Introduction

This summer, individual publishers and the Newspaper Association of America (NAA) are turning up the heat on ad blockers, fighting against companies like Adblock Plus, Brave and Optimal that threaten their very livelihood. As their advertising revenue declines because of ad blocking, publishers like Axel Springer are waging court battles abroad to fight against unfair competition and business practices, China says “no go” to ad blockers, while in the U.S., the NAA takes on specific ad blockers, naming them in a complaint and request for investigation with the Federal Trade Commission.

As the war between publishers and ad blockers wages on, the use of ad blocking continues to grow in popularity, particularly on mobile devices. This growth escalates the threat to publishers who use a mixed business model (subscription, advertising revenue, other revenue streams), causing them to find creative solutions and test new models to remain financially viable.

We’ve prepared this report to give publishers and other subscription companies the latest ad blocking news, as well as insights into how some publishers are handling ad blocking.

• What is ad blocking?
• Who are the players?
• Ad blocking usage
• Why people use ad blockers
• NAA vs. the Ad Blockers
• Adblock Plus responds to NAA complaint
• German court rules in favor of Axel Springer
• China bans ad blocking
• Publisher solutions
• What’s next? 
• Insider Take

What is ad blocking?

Let’s start by defining ad blocking technology as browser plug-ins and mobile apps that allow consumers to access editorial content on publisher sites while blocking advertising on the sites.

This restriction, however, creates a major problem for publishers who use advertising revenue to fund the costs of their work using an ad-supported model or a mixed business model that includes online ads as part of its revenue mix.

According to the NAA, ad blockers are “free-riding technologies” that are a “clear and present danger to an ecosystem that has created a vibrant, content-filled Internet for the American public.”

Who are the players?

Ad blocking technologies are supplied by a variety of different vendors using various platforms and business models.

One of the most widely used ad blockers is Adblock Plus which has 300 million downloads to date. Adblock Plus is a free browser extension that blocks ads and websites and disables tracking. Individual users can whitelist specific websites they are willing to see ads from. Adblock Plus also whitelists “Acceptable Ads.”

Adblock Plus explains what it deems to be an Acceptable Ad:

“We don’t think all ads are bad and are fully aware that ads finance many websites. So, in 2009, we decided to find some common ground. Our solution involved asking Adblock Plus users, and our community at large, to help identify criteria that make for better ads. From these discussions, we established strict criteria to identify nonintrusive ads. In 2011, we began implementing the Acceptable Ads initiative. Participants that wish to comply with the Acceptable Ads initiative can apply to be added to the Acceptable Ads list.”

Adblock Plus users can then opt to display ads that are on the Acceptable Ads list, or they can disable that feature to continue browsing ad free. The consumer is in control.

There are many conditions for an ad to be deemed “acceptable.” Among the strict criteria defined by Adblock Plus:

• Ads must not disrupt the user’s natural reading flow. Ads must be placed on top of, next to or below the primary content.
• Ads should be recognizable as ads and distinguishable from other content.
• Ads should be clearly marked with the word “advertisement” or something similar.
• Size specifications apply depending on where the ad is placed.
• Ads placed “above the fold” must not take up more than 15 percent of the visible portion of the page.
• Ads placed “below the fold” must not take up more than 25 percent of the visible portion of the page.

Other popular ad blockers include AdBlock, Brave, Optimal, 1Blocker (iOS), HTTPS Everywhere, NoScript and ScriptSafe. In addition, there are browser extensions like Disconnect and Privacy Badger that focus more on privacy, cookies and tracking mechanisms used by advertisers. Each company has different features and approaches.

The Brave browser, for example, automatically blocks ads and trackers, so web browsing is faster and safer. It uses a freemium model with a complimentary ad-free mode but also a paid mode. Brave replaces some standard-sized ads that it deems to be of “higher quality” than existing ads, reducing the total number of ads seen by a user. Users can choose to turn off ad blocking and ad replacement, but ads that are replaced come from ad agencies and direct partners. An interesting twist on Brave is that it plans to allow users to support preferred sites with micropayments.

Optimal is another ad blocker, now in beta. While the product is free, users can subscribe for $5.99 a month to reimburse publishers for some of the revenue they’ve lost via ad blocking, and users can “tip” sites one-time amounts from $0.01 to $1.00. Like other products, Optimal works across multiple browsers and platforms.

