Newspaper Companies Make Another Big Investment in a Circular Startup

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882865_252217251580246_613671162_oTwo decades ago, the newspaper industry made a joint strategic investment in – a move that represented a rare departure from the myopia and in-fighting,which came to define the media landscape throughout the 1990’s. Today, the automotive classifieds site is on the block, but newspapers have come together again to turn their collective attention to the decline of another one of its golden calves: the Sunday circular.

Gannett, Hearst, Advance Digital, and others have invested another $14.5 million in Wanderful Media, a service that digitizes and distributes the millions of merchandizing ads that go out every weekend in local papers across the United States. The deal, which brings the startup’s total funding to over $50 million, highlights the newspaper industry’s struggle to find an answer to a depreciating revenues after technology companies have picked off many of its valuable assets.

The new capital will help Wanderful build out its mobile product, which launched on Android and iOS last year, and expand its reach into small businesses, which have traditionally been left out of circulars, according to CEO Ben T. Smith IV.

Smith, who sold his previous company MerchantCircle to Reply! in 2011, believes that the mobile app will help bring Wanderful’s product from a digitized version of a print product to a truly native mobile service, complete with its own dynamics.

The local media industry has seen circular revenues decline over the past decade, but at slower rates than other ad products. According to data from Borrell Associates, local media companies will generate $6.24 billion in revenue from advertising circulars in 2014, a little shy of a quarter off of its peak in 2006. However, overall advertising revenues have halved over the same period, largely due to much sharper declines in classifieds.

Smith attributes the softer declines in circular revenue to the relative strength of media as a discovery mechanism, and the comparative weakness of a newspaper as a search tool. He argues that the experience of flipping through a physical newspaper still beats the web experience in terms of finding and discovering new goods.

“The circular business hasn’t shrunk as much as other media products because it was hard getting that discovery experience right,” said Smith. “However, as circulation numbers have changed and consumers have moved to the web, that audience — the people who are sitting at home and don’t know what they want yet — hasn’t been redeveloped.”

To redevelop that audience, the company is betting heavily on mobile. Smith believes that the contextual capabilities implicit in mobile — namely, location — can provide the necessary tools to add a new dimension to the merchandising business which the web simply could not.

In many ways, the relationship between circulars and classifieds underscores a broader shift towards discovery in the search market. Google, and a host of affiliate listings sites, exploded in the early 2000s by making the objective local dataset — name, address, phone number — of a business searchable in an instant. With the explosion of Yelp, the technology industry, and the advertisers which support it, has moved to other forms of search, working to help users not only complete an action, but make a decision as well.

Steven Jacobs is Street Fight’s deputy editor.