In an extraordinary outburst last week, the REA Group CEO, Greg Ellis, described Fairfax Media’s plans to buy 50% of Melbourne’s real estate magazine The Weekly Review for AU$35m (US$37.7m), as “mind numbing and what you would expect a number two who is declining to do”.
Fairfax Media is the owner and operator of Australia’s second largest property portal www.domain.com.au. The deal with the owners of The Weekly Review will see the Domain brand be rolled out across all publications providing a stronger marketing presence across the high vendor paid advertising areas of Melbourne – a traditional stronghold for the REA Group.
The attack on Fairfax came while speaking with analysts about the REA Group’s interim results where revenues increased by 18% percent year on year and the EBITDA increased by 24% percent year on year.
It was reported in the Australian Financial Review that Greg Ellis described the REA Group’s results as “nothing short of spectacular, frankly, relative to our alternatives at the ASX”. One has to wonder how he would view the performance of Rightmove in the arguably tougher UK market who delivered similar growth in revenue and EBITDA but managed to operate at an EBITDA margin nearly 30 percentage points better than the REA Group.
Fairfax responded through its CEO of Marketplaces, Nic Cola, who described the acquisition of the real estate magazine as a “good deal” and “earnings accretive to Fairfax Media”. He is also reported as saying that “we’re quite happy with the online listings and audience share gains we have made through the course of the last year”.
Ted Pretty, the former Group Managing Director for Operations at Telstra, has weighed into the debate, suggesting that hubris could be a tough lesson for the REA Group CEO.
Here is an excerpt from Pretty’s letter to the Australian Financial Review:
“For real estate unlike the jobs, travel and dining verticals there is a strong case to be made for a bundled offering of online advertising with high quality regional/local print, particularly when the local agents own a chunk of the print. While it is true that the traditional classifieds are dead the glossies are not. Property is our biggest asset class and deserves more respect.”
“The purchase of The Weekly Review by Fairfax did two things for Fairfax. First, founder Antony Catalano was eating Fairfax’s lunch as the viability of The Age was under threat from the loss of property advertising – the acquisition was a necessity. Second, it has strengthened Fairfax’s hand in new strategies to take on REA in other markets. But Fairfax will not be without company as at least two new glossies are reportedly in the planning for Sydney regions.”
“REA’s Achilles heel is its seemingly unwillingness to embrace its brothers at News to ensure its franchise is unassailable in the long term. Some argue REA’s recent success is more about inertia than the creativity it enjoyed under Simon Baker. It is no secret the agents are fed up with the price rises. Industry watchers expect News Ltd chief executive Kim Williams will ask the right questions as he gives News a shake-up – he won’t tolerate complacency either at News or as a major shareholder of REA. News’ print guys have a lot to offer REA but presumably Ellis doesn’t think so.”
“REA’s leading online position will now face new challenges as Fairfax’s Nic Cola seeks to outspend them on advertising the Domain brand (a very expensive and primitive strategy that Gina Rinehart might want to question), Michael Hannan’s Homehound site is expected to re-emerge with a print strategy and OntheHouse is enjoying a return to market favour and quietly building its online reach for modest cost. The market should also watch out for the “Ray White” family’s next steps. This is all happening as the US online property portals think about their market entry strategies (and partners) for Australia.”
Interestingly, the iProperty Group, run by former REA Group Senior Exec, Shaun Di Gregorio, is having significant success in running print and online side by side. In Malaysia, where the group just announced a doubling of revenues in 2011, they operate the market leading portal as well as a monthly magazine and a high quality coffee table print product for developers.
Shaun Di Gregorio, CEO of the iProperty Group, commented: “we see print and online happily co-existing. It gives the advertiser choice in how best to market their properties to the complete Malaysian market. By understanding our customers we have structure our products to provide agents and developers choice on how they can reach the broadest market coverage at an affordable price. For us, we can achieve better results for our customers and for our shareholders by taking a broader, more inclusive view of print and online.”
Back in 2008, Seloger, the leading property portal in France, acquired Belle Demeures – a monthly high quality magazine and website targeting the top end of the market.
Disclosure: Simon Baker is the former CEO and MD of the REA Group and is now the Chairman and, via his investment company, CAV Investment Holdings, a major shareholder in the iProperty Group.