You're still focusing on advertisers (I didn't make this clear enough). Think about the people owning the football stadium, the tv channel, the newspaper (they're likely advertisers themselves, but let's pretend for a moment they aren't).
Thinking of newspapers for example the problem is that the dynamics are very complex.
A few years ago, many sites started splitting in maybe dozens of weirdly specific topics just to artificially inflate the number of readers (if one user visit ten site it can be counted as 10 users) or even just buying click.
A billboard owner can do similar trick, but usually on a smaller scale.
If you're worried about the well-being of these people or believe their service is a public good that should exist regardless of profitability on the market, you should allocate public funding for them.
It's wrong to talk about how a market is "supposed to work" because markets aren't a Platonic ideal; they're how people get together and deal with scarcity in aggregate. Some markets can be highly competitive, some are monopolies or monopsonies, some are more or less regulated, and so on.
Capitalism is an ideology so it has a way it's supposed to work, but I think they'd broadly agree that banning a category of volunatry transactions is not capitalist.
> Without advertising, these people would be forced to implement a profitable monetization strategy, or they would fail.
Very true, if the government intervened, businesses would be forced to work around it. That may wind up being worse than what you started with. If ads weren't allowed, you'd probably have more people recruited to do direct sales, for instance.
More likely, though, they would lobby the government and point out the massive human cost of large numbers of businesses failing.
People give away their brain-seconds of attention based on interest, and the interest-providers are profiting on the difference in interestingness between advertisements and their own content. If they maintain interestingness above the boredom threshold, they can dilute their product with ads and pocket the difference.
If the advertisements were interesting in themselves, the advertisers wouldn't need to pay to get views.
Ad-tech is currently trying to shave ever closer to the boredom threshold. But people who value their own time are trying to maximize their interest-per-brain-second ratios. So they block ads, or multiplex their attention so they can switch to a different interesting thing while an ad is pre-empting another interesting thing.
So ad-tech should instead be focusing on making exposure to and information about the product on the market more interesting and useful.
Nothing stands out in my mind more as an example of doing things not just wrongly, but as the perfect antipode of correct, than the network-dependent insert-ad-here spots currently on DirecTV Now streaming video channels, that is literally nothing more than three static images paired with LOUDNESS-ENHANCED boring annoying synthetic music. It's the same ad, in every commercial break, on every channel, and it was boring and annoying to begin with. It only gets more boring and annoying with every repetition. It eventually generates antipathy in the viewer, toward the advertised products AND the advertiser. The natural reaction, of course, is to hit the mute button and switch to another attention sink until interesting content returns, or long-term to cancel DirecTV Now and switch to something with fewer or less-intrusive ads, or no ads at all.
The attention-reseller has to be aware that giving up control to someone else can possibly lead to a hostile advertiser that pushes negative-interest, such as audio of multiple babies screaming, over a video of Adolf Hitler shoveling kittens into a sausage grinder, or perhaps something else with less hyperbole. If the reseller cannot establish a minimum standard of interestingness, they risk a rogue advertiser killing off their audience. Again, the answer is more interesting ads, tailored to the channel audience--and not the individual viewer, because that's creepy and intrusive, which is anti-interesting.
In short, the advertisers are being too lazy, and too greedy. Pay the content creators to advertise the products themselves, in a way that they know will be above the boredom-threshold for their audience. Stop trying to figure out how to match prepackaged ads--that the attention-resellers have never had the chance to review--to audience members using tracking, profiling, and spyware.