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Meta’s wide reach and success around low-funnel objectives can be worth it. CPMs might be high, but if a brand’s cost per order has remained stable, it’s likely a worthwhile
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This article is part of a limited editorial series, called The 2023 Notebook, and is designed to be a guide to marketing and media buying in the new year. Explore the series here.
This is not a prediction piece proclaiming 2023 will be the year TV advertising’s upfront model undergoes its long-awaited overhaul. No, that will be 2024, at the earliest, if ever.
“This is an interesting year because there’s just so many different factors of new streamers and weird economy and all that stuff. And then in ’24, I would imagine things might start shifting a bit. I don’t think there’s just going to be a year [when] everything falls off a cliff,” said one agency executive.
That is to say, a landslide is unlikely to sweep the upfront model — an annual marketplace for advertisers, agencies, TV networks and streaming services to sign long-term deals — into the sea in 2023. But the upfront model as it has existed for decades is eroding. There are swells — in the form of measurement changes, streaming shifts, flexibility demands, buying approaches and economic instability — that are sending waves pounding against the cliff and changing the shoreline.
“The idea that the upfront should go away or that large advertisers should not participate in reserving media via the upfront is a step too far in my opinion. However, not acknowledging that the days of old are past us is also a mistake. We as an industry must recognize that the needs and expectations of clients have changed, and that means we have to be willing to let go of historical norms and embrace heightened transparency, flexibility and transformation across the ecosystem,” said Geoffrey Calabrese, chief investment officer at Omnicom Media Group.
The upfront model “might evolve, but I don’t think [the change is] going to be the fundamental construct of this futures market where a few key things are agreed to in advance. That will remain as a construct,” said a TV network executive.
“I don’t see the upfronts going away anytime soon, but maybe they become less and less material as the years go on,” said a second TV network executive.
The TV advertising industry’s ongoing currency changeover is its version of a 100-foot wave. Nielsen’s measurements have been the primary basis for upfront transactions for decades, so a move to adopt alternative measurements is a seismic shift.
“When you say tectonic, you’re talking about currency. It’s so much bigger than everything else,” said the first TV network executive.
But tectonic plates move slowly. 2023 stands to be another test-and-learn year as advertisers, agencies and TV networks sort out which measurement providers are ready to be relied upon as currencies, with Nielsen planning for Nielsen One to replace its legacy measurement system in 2024.
“The real fuse on this is probably September of ’24,” said the first TV network executive referring to Nielsen’s measurement system update.
“I don’t fundamentally believe the sell side is ready to do a rate card on a new currency,” said a third TV network executive. This person projected that the industry is “at best 15 months away from implementing new currencies.”
“A lot of us thought the 2022-23 upfront would set up for a monumental change for [the 2023-24 upfront cycle]. My feeling is ’23-’24 is going to set up that change, from a measurement currency standpoint, for ’24-’25,” said a second agency executive.
In the meantime, there remains the need for the various measurement providers to gain universal support among buyers and sellers. “There needs to be more uniformity in terms of measurement systems to move the ball forward in a meaningful, seismic way,” said the first agency executive.
Then there are the other swelling developments. Among them, the buy side continues to call for the sell side to provide greater flexibility in upfront deals. While TV network owners have conceded to less stringent cancelation options on the linear TV side, they have also pushed advertisers to adopt those linear terms on the streaming side of their upfront deals as opposed to supporting the Interactive Advertising Bureau’s standard 14-day, 100% cancelation option for guaranteed digital deals.
With the IAB kicking off a two-year process in 2023 of updating its terms and conditions — including potentially rewriting its cancelation standard — agency executives hope to not only maintain the standard but broaden its support on the sell side to at least span all streaming and digital video inventory. And with the broader advertising slowdown, agency executives see an opportunity for the 2023 upfront to shift to favor buyers and put them in position to press for greater flexibility options.
“Buyers, in general, have pushed for more accountability and more flexibility for three years. When we have the upper hand, we can push on some of those areas. And other times it’s little harder,” said a third agency executive.
TV network executives are not so uniformly committed to such a change, but they did acknowledge the need for more flexibility in upfront commitments.
“I fundamentally believe that the sell-side has to meet marketers where they want to be; the video ecosystem has to evolve. Additional discussions around flexibility are still on the table. Cancelation windows, days’ notice, the ability to move it across viewing windows – this should be part of the conversation for all of the players collectively advancing the marketplace,” said Peter Olsen, president of ad sales at A+E Networks.
