Because that destroys a whole industry of sites that are not good enough for people to pay for them, but thanks to the economy of scale, they can create quality content (and a living out of it) anyways. Your claim that it is not needed is proven not true by the very existence of these sites. There are many blogs that are sole income of many people, this will now cease to exist. How is that a good thing? This argument works on a free market; the free market that we had no longer exists and your argument is thus invalid, the state of market no longer represents the needs of people, it represents the will of the government and nothing else.

A free market only ideally represents the needs of people if people in fact express their needs. Aggregating user data and using it without consent does not fit that model. There is no obvious reason to believe tracking users "represents the needs of people".

Thanks to data collection and aggregation, the ads are targeted better, and thanks to that, the sites are earning more, and thanks to that, small scale content creation is a viable career. Now that ad revenue will be most definitely cut down to almost zero, a whole sector of small content creators will be destroyed and move to centralized platforms such as Facebook will be encouraged (because only on centralized platforms enough data can be collected in order to properly target ads, because that is the only remaining way how to have at least some audience and because it's free).

What is your reason to believe ad revenue would drop to almost zero?

Revenue might be lower. That is not in itself proof of a worse outcome. Maximising numbers like revenue or GDP is not good per se. Neither is maximising the amount of content created. If you want to know the trade-off is worth it you also have to look at the costs. The impact of tracking on privacy is not zero. The impact of ever more attention grabbing ads is not zero. The impact of persuading us to buy ever more stuff is not zero.

Also, the vast majority of small scale content creators are hobbyists.

This assumes that because it was viable in the past, it must be viable today. Maybe ads had more revenue then, but times and people change, and now ads aren't that lucrative anymore. One needs to factor this in the decision to continue hosting a blog or whatever else. This trend was forseeable. On a personal note, this is good. Ads are either annyoing or outright dangerous. So the less, the better.

If you want to host your blog, then just pay for it. I do the same. Not because I want to earn money with it, but because I want to. I can see why this is a problem for commercial entities, but not for personal stuff.