Dentsu dominates Japan’s media sector and advertising
Dentsu switches from JGAAP to IFRS accounting standards with big impact on KPIs
Dentsu dominates Japan’s advertising and media industries, and attracts some of the most creative Japanese talent, although Dentsu is not the first advertising agency in Japan – that priority belongs to Hakuhodo.
From April 1, 2015, Dentsu decided to switch to IFRS accounting standards from Japan’s JGAAP standards. For FY2014, Dentsu reports financial results both using IFRS and JGAAP standards, giving us the fascinating opportunity to compare both accounting standards for a major corporation.
So how big is Dentsu? For FY 2014 (April 1, 2014 – March 31, 2015) Dentsu reports (we have rounded the figures):
Net Sales (JGAAP) = ¥ 2419 billion (=US$ 19 billion)
Revenues (IFRS) = ¥ 729 billion (=US$ 6 billion)
For operating income, net income and other data IFRS and JGAAP measure quite different KPIs.
Disruption is on the way: CyberAgent based on blogs, Recruit based on classified advertising and HR, LINE based on sticker communications, and many more…
Managing Japan/West cultural issues via the Dentsu-Aegis-Network
As for many Japanese corporations, Dentsu’s challenge is to leverage a dominating position in Japan into a global business footprint, while managing the well-known cultural issues. Dentsu’s approach was to acquire the French/UK agency Aegis, and then via Dentsu-Aegis acquire a string of agencies all over Europe:
Dentsu dominates Japan’s advertising space, and is a very very strong force in Japan’s media industry sector, through control and management of major advertising channels with an overwhelming market share in Japan, and has been working hard to leverage its creative power and strength in Japan into a larger global footprint.
Philip Rubel, CEO of Saatchi & Saatchi Fallon Tokyo KK gave a talk about “Lovemarks”, a concept in branding developed by Saatchi & Saatchi CEO Kevin Roberts.
To understand Japan’s media landscape read the “Japan’s media” report.
The argument is that traditional “brands” are losing relevance because in our advanced “post-industrial” societies, function and technology are given, and can usually be rapidly reproduced or overtaken by competitors. Therefore, advertising based on function or technology does not work anymore. Another factor is the shift from traditional one-way media such as TV and print, to social media and peer-to-peer interactions, where anyone can publish anything about “brands” and “brands” cannot do anything about it directly. Thus traditional brands are dead. So, how can we get people to attach irrationally, beyond reason? Lasting relationships are not based on rational thinking.
Japan brand management: Lovemarks create loyalty which goes beyond reason
“Lovemarks” counter these effects: the concept of Lovemarks is to “create loyalty which goes beyond reason”. To create love for the Lovemarks. To get there, Saatchi & Saatchi believes in the “unreasonable” power of creativity: creativity can create loyalty beyond reason.
Philip Rubel showed us several examples of campaigns, mainly in Japan, which were successful far beyond expectations. These campaigns are based on creativity, incorporate surprise, appeal to emotion, and aim to exploit viral sharing on social media such as facebook and YouTube. Creativity is used to replace expensive traditional top-down one-way media such as TV and print, by social media, internet, YouTube and viral sharing and engagement. Here are some examples:
BMW films by Fallon
The issue was to develop the BMW brand in USA with limited budgets. BMW Films was a series of films created by famous directors and famous actors, which was uploaded to the BMWfilms.com website for download. BMW Films became famous, actors volunteered to appear, and download figures were far beyond plan.
SONY Bravia balls in San Francisco
Making of SONY Bravia balls
SONY Bravia paint
Godiva Love & Hug project for Valentine’s day 2013
For Valentine’s day 2013, Saatchi & Saatchi built a hugging robot, which people could hug, and the hugs were measured, rated, and photographed, and the results could be displayed on social network sites etc. The campaign is explained here on Saatchi & Saatchi’s website.