Additionally, there’s the rise of streaming — with streaming-only sellers like Roku and YouTube typically providing that greater flexibility in their upfront deals — as well as the shift from show-based buying to audience-based buying. Both are growing areas of the business that don’t really fit the traditional upfront model.
While the likes of Disney and NBCUniversal peddle their programming as a scarce resource, the likes of Roku and YouTube are selling their ability to put advertisers in front of audiences almost irrespective of the programming. TV network owners are similarly pushing more audience-based buying options to appeal to advertisers more concerned with targeting certain audiences to drive lower-funnel objectives, like product sales and website visits, than reaching broad audiences to raise brand awareness.
To be clear, audience-based buying does currently play a role in the upfront market. TV networks take the money advertisers commit in the upfront and allocate some of it toward their advanced advertising products that target ads beyond the traditional age-and-gender-based segments. But in some respects, audience-based buying is antithetical to the upfront model, and its growing prevalence — catalyzed by the shift in audiences and ad dollars to streaming — poses a threat to the upfront.
“The discussion with everyone is what’s the use of the video space from a standpoint of awareness down to purchase. That’s got to get right-sized and figured out,” said the third TV network executive.
“As we get more advanced with audiences, currency and measurement, the upfront weakens in its need because you’re using the entire funnel at all times, and the stuff you’re buying upfront is for awareness,” said the second agency executive. “Brand awareness, if you think about it, is the main function of video inventory, especially long-form and linear. Once that need goes away, maybe you don’t need the upfront.”
And that tees up another threat to the traditional upfront model. Some newer, digital-native advertisers are less willing to commit to the fixed, upper-funnel nature of an upfront deal. That unwillingness is exacerbated by the fact that these advertisers are typically pressed to pay higher rates in the upfront than legacy upfront advertisers that are dealing off price points set decades ago. Additionally, newer upfront advertisers, such as direct-to-consumer brands and cryptocurrency companies, have hit rough patches with their businesses that mitigating their participation in the upfront.
“What we started to see was the DTC guys grew up, they started in social, they started to embrace TV in some way, shape or form. Peloton was a huge spender two years ago; now they’re virtually gone,” said the second TV network executive.
“Those new advertisers aren’t coming in with massive budgets. A lot of them disappeared,” said the second agency executive.
“Certainly the biggest problem these days with the upfront model is, while it’s still a very good efficient model for clients who know they want to be there, with things so up in the air, it’s hard for these guys to commit,” said the first agency executive.
Which brings us, finally, to the economic downturn that may or may not continue into next year’s upfront cycle.
Multiple agency executives said they expect the amount of money advertisers commit in the upfront in 2023 to be lower than the amount committed in 2022. However, they caveated by acknowledging that companies’ financial circumstances could change by early summer when negotiations kick off. They also said the economic conditions could lead some advertisers that expect to continue to advertise on TV and streaming throughout 2023 into 2024 to be more likely to commit to upfront deals in order to secure lower ad prices than what they may encounter in the so-called “scatter” market, where TV networks and streaming services sell inventory unclaimed by upfront advertisers.
“You never want to be that advertiser that gets caught in scatter and you’re just paying through the nose,” said the first agency executive.
“People think of the upfront as leverage for sellers, but the reality is it’s an enormous opportunity for buyers because it does give them fairly significant cost advantages,” said the first TV network executive.
To conclude, the upfront as a part of TV advertising’s future seems fairly fixed, but the role of the upfront in the future of TV advertising appears to be much more fungible.
“We did a lot of road trips this fall seeing clients and agencies. I never felt less consensus on what to do,” said the third TV network executive.
This article is part of a limited editorial series, called The 2023 Notebook, and is designed to be a guide to marketing and media buying in the new year. Explore the series here.
Since computer scientist Gavin Wood coined the term “Web 3.0” nearly a decade ago, the concept has become a blanket reference for everything from crypto and metaverse platforms to emerging tech like augmented reality and virtual reality. And despite all the hype and hullabaloo about Web3 over the past two years, marketers say 2023 will be another year of experimenting amid uncertain budgets and uncertain results.
As companies test various aspects of Web3 tech, more brands such as Tiffany & Co., Starbucks and Nike have moved beyond merely collectible NFTs in favor of token-gated commerce, loyalty programs and other ways to interact more directly with consumers via first-party data. These types of projects still make up just a small part of marketing compared to Web2 social channels such as Facebook, Instagram and Twitter. However, research firm Gartner expects that by 2027 more than 40% of large organizations around the world will be using Web3, spatial computing and other metaverse-based projects as ways to increase revenue.
