Is social media advertising in trouble?

Thanks to European regulators, social media’s subscription era has begun in earnest. Last month, Meta became the latest social media platform to launch a subscription product, offering European users the option to pay ￡9.99 per month—￡12.99 through Apple’s app store—for an ad-free version of its products, including Facebook and Instagram. This comes on the heels of TikTok testing an ad-free subscription priced at $4.99 per month in unnamed countries outside of the United States. Twitter/X already offers a premium subscription—for about $8 per month, depending on how you pay—which reportedly reduces the subscriber’s number of ads seen by half. Snapchat reportedly earns $240 million per year from its $3.99 ad-free subscription product. All of which begs the question: With social-media platforms rolling out ad-free experiences, should digital advertisers be worried?

The ￡9.99 Escape Hatch

In short: No. But to explain why, we first have to answer another question: Why subscriptions now?

For Meta, the answer is simple: Safe harbor. This summer, the European Union’s top court ruled that Facebook and Instagram need to obtain affirmative consent from users in order to target them with personalized ads. What about checking the box on Terms of Service? Courts ruled that wasn’t good enough—and, furthermore, anyone who opts out of targeted ads must still be allowed to use Meta’s platforms. Internal memos have shown Facebook’s engineers are at a loss for how to de-program the company’s ad-targeting systems: Compliance, they predicted in 2021, could take years. At the time of the ruling, Germany’s Federal Cartel office predicted “far-reaching effects on the business models of the data economy.”?

But European regulators appear to have provided Meta with an unlikely escape hatch: By charging a subscription fee to users who opt out of targeted ads, Facebook and Instagram believe they’re in compliance with the new laws. So Meta’s subscription product is actually a novel solution to privacy concerns—one which it hopes will save its much larger, and more lucrative, advertising business.?

Will subscriptions kill the social media ad?

It’s unclear how many European users will take Meta up on the offer of an ad-free experience. Initial reviews are mixed. One Wall Street Journal columnist found Meta’s Instagram subscription “more pleasant” without ads while noting that it failed to remove other ad-like posts including personalized content recommendations and sponsored influencer posts.

But the threat of losing consumers behind a subscribers’ wall is still top of mind for advertisers. Any incremental leakage means fewer user-intent signals for Facebook and Instagram to model—which over time could lead to less effective, and thus more expensive, ads.

There’s also a premium-user paradox seen on platforms like Spotify: In an ecosystem where significant numbers of users opt for a subscription-based service, premium advertisers may question whether an audience that’s opted not to pay ￡10 per month is the most efficient target for their product.?

Social Media Subscription-omics

With or without ads, Instagram is beloved and highly valued by its audience.?

But what’s an Instagram user worth? That question isn’t academic: It’s at the heart of the EU’s social-media regulations. European regulators believe the company has over-valued its subscriptions. A prior compliance proposal from Meta was rejected because regulators found the company’s planned subscription price was too high. So Meta has already found itself caught between the delta of what it believes the platform is worth and what it is permitted to charge.?

And while Meta has announced plans to increase costs for some users next year, it’s possible regulators could instead force the subscription price lower. Already, a European privacy group has filed a challenge to the current subscription model, claiming the current price is too high. Citing Meta’s own documents, the group claims the company’s European revenue-per-user is ￡62.88 per year, far less than the ￡120 per year the company seeks to charge consumers for an ad-free subscription.?

So does a subscription model make economic sense for the world’s biggest social media platforms? In short: Probably not. Meta, by its own admission, vastly favors an ad-supported product. And there’s no evidence users feel differently. Do we expect to see significant numbers of them take Meta up on its subscription offer? We do not. And for the same reasons, we don’t expect to see the subscription model emigrating to the U.S. anytime soon.