Dentsu admits to ‘inappropriate operations’ in digital media trading deals with clients in Japan


Dentsu’s headquarters in Tokyo, home to 5,000 employees

One of the strongest relationships in advertising has been complicated by the revelation that Japanese agency giant Dentsu has been overcharging its client, Toyota, for digital media in its home territory.

The news is unprecedented for a market known to be a black box for media buying, where marketers are often left in the dark about how and how much they pay their agencies, and comes at a time when transparency is an increasingly serious issue for the media industry globally.

A Dentsu spokesman declined to confirm the individual brands involved citing client confidentiality, but told Mumbrella Asia that “inappropriate operations” regarding digital media trades have been going on, and that the agency is working with clients on “further steps that may be required” to resolve the issue.

Update: Toyota has responded saying that the company has been notified by Dentsu of “irregularities in some digital media business transactions,” but declined to comment further.

Dentsu, which enjoys a peculiarly powerful position in Japan as both a media owner and a media agency, counts Toyota as probably its closest and longest standing account. The car maker has been a foundation client in many of the 140 markets where the 115 year-old agency has a presence outside of Japan.

Though details of the nature and scale of digital misdealing have yet to emerge, it is likely that clients other than Toyota, particularly multinationals with headquarters outside of Tokyo, will want answers at a time when the tremors of a report into client-media agency transparency in the US, released four months ago, are beginning to be felt everywhere.

The ANA report found that practices that advertisers are increasingly intolerant of, such as kick-backs, credits and value banks, are “pervasive” in the US.

That report came out just over a year after an audit in Australia revealed that one of the country’s largest media agencies, Mediacom, had faked campaign reports for its biggest clients, and had sold back to clients free air time given to it by TV stations.

While the implications of the ANA report, and the kerfuffle in Australia, have been downplayed as an irrelevance for Asia’s big markets such as Japan, China, India and Indonesia, where clients have traditionally accepted low transparency as a trade off for good service and cheap media, Dentsu’s admission that there is a problem could change that.

In an interview with Mumbrella Asia in Tokyo last month, Takeshi Miyazawa, who worked for Dentsu for 13 years in Japan, China and India before joining IPG Mediabrands’ UM agency a year ago, responded to a question about the local implications of the ANA reporting by first describing Japan as the world’s most opaque media market.

Japan is among the world's least transparent media markets; source: WFA

Japan – one of the world’s least transparent media markets; source: WFA

Media trading deals in Japan, he said, are not based on scope of work as in the West, but “a gentlemen’s agreement” involving a fee or commission agreed upfront, and no questions asked about mark-ups or margins made on trades.

A report by the World Federation Advertisers in 2014 found that up to 75 per cent of rebates in Japan, which ranked close to bottom of the study, are retained by agencies rather than passed back to clients.

However, Takeshi said that market dynamics are “slowly changing” as best practice from other markets begins to influence the status quo in Japan.

A regional client-agency relationship consultant told Mumbrella today that his firm has received a growing number of requests to audit media negotiation deals in recent months, but that this sort of auditing is “a genuinely new thing” in Japan.

Another industry observer suggested that while the relationship between Dentsu and Toyota – one of almost unrivalled strength and depth developed over many decades – is unlikely to be uprooted by this incident, it goes to show that even the longest relationship does not protect a client from paying more than it should for media.

The news, though exposing the lack of transparency of a rival, may sit uncomfortably with the numerous advertising agency bosses who have criticised the ANA report, such as WPP’s Sir Martin Sorrell, who accused its auditor of a conflict of interest, and Publicis Groupe CEO Maurice Lévy, who said the report was “unfair and an unwarranted attack on the entire industry”.

It may also make for some awkward conversations with clients for Jerry Buhlmann, CEO of Dentsu’s overseas operation Dentsu Aegis Network, and the former boss of the British media agency Dentsu acquired in 2013. Buhlmann was asked about the implications of the ANA report in the context of digital trade desks just over a fortnight ago.

He told Adexchanger: “Most clients are much more sophisticated than they’ve been given credit for. You establish a working relationship with clients in a contract [that] formalises exactly how you operate in a very transparent way. A lot of the issues raises by the ANA are marginal to the business. They’re not a reflection of modern contractual relations. Following that report, we didn’t get any feedback from clients. I’m not sure it’s a particularly big deal in the real market.”

The response from Dentsu via email:

We regret that we are not able to provide specific details in answer to any questions related to the transactions or business of an individual client.

We can say, however, that there were some inappropriate operations related to digital media business transactions which have already been reported to the clients concerned. We are currently in consultation with them regarding any further steps that may be required.


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