This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

Jessica Mendoza: What kind of ads do you get served on Facebook or Instagram?

Sam Schechner: There was a time when Instagram really thought that I was a woman judging by the number of menstrual products that I was advertised, and I found it actually pretty hilarious.

Jessica Mendoza: That's our colleague, Sam Schechner. He's a technology reporter based in Paris.

Sam Schechner: But then sometimes it's uncannily accurate to what you're interested in or looking for and then it's like, "Well I guess, sure. I will buy that product." I get a lot of ads for cooking, various recipe websites, and Instagram has figured out that I have young kids and turns out they need to eat every day.

Jessica Mendoza: Have you ever actually bought anything from these ads?

Sam Schechner: I actually did. I bought a bike bag-

Jessica Mendoza: A bike bag?

Sam Schechner: ... that clipped onto my bike rack which turns out to be something I use all the time because I try to bike to work.

Jessica Mendoza: They know what ads to serve you. Advertising is crucial to Meta's business. Last year, Meta, which is the parent of Facebook and Instagram, earned more than $113 billion in ad revenue, but that business model has come under threat, especially in Europe. In recent years, the European Union has set out to rein in how tech companies collect and use consumer data. That's pushing Meta to try something it once rejected, an ad-free subscription option. How big of a deal is this change?

Sam Schechner: Well I think it's a major shift for how Meta approaches its business. They've been forced basically by European regulations to do something that they've really only reluctantly agreed to do.

Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, November 2nd. Coming up on the show, Meta's European subscription rollout. How important are targeted ads to Meta's business?

Sam Schechner: Meta's ability to target ads at people who are actually interested in those products or who they have a high confidence that they are is the core of their business and the core of their sell to advertisers. Highly targeted ads are what they do.

Jessica Mendoza: These ads are how Meta makes money without charging its users, and CEO Mark Zuckerberg has been pretty insistent that the company's core services should be free and available to everyone regardless of their income. Here's Zuckerberg addressing Congress a few years ago.

Mark Zuckerberg: We think offering an ad-supported service is the most aligned with our mission of trying to help connect everyone in the world because we want to offer a free service that everyone can afford. That's the only way that we can reach billions of people.

Sam Schechner: Meta has been perhaps the most strident proponent of the advertising model among big tech companies. They have really resisted doing a larger subscription model. It's something that they've floated in the past as a sort of, "Well if we're really forced to do it, we will," but it's certainly not been their druthers.

Jessica Mendoza: Ads to users in the European market bring in a chunk of change for Meta. That market, which includes the EU, accounts for more than a fifth of the company's global revenue.

Sam Schechner: It's not something that Meta could just turn off and say, "Fine. No problem." They would have investors and shareholders beating down their door.

Jessica Mendoza: But it's been harder to protect that revenue in the wake of a landmark privacy law the EU passed in 2018. It's called the General Data Protection Regulation or the GDPR.

Speaker 4: Tech companies around the world are prepping for new data legislation that will be enforced in Europe next month. Now the regulation, it's also known as GDPR, will go into effect on May 25th.

Sam Schechner: The GDPR in Europe basically says, as a starting point, you can't use people's personal information and then defines that very broadly. I mean anything that could conceivably identify you could be personal information. Then it offers exceptions. Well okay, but if a user clicks, "I agree," then that's okay, but at that basic level, the GDPR is quite restrictive. When the law went into effect, Meta, which uses everything you click on and everything that you post to help feed its algorithms to determine what ads to show you, had a dilemma. How were they going to justify this under the GDPR?

Jessica Mendoza: In the lead up to the EU privacy law taking effect, Meta updated its terms of service, that long block of text we all agree to when we sign up for Facebook and Instagram. The change happened in the spring of 2018 and Sam says he noticed it right away.

Sam Schechner: I opened up Facebook. I see this popup basically saying that they're going to use my data to show me targeted ads. Then there was one option, one blue button, that said, "I accept." By tapping, "I accept," you accept these updated terms. So I tried to click the little X in the upper corner and what popped up was a little popup that said, "If you don't accept these, you can't continue to use Facebook. You can delete your account and we'll give you the option to download a copy of your information first."

Jessica Mendoza: In other words, users had to either accept the terms or get off Facebook.

Sam Schechner: I was curious. Will this fly?

Jessica Mendoza: What was the answer to that?

Sam Schechner: What happened is that there was this long and drawn out process to determine whether or not this would pass muster. All of these regulators meet behind closed doors. It's not public until the decision's issued to Meta. There was a big meeting scheduled, I remember, for early December 2022 where they were finally going to vote how this was going to go. Lo and behold, it was not the outcome that Meta would have hoped for. There was a majority, this European board, that said, "Nope. You cannot use your contracts to justify these ads."

Jessica Mendoza: So Meta tried a different approach. The company created a way to opt out of targeted ads that are based on how you use their apps, but you had to know where to look.

Sam Schechner: And what happens is they actually put something buried in their Help files, this long form that you could fill out to request, to lodge your objection to their doing this and request that they not use that data. You had to actually ... The form actually had a field where you had to fill in exactly which rights of yours you felt were being infringed by their doing this.

