• by Michael Shields , September 29, 2004

The newspaper industry might find yet another reliable source of ad revenue slip out of its inky hands, as the Internet increasingly poses more of a threat. More and more real estate brokers are directing their ad dollars online, a media consultancy, Borrell Associates, found in a new report.

Real estate advertising, while always a reliable source of ad revenue, has become increasingly important to newspapers as other categories, such as help wanted, have slipped over the edge. Many newspapers rely on this source of income as businesses continue to recover at a creeping pace from the recent ad recession.

But according to the report, "2004 Analysis: Online Real Estate Advertising Comes of Age," the growth in real estate revenue, driven by a continually booming housing marketplace, is masking an emerging erosion in the category.

"Most newspaper companies are reporting gross real estate revenue and print linage growing at an average rate of 6 percent this year, fending off any fears that the Internet has eroded the businesses," the report said. "But strip away inflation and rate hikes, and add the fact that record numbers of homes are being sold, and the picture changes."

That picture is one of divergent trends, as newspaper ad dollars spent per home slips at the same time that Internet advertising grows. Seven years ago, agents, brokers, and developers spent $755 on newspaper advertising for every home sold. This year that dollar figure has shrunk to $605. Meanwhile, online ad spending per home sold during the same period went from $16 to $148.

In total this year, agents will spend nearly $1.3 billion, or 11.2 percent of their budgets on Internet media, the report said.

The reason for this shift is mostly consumer driven but also financial, according to Gordon Borrell, president and CEO at Borrell. "The Internet has become the medium of choice for people looking for homes."

One reason for that choice is the lack of space constraints inherent in the medium, which allows realtors to provide a wider array of listings than is possible in newspaper ads.

Plus, return on investment is far better in the online space, which is simply cheaper and more trackable than newspapers, according to Borrell.

Yet another factor hurting newspapers is the tense relationship that they and realtors have long maintained, one that Gordon refers to as "adversarial."

Borrell sees things getting much worse for newspapers once the housing market comes back to Earth, similar to what happened with help wanted advertising after the 1990's boom ended.

According to the report: "The underpinnings of a dramatic shift in ad spending have already been laid. When the superheated home-sales cycle ends, online media may accelerate significantly as real estate advertisers weed out their less-efficient marketing efforts and focus on the most trackable medium with the best return - the Internet."

So what can newspapers do to avoid the decline? Attempt to beat realtors sites at their own game, Borrell said. That means investment in infrastructure, something most papers have been unable to pull off. "They need to create definitive real estate Web sites in their market," he said. "They have played second or third fiddle to this point."

Also, newspapers need to adapt to a new advertising sales model. "They really have to understand that the business model has changed," said Borrell. "It's gone from pay for listing to pay for lead."