Data challenges and the economic climate are also putting marketers in a challenging catch-22 situation. Privacy changes and less reliance on third-party data give marketers new reasons to try alternative marketing channels, said Andrew Frank, a vice president analyst with Gartner’s marketing practice. On the other hand, budget pressures and negative crypto news make marketers more cautious about trying potentially risky Web3 initiatives.
“There are so many issues at play in the evolution of marketing data strategies and operations,” Frank said. “This is resulting in a broad range of approaches to Web3-style innovations in customer data and relationships, with a cautious majority and an ambitious minority. We expect to see some successful patterns in Web3 loyalty begin to emerge and be replicated, but economic conditions make it hard to predict how long this will take.”
As third-party cookies continue their slow process of deprecation, some see more potential in using first-party data with Web3 capabilities. But many of the promises of Web3 are still in their infancy — and in most cases still unproven. There’s also the chance that 2023 might be a year of what Forrester describes as “metaverse washing” by trying to make old media fancy with new terms. However, analysts say brands would be smart to try new things rather than repackage the old.
This year will be “the year of the dynamic NFT,” according to Rob Davis, chief digital innovation officer for MSL U.S. But instead of seeing the adoption of truly decentralized platforms, he expects the year will see increased interest in “safe” and “less radical” aspects of Web3 such as “metaverse-ish” experiences that are still just Web2.
“If we are going to discuss who is bullish about Web3 and who is not, we have to agree on what Web3 is,” Davis said. “If we are talking about using blockchain as a platform upon which experiences are built, I’d say quite a few brands are bullish. If we are talking about decentralization and demolishing the status quo, then my answer would be quite the opposite.”
To that point, crypto-enabled Web3 platforms still have a tiny user base compared to Web2 virtual worlds like Roblox, which had 13.5 million app downloads in November 2022, according to data from Sensortower. For example, The Sandbox — which has worked with more than 200 brands including Adidas and Gucci — had just 2,000 app installs worldwide in November. And Decentraland, which has worked with brands such as Heineke and Samsung, had just 1,000 installs worldwide in November for its Decentraland Explorer app and only 10,000 downloads to date.
Marketers experimenting with Roblox and other emerging platforms say there still aren’t enough measurement capabilities yet to prove what’s worth it or not. Meanwhile, others note that it’s important that platforms like Roblox and others don’t become too cluttered with ads. Instead, it’s better to be smart about creating experiences rather than clutter, said Kevin Renwick, media director at Mekanism, which worked with Eos on its Roblox experience.
“Otherwise it’s just going to be like Times Square in the metaverse,” Renwick said. “A lot of noise but into the abyss.”
In November, Red Wing made its first experience within Roblox by inviting gamers to design virtual “tiny houses” in exchange for the company donating to an organization that makes miniature homes in real life. A month later, Eos — a millennial and Gen Z-focused beauty brand — made its own debut on Roblox with a Christmas-themed starring Mariah Carey that included a multi-day event with a digital playhouse, free in-game items and ways to interact with Carey’s avatar on a virtual stage.
“If you want to remain a modern brand in today’s world, if you want to be a contemporary brand in today’s world, you have to play with some risks,” said Red Wing CMO Dave Schneider. “One of the risks is playing in spaces that frankly we don’t know where it’s gonna go exactly.”
Eos CMO Soyoung Kang wanted to reach users where they already were. “We start looking for new opportunities for where there are emerging platforms where you’re getting an outsized investment,” Kang said.
There’s also still the big question of whether people even want whatever the metaverse has to offer: a recent Forrester report pointed out that less than half of online consumer plan to ever become metaverse users. And after non-fungible tokens were all the rage in 2021 and 2022, NFT trading volume dropped 97% from its January peak through September.
Amidst the myriad challenges, mixed expectations and more skepticism, surveys of business execs say they think the metaverse will be a part of their business in the near future. According to PwC’s 2022 survey of 5,000 consumers and 1,000 business leaders in the U.S., 66% of executives said their companies were already engaged in something related to the metaverse, 38% said it would be part of their business in 2023 and another 44% said it would be within three years.
