Nothing is ever really free. There is always a catch. For example, there is free hosting for static sites online (I use one of those services for this blog right now - Netlify) which all do have limits, only existing to get you hooked into the platform so that they can up-sell you, or have people promote the platform for them. Amazon with its AWS does similar, making it easy for companies to start experimenting then relying on AWS completely before removing the trial free tier (after a year) and really making some money out of them (big businesses and governments at this point rely on AWS which in itself is scary but that's another blog post of the dangers of a monopoly.)
In the early days of the internet, hosting a website meant that you would need to run your own server. In the years following, data centers started popping up which you could rent at a monthly cost for the whole server. Because of the lack of features in tools like Apache, it would be one website per server at that time. So if you had multiple sites for any reason, you would be incurring the cost of multiple servers.
To recoup some of these costs, websites started selling space on there to be used for advertising. This would allow the webmasters to recoup some costs of the website and in some instances, allow them to earn an income from it too. As the cost of hosting a website decreased (due to decreasing costs in server hardware, more feature rich tools, and virtualisation), more websites started to pop up. As more websites popped up, the general price of advertising took a nose dive. Over time (and several other factors such as bigger websites undercutting people on advertising deals), websites started to take a more aggressive approach with adverts, in many cases taking over the whole screen or causing pop ups whenever you interact with the site. The reason why websites run these more aggressive ads is simply that they get paid more for them.
In response to this, adblocking tools popped (hehe) up. In the beginning, these tools would just block anything and everything. You were able to whitelist sites but people would rarely do this (people talk a big talk - very few people follow through with the walk.) In 2017, the acceptable ads committee was established. The acceptable ads committee established guidelines for non-intrusive ads which would then allow them through the adblock plus tool (which is one of the more popular adblockers), but these can still be blocked. As a combination of all the above, companies which could happily operate on advertising revenue had to turn to other avenues to keep the lights on.
For me personally, I've never had an issue with advertisements. I've been on the internet long enough to remember ads on forums which paid more than enough for the costs of hosting and maintenance. Banner ads, ads made to look like part of the site (but still disclosing that it's a third party), and even video pre-roll aren't a problem in my opinion. As long as the advertisements themselves are not intrusive, don't attempt to fill my computer with malware (Malvertising), and don't outstay their welcome, they're fine. One of my favourite podcasts, The Co-Optional Podcast, was quite often sponsored by SquareSpace. The advertisements were short and brilliant - to the extent where people demanded and got a 30 minute video of all the ads back to back which is quite a funny watch as there was a storyline too.
People need money to live. Being alive comes at a price. If people can find a way to get paid for their passions or even something they just remotely enjoy, why shouldn't they (within reason)? When advertising revenues took a massive drop, it made sense that creators struck their own deals directly with businesses. This did introduce its own issue though - deceptive advertising and non-disclosure (anyone remember the Xbox One/Machinima deal?). Another issue was where the business explicitly stated that the content creator could not talk about the deal at all (anyone remember the CS:GO Lotto deal?) Even now, some companies that pay for sponsored content don't actually want the sponsorship disclosing as it generally means the video gets less views - often making the creator choose between having a stable income coming in for the next few months or not breaking the law.
Greed seems to be the root cause of all the issues here on the internet when it comes to revenue generation. Greed on the side of the consumer where they want everything for nothing. Greed on the side of the companies that want to break the law for a few extra views. Sometimes greed on the side of the content creator where they will willingly do back to back non-disclosure sponsorship deals, happily breaking the law.
So what's the solution? Several problems need to be dealt with so there are multiple solutions needed after tackling the greed problem.
The first problem is intrusive and takeover advertising. At a minimum, we should have control over it very easily if it has to take over the whole page. For example, by initially having a little popover box at the side/bottom which displays a basic ad, but when interacted gives us the full screen experience. This means we don't have our screens taken over, but we can see more easily by choice. Some ads do this already.
The second problem is adblock. With adblock out of the picture, more views can be monetised. With more monetised views, there's less of a need for sponsored deals. This can't happen overnight as we still have takeover ads and popups in the wild but this will need to happen.
The third problem is undisclosed sponsorships. There needs to be more verification and harsher punishments here - for the content creator if they actively choose not to disclose, but also for the company if they force the creator into that scenario. This way, we punish the companies choosing to bully content creators into breaking the law without harming that creator, but also then punish the creator if they actively choose to deceive.
One solution we already have is direct support where creators have Patreon/Ko-Fi/PayPal. YouTube has its channel members scheme now too but also their YouTube premium system. It would mean more people need to buy in to help, but it would also remove ads and the need for them.