Ad blocking usage

In December, we reported on the magnitude of the ad blocking problem. In a 2015 report by PageFair and Adobe, we learned that ad blocking was a $21.8 billion problem last year. That’s how much publishers lost in revenue due to the rapid rise of ad blocking usage. In 2016, the problem is expected to nearly double to $41.4 billion! At the time that report was published, there were an estimated 198 million monthly active ad block users around the world.

The usage of mobile ad blockers is growing exponentially, so the ad blocking usage figure is already outdated. Take a look at these staggering statistics from PageFair’s 2016 mobile ad blocking report:

• 419 million – 22 percent of the world’s 1.9 billion smartphone users – are blocking ads on the mobile web.
• As of March 2016, 408 million people are actively using mobile ad blocking browsers.
• As of March 2016, there were 14 million monthly active users of mobile ad blocking browsers in Europe and North America; 159 million in China; 122 million in India; and 38 million in Indonesia.

Chris Llewellyn, CEO of the International Federation of Periodical Publishers (FIPP), commented on PageFair’s latest findings:

“Ad blocking is an exceptionally important issue facing all digital content creators. Blocking the ad blockers at the point of engagement with websites is an option in the short run, but in the long run, the solution probably lies in advertising that moves away from clutter, from CPM-based selling, to premium solutions. To this end the media owners FIPP represents, and the advertisers and other stakeholders have a job to do to clean up the UX mess that led to this situation. FIPP hopes to play a user role in the journey to better.”

 Why people use ad blockers

According to a recent survey done by Hubspot, there are four primary reasons that people install ad blockers. At least a third of Hubspot’s 1,055 survey respondents cited that:

1. Ads are annoying and intrusive (64 percent)
2. Ads are disruptive (54 percent)
3. Ads create security concerns (39 percent)
4. Ads affect load time and bandwidth usage (36 percent)

Survey respondents indicated they are most annoyed by online pop-up ads, ads on their mobile devices, online video advertising before content loads, online banner ads and ads on Facebook.

On a positive note for publishers, 83 percent agree that not all ads are bad, and 77 percent agree that they would prefer to filter ads rather than completely block them.

Note: Adblock Plus helped prepare the survey but the data was collected and analyzed by Hubspot.

NAA vs. the Ad Blockers

As the frustration with ad blockers’ impact on online ad revenue grows, so do the measures publishers and industry leaders are willing to take to fight back.

In May, the NAA filed a 17-page complaint with the Federal Trade Commission against ad blockers, asking the FTC to investigate for possible violations of Section 5 of the Federal Trade Commission Act which prohibits unfair and deceptive trade practices and unfair methods of competition.

We had the opportunity to speak with Paul Boyle, senior vice president, public policy, for NAA. He told us why this was the right time to file a complaint against ad blockers.

“Some firms are saying, ‘oh, we really have the consumer’s interests in mind,’ but when you dig deeper, there are problems with the way they are operating,” said Boyle.

“We wanted to call attention to those ad blocking technologies that were misleading consumers, misrepresenting themselves or violating publishers’ rights. It seemed like a good time to go to the FTC,” Boyle explained. “We acknowledge that ad blocking is going to be here and it is incumbent upon publishers and advertisers to improve the ad experience. We’re trying to help our members respond to that.”

The NAA alleges that Adblock Plus’s approach to ad blocking isn’t transparent, and it is misleading consumers.

“In our view, it raises questions over the approach they are taking as to what is acceptable and what’s not. If you are a large publisher, for example, who might have an acceptable ad, but unless you actually pay Adblock Plus, you’re not getting through,” Boyle said. “It’s misleading consumers.”

Boyle said that Adblock Plus has a two-part standard. First, they have an acceptable ads policy where they determine what is acceptable, and second, large publishers have to pay for the privilege of being whitelisted.

“If consumers looked at approaches for ad blocking, there are plenty of them out there, but this is deception and smacks of a kind of shakedown,” said Boyle.

Boyle sees ad blocking as a three-pronged problem that needs to be addressed by the government to:

1. Protect consumers from being misled
2. Protect publishers’ rights
3. Prevent unfair competition

Brave is among the ad blocking companies named in the NAA complaint. Brave substitutes some publishers’ ads with ads from its own ad network and partners.

“We think those arrangements violate our intellectual property rights and, depending on how it’s done, could violate our trademarks as well,” explained Boyle.

The NAA also had concerns with Optimal. Boyle said Optimal gives consumers the impression that publishers are being made whole by their monthly payments of $5.99. To Optimal’s claim that they are helping publishers, Boyle said they are deceiving consumers into thinking that their contributions can replace lost advertising revenue.