De’Longhi had the issue of competing with much more powerful Nestle’s campaign centered on George Clooney. De’Longhi decided to use Michelangelo’s David, who is immensely popular in Japan – and who does not require actor’s fees…
Reebok Rajio Taiso
Radio Taiso is a morning gymnastics series, which Japan’s national radio and TV system NHK started back in 1928. Saatchi & Saatchi created an imitation of Radio Taiso using professional acrobats, and relied on viral marketing. The advertised brand name appears only very briefly at the end of the video clip – enough to create response far beyond expectations:
T-Mobile “Life’s for sharing” campaign
T-Mobile “Life’s for sharing” Royal Wedding episode currently has 27,539,402 views on YouTube:
Understand Japan’s media and advertising industries
Report on Japan’s Media (approx. 200 pages, pdf file)
Social media revolutionize brand marketing: people don’t want to be told what to buy, but want to discover and share
Social media marketing: Consumers have now taken control of what they watch, read and listen to and so the messages they receive are the ones they chose to receive. Brands must now deserve that attention through appealing to their needs and feelings and not simply by buying airtime on television.
Ray Bremner, President & CEO of Unilever Japan gave a talk at Waseda University
To understand Japan’s media landscape read the “Japan’s media” report.
From Advertising to consumers to mattering to people
My key take-away is that social media have made the top-down “begin told” way of advertising obsolete, and replaced it by finding, sharing and engaging.
Unilever was founded in 1929 by the merger of the British soap maker “Lever Brothers” (founded in 1885 by William Hesketh Lever, The Right Honourable The Viscount of Leverhulme), with the Dutch margarine producer “Naamloze Vennootschap Margarine Uni”, which was formed by the merger of several margarine companies, including those of Antonius Johannes Jurgens and Samuel van den Bergh. Soap brought hygiene to ordinary people, and margarine helped people who could not afford butter. Both companies, Lever and Margarine Uni had in common that they used palm oil as raw material.
The merger of Lever and Margarine Uni was decided over dinner in London in 1929, and written down in a 100 word merger agreement – unthinkable today for an M&A agreement.
About 50% of Japanese people have Unilever products at home
Unilever vision 2010 is: double the business, while reducing the environmental footprint. Execution of this vision is measured by 60 KPIs and the results are published.
We work to create a better future every day.
We help people feel good, look good, and get more out of life with brands and services that are good for them and good for others. We will inspire people to take small everyday actions that can add up to a big difference for the world.
We will develop new ways of doing business that will allow us to double the size of our company while reducing our environmental impact.
Unilever mission: building brands that improve people’s lives.
Ray Bremner: “social media are revolutionizing the way we market brands, and they are making people like me extinct”.
From 2001 to 2013, the average time Japanese consumers spend watching TV has decreased from about 3 1/2 hours/day to 3 hours/day, while the time spent with PC & mobile has tripled from 1/2 hour/day to 1 1/2 hours per day. Most Japanese age groups use social media, usage peaks at 35% for men in their 20s, and around 45% for women in their 20s, and around 30% in their 30s.
TV reaches about 88% of Japan’s population, and digital media (PC and mobile) reach about 73%.
From 2001 to 2012, advertising expenditure in Japan has decreased from about US$ 27 Billion/year to US$ 23 Billion/year, while expenditure for digital media has increased from zero to US$ 12 Billion/year. For an overview of Japan’s media markets – see “Japan’s Media“.
How to make marketing messages a pleasure rather than annoying?
How do we succeed? Crafting brands for life.
Put people first, not just consumers. Real people with real lives.
Build brand love.
Unlock the magic.
The brand love triangle
How do you create a conversation people want to participate in?
We use the “brand love triangle. “The people we serve” are in the center. The three edges of the brand love triangle are:
Purpose (brand point-of-view) <— brand history dive
Product truth <— product dive
Human truth <— people immersion
“Dove Real Beauty Sketches” by Steve Miles
Brands need a purpose, a point of view. Before 2002 Dove did not have a purpose.
Steve Miles talking about Dove and himself:
93% of women do not think they are beautiful – men are opposite: 93% of men think that they look just great. Dave Miles (and Dove’s) point of view is that everyone is beautiful. This point of view is expressed in “Dove Real Beauty Sketches”, which won the Titanium Grand Prize and 10 Gold Lions at Cannes 2013:
As of today, “Dove Real Beauty Sketches” has 61,767,827 views on YouTube, which is not as much as PSY’s Gangnam Style with 1,888,086,686 views, but still – pretty amazing.
Another example of brand communication is Harley Davidson, which signifies “Freedom of the Road”, independent character. Harley Davidson creates a bond to customers by presenting each customer with the “umbilical cord”, the belt with which the Harley Davidson motor bicycle was tied down during the transport from the factory to the customer.
