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Valassis Cuts Off

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Posted August 29, 2001 By Christopher Saunders     Feedback

Despite links to big-name advertisers, spokespeople say demand simply wasn't there.

Offline couponer Valassis (NYSE:VCI) said it will not continue funding its majority-owned online unit, -- effectively terminating the operation.

Instead, Lovonia, Mich.-based Valassis said it would concentrate on its offline businesses while maintaining its minority investment in privately-held, a competitor of Valassis has held a stake in since mid-2000.

Nevertheless, despite the continued investment in, Valassis said the closure of would lessen its exposure to the underperforming market for online coupons.

The news is a tough blow for the online marketing sector. Two-year-old, formerly known as Merge, offered online coupons that users could print at home and redeem in stores. The site should have enjoyed a healthy stream of business from traditional marketers, courtesy of its 31-year-old parent -- which handles services such as newspaper inserts, direct mail, CRM and product sampling for some of the nation's top consumer packaged goods manufacturers, like PepsiCo's (NYSE:PEP) Frito-Lay, Hershey Foods, (NYSE:HSY) and Revlon. (NYSE:REV)

But Valassis said advertisers were leery about online couponing, and the unit was unable to secure additional funding to help it reach profitability.

"The current advertising industry recession, combined with the decline of so many Internet investments, has caused a general skepticism about Internet advertising," said Valassis chairman, president and chief executive Alan Schultz. "This made it difficult for us to see a clear path to profitability for, and we concluded that the only current certainty in this space is that would continue to lose money. We believe that shareholder resources can be better invested in areas where the model is more proven, and where marketing dollars are currently being allocated."

Additionally, Valassis is coming under pressure of its own. In second quarter, the company saw revenues decline about $10.5 million from the previous quarter, and has been giving guidance of lower third quarter earnings than the previous two quarters.

At any rate, Valassis will take a charge in the third quarter for the closing of and the redeployment of some of the unit's employees to other areas of the firm. It is not known how many will ultimately be impacted by the closure.

Reprinted from Internet Advertising Report.

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