Jessica Mendoza: Okay. It's like homework for the user.

Sam Schechner: Yeah, I mean I can guarantee that precisely no one filled this out, maybe a couple privacy lawyers did out of curiosity. As a tech reporter covering this stuff, I was going to fill it out out of reportorial interest, but never found the time.

Jessica Mendoza: Okay. Well that says a lot actually about how inefficient that was.

Sam Schechner: It was obviously the point.

Jessica Mendoza: Then an unrelated EU court decision said Meta had to ask users upfront for consent to show these ads and still let them use Facebook or Instagram if they said no. That's what pushed Meta to do the thing that it was trying to avoid, a subscription service. That's next. This week, Meta said it would soon launch a subscription option for many users in Europe.

Sam Schechner: You're going to get a choice now about whether they can use all that data to figure out that you're into cooking or kids or exercise. You're going to get a choice now about whether or not they use that data to show you ads, but there's a catch. You're going to have to pay them if you don't want them to use that data but still want to use Instagram or Facebook. If you are on your desktop when you sign up, it'll cost 9.99 a month in euros, so maybe $11, for a subscription, but because of the fees that app stores charge, it would actually be 12.99 a month if you sign up on your phone on Android or on IOS.

Jessica Mendoza: So there's sort of a choice. Sort of.

Sam Schechner: Yeah, I mean it's a choice and this is something that privacy regulators and privacy activists in Europe have been agitating for since the EU's privacy law came into effect some five years ago. So they're finally doing it and yet all of those activists, I think, are pretty upset because they weren't expecting that they'd have to pay for it.

Jessica Mendoza: I mean it's not an insubstantial amount for people who, for most people who presumably are already paying subscriptions for a lot of other things.

Sam Schechner: It's a significant amount of money and I think that it's not Meta's goal that a ton of people sign up for this. I think their goal is to comply with EU regulations in some way that they can get regulators to at least grudgingly sign off on or that will hold up in court while maintaining their business model.

Jessica Mendoza: If Meta or when Meta rolls out this subscription model, is that option available for everyone in the EU?

Sam Schechner: No, it won't be available for people under 18. It won't be available for younger teens and kids. That is actually a big surprise that I saw when this first came out, but they're actually suspending, they say temporarily, they're suspending all advertising for people under 18 in Europe. Part of the reason is actually a totally separate EU law. The EU's really piling on these tech laws lately and one of them that regulates social media and content moderation has a ban on targeted advertising or what they call micro-targeted advertising for minors.

Jessica Mendoza: Meta said that the EU high court's recent decision gives it the blessing to offer a subscription model, and the company said that its plan is meant to comply with both the spirit and the purpose of EU regulations. Meta's mostly been in touch with the Data Protection Commission in Ireland because that's where it's European headquarters are.

Sam Schechner: The regulator in Ireland has given them until towards the end of November to make this change, but at the same time, other privacy regulators in Europe have remained pretty upset at how Meta's handling the situation.

Jessica Mendoza: Then unexpected news came yesterday. Other EU privacy regulators pushed through a ban that effectively steps up pressure on Meta to launch its subscription model before the ban takes effect.

Sam Schechner: The question then becomes one of timing. If Meta manages in the coming weeks to roll out its subscriptions, then it could claim to have a compliant process where they're asking for consent. We're likely to see this subscription model in effect really soon because Meta is under the gun. If they can't figure out a way to either get people to agree to those targeted ads or make up the money through subscriptions, it's going to be a real hit.

Jessica Mendoza: How likely is it that Meta might begin rolling out subscriptions here in the US?

Sam Schechner: I think given the historical opposition that Mark Zuckerberg and the company have had towards subscription models, I think it's pretty unlikely. I mean they made pretty clear in announcing this move that this is something they've done reluctantly that they would prefer not to have done, and I think that they will only do this in the US if similar rules end up being passed. Now, that's not to say it's impossible. Privacy laws in the US, especially in some states like California, are starting to get tougher and questions around consent and online tracking are gaining traction in certain parts of the US. So it's not totally impossible that something like this would happen, but I think that for the same reason that they resisted it so long and threw as much legal heft at fighting these questions in Europe, I think they would do that even more so in the US which is of course their core market. But the winds of Silicon Valley are changing. More and more companies are offering subscription services. You have Twitter. Sorry. I should say X and Snap are offering subscription services.

Jessica Mendoza: So Sam, you're based in Europe. When you get the option sometime in the coming weeks to either let Meta serve you targeted ads or to pay to subscribe, what would you choose?

Sam Schechner: That's a good question. I don't really have a media budget that has another 10 euros a month just for the luxury of not getting those exercise ads and cooking ads that I'm used to. I think probably like the vast majority of users, I will perhaps with a little bit of reluctance click okay.

Jessica Mendoza: That's all for today, Thursday, November 2nd. The Journal is a co-production of Spotify and The Wall Street Journal. If you like the show, follow us wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.