Focus: In 2000, Unilever had 1600 brands and today 400 brands.
Question: How many of your campaigns in Japan are global campaigns? How many are Japan-only?
Answer: practically all campaigns for all international brands of any company are made in Japan for Japan. That is not to say that global ideas do not work. In fact in most cases International Brands have the same brand and advertising positioning in Japan as elsewhere in the world. What does differ for Japan is that often Japanese consumers have different usage habits, have different views about the world and the cues within the advertising can leave different impressions on Japanese minds. The Japanese consumer is highly observant of small details in advertising ; much more so than the average European for example.
That means that we test Global campaigns but very often we have to create Japan only executions so that how we express the idea is done totally with the Japanese consumer in mind. This is more costly and time consuming but essential for success.
(2) for mobile operators DoCoMo, KDDI and SoftBank margins are 10%-20% and increasing despite the crisis! Could mobile phone usage be crisis resistant?
(3) TV media groups had healthy margins in the 10%-20% range back around 2001- however these margins have been slowly melting away, and TV group margins are heading to cross the zero line into the red zone by 2010-2011. Watch out for a TV media crisis. Read more below.
Consumer electronics sector operating margins:
Nintendo bucks the trend: while Japan’s electronics firms’ margins are dropping into the red, and have never been much higher than 5% during the last 10 years, Nintendo‘s operating margins are above 30% and rising despite the crisis.
Mobile phone sector margins are 10% – 20% and rising despite the crisis.
Mobile phones seem to be resistant to the current crisis. DoCoMo‘s, KDDI‘s and Softbank‘s margins are healthy and improving despite the crisis.
(Find full data, fully labeled graphics and analysis in our JCOMM Report)
Margins of TV media groups have been melting away since their peak in 2001.
Back in 2001 Japan’s TV media groups used to enjoy healthy margins of up to 20%. Over the last 8 years these healthy margins have molten away, and Japan’s large TV media groups are likely to all simultaneously go into the red from 2010 onwards, unless dramatic action is taken. Media groups will need to grow profitable new business, e.g. mobile-TV, and other cross-media growth areas.
Could it be that recent anti-takeover measures have made the large TV media groups complacent?
(Find full data, fully labeled graphics and analysis in our J-MEDIA Report)
Digital mobile TV started in Japan in 2005 – about 3 years ago: KDDI/AU sold the first phones with digital mobile TV starting in October 2005, at the same time mobile TV was available for public testing. The official commercial service of mobile TV started on April 1, 2006.
Today more than 75% ship with 1-seg mobile digital TV tuner and software, and the percentage is rapidly increasing as the figure below shows. Quite soon, almost all mobile phones in Japan will ship with digital mobile TV.
People who want to participate need to register and link their plastic SUICA card, or their mobile SUICA (wallet phone with installed SUICA application) with a registered mobile or PC email address.
Whenever a registered participants touches the SUICA reader/writer on the side of a poster, links to a campaign homepage, coupons, event announcements or other information is sent to the registered PC or mobile phone email address.
The SuiPo system puts interactivity into posters and allows the advertiser to build an opt-in data base of interested people and to interact with them.
On March 31, 2007 eMobile will start high-speed (3.6 Mbps, HSDPA) mobile data services in Tokyo, Osaka and Nagoya, bringing disruption into the mobile data market in Japan.
While Willcom offers a flat data rate of YEN 9000 (US$ 77) per month for unlimited data transmission at 128kbps, eMobile will offer 30 times higher speed at about 1/2 the price:
3.6Mbps for PDAs, laptops and PCs for YEN 4980 (US$ 43, EURO 32) per month flat rate without any data limit (and n.b. no “fair use limit” as many European operators impose in the fine-print). …. and yes- you can probably also do wireless VOIP or Skype if you set this up yourself.
The established mobile operators (DoCoMo, KDDI/AU and SoftBank) do not offer any flat data rate to connecting PCs and laptops at this time.
(By the way- did you ever wonder why new entrants love flat rates? it’s because telecom billing systems are so expensive and complex. Flat rates are one of many competitive weapons new entrants have over incumbents…)
Business decisions unrelated to market realities are a prime reason for failure of foreign companies in Japan
In a quest to reduce market research costs, Japan market research is often outsourced to India, Philippines, Indonesia etc
With shock and surprise we recently found out that a very famous telecom and IT industry market research and strategy consulting firm with a globally famous brand apparently outsources market research of Japan’s mobile phone and telecom sector to India. The Indian employees apparently are diligently studying the Japanese language in evening classes, so that in a few years time, they will be able to read a little of the Japanese mobile market information which can be found on the internet, we assume.