“The bottom line is we wanted to point out some egregious ad blocking approaches, and if that helps be a guide for others, and for those companies that we’ve called out. We want to continue to talk to them and work with them, but we’re going to pursue this with the FTC,” Boyle said.

The FTC has formally acknowledged receipt of the NAA’s complaint and confirmed it will investigate, but no timeframe was given as to when a ruling might be forthcoming.

Adblock Plus responds to NAA complaint

We reached out to Adblock Plus to get their take on the complaint. Ben Williams responded to our questions via email. Williams said about 10 percent of companies on their whitelist pay a licensing fee to the initiative, based upon how much additional or incremental revenue the whitelisting creates for them. Williams said Adblock Plus has been very transparent about how this process works, including listing every whitelisted ad on their open forum where users can debate and critique the ads.

“We call this the Acceptable Ads initiative, and we’re very proud of it,” Williams said. “We established Acceptable Ads because we don’t believe complete ad blocking is the right way. The web needs advertising, and the purpose of the initiative is to find advertising formats that even ad-blocking users will accept.”

Williams shared some statistics with us about Acceptable Ads and whitelisting:

• Over 700 websites and ad networks are whitelisted.
• Whitelisted ads appear on 40 of the Alexa top 100 sites.
• Only 8 percent of Adblock Plus users opt out of/block all ads.

Williams noted that later this year, Acceptable Ads will be turned over to an independent committee composed of members of the advertising industry, nonprofit, and consumer groups, and thought leaders.

“We certainly hope that Acceptable Ads can continue to be an avenue for publishers/advertisers and ad blockers to work together, and we are confident that by making the program independent and opening up membership to publishers and advertisers, the program will continue to evolve based upon feedback from users,” Williams said.

We asked Williams how the two sides – ad blocking companies and publishers/advertisers – can work together to facilitate ad-supported publishing business models without violating the privacy and rights of consumers.

He said, “There are two ecosystems in play here: the indie ecosystem that blocks ads and the traditional (much larger) ecosystem that does not. We all must deal with the former ecosystem in a specialized, careful way. If we do, these users seem ready to accept fewer, more contextual ads that do not disrupt their experience. That’s what Acceptable Ads has taught us.”

Williams offered the following advice to consumers: “What I want them to know about ad blocking, in general, is that it empowers them, and that they shouldn’t listen to anyone who tells them they don’t deserve (or need) that power.”

German court rules in favor of Axel Springer

0)]After losing a string of previous rulings, German publisher Axel Springer finally scored a victory against Adblock Plus in the Cologne (Germany) higher regional court. In this particular case, the German court found that Adblock Plus cannot charge Axel Springer to have its ads appear in front of Adblock Plus’s desktop and mobile users. It most offer this service free, as it does for smaller companies.

The issue here is that Adblock Plus has a whitelisting system that allows companies to submit their ads to Adblock Plus for approval. If those ads are deemed to meet the “acceptable ads” criteria as defined by Adblock Plus, the ads will be whitelisted and may then be served up to Adblock Plus users. Smaller companies can get their ads whitelisted for free, but larger publishers like Axel Springer who serve acceptable ads more than 10 million times per month must pay Adblock Plus 30 percent of the additional revenue created by whitelisting.

While the German court still maintains that ad blocking is a legal practice, it ruled against Adblock Plus in this case, based on a recent German statute about unfair competition. Adblock Plus is appealing the verdict. If the verdict should hold, however, this could be a costly precedent for other publishers who feel they are not being treated fairly.

Ben Williams of Adblock Plus reacted to the news in a June 24 blog post: “Rest assured, we’re going to appeal. And we’re confident that Germany’s supreme court (the Bundesgerichtshof) will overturn this one part of the decision.”

Axel Springer, of course, was pleased with the verdict. The company’s head of content and commercial law, Claas-Hendrik Soehring offered his comments to Fortune: “Journalism costs money and must always have the option of financing itself through advertising revenues, be it in the offline world or in the digital space.”

“We will not accept illegal interferences with our constitutionally guaranteed freedom in designing media products – in particular, the ‘cutting out’ of ads from our digital media offerings. We are happy that the court declared the concrete business model of Adblock Plus illegal,” Soehring added.

We don’t necessarily agree with that assessment, however. The court found that Adblock Plus couldn’t charge Axel Springer to whitelist its ads; it did not say that the business model was illegal.

China bans ad blocking

1)]In July, China took a strong stance against ad blocking when it released its first set of digital ad regulations. According to Adexchanger, the new regulations prohibit “the use of network access, network devices, applications, and the disruption of normal advertising data, tampering with or blocking others during advertising business (or) unauthorized loading the ad.”

