Dalton Caldwell, an Internet entrepreneur, made a splash recently by announcing a paid alternative to Twitter and Facebook. His argument is that, because they are beholden to advertisers, these social feed platforms inevitably adopt policies that are hostile to users and third-party developers. By charging a direct fee instead, a competing service would be freed from this pernicious conflict of interest.
Recent criticism of NBC's coverage of the Olympics in the United States strikes a similar note. The TV network wanted to recoup as much as possible of the astronomical fees it paid for rights to the Games. As a result, it has been engaging in hijinks such as rebroadcasting events in prime time as if they were live (since prime time ad rates are higher) and not making events available for live streaming on the internet (since the big media companies still haven't figured out how to make money online).
Advertising-based business models clearly have their appeal. In particular, there is a huge psychological difference between free and any other price (no matter how cheap). Consumers are much more likely to check out a new TV show, magazine or website if they don't have to cough up any cash to do so. Much has been made of "mental transaction costs", the distressing psychological burden of having to decide whether to buy something or not. These are instantly dispelled if the product in question is funded by ads.
Free Has Never Been So Expensive
Nonetheless, there is a lot to dislike about advertising. First of all, many ads are really annoying. Ad agencies discovered decades ago that whiny children with high voices and insipid songs with tacky lyrics stick in our heads, which is presumably why I still remember, 25 years later, which laundry powder promised to eliminate that unsightly "ring around the collar". The same applies to websites, where the worst ads use repulsive images and blinking headlines to catch your eye, while others use every unscrupulous trick to get you to click on them without meaning to.
Is the free content thus financed really without cost? Watching a Hitchcock movie or Mad Men episode only to be wrenched from its carefully crafted universe into the Brady Bunch world of feminine hygiene products or polychromatic breakfast cereal is wholly different from experiencing the same content uninterrupted. Reading a webpage of elegant, thoughtful prose is far more pleasant when it isn't surrounded by screeching ads promising to eliminate your unsightly belly fat. The popularity of products like DVRs and ad blocking browser extensions (which occupy the #1 spot for both Firefox and Chrome) is ample evidence that consumers will go out of their way to avoid ads if possible.
And anyway, ads have a cost beyond the unsightly graffiti they scrawl across the media world. Ad-supported fare may not have an upfront price tag, but it does cost us real money in the form of higher prices. Companies have to pay for their marketing budgets somehow, after all. So in a way ads represent the worst kind of market-distorting subsidy: those who don't consume the ad-blighted content still end up ponying up on behalf of those who do.
Side Effects May Include...
The next point is the one emphasized by Caldwell. As many have noted, when it comes to ad-supported media, consumers are not the customer but rather the product. One result is user-hostile behavior like the NBC Olympics coverage mentioned above. Another is the confection of seductive conflicts of interest. Notwithstanding their perfunctory protests to the contrary, it is hard to imagine that media companies don't engage in some serious soul searching before running critical coverage of their big advertisers. Even if the effect is mostly subconscious (for reputable outlets, at least), it is still disconcerting that corporations may be buying positive public perception indirectly as well as directly through their ad spending.
The effect of this business model on the products it finances is pernicious. As a European I can pay a fee to watch every NFL game stream in high definition over the internet, but US residents do not have this option since the NFL doesn't want to jeopardize its TV ad revenues. Web sites force you to click through inane "slideshows" in order to maximize page views. TV executives accord viewers only "a certain amount of tolerance" if they have the temerity to relieve their bladders during the commercial breaks.
Coca Cola ad executives probably wouldn't even pretend that their commercials aim to educate consumers about the objective benefits of Coke versus Pepsi (or a tall glass of water). They hope all the gorgeous smiling actors prancing across the screen will make you feel, if only subconsciously, that you and everyone around you will also be gorgeous and smiling if you just drink enough of their sugary water (even if the reality is that you're more likely to end up obese and/or diabetic). Numerous studies have shown that even savvy consumers are subsceptible to this effect. So by submitting to advertising we are essentially subjecting ourselves willingly to brainwashing that leads us to make irrational purchasing decisions.
This isn't to say that advertising has no redeeming features. At their best, ads inform and educate. Sometimes they help us to find out about high-quality products that we weren't aware of. Google search ads are the quintessential example. By definition I am actively looking for something when I am exposed to these ads. So they aren't interrupting some other activity (like watching TV or reading a magazine) to bombard me with a message that I'm probably uninterested in. Instead, they are proposing possible answers to my search query that are ranked by market forces (which advertisers are willing to pay the most for my clicks) rather than by organic criteria like the number of incoming links. It turns out market forces work well in this case, which more than any other factor explains why Google is so fabulously profitable.
Advertisements can also provide us with information that would otherwise be hard to unearth. Technology ads with their tables comparing feature checklists with competitors are good examples. Of course, the checklist items are cherry-picked to make the advertised product look good, but at least they provide objective information to help with a purchasing choice. If I really need my foozle to support a SQL backend then it's useful to know that Acme Foozle claims to do so even if I'll need to verify this with an objective third party to be absolutely sure.
At their best, ads can also be entertaining. People go out of their way to watch the vaunted multi million dollar Superbowl ads every year (although it's worth noting that people also go out of their way to watch, say, Transformers 3). Some (though by no means all) slickly produced cinema ads elicit genuine amusement from moviegoers. The world would be a poorer place without John Hodgman playing a dorky but strangely lovable anthropomorphized personal computer.
Even the subconscious effects of advertising aren't all bad. Maybe it's irrational to believe that the brand of rum I drink makes me more attractive to the opposite sex, but if I'm blissful in my ignorance, where's the harm in that? There probably isn't that much difference between the range of similarly priced rums I could order in my local bar, so the fact that some advertisement makes me feel better about myself than is objectively justifiable is not particularly sinister.
Free As In Doughnuts
I know a guy who spends hours looking for illegal MP3s to avoid paying $.99 on iTunes. Some people are likely to prefer watching ads to paying for content despite all the drawbacks outlined above. The point is not that advertising is bad for everyone in every situation. But it is unfortunate that advertising is so often seen as the best or only way to make money from digital wares.
It's worth remembering that ad-financed television came to the fore at a time when no alternative would have been feasible. The technical challenges of the day involved getting a decent picture on a 17" CRT without standing next to the set holding the antenna all evening. Subscription or pay-per-view models were not in the cards. Now we have the technology to meter and charge for content in many new ways, but we've gotten into the habit of expecting TV shows to be free. One of the quirks of human psychology is that, once we get used to free doughnuts, we are enraged by the idea that we might have to pay for them.
If we succumb willingly to disfigured television shows, psychological manipulation and higher prices on SUVs and shampoo so that we can avoid paying a few dollars for entertainment and internet services, we have no one to blame but ourselves. When the most frightening hoax imaginable is that Facebook will start charging users, we can hardly blame them for slathering more and more lucrative ads onto their website. It would be fantastic if creative types were to look for less intrusive ways of financing their work. But that is unlikely to happen until consumers start to realize that free is sometimes the most expensive price of all.