“I use the analogy that someone came up with via the early days of the internet and dial-up with no graphic user interface until the late 80s or early 90s,” PwC CTO Joe Atkinson told Digiday in an interview last fall. “If it took us 30 years to get here, it might take us another 15 years to see the early power of Web3.”
Some see Web3 tech as beneficial beyond marketing. According to Raja Rajamannar, chief marketing officer at Mastercard, the “tsunami of emerging technologies” will continue bringing disruption to the sector. Despite the economic uncertainty, he said marketers should still experiment with them and decide which ones to prioritize, monitor and adjust.
There is also plenty of scrutiny on the sector. Last month, the Federal Trade Commission fined “Fortnite” maker Epic Games $520 million over allegations including deceptive marketing and data collection practices directed at children. Roblox has also faced criticism from consumer advocacy groups, which claim the company doesn’t properly disclose ads or have enough protections for safeguarding users against malicious actors. Meanwhile, some celebrities have faced increased skepticism, lawsuits and government settlements related to their roles as paid spokespeople for cryptocurrency companies.
Amid all the crypto criticism, one could see how this part of the budget could be the first to go facing bumpy economic conditions. But Geoff Renaud, co-founder and CMO of Invisible North, a Web3 marketing agency, expects VC funds to continue to support metaverse innovation.
“The tens of billions of dollars raised by VC funds must be deployed, so despite market conditions, you will see a lot of fresh funding for new projects,” Renaud said. “Innovative ideas will be awarded as funding scrutiny will be much tighter in 2023 as the bear rages on,” Renaud said.
Future plc closed its office in Atlanta, Georgia last month, less than a year after it opened as the new video production hub, according to two former employees and one current employee who spoke with Digiday.
A spokesperson would neither confirm nor deny the office closure and said that the business was “just as effective in a remote capacity” in an emailed statement. “We constantly review our location strategy in order to identify areas where changes may be necessary,” according to the statement. The spokesperson did not answer questions addressing how this will impact the people it hired to grow the hub or whether it indicated a pivot in its video strategy.
The office opened in February 2022, and the plan was to hire over 100 people based in Atlanta in editorial, sales and production roles to produce more women’s lifestyle, home and entertainment content. Future executives had sought to hire video creators, influencers and producers in the area to work from its new, 16,000 sq. ft. space on the fifth floor of the 55-story Bank of America Tower.
The move is likely a cost-cutting effort by the company, which relies on advertising and affiliate revenue — two areas that have been hit by economic headwinds, a former Future employee told Digiday.
Closing down the office “was probably one of the ways that they tried to smooth it over. Instead of eliminating a bunch of jobs, they eliminated offices,” the former employee said. They said at least 30 people had been hired for the Atlanta office by the time they left the company last fall.
The hub was tasked with creating more inventory for advertisers to monetize among its brands including Tom’s Guide, TechRadar and Marie Claire, Future execs told Digiday last year. Video typically brings in higher CPMs than other digital units like display ads.
A current Future employee said some of the video production team is now based out of the company’s New York City office.
“As far as I know there haven’t been impacts from the office closure… just a move to remote,” the current employee said.
Digiday spoke to two contractors who asked to remain anonymous and who worked in the video department from the Atlanta office, who were let go last year. They described a work environment that lacked communication and direction from leadership.
One of the contractors, who worked on the video content for one of Future’s publications, said they were promised a “full-blown production team and a full office” when they started at the company in the spring. But when they were fired in the fall, the team hadn’t grown at all.
“Turnover rate was very high. We were not able to build our team more than the three to four people there at the end [of my time there],” they said.
Another contractor who worked on the video team was let go after about a month on the job. “They didn’t have the budget to pay me,” they said. “Everything was unorganized. Sometimes I would just get in the car and cry.”
As the new year gets underway, PepsiCo Beverages is ramping up its video marketing efforts to better reach shoppers across an increasingly fragmented landscape. To do so, the company and its portfolio of brands are diversifying their media mix across several video ad platforms, especially streaming.
“We need to drive scale in order to sell a lot of products,” said Katie Haniffy, senior director of media strategy and investment at PepsiCo Beverages. “When you have all these individual, little platforms, we’re just trying to figure out how to navigate that.”
Pepsi has a holistic video strategy that includes linear television, live sports broadcast spots, streaming, social media, digital video and connected TV, per Haniffy. When it comes to to social, Pepsi is leaning further into influencer marketing, working to “establish the necessary metrics to measure it against other platforms,” she added. This year, Pepsi plans to invest more in video advertising to better reach consumers across multiple platforms, whether that be social or video.
