The Journal. - Would You Pay to Use Instagram Without Ads?

Episode Date: November 2, 2023

Meta, the parent of Facebook and Instagram, will soon find out how much users in Europe are willing to pay to access its social media platforms without ads. Meta’s subscription plan is the company��s latest move to address data privacy concerns from European Union regulators. WSJ’s Sam Schechner explains.  Further Reading: - Meta Pauses Ads for Users Under 18 in Europe as It Rolls Out Subscriptions  - Meta Plans to Charge $14 a Month for Ad-Free Instagram  Further Listening: - How Apple Lost to the EU  - Meta’s Metaverse Mess  Learn more about your ad choices. Visit megaphone.fm/adchoices

What kind of ads do you get served on Facebook or Instagram? You know, there was a time when Instagram really thought that I was like a woman, judging by the number of menstrual products that I was advertised. And I found it actually pretty hilarious. That's our colleague Sam Schechner. He's a technology reporter based in Paris. But then sometimes it's uncannily accurate to what you're interested in or looking for. And then, you know, it's like, well, I guess, yeah, sure, I will buy that product. I get a lot of ads for cooking, various recipe websites. And Instagram has figured out that I have, you know,

young kids and turns out they need to eat every day. Have you ever actually bought anything from these ads? I actually did. I bought like a bike bag. A bike bag? That like clipped onto my bike rack,

which turns out to be something I use all the time because I try to bike to work. They know what ads to serve you. Advertising is crucial to Meta's business. Last year, Meta, which is the parent of Facebook and Instagram, earned more than $113 billion in ad revenue. But that business model has come under threat, especially in Europe. In recent years, the European Union has set out to rein in how tech companies collect

and use consumer data. That's pushing Meta to try something it once rejected, an ad-free subscription option. And how big of a deal is this change? Well, I think it's a major shift for how Meta approaches its business. They've been forced, basically, by European regulations to do something that, you know, they've really only reluctantly agreed to do. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, November 2nd. Coming up on the show, Meta's European subscription rollout. We'll see you next time. How important are targeted ads to Meta's business? Meta's ability to target ads at people who are actually interested in those products or who they have a high confidence that they are is the core of their business and the core of their sale to advertisers.

You know, highly targeted ads are what they do. These ads are how Meta makes money without charging its users. And CEO Mark Zuckerberg has been pretty insistent that the company's core services should be free and available to everyone, regardless of their income. Here's Zuckerberg addressing Congress a few years ago. We think offering an ad-supported service is the most aligned with our mission of trying to help connect everyone in the world

because we want to offer a free service that everyone can afford. That's the only way that we can reach billions of people. Meta has been perhaps the most strident proponent of the advertising model among big tech companies. You know, they have really resisted doing a larger subscription model. It's something that they floated in the past as a sort of like, well, if we're really forced to do it, we will. But it's certainly not been their druthers. Ads to users in the European market bring in a chunk

of change for Meta. That market, which includes the EU, accounts for more than a fifth of the company's global revenue. So, you know, it's not something that Meta could just turn off and say, fine, no problem. You know, they would have investors and shareholders beating down their door. But it's been harder to protect that revenue in the wake of a landmark privacy law the EU passed in 2018. It's called the General Data Protection Regulation, or the GDPR.

Tech companies around the world are prepping for new data legislation that will be enforced in Europe next month. Now, the regulation, it's also known as GDPR, will go into effect on May 25th. The GDPR in Europe basically says, as a starting point, you can't use people's personal information. And it defines that very broadly. I mean, anything that could conceivably identify you could be personal information. And then it offers exceptions. Well, okay, but if a user clicks, I agree, then that's okay. But at that basic level, the GDPR is quite restrictive. And when the law went into effect, you know, Meta, which uses everything you click on and

everything that you post to help feed its algorithms to determine what ads to show you, had a dilemma. How are they going to justify this under the GDPR? had a dilemma. How were they going to justify this under the GDPR? In the lead up to the EU privacy law taking effect, Meta updated its terms of service, that long block of text we all agree to when we sign up for Facebook and Instagram. The change happened in the spring of 2018. And Sam says he noticed it right away. I opened up Facebook. You know, pop-up basically saying that they're going to use my data to show me targeted ads. And then there was one option, one blue button that said, I accept. By tapping I accept, you accept these updated terms.

And so I tried to click the little X in the upper corner. And what popped up was a little pop-up that said, if you don't accept these, you can't continue to use Facebook. You can delete your account and we'll give you the option to download a copy of your information first. In other words, users had to either accept the terms or get off Facebook. I was curious, like, will this fly? And what was the answer to that? What happened is that there was this long and drawn out process to determine, you know, whether or not this would pass muster. And, you know, all of these regulators meet behind closed doors. It's not public until the decision's issued to Meta. There was a big meeting scheduled,

I remember, for early December 2022, where they were finally going to vote how this was going to go. And lo and behold, it was not the outcome that Meta would have hoped for. You know, there was a majority, this European board that said, nope, you cannot use your contracts to justify these ads. So Meta tried a different approach. The company created a way to opt out of targeted ads that are based on how you use their apps. But you had to know where to look.

