key revenue stream after the company reversed its position on commercials. The case puts the streaming company's data practices under legal scrutiny as it expands monetisation efforts across multiple platforms.