The Newspaper Association of America released some data last week on the decline in advertising revenue in Newspapers. At Trulia we monitor these trends closely as our business model is in a large part based on capturing a portion of the advertising dollars as they shift from less efficient offline media to online media, which the consumers are now using.

While there was lots of commentary across the web, I thought I’d do a little analysis myself to track the trends in real estate classified advertising.

Here are some thoughts on what the data is telling us.

While total newspaper advertising dollars fell a dramatic 9.4% last year, Real Estate classified advertising revenue fell a staggering 22.6% from $5.16Bn in 2006 to $3.99Bn in 2007.

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This is clearly driven by several major forces:

  • The real estate audience is no longer reading newspapers, having shifted its attention to the Internet, which is now the primary research tool for real estate research. This makes it more difficult for newspapers to sell ads to their customers. The NAR reported that 84% of buyers used the Internet in 2007 compared to less than half which used print media.
  • The traditional classified advertising products are in many cases not cost-effective compared to their digital alternatives. With free Internet real estate listing services, why would one buy newspaper classified advertising? Also, as rates have been going up over the years and these products are often sold via expensive telesales operations, it is extremely hard to compete on price with internet advertising
  • The change in the housing market means that agents and brokers are feeling poorer and spending less marketing money. In addition we have seen the dramatic decline of the home building industry. When they are spending, they are actively looking for cheaper alternatives as they shift their ad budgets to online sites.

So how far are we from the bottom of this decline in offline real estate spend?

Not close at all. From looking at the quarterly decline in advertising dollars you can see it accelerating. Q4 annual ad spend fell almost 30% in a single 12-month period to a little over $1Bn in Q4! The bottom is nowhere in sight. We saw declines in the ad spend start at the end of 2006; showing a clear lag between the start of the downturn in late 2005 and a shift in ad spend today. So we’ll see the spend decline further before it bottoms out.

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So what does the future hold for newspaper advertising of real estate?

Ad spend in newspapers in the real estate industry has held up for longer than other industries such as autos and recruitment, but today’s market is forcing a change of behavior in how brokers and agents allocate their budgets. This will lead to a positive impact to the real estate advertising Industry as a whole as it emerges from the current decline. But there is no doubt it will take a few years.
We know that the ad spend is more complex in the real estate industry and not purely driven by the transaction. It is also driven in a large part to appease sellers to get the listings and for brokerages to advertise to retain agents. These marketing decisions are not made on a strong financial basis and until the Industry can work to change the mindset of sellers and agents there will be lots of inefficient spend in the future.

So where does this leave the newspapers?

While the news for print real estate advertising is not good – let’s face it, it was inevitable. The triple whammy of the housing market, audience migration and recession slowing economy is making a tough job even tougher for the newspaper industry. While there have been numerous efforts from the newspapers to build online services these have yet to prove themselves universally successful and definitely don’t make up for the decline in overall advertising dollars. But these institutions have been around for decades, and have enormous revenue streams – they’re not going away anytime soon. But when I have my next coffee at Peet’s Starbucks, I certainly won’t be surrounded by as many print real estate advertising sections as in the past.