Japan has always had an advertising market dominated by giant players and this is likely to be emphasised yet further when, in December, Hakuhodo, joins with Daiko Advertising and Yomiko to form Hakuhodo DY Holdings Inc. The new company will immediately launch Hakuhodo DY Media Partners to pool the buying power and planning resources of the three partners. Hakuhodo DY Media Partners will buy about 17 per cent of Japan's media volume, while the top four agencies between them will handle half the market.
Declining billings, rising costs and demands for bigger discounts from major advertisers precipitated this latest consolidation. In 2002, total ad expenditure in Japan declined by 5.9 per cent to 5,703,000 million yen and is not expected to improve this year.
Since employees at the major agencies tend to be "lifers", payroll is a fixed, rather than a variable, cost and agencies lack the flexibility to keep salary costs in line with the business cycle.
The pressures are intense. "Over the past year, we have witnessed a collapse in the media market, particularly in TV, that shows no sign of recovery yet. There has been substantial deflation in media costs and a lot of previously sewn-up inventory, such as outdoor sites and established TV programmers, are coming up for purchase," Andrew Meaden, the general manager of MindShare in Japan, says. "We have seen decreases of up to 9 per cent in lower rating costs in 2002 over 2001."
MindShare, like many Western media companies in Japan, uses a Japanese agency (Asatsu-DK) as a buying partner and concentrates on providing clients with a sophisticated planning service. None provide any financial details of their operations owing to their parent companies' interpretation of the Sarbanes-Oxley act in the US (which was implemented with the idea of preventing public companies from misleading investors).
Planning continues to be a frontier zone in Japan. Matthew Eaton, the business director of Initiative Media in Tokyo, says: "Planning in Japan has not been as swift to develop as in many other markets, and it's certainly not as advanced as it is in the UK and Europe.
"However, advertisers are starting to demand more than a 'basic media allocation' service from their media agencies and focusing on 'real media planning'. Many have begun to realise that beyond driving savings through reduced buying rates, there are substantial efficiencies to be gained through proper communication channel selection, improved targeting and campaign weight and flighting modelling. They are becoming aware that their investment could be a lot more effective and efficient," he adds.
Planning is just one area where Japanese advertisers are catching up on skills that have been practiced for a long time in Western markets.
"We are seeing significant media developments led by advertisers, specifically in the Japan Advertisers' Association's drive for media transparency," Ron Pullem, the executive vice-president and executive director of media strategy at McCann-Erickson in Tokyo, confirms.
"Given the advances in other developed markets, it is difficult for many of us to comprehend that Japan remains a non-transparent media market. In the fourth quarter of 2002, the JAA conducted a formal set of panel discussions targeting the non-transparent media buying practices of Japanese agencies with a review of agency compensation practices. In 2003, we expect this initiative to evolve and to stimulate more advertisers to demand transparency from their Japanese agencies," Pullem explains.
The rise of planning and attention to transparency have both been encouraged by the growing use of TV Peoplemeter research data. "This has applied noticeable pressure on agencies and the TV media to focus on transparency and performance-based, accountable media buying practices," Pullem says.
Almost half of Japan's population now lives in areas covered by Peoplemeter panels, and coverage is expected to expand further.
"Accountability is the final destination on the road of transparency. It is also the foundation of how advertisers work with their agencies and the media in the West. We are seeing signs of a growing trend towards accountability where it will present an opportunity to apply the higher-level principles of strategic media management and ultimately reposition media in the minds of advertisers as an investment to achieve top-line growth," Pullem adds.
Despite the financial pressures, media ownership in Japan has so far resisted the urge to change. Newspapers continue to own chains of small agencies to collect advertising. Consolidation is not discussed, and foreign ownership is kept at bay both by legislation and phobia. However, ownership and investment opportunities are emerging.
Earlier this year, GE Equity and CNBC Asia-Pacific bought a 2.99 per cent equity stake in TV Tokyo. JCDecaux has started building and managing Japan's first bus shelters to carry advertising via a joint venture with the Mitsubishi Corporation. There could be more opportunities in outdoor since the outlawing of tobacco advertising on large outdoor sites.
According to industry sources, foreign interests are exploring opportunities in cable and satellite television, radio and cinema, as well as outdoor.
But there's no need to rush; the value of Japan's media assets is likely to continue to fall for the next few years. Bargain prices today may look inflated three years from now.
GLOBAL MEDIA NETWORKS IN JAPAN
Carat Chusen Media (jv with Chuo senko)
Initiative Media Hakuhodo
Mediaedge:cia Dentsu, Young & Rubicam
Universal McCann McCann
Other media partnerships
MARK PATTERSON, Chief Executive, MindShare North Asia, on agency life in Japan
When you're outside Japan, most of what you read and see tells a pretty sorry story of the state of the nation. But when you live here, it's hard to see tangible evidence of the ten-year recession.
Just recently, for example, a gargantuan new entertainment/ hotel/shopping complex has opened in the heart of Tokyo. Roppongi Hills makes Canary Wharf look like a Barratt home development. This will, I predict, become one of the most talked-about and influential brands in its own right in Japan this year.
The other brands that still grab the limelight contain no major surprises: Louis Vuitton, Prada and Hermes are all thriving, and Burberry is still a firm favourite. J-Phone is making a fairly rapid transition to Vodafone with the help of David Beckham. Becks is still a hugely popular icon a year after the World Cup. He is currently promoting Meiji chocolate and TBC, a beauty salon chain, with the help of his wife.
The biggest TV show is SMAP x SMAP, a general entertainment show fronted by a popular boy band. Sort of Ant 'n' Dec-style stuff. They also have their own cookery show, so try to imagine Westlife rustling up a plate of spag bol.
Other big TV names include Mino Monta (think Wogan) and Takeshi (a Jack of all trades). The Japanese love celebrities and virtually every TV ad features one. Many are from abroad and are big names, such as Penelope Cruz who is the current face of Lux.
So where do the advertising people go after hours? Lunch is not a big deal and is rarely boozy, so the evenings are the main event. Tokyo has several "entertainment districts" such as Ginza Shinjuku, Akasaka and Roppongi. To most Japanese business people, the restaurant is simply the precursor to the whisky bar, karaoke room and hostess bar, not necessarily in that order. Expect the bill to come in at around £1,000 for a party of four.