On December 12, 2023, at 5:44 AM, to see what’s hiding under the Christmas tree, log into Facebook. The social network tracks its users’ behavior so closely that it can personalize ads with a precision that at times borders on mind-reading. The homepage filled with ads at this time of year embodies the internet’s great sacrifice: consumers enjoy free services, but they must be bombarded with ads from companies that know who has been naughty and who has been nice.
Escaping Online Ads
Recently, Meta, the owner of Facebook, began offering ad-free subscriptions to its clients in Europe for a price of 9.99 euros ($10.85) per month. In October, Twitter launched an ad-free option. In the same month, TikTok, the popular Chinese video app, announced it was testing an ad-free subscription. The following month, Snapchat, another social media competitor, announced it was doing the same.
Available Alternatives
Social media networks are not the only means that allow the demographic advertisers seek to reach – the wealthy who have the ability to spend – to escape their grasp. From video and audio to news and games, media organizations are encouraged to provide alternatives. “We are in a world where it’s becoming increasingly possible to avoid ads,” says Brian Weiser of Madison and Wall, an advertising consultant. As the wealthy choose to detach from ads on some platforms, advertisers are looking for new places to reach them.
The Digital Transformation of Media
Capturing the attention of high-income consumers through traditional media has long been difficult. With the decline in value of their online ads, newspapers and magazines have pivoted to other sources of revenue over the past decade. In 2014, only 5% of adults in wealthy countries paid for a subscription to an online news site, but this year it has risen to 13%, according to the Reuters Institute at the University of Oxford. During the same period, ad-supported radio declined in favor of streamed music and podcasts on platforms like Spotify, where 40% of its 575 million users pay $10.99 per month to listen without ads.
Television in the Age of Digital Transition
Last year, live streaming surpassed cable and broadcast television to become the most-watched TV in America, according to Nielsen, a viewership tracking company. While linear TV is filled with ads, three-quarters of American live-streaming customers pay to skip ads, according to estimates from Antenna Data. Platforms like Netflix and Disney+ launched ad-supported tiers last year, and Amazon’s Prime Video will soon follow. But it shows only about four minutes of ads per hour, compared to around 15 minutes on American TV. With viewers shifting to live streaming, America’s television ad inventory is expected to drop by 25% over the next four years, according to Mr. Weiser’s estimates.
Shifts in Social Media
Social media seemed like a safe haven for advertising. For many years, Facebook promised it would be “free and always will be.” Things changed due to two factors. The first is regulation. Meta’s ad-free plan in Europe follows a series of court rulings that stipulate tech companies must obtain user consent before displaying targeted ads under regional data protection rules. Instead of making its ads less effective, Meta offers the alternative of ad-free access for a price. (Privacy campaigns state that the price is prohibitively high; more legal battles are expected in the new year.) Meta will not roll out the plan elsewhere unless forced: “We will always support ad-funded internet,” it stated on December 4. However, other countries may take inspiration. The UK and India are tightening their digital privacy laws. Tech companies are also watching Brazil, Indonesia, and Australia (where Snapchat is testing its ad-free option).
Changes
Resulting from Technological Platforms
Since 2021, Apple has allowed customers to opt out of app tracking, hindering the ability to personalize ads and pushing companies to resort to alternative methods for revenue verification. Snapchat launched a subscription for $3.99 per month last year that offers additional features; by September, the number of subscribers reached 5 million. Mobile games, which often rely on ads, are moving towards alternatives such as in-app purchases and subscriptions, according to Tianyi Guo from Newzoo, an analytics company. Apple and Netflix are among the companies that have launched ad-free game subscriptions.
Shifts in Ad Targeting
The existence of ad-free options does not guarantee their adoption. Eric Seifert, author of the newsletter “Mobile Dev Memo,” believes few Europeans will pay for Facebook or Instagram. “Meta will use the low adoption rate of the ad-supported business model as a consumer preference,” he predicts. However, stopping ads on Meta’s networks may become more appealing as usage of video increases. YouTube Premium, which charges $13.99 per month for an ad-free service, had 80 million subscribers last year (the latest available figure), trailing behind Netflix, Disney+, and Amazon Prime among Western platforms.
Children and Advertising
Children are increasingly being excluded from advertising by default. Snapchat announced in August that most of its ad targeting tools will not be available for use on children under 18 in the EU and the UK, to comply with new privacy rules. Meta has made Facebook and Instagram entirely ad-free for young Europeans while it works on clarifying its legal stance.
The Wealthy and Advertising
Wealthy individuals who pay to avoid ads tend to be wealthier than those who are exposed to ads. According to the Reuters Institute, eight out of ten people paying for online news come from middle or high-income families. In addition to having more money, the wealthy tend to be more privacy-conscious: affluent users are more likely to refuse to be tracked on their smartphones, according to Mr. Seifert.
Future Advertising Outlook
Regardless, advertisers believe they have other ways to reach valuable consumers. Global ad spending (excluding political ads in the U.S.) is expected to reach $889 billion in 2023 and will grow by 5-6% annually over the next five years, driven by digital advertising, according to GroupM forecasts, which manages ads on behalf of brands. The number of ads viewed on television may decline, but the ability of streaming platforms to target ads will make them much more effective than traditional TV ads, according to Mark Read, CEO of WPP, the world’s largest advertising company and parent company of GroupM. Shorter ad breaks for live streaming will be better at grabbing viewers’ attention. “Our clients recognize that a two-to-three-minute ad load is more valuable than a nine-minute ad load,” says Mr. Read. Additionally, viewers are approaching live streaming time equivalent to their viewing of ad-free public broadcasts like the BBC in the UK.
Advertising on Other Platforms
Advertisers can also rely on platforms that the wealthy cannot escape from. Spending on out-of-home media – such as billboards and the like – grew by 7% this year, surpassing pre-pandemic levels, according to Magna, a research unit of the large Interpublic advertising company. Sponsorship of sports events and similar activities remains immune to digital clutter. Other forms of corporate persuasion, such as public relations, may benefit as it becomes more difficult to reach people through traditional advertising, according to Mr. Weiser.
Opportunities
The New Advertising
Perhaps the biggest new advertising opportunity lies in areas where no ads have appeared before. Amazon’s method of selling ads alongside search results on its commercial site – something it started doing over a decade ago – is expected to earn about $45 billion this year, more than the entire global newspaper industry. Last year, Uber began selling ads in its ride-hailing and delivery apps, targeting them using its own data about its customers (an aspect not affected by Apple’s changes in tracking activity). It is expected to generate $1 billion from this new side next year. Marriott Hotels launched an ad network last year to send targeted messages to guests on the television screens in their rooms. United Airlines is said to be planning to display targeted ads to passengers while they are entertained during flights. GroupM expects these types of “retail media” to become more valuable than television ads by 2028.
Advertising on Social Media
Even on social media, there will be ways for brands to reach people who pay to avoid ads. Advertisers are increasingly turning to charismatic “influencers,” who promote products to their followers and share their content. WPP recently brought a group of them to Lapland to visit Santa’s home as part of a promotional campaign for Coca-Cola. Users who pay to block ads may still find that they show up in new areas.
© 2023 The Economist Newspaper Limited. All rights reserved.
Source: https://www.economist.com/business/2023/12/11/welcome-to-the-ad-free-internet
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