Editor’s note: This three-part series examines structural changes within the classifieds industry, obstacles newspapers have to overcome to stay in the game, and what some publications are doing to differentiate  themselves and to build a heavier online footprint with real estate.

Editor’s note: This three-part series examines structural changes within the classifieds industry, obstacles newspapers have to overcome to stay in the game, and what some publications are doing to differentiate  themselves and to build a heavier online footprint with real estate. (See Part 2 and Part 3.)

A couple meeting with their Realtor to discuss selling their home asks, “Which newspapers will our home appear in?” The Realtor doesn’t address the specific question, but instead replies that 54 percent more people today use the Internet over newspapers to look for homes.

The agent says that she’ll use multiple photos and detailed information in the home’s online listing, which will appear on at least four Web sites, and says the brokerage company partners with leading search engines to ensure greater exposure.

The situation appears in a 30-second television commercial developed by NRT for it’s more than 1,000 company-owned real estate offices operating under the banners of Coldwell Banker, ERA, The Corcoran Group, Sotheby’s International Realty and the Sunshine Group. It shows how the future of real estate advertising increasingly points to the Internet.

The print newspaper stronghold on classified advertising has undergone dramatic change. And while the real estate category for newspaper classifieds has shown year-over-year increases in the last decade, dot-com advertising is picking up market share at lightening speed. In just a few years the number of online classified services has mushroomed, creating a new fragmented market where newspapers are still trying to find their place.

“We all acknowledge the fact that the newspaper listing has a short shelf life compared to a listing on the Internet,” said Judy Reeves, chief operating officer of NRT Inc., the largest brokerage company in the nation. NRT has been investing more money online in things like search engine marketing and on technology that facilitates a prompt agent response to an online consumer inquiry, she said.

Plenty of big brokerages are leveraging their online options in favor of print. Ohio-based Real Living pulled $1 million in advertising from Sunday newspaper classifieds in 1997, company officials have said.

While NRT hasn’t pulled the plug on print classifieds, the company recognizes where consumers are going first. “We don’t say we are pulling dollars from one (medium) and pushing to another,” Reeves said. “We are watching the trend and putting dollars where we feel they need to go.”

Newspaper classifieds 10 or 15 years ago were the only way consumers could find out about agents, Reeves said, and that has changed. “Now we know the data is available to everyone. Data is not the only connection to a salesperson anymore; the classified ad is not the only connection to the salesperson anymore,” she said.

Annual newspaper real estate classified ad expenditures reached $4.6 billion in 2005, continuing a period of 11 year-over-year increases, according the Newspaper Association of America. Despite the positive growth, newspapers may be losing market share as total advertising dollars increase, said Charlie Diederich, director of marketing and advertising for the association.

“This concern of losing market share – it’s always been that way,” he said. “The problem with newspapers is compounded by the fact that their customers are changing just as rapidly (as the medium).”

Peter Zollman, founder of Classified Intelligence, pointed out two major shifts underway in classified advertising: the medium and the business model. “There’s a fundamental structural shift underway from old advertising methods, which include newspapers, to new ways of reaching your audience and that’s primarily the Web,” he said.

“There’s also an ongoing shift from advertising based on just reaching a generalized audience to advertising that is clearly based on payment for performance, and that is a profound shift as well,” he said.

Zollman said most newspapers now recognize the need to change what they do and how they do it, but the question is whether they will make the change fast enough.

The recent housing boom provided a boost to real estate advertising and that may have masked a larger shift in ad dollars from print to online, according to Bruce Murray, CEO of New York-based Corzen, which tracks online real estate listings.

“We expect and are seeing the migration of advertising from print to online,” Murray said. The shift has been dramatic in the jobs category, he said, and then moved to autos, with real estate taking the longest of the three.

As interest rates climb and real estate sales slow, Murray expects that brokers and agents will seek more efficient and cheaper ways to advertise and the Internet will provide that.

“People don’t move overnight from one medium like print to online,” he said. “But once it happens, it doesn’t go back.”

There’s about $9 billion in total annual real estate ad spend, according to Corzen, and of that, the company says about $4.5 billion is in daily newspapers, $1.5 billion is in homes magazines, $1 billion is in TV ads, $400 million is online, and about $2 billion is tied up in things like broker promotional activities.

In five years, Corzen expects brokers’ ad spend will actually shrink to $5-6 billion because online advertising is cheaper and that share is expected to grow.

Where do newspapers fit into this migration of ad dollars? Newspapers have a number of strengths and advantages, says Greg Sterling, principal of Sterling Market Intelligence. They have strong local brands, existing advertising relationships and existing sales forces, he said.

“Also newspapers deliver a better lead to an advertiser in many cases than a broader site would,” said Sterling, who studies local media trends.

Next: The classified market is changing, so what can newspapers do to leverage what they already have to stay relevant?

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Send tips or a Letter to the Editor to jessica@inman.com or call (510) 658-9252, ext. 133.

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