We believe that this explains why so much information about Japan’s telecom and mobile phone markets circulating outside Japan is incomplete, or in many cases even wrong. As a consequence companies like Vodafone then take management decisions in Japan, which were totally unrelated to Japan’s market realities.
This fact also contributes we believe to the fact, that some of the most famous global companies in the telecommunications sector find it so difficult to succeed in Japan – not that Vodafone, Nokia (mobile phones and VERTU – except networks which are a great success), Cable & Wireless, Deutsche Telekom all withdrew from Japan – outsourcing market intelligence to low-cost countries such as China, India, Philippines etc. is certainly one of the contributing factors.
Indeed similar to Vodafone’s departure from Japan, famous global telecom consultancies have also closed shop in Japan, due to the very high costs and the continuous high investments necessary to achieve and maintain leadership in understanding Japan’s telecommunication markets.
We can assure our newsletter subscribers and our customers that our original Eurotechnology market reports and our strategy consulting is hand crafted in Tokyo/Japan. Our team members working on Japan market research and strategy consulting, all live in Japan, are mostly Japanese, and work daily with Japanese CEOs, telecom managers, and most importantly of all, daily interview and discuss with real-life Japanese mobile phones users: face-to-face here in Japan – not across one or more oceans.
In Japan the nickname for digital mobile TV is written in Katakana: ワンセグ (pronounced wansegu). Japanese people love to abbreviate – oneseg is short for OneSegment. Why?
The reason is technical: digital TV is broadcast in certain radio frequency channels. Each TV station (e.g. NHK, Fuji-TV, TBS etc) uses one particular 6 MHz wide frequency channel for digital TV broadcasts. Each channel is divided into 14 segments, and one segment is used for digital TV to mobile phones, while the other remaining 12 segments are used for high-definition digital TV, while the 14th segment is used as a buffer between adjacent channels to avoid interference.
Digital mobile TV started officially in Japan on April 1, 2006 after several months of testing. Japan’s media industry is large – Japan’s broadcasting industry alone is about US$ 40 billion sales/year, so mobile-TV will probably develop into a multibillion-$ industry over the next few years. At the moment there is a chicken-and-egg situation: content providers need a market with lots of subscribers, but subscribers will only buy handsets if there is enough good content. So investment and a longterm view is necessary to jumpstart this new market.
Apparently about 500,000 mobile phones with digital TV have been sold already – KDDI started selling mobile phones for digital terrestrial TV (1-SEG) from autumn 2005, while DoCoMo introduced the first digital TV handset only a few weeks ago.
According to major phone retailers, buyers are mainly men in the 25-35 age group. So there are some more steps to do until mobile TV goes mainstream, for example, making mobile-TV enabled phones smaller and more attractive for female customers.
Viewers can watch TV and they can purchase & download the music, join fan clubs and much more
First simple estimations by our team based on analysis of Japan’s TV industry and on the development of i-mode in Japan show that the mobile TV industry segment in Japan may well reach a volume of US$ 4 billion or more within a few years for m-commerce, advertising and other business combined.
Japan’s broadcasting is a US$ 40 billion/year industry
There have been many attempts over the years for Japan media landscape restructuring
by Gerhard Fasol
Japan’s broadcasting markets (commercial TV + NHK + CATV + satellite + AM & FM radio) have annual combined revenues on the order of US$ 40 billion. The main players in this market are five large commercial TV groups and the semi-public NHK.
Media Group TBS attracts uninvited merger proposals
One of these five TV and media groups – TBS – has received an uninvited merger proposal by it’s largest shareholder – the internet portal Rakuten – and in parallel also attracted the Murakami-Fund as an investor.
TBS media group under pressure? and why?
Earlier this year Japan’s Murakami Fund acquired about 7% of the TBS Media Group, and declared that TBS was undervalued and should sell non-core assets, such as real estate and other non-TV / non-media related properties.
