Hi all, it's Rachyl Jones, a fellow on the tech team filling in for David today. Within the last 24 hours, news has surfaced that some of the most popular social media platforms could soon offer an ad-free option for users, upending the business model that social networks have relied on for the better part of two decades.
TikTok is testing a $4.99 per month subscription plan that would eliminate ads for users, Android Authority first reported on Monday. The short-form video platform confirmed it will pilot the option in an English-speaking market outside the U.S. Following the news, the Wall Street Journal reported Instagram and Facebook are eyeing a similar model in the E.U. Parent company Meta reportedly pitched the subscription option to regulators, who are increasingly trying to limit the company’s ability to serve targeted ads. A single Facebook or Instagram account on desktop would cost 10 euros ($10.50) per month, with each additional account tacking on 6 euros ($6.30). On mobile, the price would jump to a monthly 13 euros ($13.60) for one profile, to account for cuts taken by Apple’s and Google’s app stores, the Journal reported.
TikTok and Meta rely heavily on advertising to make money. Last year, 97% of Meta’s $117 billion in revenue came from ads. Shifting towards a paid, ad-free option could ease regulatory pressures and boost revenue, depending on how many users opt-in. The reports also emphasize a growing trend towards offering multiple tiers of service to users. Snapchat and X, formerly Twitter, offer paid subscriptions, though neither comes with a totally ad-free viewing experience (X owner Elon Musk has also indicated his desire to convert X to a subscription-only service, but has not provided any details).
With tests and proposals focused outside the U.S., the prospect of ad-less scrolling in the states appears slim for now. Companies might be reluctant to loosen their grasp on the U.S.’s huge advertising market. TikTok and Instagram don’t report regionalized ad revenue, but for Meta, the U.S. is the big moneymaker. Despite the segment of the U.S. and Canada having fewer active users than other regions Meta measures, including Europe and Asia-Pacific, it contributes more than twice the revenues of these other areas, according to its 2022 annual report.
On the consumer side, the continually increasing number of ads on social media has led to some frustrations. Coupled with an increased focus on privacy from many users, the demand for a paid subscription plan is clear. How effective these tiers will be in solving these issues, however, is yet to be determined.
For companies to make the option worthwhile, they must charge the equivalent of what it makes off individual users by serving them ads. In the fourth quarter of 2022 (Meta’s best quarter of the year), the average revenue per user in the U.S. and Canada was $58.77, which works out to be roughly on par with the $20 a month that Meta is reportedly considering charging for a Facebook and Instagram mobile account. As far as we know though, Meta isn’t thinking of offering the subscription plan to U.S. users; it wants to roll it out for users in Europe, where the average revenue per user in Q4 was $17.29, or roughly $5.76 per month. By that measure, at least, Meta’s move to paid subscriptions could be financially beneficial.
The question then becomes how high the ceiling is—in other words, how much room is there in the long term for Meta to raise the price it charges for a monthly subscription compared to how high its advertising revenue could grow?
Rachyl Jones
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