Welcome to the ad-free internet

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For an overview of what's wrapped under the Christmas tree, connect to Facebook. The social network tracks the behavior of its users so closely that it is able to personalize ads with a precision that sometimes borders on mind reading. Its ad-filled news feed at this time of year embodies the Internet's great compromise: Consumers get free services but must submit to the bombardment of ads from companies that know who's been naughty or nice.

Yet increasingly, consumers with deep enough pockets have the opportunity to escape online ads. Last month, Facebook owner Meta began offering its European customers ad-free subscriptions to Facebook and its sister network, Instagram, for €9.99 ($10.85) per month. In October, X (formerly Twitter) launched an ad-free option. The same month, TikTok, a growing Chinese 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 allowing the group most coveted by advertisers – the well-off with money to spend – to put themselves beyond their reach. From video and audio to news and games, a combination of regulation and technological change is encouraging media companies to offer alternatives. “We're in a world where it's going to be increasingly possible to avoid ads,” says Brian Wieser of Madison and Wall, an advertising consultancy. As the wealthy refuse to run ads on certain platforms, advertisers are looking for new places to attract them.

image: The Economist

Attracting the attention of wealthy people through legacy media has become increasingly difficult for some time. As the Internet eroded the value of their advertising, newspapers and magazines turned for a decade to 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 it is 13%, according to the Reuters Institute at the University of Oxford (see graph 1). Over the same period, ad-supported radio has given way to streaming music and podcasts on platforms like Spotify, where 40% of its 575 million users pay $10.99 a month to listen without advertisement.

TV, whose ads are worth $160 billion a year, is well into its own digital transition. Last year, streaming overtook cable and broadcast networks to become the most-watched television. in America, according to Nielsen, a company that tracks viewership. While linear TV is stuffed with ads, three-quarters of U.S. streaming customers pay to skip ads, estimates Antenna, another data company (see chart 2).

image: The Economist

Streamers such as Netflix and Disney+ have launched ad-supported tiers over the past year; Amazon's Prime Video will follow soon. But they only broadcast about four minutes of advertising per hour, compared to more than 15 on American channels. TV. As viewers shift to streaming, U.S. television ad inventory will shrink by a quarter over the next four years, Mr. Wieser estimates.

Social media seems to be a safer space for advertisers. For years, Facebook promised that it was “free and always will be.” Two things changed that. One is regulation. Meta's ad-free plan in Europe follows a series of court rulings establishing that, under regional data protection rules, tech companies must obtain consent from users before showing them personalized ads. Rather than making its ads less effective, Meta offers the ad-free alternative, for a price. (Privacy advocates say this price tag is so high it's prohibitive; expect more legal battles in the new year.)

Meta won't launch the plan elsewhere unless forced to: “We will always advocate for an ad-supported Internet,” he said on December 4. But other countries might have ideas. Britain and India are already strengthening 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 technology platforms. Since 2021, Apple has allowed customers to opt out of being tracked by apps, crippling the ability to personalize ads and sparking a rush toward alternative monetization methods. Snapchat launched a $3.99 per month subscription last year that offered additional features; by September, it had 5 million subscribers. Mobile games, which often rely on advertising, have turned to 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 game subscriptions.

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

Children, in particular, are increasingly barred from ads by default. Snapchat said in August that most of its ad targeting tools would no longer be available to under-18s in the United States. EU and Great Britain, to comply with new confidentiality rules. Meta has made Facebook and Instagram completely ad-free for young Europeans while it develops its legal position.

The person who pays to opt out of ads so far tends to be richer than those who watch them. Among those who pay for online news, eight in 10 are from middle- or high-income households, according to the Reuters Institute. In addition to having more money, the rich tend to be more concerned about their privacy: wealthier users are the most likely to opt out of being tracked on their iPhone, Mr. Seufert says.

Yet early evidence indicates that, at least on television, the difference may not be great. In the United States, top-earning households account for 9% of ad-supported subscribers and 11% of ad-free subscribers, according to Antenna. Mr. Wieser suggests that as consumers are in a hurry and spend less on nights out, they may actually be more willing to pay for ad-free products. TV.

Regardless, advertisers are convinced they have other ways to reach valuable consumers. Global advertising spending (excluding American political spots) will reach $889 billion in 2023 and will increase by 5 to 6% per year over the next five years, driven by digital advertising, the Group predicts.Mr.which broadcasts advertisements on behalf of brands.

The number of ads seen on TV might decline, but streamers' ability to target ads will make them much more effective than conventional ads. TV spots, says Mark Read, head of WPPthe world's largest advertising company and groupMr.the parent company of. Streamers' shorter ad breaks will be more effective in retaining viewers' attention. “Our clients understand that a two- to three-minute ad load is more valuable than a nine-minute ad load,” Read says. Additionally, streamers are eating into time spent watching ad-free public service channels, like the UK channel. BBC.

Advertisers can also use platforms that the wealthy cannot escape. Spending on outdoor media — billboards and others — is up 7% this year and is now above its pre-pandemic level, according to Magna, a research arm of Interpublic, another major advertising agency . Sponsorship of sporting and other events remains safe from digital disruption. And other types of business persuasion, like public relations, can benefit because it becomes harder to reach people through old-fashioned ads, Mr. Wieser says.

Perhaps the biggest new advertising opportunity is in areas that have never advertised before. Amazon's ruse of selling ads alongside search results on its retail site – something it started doing just over a decade ago – will bring in around $45 billion this year, which is more than the entire global newspaper industry earned from ads.

Last year, Uber began selling ads in its ride-hailing and delivery apps, personalizing them using its own customer data (which Apple's anti-tracking changes don't affect ). He hopes to earn $1 billion next year from this new business. Marriott hotels launched an advertising network last year to send targeted messages to guests in their rooms. TVs. United Airlines is reportedly considering serving personalized ads to passengers during their in-flight entertainment. BandMr. predicts that this type of “retail media” will be worth more than TV advertising by 2028.

And now for a break from the commercials

Even on social networks, brands will have ways to reach people who pay to no longer have advertising. Advertisers are increasingly using charismatic “influencers” who promote products to users who follow them and share their content by choice. WPP recently took a group of them to Lapland to visit Santa's house, as part of a promotion for Coca-Cola. Users who pay to block ads in certain areas are still likely to see them appear in new areas.

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