Japan: Japan Reinvented

Though Japan's ad market may never fully recover from this recession, some much-needed change is being forced upon an industry hidebound by the old way of doing things.

Japan's "lost decade" of economic gloom became two decades gone missing when GDP figures released in December confirmed that the world's second-biggest economy has been stuck in neutral since 1990. The way things are looking in 2010, economists have good reason to worry that two decades lost could become three.

Yet there's room for optimism, in the ad industry at least. The situation could push it into a fast-forward remodelling of itself, bringing greater accountability, transparency and creativity (witness the Dentsu-created statue of a Sunrise Studios robot).

And this forced reinvention could be the industry's very saviour.

Self-flagellating headlines in January wailed that Japan's economy had been overtaken by China's, and it's no surprise that consumer confidence in Japan is the lowest in Asia, according to Nielsen figures from the beginning of the year. The country's already unpopular new government faces high unemployment (5 per cent), deflation, a yen at a 14-year high against the dollar and an ageing, recession-weary population that is less confident in its ability to afford children. Japan's GDP per capita has dropped to 28th in the world, and the 80s boom years when Japanese salarymen frittered away millions on the works of Picasso and Monet look unlikely to return.

The same is probably true of Japan's ad market, which shrank by almost 20 per cent in 2009 - double the global rate of decline. The mass media were the biggest casualties. Even outdoor retracted. Digital fared best in percentage terms, but actual spend on new media was unspectacular. Adspend will fall again this year, by just under 4 per cent, according to the Japan Center for Economic Research forecast.

"Japan is facing overall deflation and a shrinking population. The ad industry has reached its zenith and will not return to it," Blair Currie, the North Asia chief executive of Aegis Media, says. "The only ways to change this would be to have a huge increase in demand and an increasing population, which would help fuel inflation. There are no signs that this will happen."

The gloom of 2009 shows on the balance sheet of Dentsu, which, in some ways, is Japan's ad industry as the biggest buyer and seller of media with more than 20 per cent market share (the other two majors are Hakuhodo and Asatsu-DK). The $9 billion Dentsu saw billings drop by 17 per cent and operating income plunge by 62 per cent in the first half of 2009. Things are a bit rosier now. Net sales went up by 9 per cent in February 2010, with digital and outdoor media selling briskly. "We are now on the recovery track and the worst is behind us," the Dentsu spokesman Shusaku Kannan says. "The World Cup in South Africa gives reason to hope 2010 won't be as bad as 2009."

Dentsu has been a big loser and winner of the recession. It has suffered because the market has shrunk overall, but has protected market share by winning a good number of the glut of pitches last year. However, pitch losers sneer that success in Japan is too often due to discounting. The dim view of Japan taken by Western international advertisers hasn't helped. "There is a perception that Japan is a dying market," Dave McCaughan, McCann Erickson Asia-Pacific's Tokyo-based director of strategic planning, says. "This has been spread by marketers who were based in Japan and have now left, and has led to dramatic declines in budgets. And the idea that Japan is too big, culturally awkward and inward-looking to bother with has persisted."

Meanwhile, Japan's multinationals are having to look abroad for growth as markets saturate at home. Yoshikazu Hirano is the general manager of Sony Electronics Asia-Pacific's security business. He says the move to replace guards with CCTV in China, India and South-East Asia, and the lower cost of marketing in these markets, mean that more marketing yen are spent away from home.

"We (Sony) have been an international brand for a long time. But, these days, the world outside Japan is of even greater value," he says. "In India and South-East Asia, we expect to grow our business by 50 per cent in 2010. In Japan, we expect no growth at all."

As a result of client cutbacks, many small, local shops have gone out of business. Survival has meant tough measures. Part-time staff were first to go. Many Japanese and some foreign agencies asked for voluntary pay cuts and got them. Others battled unions and tough labour laws to fire workers.

Phil Rubel oversaw the folding of Saatchi & Saatchi Japan into Fallon Tokyo in June, 2009's biggest agency merger. Saatchi & Saatchi Fallon Tokyo's representative director says the redundancies that followed hit morale, but the agency was not alone in suffering a confidence knock.

More job losses look likely this year as holding companies seek ways to cut costs and boost efficiency. Some agencies have moved in together. Those already in shared offices have integrated backroom staff and systems. "The common need to deliver profit in a tougher market drove integration and helped erode the walls of the business silos," Currie says. Taking production outside Japan (or outside of Tokyo at least) and more discipline in meetings (the Japanese business culture for consensus building means they can run on inconclusively for hours) have also proved popular ways to streamline.

