FSI circulars

FSIs Still Holding Strong For Newspapers

In News & Insights by Randy.Novak

From NetNewsCheck – By Erica Sweeney, July 15, 2014

As the push to digitalize many aspects of traditional print media continues, the free-standing insert, or preprint, is holding steady in its original form.

Free-standing inserts (or FSIs), which include coupons and retailers’ circulars, have historically made up 35% to 40% of newspaper annual advertising revenue, according to Nancy Lane, president of the Local Media Association, and that doesn’t appear to be changing.

According to Brian Costello, former VP and GM at Valassis Direct Mail and now owner of Costello Group, a marketing consulting firm, 90% of coupons still are sourced through print. He says preprints are doing well as a newspaper revenue source, with only about a 1% to 2% annual decline, while other revenue sources are declining more significantly.
“The FSI is very economical for retailers,” Costello says. “It’s an incredibly efficient way to market services. Digital hasn’t figured out how to have the kind of reach with that kind of pricing.”

Industry insiders say there are no roadblocks for preprints in the near future, mainly because digital applications are not yet able to come close to reaching preprints’ audience of an estimated 50 million households per week.

“FSIs are stable now, and I think retailers still get good [return on investment],” Lane says. “It’s [been] a big part of their ad budget and continues to be because it works. The big preprint package [in the Sunday paper] is one of the most effective forms of advertising. That model doesn’t easily translate to a digital model. There’s no platform to compete on the digital side.”

In 2012, Valassis Direct Mail attempted to overtake the FSI business after it announced a negotiated services agreement with the United States Postal Service, but the impact was minimal.

Over the past few years, companies have attempted to launch competitive digital preprint alternatives. These included Zip2Save, led by Lane, which launched in 2009 but shuttered in 2013. A few more enduring successes include Gannett Co.’s ShopLocal, which provides incentives, coupons and other offers, and Wanderful Media’s Find&Save.

Wanderful is owned by consortium of media companies, including Gannett, Hearst and others, which recently invested another $14.5 million in the company, bringing the total investment to more than $50 million. Wanderful works with more than 500 newspapers to offer an array of apps and Web platforms digitizing the preprints distributed via local newspapers and attempting to “solve problems that traditionally had been solved by FSIs and retailers,” says company CEO Ben Smith IV.

The company launched in November 2011, added its Web presence in April 2012 and rolled out its Find&Save apps on Black Friday in November 2013. Smith says Wanderful’s products allow retailers to frequently market consumer specials and allow consumers to forgo picking up bundles of coupons and circulars.

Wanderful’s annual revenue is between $5 million and $10 million, Smith says. The company operates its partner newspapers’ online shopping sections, where consumers access the content in circulars. There are also mobile Find&Save apps, which can be personalized.

Smith says Wanderful’s apps have about 1 million users, nowhere near the 50 million households reached by preprints weekly.

“Print FSI has not had decline as some of other ad categories,” Smith says. “The market has not fallen off, and that parallels with emerging companies like Valassis and direct mail. It’s hard to find another advertising opportunity that accomplishes the same goal.”

The future, Smith says, lies with mobile devices, rather than websites, but the apps capable of overtaking preprints are just beginning to emerge.

“We’re still looking for an audience with apps,” he says. “No one has an audience today that’s big enough [to match] what they’re able to do in print. Things that crushed other parts of the print business didn’t really occur with this market on the Web.”

In the next five years, Smith says he sees a portfolio of apps, with smartphones at the core, to help consumers on different levels of a shopping experience. Personalization and geolocation will allow users to tailor content to their needs and find the best deals in their area.

“It’s just a matter of when digital will have enough of a product or service that’s going to put a dent in the traditional preprint business, as it put in the tradititional newspaper business,” Costello says, explaining that preprints remain inexpensive for retailers.

Moving advertising dollars solely to digital has not paid off for retailers, Lane says. She says she’s heard many retailers, including “big guns, like Target and Kohl’s,” tout the importance of preprints to their business, which provides “a lot of bang for their buck.”

A few retailers, including JC Penney and Lowe’s, have experimented by pulling out of preprint marketing, “but the [return on investment] wasn’t there so they went back to preprint,” she says.

“People have written off FSIs like they’ve written off yellow pages,” says Peter Krasilovsky, VP and chief analyst at BIA/Kelsey, which tracks local marketing spend.

“When a retailer drops the budget for FSI, they find that they are missing out on major dollars… and finding [it to be a] serious strategic error. Research shows [FSIs] remain an important part of the mix.”

The future of preprints will remain steady, Lane says, as long as newspaper circulation remains steady. She says the newspaper industry will find a way to use both print and digital forms reaching different audiences.

Costello says strong movement toward digital platforms will begin once retailers can track full-circle retail experiences, from receipt of an offer to purchase. Another game-changer will be mobile payments, where consumers would have mobile wallets comprised with coupons, loyalty programs and offers, but this is still a few years away.

Ultimately, Costello says the move to digital will come once retailers can definitively answer the question, “Can I reach enough people at a good price and get the right redemption?”