The streaming wars have grown to a fever pitch in recent years, with NBCUniversal, HBO and many others rolling out their own platforms, vying for viewership to compete with the likes of Netflix and Hulu. The competition has made for a fragmented media landscape, challenging brands like Pepsi to find the most cost-effective way to capture and keep consumers’ attention.
“We’re trying to figure out the evolution of our next holistic video strategy,” Haniffy said. “That’s included more of the streaming platforms, and then managing the costs.”
To that end, first-party data has grown in importance for Pepsi, especially as third-party data has become scarce with Google’s plans to end its support of third-party cookies. This means that 2023 will be a year of testing and learning for Pepsi via loyalty programs, sweepstakes and other efforts to collect enough data to inform the company’s marketing and advertising strategies.
It’s unclear how much Pepsi’s new investment in video advertising will amount to, as Haniffy did not offer specific details. According to Kantar, out of Pepsi’s portfolio, nearly $63 million ad dollars were shelled out for the Pepsi beverage brand from January to September of 2022. That figure is significantly down compared to the same time period in 2021, when the company spent nearly $103 million. Meanwhile, Pathmatics reports that Pepsi’s ad spend from January to November of 2022 was $23.4 million, not far off from the $29.5 million spent during the previous year.
Pepsi’s moves bring to light that gone are the days of the “spray and pray approach,” in which advertisers run video ads across all outlets in the hopes of reaching as many viewers as possible, as David Mirsky, group director of media at MMI Agency, puts it.
“Now that the standard TV experience has been disrupted, the big question for Pepsi is: How do they get in front of the fractured audience that used to be in one place?,” Mirsky said in an emailed comment to Digiday.
Simply put, advertisers, including Pepsi, will likely spend the bulk of 2023 figuring out where, when, how and why to spend their ad dollars in today’s fractured video marketplace.
“It will always be a challenge to win consumer attention but we are getting better at it,” Haniffy said. “As we continue to diversify our mix and test and learn in new areas, we’re getting smarter about our investments and making sure we have the right tools to generate — and measure — maximum ROI.”
The current economic downturn continues to expose the frailty of esports’ financial footing and critical need for reforms. Now, sky-high salaries for the best players — once deemed a cost of doing business for successful teams — is a cause for concern.
That’s the worry making the rounds among esports circles these days. And those insiders may have a point. The money that largely fuels player salaries in esports — i.e., from venture capital investors and advertisers — is drying up as the economy gets dicier. The scarcer those funds become, the harder it is for esports organizations to secure (and retain) the best talent.
Look at what happened to teams participating in the Overwatch League and Call of Duty League, as examples. Teams reportedly owe around $400 million to publisher Activision Blizzard, which agreed to defer franchise payments when the COVID pandemic struck. It seems likely those payments will be deferred yet further. Activision Blizzard did not respond to a request for comment.
“We’re watching [venture capitalist investors] check out and pull out entirely of this space,” said Ryan Morrison, CEO of talent management firm Evolved Talent. “VCs expected [team owners] to 10x their business model, and they did that by paying absurd salaries to really good players to try to win and build their brand. But you can’t 10x an esports organization like that, so these team owners are in a place where they’re now hemorrhaging money with no success.”
Esports teams agree that to be successful they need the best players, and because esports salaries operate according to an open market system (there is no unionization in esports leagues and thus no collective bargaining agreements determining what teams can spend), the only thing that limits a team’s spending is its owner. Rich teams pay big for the players they want, which has destabilized salaries across the board because it boosts the expectations of players.
Some Valorant pros are earning north of $40,000 per month — more than $480,000 a year — according to two current players with tier-one experience and confirmed by an executive who has negotiated player contracts in Valorant. Many other players, some playing for partnered teams and some not, are earning $20,000-$40,000 per month. The average Valorant team consists of five players. Those costs start to add up fast.
Such spending is a slippery slope many team owners have been on for a while.
In 2020, League of Legends player Perkz agreed to more than $2 million per year for three years as a Cloud9 player; Jensen agreed a three-year, $4.2 million deal with Team Liquid; and SwordArt signed a two-year, $6 million contract with TSM. Each of these deals was in North America’s LCS. League of Legends publisher Riot Games declined to comment on this story.
Even then it was clear that inflationary pressure had already affected player salaries in the top esports leagues.