But the best thing about the worst advertising climate in Japan's history is that it is shunting an antiquated industry into the real world. "Japan's ad industry was geared for the 'bubble era'. Last year, reality caught up," McCaughan says. "Now a lot of the things that have already happened in other major markets, such as the dismantling of the commission system, are happening here. And at a faster pace than they would without recession. Accountability and transparency are talking points. They weren't 18 months ago."

Some agencies, particularly foreign ones (which compete in only 20 per cent of the market), feel this plays into their hands. Kent Wertime, the regional president of OgilvyOne and president of Ogilvy & Mather Japan, says a fee-based model is more likely to prosper from now on. Pay-by-performance and more performance-based segments such as search, shopper marketing and mobile will find greater traction among clients, he reckons.

Kazutoyo Kato, the chief executive of I&S BBDO, agrees. "If we look at communications in general, then the decline hasn't been that severe. In other words, the industry must change its conceptual definition of the market. You can't continue to do what you've always done and expect things to change for the better. Agencies should redefine their market and services, realign their business model accordingly and build a more equal partnership with clients."

There is hope that the departure of the commission system will level the field for agencies with strong strategic and creative credentials but which, like BBDO and Saatchi & Saatchi Fallon, lack in the media department. Kato and Currie say the game-changing discipline for agencies in Japan this year will be content.

But change comes slowly in Japan. Kato warns that if there is a delay in the building of new business models in tune with digital media, and a reluctance to embrace measurement and ROI, then recovery will struggle to materialise. This has not escaped Dentsu. At the start of the year, the company announced a plan to consolidate its internet advertising businesses with the intention of growing web-related revenue from £1 billion earned in 2009 to £1.7 billion by 2014.

Investing in the web makes sense. Not just to reach young Japanese, the world's most avid online gamers, but Japan's huge older population, who are the world's most voracious bloggers (36 per cent of the world's blogs are written in Japanese). Internet penetration among the over-seventies has more than doubled since 2007 and Japan's appetite to shop online is unmatched anywhere (83 per cent of Japanese internet users e-shop).

All good reasons to keep faith in Japan's consumer market. Yes, confidence is low and the population is ageing and shrinking. But Japan's retirees, who are sitting on the largest pension funds market in the world with savings worth £10 trillion, have fewer children to lavish their savings upon. "The average Japanese kid has seven or eight adults for whom he or she is the only kid to spoil," McCaughan says. "A huge market is still here, but advertisers are having to think differently about what they are selling, who they're selling to and how they sell it."

This year will be another tough period for Japan's $350 billion ad industry, but agency bosses hope it will emerge from 2010 trimmer and sharper. "Japan's story isn't just about recession," Wertime concludes. "It's about how the industry is reinventing itself. Yes, we're feeling pain. Not just because the industry is shrinking. But because it's having to fit into new clothes."


With so much talent leaving the industry, it's hard to believe that Japan's creative product has been unaffected by recession. Voluntary pay reductions were effective in retaining top creatives, but when the recovery didn't arrive, this seemed like a short-term measure. "For those offering redundancy packages, many were forced by union or employee pressure to give these offers to the whole team," Currie observes. "In such cases, the talented people, who could find other jobs, took the offers. The less talented and marketable people did not take the offers with the result that the overall talent level in these agencies fell."

Curiously, the talent drain hasn't shown at awards shows. Japanese work has never had an easy job pleasing international (particularly Western) juries, and Japan's creative dominance in Asia has been challenged in recent years by the likes of Thailand, Singapore and, increasingly, India and China. But in 2009, Japan kept fifth place in The Gunn Report's most-awarded countries. Dentsu moved up from the 11th to the third most-awarded agency in the world in traditional media, for brands such as Suntory Boss, Dunlop Tyres and Softbank Mobile, and made the interactive top ten.

Japanese advertisers' obsession with celebrities has survived the recession, which is hardly surprising given how effective celebrity endorsement is here, McCaughan says. But new creative themes have emerged too, Kannan observes. He points to the 18-metre statue of the popular anime robot Gundam, erected by Dentsu for its creator Sunrise Studios at a seaside resort, as an example of how wacky ideas have offered escapism for the recession-weary.

Green-themed advertising is big too. Spend on ads promoting green credentials grew by 66 per cent in Japan last year compared with 2008, according to a Dentsu survey of 120 Japanese advertisers. This is reflected by a global BBC World News poll in January that found that the Japanese are the only people among 23 nations to rate climate change as the world's most serious problem. "Environmental themes have captured the hearts of Japanese consumers - going green is the social issue that concerns us most," Kannan says.