And what happens is they actually put something buried in their help files, this long form that you could fill out to request, to lodge your objection to their doing this and request that they not use that data. And you had to actually, the form actually had a field where you had to fill in exactly which rights of yours you felt were being infringed by their doing this.

Okay, it's like homework for the user. Yeah, I mean, I can guarantee that precisely no one filled this out. Maybe a couple privacy lawyers did out of curiosity. As a tech reporter covering this stuff, I was like going to fill it out out of reportorial interest, but never found the time. Oh, okay.

Well, that says a lot actually about how inefficient that was. Well, it was obviously the point. Then an unrelated EU court decision said Meta had to ask users up front for consent to show these ads, and still let them use Facebook or Instagram if they said no. That's what pushed Meta to do the thing that it was trying to avoid, a subscription service. That's next. That's next. Wherever you're going, you better believe American Express will be right there with you. Heading for adventure? We'll help you breeze through security.

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Look for new value programs when you shop at Loblaws, in-store and online. This week, Meta said it would soon launch a subscription option for many users in Europe. You're going to get a choice now about whether they can use all that data, you know, figure out that you're into cooking or kids or exercise.

You're going to get a choice now about whether or not they use that data to show you ads. But there's a catch. You're going to have to pay them if you don't want them to use that data but still want to use Instagram or Facebook. So if you are on your desktop, when you sign up, it'll cost $9.99 a month in euros. So maybe $11 for a subscription.

But because of the fees that app stores charge, it would actually be $12.99 a month if you sign up on your phone on Android or on iOS. So there's sort of a choice, sort of. Yeah, I mean, it's a choice. And this is something that privacy regulators and privacy activists in Europe have been agitating for since the EU's privacy law came into effect, you know, some five years ago. And so they're finally doing it. And yet all of those activists, I think, are pretty upset

because they weren't expecting that they'd have to pay for it. I mean, it's not an insubstantial amount for people who, for most people who presumably are already paying subscriptions for a lot of other things. It's a significant amount of money. And I think that it's not Meta's goal that a ton of people sign up for this. I think their goal is to comply with EU regulations in some way that they can get

regulators to at least grudgingly sign off on or that will hold up in court while maintaining their business model. their business model. If Meta or when Meta rolls out this subscription model, is that option available for everyone in the EU? No, it won't be available for people under 18. It won't be available for younger teens and kids. And, you know, that is actually a big surprise that I saw when this first came out. But they're actually suspending, they say temporarily, and they're suspending all advertising for people under 18 in Europe. And, you know, part of the reason is actually a totally separate EU law. The EU is really piling on these tech laws lately. And one of them that regulates social media and content moderation has a ban on targeted advertising or what they call micro-targeted advertising for minors.

Meta said that the EU High Court's recent decision gives it the blessing to offer a subscription model. And the company said that its plan is meant to comply with both the spirit and the purpose of EU regulations. Meta's mostly been in touch with the Data Protection Commission in Ireland, because that's where its European headquarters are. And, you know, the regulator in Ireland has given them until towards the end of November to make this change. But at the same time, you know, other privacy regulators in Europe have remained pretty upset at how Meta is handling the situation.

Then unexpected news came yesterday. Other EU privacy regulators pushed through a ban that effectively steps up pressure on Meta to launch its subscription model before the ban takes effect. The question then becomes one of timing. You know, if Meta to launch its subscription model before the ban takes effect. The question then becomes one of timing. You know, if Meta manages in the coming weeks to roll out its subscriptions, then it could claim to have a compliant process where they're asking for consent. We're likely

to see this subscription model, you know, in effect really soon because Meta is under the gun. And if they can't figure out a way to either get people to agree to those targeted ads or make up the money through subscriptions, it's going to be a real hit. How likely is it that Meta might begin rolling out subscriptions here in the U.S.? I think given the historical opposition that Mark Zuckerberg and the company have had towards subscription models, I think it's pretty unlikely. I mean, they made pretty clear in announcing this move that, you know, this is something they've done reluctantly that they would prefer not to have done. And I think that they will only do this in the US if similar

rules end up being passed. Now, that's not to say it's impossible. Privacy laws in the US, especially in some states like California, are starting to get tougher. And questions around consent and online tracking are gaining traction in certain parts of the US. So it's not totally impossible that something like this would happen. But I think that for the same reason that they resisted it so long and through as much legal heft at fighting these questions in Europe, I think they would do that even more so in the US, which is, of course, their core market. But the winds of Silicon Valley are changing. More and more companies are offering subscription services.

You know, you have Twitter. Sorry, I should say X and Snap are offering subscription services. So, Sam, you're based in Europe. When you get the option sometime in the coming weeks to either let Meta serve you targeted ads or to pay to subscribe, what would you choose? That's a good question. You know, I don't really have a media budget that, you know, has another spare 10 euros a month just for the luxury of not getting those exercise ads and cooking ads that I'm used to. You know, I think probably like the vast majority of users,

I will, perhaps with a little bit of reluctance, click OK. That's all for today, Thursday, November 2nd. The Journal is a co-production of Spotify and The Wall Street Journal. If you like the show, follow us wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.