Primedia's CEO Tom Rogers resigned last week, allegedly over a major investor's (Kohlberg Kravis) plan to sell off much or all of Primedia's assets over the next 18 to 24 months. Articles reporting the resignation failed to mention whether or not Primedia's new online real estate division would also meet the ax.

The real estate division was a favorite project of Rogers', says a witness to his enthusiasm over a business model based on collecting referral fees from brokers in exchange for exposure on the company's and partner Websites. According to Cendant Real Estate Division CEO Richard Smith, Rogers, along with Jamie Gallo (with Primedia's real estate division), personally made a presentation to him to invite Cendant to share the franchisor's and franchise brokers' listings in a referral fee revenue arrangement, which Smith says he turned down flatly.

According to Robert Turnbull, spokesperson for Primedia's real estate division, things are just fine, and he knows of no plans to sell or dismantle the real estate division.

"HPC and HPCi are very successful," he says. "And Jamie Gallo is still at the helm (real estate division.) As for what Kravis intends to do, you'd have to ask Kravis."

E-mails and calls to Primedia corporate spokespersons to find out the future of the real estate division were not returned in time for publication.

Two strikes against Primedia's real estate division

The first threat to the real estate division's viability is its involvement in a listings copyright scandal with one of its strategic partners, 1Roof Technologies. The Real Estate Book is suing 1Roof Technologies for taking its listings through a legitimate agreement to post them on Lycos, and giving them without permission to Primedia subsidiary HPCInteractive for publication on Primedia's Realestate.com, according to The Real Estate Book leadership.

Like it or not, Primedia is very much involved because the Real Estate Book's listings did appear on Realestate.com and its partner LendingTree, but what took the dispute nuclear was that the listing agents' contact information stripped off and with the Real Estate Book's copyright removed and HPC Interactive's copyright added, alleges The Real Estate Book. While the suit currently names only 1Roof Technologies as in violation of its contract with The Real Estate Book, other companies could be added to the suit, especially if the "money trail" between 1Roof, Primedia and LendingTree is revealed, as The Real Estate Book expects it to be in upcoming depositions.

Questions about the extent of Primedia's ownership in 1Roof and its role in a listings scraping scandal involving The Real Estate Book are unanswered, due to confusion over its ownership or investment role. According to a statement sent by Robert Turnbull to Realty Times on February 28th, 2003, 1Roof was purchased by Primedia on February 1, 2002. On March 25, 2003, Turnbull wrote Realty Times that Primedia does not own 1Roof, but that Primedia subsidiary HPC Interactive "owns 1Roof stock," and "is not a majority holder." Now he says that Primedia has "an equity stake" in 1Roof and that HPC Interactive and Primedia "are the same thing."

Since the scandal broke, Lycos has closed down its real estate division. 1Roof is "moving offices," but has ignored calls and e-mails from Realty Times. And Primedia is continuing to try to distance itself from the scandal.

"We keep getting sucked into this," says an exasperated Turnbull. "1Roof is not our company. We invested money in them, but we don't own them - we don't even own a majority interest."

Yet, when The Real Estate Book attempted to negotiate with 1Roof and Primedia, even holding off on serving the lawsuit so that the companies could come to terms and stay out of court, Primedia did all the talking, says Glenn Goad, with The Real Estate Book.

"We have to protect our name," explains Turnbull, "we don't own them, but we keep getting blended in with them; we are making sure our presence is known."

The second threat is the NAR vote on the regulation of virtual office Websites (VOWs.) Current recommendations prohibit brokers from allowing MLS databases of listings to be published by third-parties which would result in referral fees for brokers. If the vote passes, on May 17th in Washington at the NAR's governance meetings, neither Realestate.com or LendingTree will be allowed to use brokers' VOWs to attract consumers to their referral model. However, brokers are able to share their (Internet data exchange) IDX listings with third-parties for advertising as IDX is a broker reciprocity solution for the advertising of listings. Because IDX is reciprocal, some brokers may opt out, giving consumers less than a full peek at local MLS databases of listings.

LendingTree stays neutral

Meanwhile, LendingTree explains its position on the scandal and its revenue/traffic partner Primedia:

"LendingTree has an agreement with HPCi to provide the technology to enable our brokers to display listings in a co-branded manner on LendingTree's website.  Prior to those listings becoming available, HPCi agreed to provide LendingTree with listings content from a number of proprietary sources.  HPCi did not disclose the source of that content, but did represent and warrant that they had the rights to provide it for display on our website.  LendingTree did not remove any data from those listings, nor did we receive or use any such data to solicit real estate brokers to join the LendingTree network. 

"After the Realty Times' articles questioning the HPCi/The Real Estate Book ("TREB") relationship and the listings data, LendingTree required that TREB listings be removed from any LendingTree website until the issue was satisfactorily resolved.  Other than what has been published in the Realty Times' articles, we have no other knowledge of the details of the relationship between TREB and HPCi, Primedia or 1Roof Technologies.

LendingTree has a separate advertising agreement with RealEstate.com through which LendingTree obtains web traffic.

On the positive side

Turnbull maintains that Primedia will be more than able to supply Realestate.com and LendingTree with listings even if the Real Estate Book's listings aren't part of the feed, as they come from a variety of sources, including many of HPC's own real estate publications.

What also gives Primedia's real estate division a fighting chance is that some brokers are signing up to be part of the LendingTree referral service which legitimizes the company's vision.

Despite Smith's warnings that brokers are being disintermediated from their profits by paying third parties exorbitant referral fees instead of less costly advertising fees, some Cendant brokers are ignoring the prophecy in favor of short-term gains. They are signing up for the LendingTree program and offering Lending Tree their IDX sites, using other brokers' listings to pull in consumers, which is perfectly legal.

Under current IDX rules, brokers can agree to share listings with other brokers for publication, but they have no power to choose or direct where participating brokers place the listings for advertising - even if it's with a third-party that charges referral fees.

Published: April 24, 2003

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