A few weeks ago, Greg Ellis, the CEO of the REA Group, caused a stir by describing the move by Fairfax, the owner of #2 portal domain.com.au, to acquire a 50% in the Weekly Review magazine as “mind numbing”. Putting aside the appropriateness of the comment, the real question is “did Fairfax make the right decision”?
The Weekly Review magazine is a high quality 100+ page publication was, funnily enough, born out of Fairfax. A few years back Anthony Catalano was heading up the real estate sales section of Fairfax’s Melbourne operations. After a falling out with his employer he left and started the Weekly Review in competition. To attract a significant number of advertisers away from Fairfax, he offered equity to the major Melbourne real estate agencies. Naturally, these agencies redirected their vendor paid advertising spend into their own publication and the Weekly Review quickly became a significant player in the Melbourne real estate advertising market.
Fairfax is also the owner and operator of the #2 portal in the Australian market – domain.com.au. It has been in second place since September 2000 when it lost the market leadership to realestate.com.au. For most of the intervening period, domain.com.au has had less 50% of the traffic of realestate.com.au. This gap has narrowed a little to just over 50%, primarily due to the increasing popularity of domain.com.au in the Sydney market.
Even though domain.com.au has 50% of the traffic, it generates under a 1/3rd of the revenues of realestate.com.au – around AU$60m (US$63m) and is believed to be slightly profitable.
This movement of print real estate advertising spend from Fairfax to the Weekly Review would have financially hurt Fairfax. This combined with not making any real progress in the online space over the last 12 years (versus realestate.com.au) meant they had to do something and buying back their own print real estate advertising spend was probably the only answer.
In Australia, vendor paid advertising is the norm rather than the exception. Vendors pay on average 1% of the value of the house they are selling in advertising fees - whether the sell the house or not. Due to the importance of the transaction (to the home owner) and the influence of the real estate agent in the advertising decision, print businesses have a long life in front of them. At scale they can also be quite profitable.
Therefore the deal makes significant sense for Fairfax (and domain.com.au) at a number of levels. It adds much needed revenue back into the print side of the business, it brings large Melbourne based real estate groups in from the cold, it provides additional branding and a good brand extension for their online operations, provides more opportunity for bundling online and offline advertising, and it is earnings accretive.
Therefore, while the REA Group CEO may think this deal is mind numbing, it is actually a good move by Fairfax and potentially places more pressure on the REA Group in the Melbourne market. It is now just up to Fairfax to execute well so they can claw back market share from the REA Group. One has to wonder why the REA Group or News Limited (News Corp in Australia and the majority owners of the REA Group) didn’t make a play for the Weekly Review themselves … or did they?