Charging for ad-free Facebook and Instagram is Meta’s privacy crackdown workaround

The tech giant is in talks with data protection regulators to debut subscription tiers of its popular social media products in the region to come into compliance with EU privacy laws.

Meta is currently running targeted ads unlawfully in the EU, per a landmark ruling by the Court of Justice of the European Union in July that denied the company’s claim that it has a legitimate reason for personal data processing and user profiling. The ruling came just six months after Irish regulators slapped Meta with more than $410m in fines for violating Europe’s sweeping privacy regulatory framework, the General Data Protection Regulation (GDPR), and determined that the company has no legal grounds on which to claim that it’s contractually necessary to engage in such personal data processing.

The crackdown is restricting Meta’s ability to serve personalized ads to users without their consent. As a result, the company’s ad spend – its primary source of revenue – could be at stake. Mark Zuckerberg and his media empire are now eyeing subscriptions to generate monthly revenue from users without needing to secure their consent to serve them targeted ads.

A strategic play

The company‘s consideration of new paid tiers stems from the pressure it‘s facing from regulators to change its consent mechanisms. “Meta has realized … it has to get explicit consent from users in the EU for tracking and personalized ads. It has to give people an option that’s clear, unambiguous and an affirmative action,” says Matt Navarra, a leading social media consultant and industry analyst.

When asked about Meta‘s consideration of paid subscriptions, a company spokesperson acknowledged the role that regulatory compliance is playing in its decision-making, saying: “Meta believes in the value of free services which are supported by personalized ads. However, we continue to explore options to ensure we comply with evolving regulatory requirements. We have nothing further to share at this time.”

But experts say that giving users a more explicit choice is likely to undercut Meta‘s advertising business – which accounts for the vast majority of its revenue. “If they give people that choice of, ‘Yes, you can continue to track me and serve me personalized ads,’ or ‘No, I do not want you to’ – the majority of people would prefer not to be tracked,” says Navarra. So it makes sense that the company would seek to require those who opt out to fork over a monthly payment for platform access in lieu of cashing in on their eyeballs on ads.

Meta’s strategy may be informed by the financial hit it took last year at the hands of Apple’s privacy crackdown. Apple’s App Tracking Transparency framework – which rolled out in early 2021 and gives users the option to choose which applications can track them across the web – saw a vast majority of users opt out of tracking entirely. The development hobbled Meta’s ads business; the company said in 2022 that it would lose around $10bn in sales due to the change.

It’s a lesson that Meta won’t be eager to relearn. “They don’t want to hit that [problem] again, so now they’re thinking … there is a possibility that they can negotiate an option where they give people a chance to [choose],” Navarra says. “Their thinking is that people will go with the free option [and allow Meta to] continue to track them – and Meta then continues making money.”

Meta’s current proposal for subscription offerings includes a $14 monthly fee for ad-free Instagram on mobile as well as a $17 per-month option that includes access to both Instagram and Facebook on desktop, according to The Wall Street Journal.

It’s unclear whether so-called “ad-free” versions of Instagram and Facebook would be free of organic branded content, contextual advertising and other forms of marketing that don’t necessarily look like traditional paid media.

Users may be wary of steep prices

But will users bite? Experts say that reception to the news may be mixed.

“Some users are increasingly comfortable paying for ad-free content, as evidenced by trends in streaming services and news publishers, all of which are introducing more ad-free models,” says Len Gilbert, executive vice-president and head of strategic consulting at marketing agency Mod Op.

Other players, however, are taking the opposite approach – Gilbert points to Netflix, which has recently rolled out lower-cost ad-supported tiers as a strategy for reducing user churn.

On the whole, “user behavior is evolving to become more receptive to the range of these models,” he says. “The key questions are: Which model delivers better revenue per user – subscription or ad-supported? And how can multiple models be used to best improve top- and bottom-line performance? In the realm of streaming, ad-supported content is generating higher revenue per user. But the primary goal [for Meta] here isn’t mass adoption; it’s regulatory appeasement.”

Not everyone is so certain of users’ receptivity to such a change. “The typical Facebook user in some parts of the world generates as much as $17 or $18 per month of revenue for the company,” Navarra says. ”So if Meta suddenly wasn’t able to track them any more and wasn't able to serve them ads … then to fill that gap, it might need to charge as much as $14, $15 or upwards of $20 monthly. I’m not sure many people will be that keen to [pay that] for an ad-free experience of a product they’ve had for free for all of the time it’s been in existence.”

This, he says, may be particularly true ”in a time when people [are navigating] a crisis in regards to the cost of living and when other platforms like Netflix, Disney Plus and other subscription services are nowhere near as expensive.”

But Meta isn’t alone in its thinking. Just this week, TikTok confirmed it’s running tests outside the US market on an ad-free subscription version of the platform. The offering would go for $4.99 a month, according to an initial report by Android Authority.

Mapping the ripple effect on Meta‘s ads business

The real impact to Meta’s business – and to advertisers spending on its platforms – will only become clear should EU regulators give the company the green light to proceed with the rollout of new subscription tiers.

If a significant percentage of users decided to pay for an ad-free experience, Meta’s underlying advertising business could be threatened, says Katie Lance, an independent consultant and social media expert. “Although direct revenue from subscriptions might offset some lost ad revenue, there’s inherent risk to the core ads business.” And brands themselves may see diminished value in investing with Meta should a large portion of users pay for the ad-free offering, she says.

Nonetheless, many experts predict that a large-scale shift to subscription tiers is unlikely. “Minimal impact is expected,” says Mod Op’s Gilbert. “Ultimately, this is about safeguarding Meta’s ad business in these regions. By giving users the option to opt out of ads, Meta aims to mitigate regulatory scrutiny, making its ad business more palatable to European regulators.”

But will regulators buy it?

Of course, debuting a subscription version of a product won‘t magically remedy regulators‘ concerns, points out Brian Wieser, principal of Madison and Wall, a strategic advisory firm founded this year after Wieser left his post as GroupM’s lead analyst. Whether or not the region’s top regulators will agree to Meta’s proposal to introduce subscription tiers remains to be seen. “Those tea leaves are harder to read,” he says.

Navarra, for his part, feels that Meta may find itself in a lose-lose position by proposing a pay-to-escape-tracking option. “We’re potentially at the start of a battle between the regulator, consumers and … [data privacy] activists in this space … against the company.”

The primary issue, as he sees it, is that Meta could be perceived as requiring users to pay for their right to privacy. “Is it right and fair that people have to make a decision between whether they are tracked and whether these platforms are serving them personalized ads, based on their level of wealth and how much they can afford? [Is it right] that privacy is a benefit for those that can afford to pay for it? I don’t think that’s the right message, nor will it be particularly popular with regulators.”

For more, sign up for The Drum’s daily newsletter.