March 4, 2024

Welcome to the ad-free Internet

For a preview of what’s wrapped under the Christmas tree, log in to Facebook. The social network follows the behavior of its users so closely that it is able to personalize ads with a precision that sometimes borders on mind reading. Your ad-filled newsfeed this time of year embodies the Internet’s great tradeoff: Consumers enjoy free services, but must submit to the bombardment of ads from companies that know who’s been naughty or good.

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Increasingly, however, those consumers with deep enough pockets have the opportunity to escape online advertisers. Last month, Facebook owner Meta began offering customers in Europe ad-free subscriptions to Facebook and its sister network, Instagram, for 9.99 euros ($10.85) a month. In October, X (formerly Twitter) launched an ad-free option. That same month, TikTok, a fast-growing Chinese-owned video app, announced it was testing an ad-free subscription. The following month, Snapchat, another social media rival, said it was doing the same.

Social networks are not the only medium that allows the group most coveted by advertisers (those with the most money to waste) to escape their reach. From video and audio to news and gaming, a combination of regulation and technological change is encouraging media companies to offer alternatives. “We’re in a world where it will be increasingly possible to avoid ads,” says Brian Wieser of Madison and Wall, an advertising consultancy. As the wealthy opt out of ads on some platforms, advertisers are looking for new places to engage them.

Capturing the attention of the wealthy through old media has become increasingly difficult for some time now. As the Internet has eroded the value of their advertising, newspapers and magazines have made a decade-long pivot toward other sources of revenue. While in 2014 only 5% of adults in rich countries paid for a subscription to an online news site, this year 13% did, according to the Reuters Institute at the University of Oxford (see chart 1). Over the same period, ad-supported radio has given way to streaming music and podcasts on platforms like Spotify, 40% of whose 575 million users spend $10.99 a month for ad-free listening.

TELEVISION, whose ads are worth $160 billion a year, is in its own digital transition. Last year, streaming surpassed cable and broadcast networks to become the most watched television. in the United States, according to Nielsen, an audience tracking firm. While linear TELEVISION is full of ads, three-quarters of American streaming customers pay to skip ads, estimates Antenna, another data company (see chart 2).

Streamers like Netflix and Disney+ have released ad-supported tiers over the last year; Amazon’s Prime Video will follow suit shortly. But they only show about four minutes of commercials per hour, compared to more than 15 on American broadcasts. TELEVISION. As viewers shift to streaming, TV ad inventory in the United States will decline by a quarter over the next four years, Wieser estimates.

Social media seemed like a safer space for advertisers. For years Facebook promised that it was “free and always will be.” Two things have changed that. One is regulation. Meta’s ad-free plan in Europe follows a series of court rulings that state that under regional data protection rules, tech companies must obtain users’ consent before showing them personalized ads. Instead of making your ads less effective, Meta offers the alternative of having no ads, for a price. (Privacy advocates say this price is so high as to be prohibitive; more legal battles are expected in the new year.)

Meta won’t launch the plan anywhere else unless it’s necessary: ​​”We will always advocate for an ad-supported Internet,” it said on December 4. But other countries may have ideas. Britain and India are already fine-tuning their digital privacy laws. Tech companies are also eyeing Brazil, Indonesia and Australia (where Snapchat is testing its ad-free option).

The other change comes from technological platforms. Since 2021, Apple has allowed customers to opt out of being tracked by apps, crippling the ability to personalize ads and prompting a flood of alternative monetization methods. Snapchat launched a $3.99 per month subscription last year that offers additional features; This September it had 5 million subscribers. Mobile games, which often rely on ads, have evolved toward alternatives such as in-app purchases and subscriptions, says Tianyi Gu of Newzoo, an analyst firm. Apple and Netflix are among those that have launched ad-free gaming subscriptions.

The existence of ad-free options does not guarantee acceptance. Few Europeans will pay for Facebook or Instagram, believes Eric Seufert, author of the “Mobile Dev Memo” newsletter. “Meta will use the low adoption rate to defend the business model with advertising as a consumer preference,” he predicts. However, as Meta networks become more video-focused, turning off their ads may become more tempting for users. YouTube Premium, which charges $13.99 a month to be ad-free, had 80 million paid subscribers last year (the latest figure available), behind only Netflix, Disney+ and Amazon Prime among Western platforms.

Children, in particular, are increasingly out of reach of ads by default. Snapchat said in August that most of its ad targeting tools would no longer be available to those under 18 in the EU and Great Britain, to comply with new privacy rules. Meta has made Facebook and Instagram completely ad-free for young Europeans while it resolves its legal situation.

Whoever pays to opt out of seeing the ads tends to be richer than those who see them. According to the Reuters Institute, among those who pay for online news, eight in ten come from middle- or high-income households. In addition to having more money, the rich tend to be more privacy conscious: Wealthier users are more likely to refuse to be tracked on their iPhones, Seufert says.

Still, early indications are that, at least on television, the difference may not be great. In the United States, higher-income households represent 9% of subscribers with advertising and 11% of those without, according to Antenna. Wieser suggests that as consumers feel pressured and spend less on nights out, they may be more inclined to pay for ad-free services. TELEVISION.

Either way, advertisers are confident they have alternative paths to reach valuable consumers. Global advertising spending (excluding US political ads) will reach $889 billion in 2023 and will grow 5% to 6% annually over the next five years, led by digital ads, the Group forecasts.METERthat places ads on behalf of brands.

The number of ads seen on television may decrease, but the ability of streamers to target ads will make them much more effective than conventional ones. TELEVISION stains, argues Mark Read, head of WPPthe largest advertising company and group in the world.METERThe parent company. Streamers’ shorter ad breaks will be better at capturing viewers’ attention. “Our clients understand that a two- to three-minute ad load is more valuable than a nine-minute ad load,” Read says. In addition, streamers are eating up the time they spend watching ad-free public service stations, such as the British bbc.

Advertisers can also turn to platforms from which the rich have no escape. Spending on outdoor media (billboards and the like) has grown 7% this year and is now above its pre-pandemic level, according to Magna, a research arm of Interpublic, another large advertising agency. Sponsorship of sporting events and the like remains immune to digital disruption. And other types of corporate persuasion, such as public relations, may benefit as it becomes harder to reach people through old-school ads, Wieser says.

Perhaps the biggest new advertising opportunity is in areas where no ads have ever been shown before. Amazon’s ruse of selling ads alongside search results on its retail site (something it started doing just over a decade ago) will generate around $45 billion this year, more than the entire global newspaper industry made from announcements.

Last year, Uber began selling ads in its ride-hailing and delivery apps, personalizing them using its own data about customers (something Apple’s anti-tracking changes don’t affect). He hopes to make $1 billion next year with this new side hustle. Marriott hotels launched an ad network last year to deliver targeted messages to guests in their rooms. TELEVISIONs. United Airlines is said to plan to show personalized ads to passengers during their in-flight entertainment. ClusterMETER predicts that this type of “retail media” will be worth more than TELEVISION advertising by 2028.

And now, a break from the commercials.

Even on social media there will be ways for brands to reach people who pay to not have advertising. Advertisers are increasingly turning to charismatic “influencers,” who promote products to users who follow them and share their content by choice. WPP He recently took a group of them to Lapland to visit Santa’s house, as part of a Coca-Cola promotion. Users who pay to block ads in some areas are likely to find them appearing in new ones.

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