In 2023, subscription services are everywhere from streaming to meal kit providers, and very soon they might become the norm for our everyday social media platforms.
While virtually all consumers are now used to paying subscriptions for streaming platforms like Netflix and Apple TV, social media platforms have historically offered free entrance to all interested users. However, concerns around privacy and personalized advertisements, including a recent ruling against Meta in the EU, has Facebook and Instagram, both owned by Meta, considering implementing a subscription model.
The ruling against Meta by the European Court of Justice concluded that “under Europe’s General Data Protection Regulation (GDPR) Facebook cannot justify using personal details to target people with personalized ads unless it receives their consent first.” Considering that Meta earns a substantial portion of their revenue from personalized ads, this is a significant blow to their business model.
The possibility of a subscription model would ultimately need to be cleared by EU regulators to ensure the fee to access the ad-free version is “appropriate”.
The model Meta is planning to implement is two tiered; an ad free version users must pay for, and an ad-inclusive version that is free of charge, but requires users to consent to personalized ads.
However, it’s not just Meta considering such a model. TikTok is reportedly testing a $4.99 ad-free tier in an undisclosed English-speaking market outside of the United States, but additional details are not yet known.
What does this Mean for Consumers and Advertisers?
Naturally, advertisers are concerned about what this means for their ads on these platforms. If consumers are given the option to pay to opt out of ads, will they? Some will, most won’t, at least, if YouTube Premium subscriber numbers are anything to go by.
YouTube Premium was introduced in 2018 in Canada and 2014 in the United States. According to Bloomberg “the company has signed up 50 million subscribers across its suite of paid services, which include a music service and a premium video service [which means] it convinced about 2.5% of its users to pay in order to watch videos in the background, skip ads and access all kinds of music playlists.” While 50 million subscribers is a significant number on it’s own, it’s tiny in comparison to the 1.950 million other YouTube users who opted to continue with the ad-inclusive free version.
Although YouTube Premium never garnered the attention Google was hoping for, when X (Twitter) launched their premium service, they received quite a bit of attention, much of it negative. The premium version would require users to pay $8 for a blue verified checkmark on their profile and reduced ads, in addition to other features. Like YouTube Premium, it never took off with the userbase and subsequently, advertisers were mostly unaffected.
Incidentally, many consumers are perfectly fine with receiving ads and many welcome them – “ about half of adult US internet users said that when brands use their data in advertising, it helps them discover (50%) and find (49%) products and services that interest them.
However, it’s important to note that YouTube Premium hasn’t taken off in a substantial way likely because the free version is still very good and meets the needs of most users. Further, for those who have subscribed, it’s almost certainly not simply for the ad-free experience, but for the additional features like the ability to download content and watch videos in the corner of a screen while browsing elsewhere.
If Meta chooses to not offer additional features while still keeping the free version user-friendly and intuitive, many users in the EU will choose to save their money and opt into receiving the personalized ads. But, if they decide to take a page out of Spotify’s playbook and chip away the user-friendliness of the free version in an attempt to make the paid version more appealing, there could be cause for concern.
Since personalized ads drive a significant portion of Facebook’s revenue, and with consumers facing increasing living costs and hesitating to pay for more subscription services, it’s improbable that Facebook would choose this path.
Ultimately, this appears to simply be an effective and relatively pain-free way for Meta to get around the EU legislation and for now, advertisers in Canada and the United States needn’t be concerned.