The Age has taken the desperate measure of cutting commissions for real estate advertisers in an effort to protect its deteriorating balance sheet. The potentially self-destructive strategy is a sign of how dire things have become inside The Age, where earnings have plummeted due to falling advertising and readership.

Observers say it could lead to the collapse of an important marketing alliance of the paper’s biggest real estate advertisers, as well as the migration of real estate ads to The Herald Sun.

It will probably also lead to a direct ten per cent increase in advertising costs for vendors when they sell their home.

Tony Blamey, the general manager at The Age for “key categories”, wrote to all the papers’ dedicated real estate advertising agencies last week to inform them that the ten per cent commissions they receive when they book an ad in the paper will disappear. He explained

As you are aware, we have recently undertaken a review of media commissions in the real estate category.

This letter is to inform you of impending changes to media commissions for ads placed with The Age in all Real Estate categories — this includes all classifieds and full display advertising.

Blamey told the agencies that the commissions will be phased out, falling to five percent on 1 December and disappearing altogether on 1 march 2010.

He said this would give them “sufficient time to prepare for the change.”

The strategy will only save The Age around 3.5 million a year, or ten per cent of the $35 million the paper earns from real estate ads booked by advertising agencies.

But those savings, which will temporarily halt the decline of the company’s earnings before interest and tax, will come at a high cost.

It may speed the demise of the ‘Real Estate Agent Marketing Alliance,’ which was set up by The Age to reward its biggest spending real estate clients by paying them a fee to promote the newspaper on brochures, signs and websites.

Crikey understands that at least two large real estate agents have said it’s only a matter of time before that marketing alliance folds.

The alliance is described as “the last link between The Age and its stranglehold on Real Estate.”

Observers say The Age believes very few people will complain because it has targeted a part of the real estate industry which is rife with kickbacks. It is common for real estate firms to insist on a cut of the commission received by the advertising agent for placing one of the real estate firm’s ads. Because this is usually a cash transaction, it is unlikely the real estate firms will complain.

But many of the small specialist real estate advertising agencies have based their business models on those commissions. To survive many will have to pass the costs directly to the real estate firms, who in turn will pass them on to their clients, the vendors selling their homes.

As one insider told Crikey, “The Age is looking for cut backs because it doesn’t know how to make revenue.”

Under Don Churchill’s management, The Age’s earnings have fallen from $105 million to $45 million a year