Hal Biagas, then the executive director of the NALCS Players Association, claimed the average yearly salary for players in the LCS — North America’s top-tier League of Legends competition — was more than $410,000. In 2021, LCS player salaries rose to their highest levels ever, one league source told Digiday. Salaries then remained flat from 2021 to 2022. On top of player salaries, orgs also spend on coaches, support staff such as psychologists, boot camp facilities, and more.
The more popular the esport, the more acute these problems are.
“[When teams] need to get a foothold… it doesn’t matter to them if they double the salaries of a few players,” said Dave Martin, director at investment and consultancy firm Esports Global. “But actually it really does matter. … Then everyone looks across and goes, ‘What is he or she worth? What am I worth?’ If they’re getting £10,000 a month now in Rocket League, I should be getting £10,000 a month.”
Salaries tend to destabilize in this way when they are not controlled, as other sports have shown.
In the ‘Championship’, the second tier of English football, it’s a scramble to the Premier League, where promotion is winning the lottery. In spending their last dimes on pricey players and lofty salaries, many teams, like Derby County — which as of 2020 spent 160% of total revenue on player salaries — have struggled. In fact, in the Championship, the average wage-to-revenue ratio is 125%.
This kind of unbridled spending is less of a problem during boom times because owners and investors are keen to grow at all costs; in a downturn, however, return on investment becomes more important. This is especially the case in esports. Blame it on a bunch of reasons, but ultimately, stakeholders are checking out of the space because there is simply less chance of a payoff from esports competition than from traditional sports competition.
Esports orgs are not money-spinning machines. Cash sources are few and far between, and even some existing sources, like tournament winnings and skin sales, are largely shared among players.
Unlike traditional sports teams, esports teams, many of which spend around 100% of their turnover on player salaries, have no media rights revenue to cash in on. Nor do they have the strong bases needed to make money from merchandise sales and sponsorships. More often than not these teams turn to offering white-label production services, selling streetwear, and ramping up content creation to make money.
“The objective failure of the Overwatch League and [Call of Duty League] has led investors to get more intelligent about [esports investment],” said Devin Nash, former CEO of Counter Logic Gaming and co-founder of agency NOVO. “From their standpoint, they already know that this is not the play they thought it was.”
As the industry journeys through its first (possible) recession, the risk of salary inflation short-circuiting teams grows. Esports must find a way to tame player salaries, or find other sources of income to supplement competition — which, in that case, must be found alongside a reason to continue with esports at all if it remains a money-burning operation.
It turns out that Meta has been illegally forcing users to accept personalized ads across Facebook and Instagram for years — at least that’s the case in Europe. Earlier this week, Ireland’s Data Protection Commission (DPC) ruled that the social media giant has been engaging in this practice, even after it changed its terms of use back in 2018. In other words, users must accept Meta’s terms or they can’t use any of its platforms.
The ruling and its consequences could fundamentally change how Meta’s ad business makes money in one of its largest markets going forward.
But before we dig into the hypotheticals, here’s a quick recap of what has actually happened: According to the DPC’s investigations, Meta hasn’t been transparent about how users’ data is collected and used. Buried deep in the tomes that are the terms and conditions for each of Meta’s social platforms are statements that essentially mean someone must either agree to let their data be used to serve them targeted ads or stop using the services altogether. This didn’t sit well with the DPC.
“The DPC considered that a lack of transparency on such fundamental matters contravened Articles 12 and 13(1)(c) of the GDPR,” stated the regulator. “It also considered that it amounted to a breach of Article 5(1)(a), which enshrines the principle that users’ personal data must be processed lawfully, fairly and in a transparent manner.”
It’s further evidence of the law catching up with (and coming down upon) all the players in the behavioral advertising ecosystem.
Meta has been ordered to pay a hefty fine of €390 million ($412 million), of which €210 million ($222 million) relates to Facebook, while the remaining €180 million ($190 million) relates to Instagram.
All told, a fine like this is like a parking ticket for the likes of Meta. The real issue is what happens next. The DPC stated Meta Ireland has three months to sort out its data operations so they comply with the GDPR going forward. However, it hasn’t specified what Meta must do to rectify the situation — leaving many curious about what road the social media giant might take.
Cue a lot of speculation as to whether the jig is finally up for Meta in one of its biggest markets. Last fall, Meta reported it had around 408 million users in Europe.
