Dentsu: 111 Clients in Japan Faced Overcharging, 'Inappropriate Operations'

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Dentsu's world headquarters tower in Tokyo.
Dentsu's world headquarters tower in Tokyo. Credit: Kure via Wikimedia Commons
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For over a month, advertising giant Dentsu Inc. has quietly been investigating "inappropriate operations" at its digital ad businesses in Japan. On Friday, it announced some preliminary results: It tallied 111 clients affected, and 633 suspicious transactions amounting to $2.3 million.

Tokyo-based Dentsu said it found problems including false reporting of performance results or achievements and a failure to place ads. There were also "incidents where our invoices did not reflect actual results, resulting in unjust overcharged billing," it said. In 14 cases, fees were charged but no ads were placed.

The investigation, which Dentsu said started in mid-August and is ongoing, covers deals going back to November 2012. Client Toyota has said it was affected, but it is not clear which others were.

Toshihiro Yamamoto, Dentsu senior VP, told reporters Friday in Tokyo that it would repay $2.3 million to clients, Bloomberg News reported. Shoichi Nakamoto, Dentsu's chief financial officer, said Toyota was the first client to point out an issue.

After the Association of National Advertisers' investigation into rebates in the U.S., the troubles at Dentsu have shone a spotlight on transparency issues in another market across the world. Dentsu controls a quarter of advertising in Japan, the world's third-biggest ad market after the U.S. and China.

"It doesn't look like the absolute value of the transactions is significant," Brian Wieser, analyst at Pivotal Research Group, wrote in an email. "However, in context of the current focus by advertisers on transparency in many markets around the world, levels of trust between advertisers and agencies are relatively low."

He added: "Incidents such as this one concern advertisers globally because it reinforces why they have to be vigilant in monitoring their agencies."

Transparency

Dentsu, founded in 1901, is influential across a wide range of fields in Japan. It buys media advertising time, but it also owns media. It has an entertainment content business, and it's heavily into sports. It's the marketing agency for the Tokyo 2020 Olympics.

It has become much more international recently, especially since the $5 billion purchase of Aegis Group, the most expensive deal ever in the industry.

But the core of its business -- 49% -- is still in Japan, widely considered a non-transparent market. In 2014, the World Federation of Advertisers, Ebiquity and Telemetry classified Japan as the second-least transparent media market out of 20 major markets, after China. They noted: "The large Japanese agencies are full-service: creative agency, media agency, media owner and media wholesaler/reseller -- not a set-up which lends itself well to transparency."

Many industry execs said they were not surprised by the revelations.

"The reaction to the Dentsu story to any old Japan hand is 'so what? Everyone knew that,'" said Dave McCaughan, McCann's longtime regional planning director who now has his own consultancy, Bibliosexual.

"The action was just part of the decades-old practice across media," he wrote in an email. "The fact they told clients now? Telling them and getting punished don't equate in Japan."

Mea culpa

Dentsu's statement offered a Japanese-style apology to clients.

"We sincerely apologize to our esteemed advertisers, the parties concerned and our shareholders from the bottom of our hearts for causing concern and trouble," the company said.

Dentsu's news release and media briefing came after Australia's AdNews broke a story about Toyota. On Friday, Japanese media began reporting the story, and the company's stock fell 4.8% in Tokyo trading. The company said it did not expect its business performance to be affected.

James Hollow, president of MullenLowe Profero Tokyo, said he found Dentsu's statement professional and quite a "transparent admission of issues." In general, he says the issues at Dentsu show how a culture of advertisers tracking return on investments is lagging in Japan.

"There's a lack of dynamic competition in the market that would drive more transparency on ROI," he said. "Outside Japan, accounts might go out for review on a 2-year cycle, but that's not the case here. That's one of the reasons the ad industry feels so different here. You don't have that churn. Relationships here do get more cozy and longstanding."