Recently, Rakuten acquired about over 20% of TBS shares, making Rakuten the largest shareholder of TBS. Rakuten announced a business plan for a merged Rakuten-TBS Group integrating Rakuten’s internet businesses with TBS’ TV and media operations. Since Rakuten’s stock market valuation is about 35% higher than TBS’ valuation (as of October 24, 2005), Rakuten’s management is expected to dominate a potentially merged group.
TBS’ management is not delighted with the prospect of losing control in this way. In response, three things happened:
TBS management announced cooperations with “stable shareholders” Dentsu, Mitsui Bussan, and Bic-Camera, and non-shareholder Amazon.co.jp, and other Japanese corporations.
The Murakami Fund proposed a management buy-out, which would lead to a delisting of TBS by the Tokyo Stock Exchange, taking TBS private. This possibility was voted down by TBS management.
Livedoor offered support as a (very unlikely) white knight. Given Livedoor’s record of a failed hostile take-over attempt of the Fuji-Sankei media group earlier this year (for details see our report on Japan’s Media industry), it seems to be more than unlikely for TBS to go for Livedoor as a white knight – however no one knows for sure.
At this time the acquisition battle for the TBS Group is in full swing and the final outcome is difficult to estimate. In parallel to the take-over battle, a public discusson by Japan’s industry leaders is examining the desirability of hostile take-overs in Japan.
Below is an outline of the take-over battle raging right now. The complex cross-shareholding is puzzling, and the reason for it is surprising to the uninitiated: a long time ago there was no radio and no TV, only newspapers. Radio in Japan was born as babies of newspaper companies, and TV stations were born as babies of the Radio stations. So at the beginning Fuji-TV was a tiny in-company venture subsidiary of Japan-Radio (Nihon Hosou). The cross-share holding structure dates from these pioneering days of TV in Japan and has not been touched since – until Livedoor’s Takafumi Horie came along.
Takafumi Horie’s nickname in Japan is Horiemon. Why? Because many people think that Takafumi Horie looks similar to Japan’s cartoon character Doraemon.
By the way: some media falsely report that Horie is the founder of Livedoor. This is not the case. Horie-san founded a website design company called “Livin’ On the EDGE Inc” in 1996, later renamed EDGE, and many other companies. In 2002 he acquired the free email/ISP company Livedoor.
Masaru Ibuka obituary in NATURE by Gerhard Fasol – the background
I used several weeks of my spare time to research and write this obituary. For example, I worked to reach and talk with several people who had met Ibuka in person, since I had never personally met Ibuka. As another example: General McArthur’s Government of Japan wanted to communicate with the population of Japan via radio, however, radio receiver production in Japan was very inefficient at that time due to quality problems, leading to very low yield. So General McArthur’s Government brought Quality experts Homer Sarasohn and Charles Protzmann to Japan to teach classes in quality management. I found out that Ibuka was a keen student of these quality classes. To understand this better, I phoned with a retired officer of General McArthur’s Government, and I also found relatives of Homer Sarasohn, who very kindly gave me a lot of information about Homer Sarasohn’s work in teaching quality management in Japan.
Debunking some myths about SONY and Masaru Ibuka
Interestingly, there is a lot of misunderstandings and myths around SONY, some of which I clarified in the Nature obituary for Masaru Ibuka.
Myth: Akio Morita is the founder of SONY
Reality: SONY was founded as Tokyo Tsushin Kenkyusho (the Tokyo Communications Laboratory) by Masaru Ibuka and by Akio Morita, who are the two co-founders of Tokyo Tsushin Kenkyusho, the company name was later changed to SONY.
Myth in Japan: Many people in Japan think that SONY is an American company
Reality: SONY is a Japanese company with headquarters in Tokyo-Shinagawa. The reason why many people think that SONY is an American company, is that SONY’s company name and brand name in Japan is written in Katakana, while traditional Japanese companies always write their company in Chinese characters (Kanji). (Note however, that Nissan President Carlos Ghosn, says that companies have no nationality).
Myth: Nobel Prize winner Leo Esaki discovered the tunnel diode, for which he was awarded the Nobel Prize, at IBM
Reality: Leo Esaki discovered the tunnel diode as a researcher at Tokyo Tsushin Kenkyusho, which later changed the company name to SONY. Leo Esaki then moved to IBM Yorktown Heights R&D labs, and was awarded the Nobel Prize while working at IBM for his discovery of the tunnel diode, which he discovered while working at Tokyo Tsushin Kenkyusho.