Nigel Jones, director of The Privacy Compliance Hub, said he believes Meta will have to find a legal basis for using customer data to serve up behavioral advertising and be completely transparent about it. This is no easy feat for even a company as fleet-footed as Meta.
“It can’t force users to consent and it can’t hide things away in its terms and conditions,” he said. “Therefore, it seems likely Meta is facing a direct choice between arguing that it has a ‘legitimate interest’ in using data in this way, or asking users to freely choose whether they consent to behavioral advertising.”
That second option is easier said than done.
Russell Howe, vp of EMEA at data control business Ketch, said Meta could go down the path of full transparency by building trust from the outset with a comprehensive and clearly communicated set of data collection purposes defined for every channel and interaction in the Meta estate. After all, this is the general direction the market is headed — even if some parts of it are being dragged toward it kicking and screaming.
Alternatively, Meta could employ a very simple accept or reject all compliance banner that has been enough to check a box for a number of brands the world over, suggested Howe. “The latter is also still under scrutiny by the regulators — but Meta has the opportunity to step out of the shadows and build a real data driven relationship with their users,” Howe said.
Let’s say Meta did bite the bullet and opted to give users the choice of whether they want their data used for targeted advertising. There’s a chance that could blow a big hole in its ads business. Remember what happened when Apple insisted companies asked its mobile customers to opt-in to being tracked by them within each individual app? A lot of people did choose to indeed not be tracked by their apps, and advertising on Meta’s platforms struggled.
There’s a chance that history could repeat itself. If a large portion of those users decide not to share their data with Facebook and/or Instagram in the future, it would ultimately kneecap one of Meta’s most prized parts of the business: its plethora of data related to users’ digital footprints. And that information is used by marketers to ensure ads get in front of people who are most likely to buy their products.
The whole reason why companies use Meta’s ad services is because they can target pretty well, explained Steffen Schebesta, CEO of Sendinblue. Advertising to anyone without geographic limitations, gender, age group, interest, etc., will cause spending to drop dramatically, he added.
Moreover, if a significant number of people do choose to opt-out, the price of advertising could be greatly devalued, throwing digital advertising for a tailspin in an already touchy market.
“This could lead to a pricing reset which could compound Meta’s challenges with TikTok as a competitive force,” Doron Gerstel, CEO of global ad tech company Perion, explained. “Meta has tried and failed to generate alternative revenue streams beyond advertising, such as its unsuccessful Libra currency, so this will have to change fast. When Apple unveiled its update that allowed users to opt-out of being tracked, billions of dollars were lost — so there is quite a bit on the line.”
With that said, there could be long-term gain to be had if Meta is willing to endure short-term (well, relatively) pain to run an ads business built on the back of an opt-in policy.
According to Howe, while the quantity of data would decrease, the quality of data would actually increase. After all, people would be choosing to be advertised and marketed to by sharing this particular information — which can only be good for targeted marketing.
“All too long marketers have been addicted to the quantity of data collected as a measure of success rather than the person behind the data itself which provides a greater depth of quality and thus a trusted and more loyal relationship,” he said.
A lot, but trying to quantify that is tough.
Looking specifically at Meta’s European market, the social media giant received a total of $15.3 billion in ad revenue collectively from the U.K., Germany, France, Spain and Italy in 2022, while its U.S. market accumulated $48.7 billion, per data collated by Insider Intelligence.
While this EU ruling has highlighted Meta’s unethical data operations across Europe, this is likely the beginning of a longer battle for Meta in the U.S.
Howe said he believes it’s only a matter of time before data laws catch up with Meta in the U.S. California and Virginia went live with their version of GDPR on Jan. 1, and there are three other states with similar policies that are imminent and a federal privacy law also being lobbied in Washington, he said.
Of course, while Meta is under an enormous spotlight, none of this bodes well for other platforms that use similar tactics behind closed doors.
In fact, the DPC’s ruling sets a pretty dangerous precedent for any company doing anything similar. Though, as Schebesta noted, the penalties usually ordered to these Big Tech companies are peanuts, whereas they would effectively wipe out a normal company.
As Matthieu Roche, CEO of ID5, noted, this EU ruling solidifies the fact that if social media platforms are to operate like publishers, they should abide by the same rules.
“The industry is beginning to realize that separating consent for data collection from registration to a digital service should have been an obligation for a long time,” he said. “It’s likely that more platforms that have been using the same shady approach will be scrutinized by regulators and will have to give consumers complete freedom of where to opt-in or opt-out.”