United States: The Law And Business Of Social Media - Status Updates - 23 May 2016

Will Ad Blockers Kill Online Publishing?

The Internet contains over 4.6 billion Web pages, most of which are accessible for free, making content that we used to have to pay for—news, videos, games—available without having to hand over a credit card number.

What makes all of this possible is online advertising. As Internet industry commentator Larry Downes has noted, "If no one views ads, after all, advertisers will stop paying for them, and without ads the largely free content of the Internet has no visible means of financial support."

The deal is pretty simple: We put up with the ads and, in return, we get free access to a bottomless pool of content.

This system worked well for two decades. And then along came ad blockers—software that allows Internet users to avoid online advertisements by targeting the technology used to deliver the ads, the URLs that are the source of the ads, or the mechanisms that enable the ads (even video ads) to be displayed in a certain way.

A Growing Threat to Online Publishers and Advertisers

The use of ad-blocking technologies by consumers grew by 41 percent over the past 12 months; there are now nearly 200 million active users of such technologies worldwide. In the United States, an estimated 45 million Americans are surfing an ad-free version of the Internet.

The use of ad blockers cost publishers an estimated $22 billion in 2015. That's because each Internet user is worth an estimated $215 a year in revenue from online ads, and—as heavy Internet users—people who use ad blockers are likely worth even more.

Moreover, the situation is growing worse, as more people embrace ad-blocking technologies; the damage inflicted this year is expected to be over $41 billion.

Nor do consumers seem concerned by the threat that ad blockers pose to the Internet ecosystem; according to one survey, a mere two percent of Web surfers expressed a willingness to pay for ad-free access to online content.

What's a Beleaguered Publishing Industry to Do?

As more consumers adopt ad blockers, publishers are searching for ways to curtail the harm to their businesses. Unfortunately for publishers, many of the solutions being considered are unlikely to alleviate the problem.

Litigation against ad-blocker vendors is one option, but the chance of success may be low. No major lawsuits against ad blockers have been filed in the United States but, in Germany, where at least six publishers have sued Eyeo, the owner of Adblock Plus, the courts have held each time that ad blockers are legal.

Some publishers are looking for technological solutions to the problem. The New York Times, for example, is reportedly exploring the use of technical mechanisms to thwart ad-blocking software, but so far there's been no word on the success of those technical mechanisms. One imagines, however, that any blocker-busting technology adopted by the publishing industry will simply spur the creation of next-generation ad blockers designed to circumvent such technology.

"Native advertising" was once viewed as a promising strategy for sneaking ads past ad-blocking technology. Characterized as advertising that "follows the natural form and function of the user experience in which it is placed," native advertising is often called "sponsored content" or an "advertorial." But ad blockers have become more effective at suppressing native ads, with help from Federal Trade Commission rules that limit online advertising from too closely resembling editorial content.

Out of frustration, some content providers have turned to brute force to combat ad blockers. Forbes, for example, is walling off all ad-blocking Internet users from its Forbes.com site. Others have taken a softer approach, appealing to their site visitors to resist blockers.

More Promising Approaches?

A better solution than the approaches discussed above is for online advertising to become more compelling and less obtrusive. Improving consumers' online advertising experiences might be the publishing industry's answer to the ad-blocker problem because, while a majority of the consumers who install ad blockers do it because they find most ads distracting and useless, a sizable portion of ad-blocker users have expressed an appetite for some online ads.

While 45 percent of the ad-blocker users surveyed in one recent survey said they install the software because they find the ads annoying (as opposed to installing it to stop online ads from compromising their privacy or the speed of their Internet connections), 30 percent said they block ads in order to remove only "a subset of specific advertising." PaigeFair, the self-described "ad-blocking solutions" company that conducted the study that produced all of these statistics, advises marketers to "tailor an appropriate advertising experience" to that 30 percent.

Syracuse University advertising professor Brian Sheehan writes that one way to improve consumers' experiences with online advertising is to "vastly improve native advertising," not because it will prevent ad blockers from working but because, when it's done with sufficient "flair, relevance and journalistic integrity," native advertising can become "terrific content" and "a great read." In other words, it could become advertising that consumers value and don't necessarily want to block.

Yet one has to wonder if marketers have the discipline to commit to creating more subtle, less obtrusive ads. If anything, the trend has certainly been in the opposite direction, toward in-your-face ads that are impossible to overlook. Even if advertisers were suddenly to tone down their act, it's questionable whether the explosive growth of ad blockers can be reversed. Will Internet users, having grown accustomed to having their cake and eating it, too, be willing to abandon or even curtail their use of ad blockers? It seems unlikely.

Many advertisers and publishers are seeking to make online ads more palatable by creating bespoke online advertising experiences.

The Guardian, for example, is reportedly working with the Interactive Advertising Bureau to implement a customized ad experience that "puts the user in control." James Harris, chief digital officer of the European media giant Carat, applauds the move, noting that "the rise of ad blocking is partly due to the industry 'hitting people with bad-quality ads numerous times, via programmatic trading.'"

But it's hard to believe that bespoke advertising will stop Web users from employing ad blockers. The more ads are tailored to individual users' interests, the greater the potential "creepiness factor" for many such users, driving them to install ad blockers. It's a Catch-22 for the interactive industry: Users hate generic, irrelevant ads but they dislike highly targeted, directly relevant ads as well.

The End of the Web as We Know It?

With no real solution for reversing or even slowing the ad-blocking trend, the free Web model is headed toward major disruption. Currently, 16 percent of U.S. Web surfers use ad blockers—what happens when that number surpasses 30 percent, as it has in parts of Europe? Or reaches 50 percent?

One thing is certain—for publishers, ad blockers are becoming the ultimate killer app. Without advertiser support, the amount of professionally produced, high-quality content made available online will decrease over time. By definition, professional content costs money to create and, without a return on investment, such content will disappear behind pay walls, or just disappear.

We've seen how the rise of online publishing has led to the near demise of traditional publishing. But who could have anticipated that the online publishing industry would so quickly find itself facing its own existential threat?

This post is an expanded, "director's cut" version of an op-ed piece that originally appeared in MarketWatch.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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