Reacting to the regulations, Adblock Plus’s Williams called China “the lonely bully” in a blog post.

“There are apparently 159 million people who block ads on their mobile devices in China. Desktop numbers are relatively low by comparison. All of them, though, are going to have a fundamental right snatched from them come September when their government will take away their right to block ads,” Williams wrote.

“…hidden among them is language that would seem to all but ban ad blocking. The concept of ad blocking has always been about putting power back in the hands of the consumer, so this robs them of what has become a basic right,” Williams added.

Publisher solutions

As publishers and ad blockers turn to higher authorities to decide their fate, some publishers are taking matters into their own hands, addressing ad blocking in creative ways. Here is just a sampling of publishers and industry organizations that have tried or recommended an alternative to ad blocking:

Swedish publishers: In March, IAB Sweden announced that 90 percent, or 20, of Sweden’s publishers would block ad blockers for the month of August as a test. Readers who access the participating sites will be given the choice to disable their ad blockers, view the content at lower quality or make micropayments to access the content.

City A.M.: Last October London-based business newspaper City A.M. implement Rezonence’s FreeWall to help fight ad blocking. FreeWall, which can work in conjunction with traditional advertising and monetization strategies, includes an anti ad-blocking tool that helps publisher sites get whitelisted.

G.Q.: In December, GQ magazine asked users to disable their ad blockers, or as an alternative, make micropayments to get access to online articles. Readers must set up a digital wallet via CoinTent to pay per article.

Wired: In February, Wired magazine announced a bold plan to get Wired.com readers to become paying customers. Ad-blocking readers were given two options: 1) whitelist the site so ads could be served to readers, or 2) subscribe to an ad-free version of the site for $3.99 a month, or $1.00 a week.

Forbes: According to the Wall Street Journal, Forbes is testing several different techniques. For example, in December, the publisher started blocking access to readers who used ad blockers. They were asked to turn off their ad blockers for an “ad-light” experience. As of May, about 40 percent of users were turning off their ad blockers. This spring, ad block users were offered an alternative. They could access the site if they registered, providing personal information or signing in using a Facebook or Google log in, both of which would give Forbes access to certain personal data.

2)]

New York Times: CEO Mark Thompson has been very vocal against the use of ad blockers, saying that quality journalism is worth paying for. In June, he said the New York Times has been experimenting with different messages to ad blocking readers that asks them to whitelist the site. One message allows the reader to dismiss the pop-up and the other cannot be dismissed. The New York Times is also planning to offer an ad-free digital subscription as an alternative to ad blocking. No launch date or pricing has been announced yet.

3)]“No one who refuses to contribute to the creation of high-quality journalism has the right to consume it,” Thompson said.

IAB: The Interactive Advertising Bureau created the DEAL approach to help publishers determine how to best combat ad blocking. At its heart is the premise that consumers get a clear understanding of how ad blocking affects the free content value exchange, so consumers can make informed decisions about whether or not to turn off the ad blocker or choose another alternative.

What’s next?

4)]Publishers, advertisers, and vendors will continue to experiment with solutions to retain or replace valuable digital ad revenue. Hopefully, they will consider how they can improve the overall user experience and ad ecosystem as they search for solutions. On the other side of the equation, we expect more ad blocking providers to join an increasingly crowded marketplace. These providers will continue to explore technology as a solution while also defining different business models to support their products.

Unless or until some middle ground can be found, it is likely that governmental bodies including the FTC, local and international courts will have to weigh in on the matter, setting precedent and case law that will be used to guide ad blocking into the future.

Insider Take:

This is a complex problem that is costing publishers tens of billions of dollars in lost ad revenue as they wrestle with monetization and financial sustainability in the digital world. Publishers universally agree that digital ad revenue is essential to their businesses, and consumers don’t want to see intrusive, annoying ads, nor do they want their online activity to be tracked. Consumers are fighting back with the tools provided by ad blockers, but the financial losses to publishers are brutal. At the same time, ad blockers are capitalizing on the situation.

There are essentially two sides here: publishers and advertisers vs. ad blockers and consumers. To improve the user experience while maintaining digital ad revenue will require compromise, and while discussions between organizations like the NAA and Brave are taking place, the problem has escalated to the point where it is necessary for impartial governmental bodies to weigh in. It seems unlikely that the two sides will create a mutually acceptable solution before rulings are made and the decisions are out of their control.