In November, Meta launched an ad-free subscription He Tuber  model for Facebook and Instagram in the EU, but quickly faced a backlash.

Last Thursday, the European Consumer Organization (BEUC) filed a complaint with the Consumer Protection Agency (CPC), claiming that the subscription fee for Meta’s ad-free service was unreasonably high and indirectly violated users’ privacy rights. If the charges are successful, Meta risks fines and costly business changes.

About 97% of Meta’s revenue comes from advertising, and apps such as Facebook and Instagram are its primary focus for advertising business. Adhering to the implementation of ad-free subscription services will have a huge impact on the entire advertising market.

1. Meta taking advantage of policy loopholes

Meta's ad-free service costs 9.99 euros ($10.96) per month on the website and 12.99 euros on the app, and can currently be shared between Facebook and Instagram accounts.

"Ad-free subscription service" sounds like a mouthful, but in layman's terms it actually means "spending money on advertising." Prior to this, Meta had been free to use for many years and made money mainly through advertising on the platform. The ad-free model seems to be able to open up new revenue sources for Meta while reducing advertising.

Why do you want to cut off advertising? It’s not because of Meta’s conscience, it’s mainly because the policy is too tight.

Advertisements on the platform need to collect user data for "personalized" delivery. Many domestic apps will also have such pop-ups. Users often need to agree to the platform's use of private data before they can continue to use products and services.

Previously, the EU data regulator passed a law that has threatened the foundation of Meta's business model: technology companies cannot require users to agree to tracking data and targeted advertising in order to use products. In other words, users must have the freedom to refuse, and this freedom cannot be at the expense of giving up using the service. The law calls for "equivalent alternatives" and specifically mentions versions of products that require payment.

The starting point of the policy to protect privacy is right, but the goal seems to be a bit biased, and it has evolved into asking users to spend money to buy privacy and security. Meta seized on this loophole and launched an ad-free subscription. Everyone gradually came to their senses, and this became the trigger for BEUC to accuse Meta this time.

The European Digital Rights Center NOYB also filed a lawsuit against the Austrian privacy regulator, arguing that one fifth of the EU population is at risk of poverty and cannot afford the so-called "pay or OK" (choose to pay or agree to track) systems that force users to Choose between "payment and privacy".

Faced with accusations of excessive prices, Meta argued that the prices were consistent with paid services from YouTube, Spotify, and Netflix. Meta said it launched subscriptions to comply with EU privacy laws while continuing to provide people with personalized products and services, regardless of revenue.

But no matter how Meta separates the relationship between subscription and revenue, this model will bring it new profits.

If it continues, charges may rise. Starting from March 1, 2024, Meta's payment will no longer be universal for accounts. Linking other accounts to the subscription will incur an additional fee of 6 euros/month on the website and an additional 8 euros/month on iOS and Android. In addition to simple and crude price increases, Meta will also promote ad-free subscription services in India in 2024 to further expand the market.

2. Lack of tangible added value

Meta compares its ad-free subscription service to YouTube, Spotify, and Netflix, but their logic is completely different. The biggest difference is that Meta’s selling point is simply “no ads”, while the latter mainly attracts users with content.

Take Netflix as an example. It used to be the "ad-free benchmark" in the industry: it uses high-quality content to attract users to pay instead of advertising, and the revenue is then fed back into content production, forming a virtuous cycle. Popular movies such as "House of Cards" and "Stranger Things" have emerged. A batch of representative works. For a long time, "no advertising" has been the golden rule that Netflix has adhered to.

Domestic Aiyouteng also often mentions "content-driven", but they are not resolute in doing so and still focus on Internet advertising. The long video platform is several positions ahead of foreign countries in the exploration of advertising models, including patches, implants, information flow advertising, branding, effects, customized marketing... Member payment is mostly just the icing on the cake. However, despite long-term video platforms exploring "membership + advertising" for many years, they have only managed to make a profit this year, and most of them are still losing money.

Even Netflix, which insists on being ad-free, can no longer hold on. With user growth peaking and market competition fierce, Netflix tried to continuously increase membership prices, and eventually turned to advertising for monetization.

Netflix's advertising package was launched on November 3 last year at a price of US$6.99 per month, which is lower than the basic package. Users who subscribe to the service need to watch an average of 4 to 5 minutes of ads per hour, with each ad lasting 15 to 30 seconds. This package is aimed at users who want to watch the series more affordably but don’t mind watching some ads.

In May this year, Netflix executives said that the low-price advertising package has achieved good results after its launch, and its monthly active users have reached 5 million. While attracting customers and increasing revenue, these resources will be used by advertisers to make use of Netflix's rich program content to earn more profits.

The effectiveness of Netflix's advertising package shows that users who have been immersed in the Internet for many years have gradually become accustomed to the existence of advertising. The difference lies in the quality of the use experience. At this time, Meta launched an ad-free subscription. In the absence of content or other advantages, it only used the social relationships on the platform to "kidnap" users. With the precedent of X (pre-Twitter), Meta has difficulty attracting a large number of paying subscribers.

External regulation also makes it difficult for Meta to go ad-free. NOYB began complaining about privacy issues in Meta's personalized advertising in 2018. As of January this year, the Irish Data Protection Commission (DPC) had issued a total of approximately 1.3 billion euros (approximately RMB 10 billion) in fines to Meta.

As a technology giant, Meta’s actions have a certain demonstration effect on the industry. X recently launched a $16-per-month premium membership, which includes an ad-free browsing experience. TikTok is also testing a $4.99 de-personalized advertising subscription overseas.

NOYB estimates that based on an average of 35 apps installed on each mobile phone, if all charges are paid, it may cost 8,815 euros per year to protect privacy and security, and a family of four will need 35,000 euros, which exceeds the EU’s Average full-time earnings.

Regulators are worried that if other social platforms follow Meta's lead and launch paid advertising removal services, the domino effect will make the cost of protecting privacy higher and higher, and privacy will eventually become a "privilege" for the rich.

3. Make advertisers more dependent on content

As the world's largest social platform, Meta's ad-free trend will have the most direct impact on advertisers.

First of all, this will reduce the exposure of traditional advertising on social platforms such as Facebook and Instagram, requiring advertisers to adjust their investment. The introduction of an ad-free subscription option on Meta's platform will result in reduced ad coverage and, subsequently, increased competition for ad space. Advertisers may shift more of their spending to Google and other social platforms, such as Snapchat, LinkedIn, X, etc.

Although X also has a Premium+ package of $16 per month, before it, there are two buffered versions of Basic and Premium that do not completely abandon ads. This price comparison forms an "anchoring effect", allowing users to choose a compromise between payment and advertising. This kind of cost-effective formulation is something Meta needs to learn from.

Secondly, content creators, internet celebrities and KOLs on the platform will be more important. Due to the reduction of platform facilities for advertising, the reduction of traditional advertising has provided new opportunities for advertising content such as creativity and KOL cooperation. Unlike traditional advertisements, "Chafan" content can be ignored or skipped directly. If the quality and tonality can be ensured, high-quality advertising content can become the main form of communication between brands and consumers.

At the same time, paid subscriptions become a filtering mechanism for users, and users who stay on the ad-supported version are more receptive to ads, leading to higher engagement rates. Brands need to target corresponding user groups and effectively cooperate with KOLs to enhance the attractiveness of advertising forms.

Brands and agencies should diversify their strategies, focus on quality content and explore alternative advertising channels. It’s critical to stay informed about Meta’s growth and user adoption of subscription plans, and in this ever-changing environment, flexibility and innovation will be key for brands to effectively connect with their target audiences.