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Japan is the world's second-largest advertising market, with ad spending of $39.7 billion in 2000. In the early 21st century, Tokyo rated as the No. 2 city worldwide in terms of advertising billings, after New York.

Japan's advertising industry dates back centuries. The closest thing in Japan to the type of agency that developed in Europe in the 17th century—which dealt in such matters as employment, real estate, leases, travel and art brokerage—was probably the kuchiireya. A kuchiireya is one who recommends the services of others, passes on messages, makes recommendations or introductions or arranges for the employment of domestic staff. The kuchiireya conducts these activities as a business.

People in this line of work came to be known as keian, named after the doctor Yamato Keian, who acted as a go-between for marriages among royalty during the Keian (1648-52) and Shoo (1652-55) periods. Yamato Keian is thought to have established his business in 1652; he was banished in 1665 for embezzling money from dowries. The business of managing information for the purpose of introducing people also came to be known as keian.

Birth of modern advertising

The first modern advertising company in Japan appeared in 1873 as a purveyor of imported goods. In a notice in a Tokyo daily newspaper, the company announced that its orders department would henceforth accept advertising commissions in addition to its operations as a trading company.

The first Japanese company to specialize solely in advertising was Kukido-kumi, established in 1880. Although documents of the company no longer exist, it was apparently a pioneer in newspaper advertising. The oldest advertising company still in existence, Nihon Kokokusha, was established in 1884 by Eto Naozumi and was known as Kohodo before World War II.

Among today's leading advertising organizations, Hakuhodo is one of the oldest. It was established in 1895 and sold advertising space in educational publications; while it grew to become the top agency in Japan in the 1920s, a downturn in the book publishing market, a key area for the agency, allowed rival Dentsu to make inroads on its position.

Dentsu opened in 1901 as a news wire service, Telegraphic Service Co., providing war reports to newspapers in exchange for advertising space, which was sold by sibling company Japan Advertising. In 1907, the two merged to form Denpo-Tsushin Sha, which was shortened to Dentsu. Forced by the government to give up its news reporting business in 1936, the company began to focus solely on advertising.

In 1944, another agency emerged as the result of the merger of 14 advertising agencies that were facing closure due to World War II; initially known as Kinki Advertising Co., it changed its name to Daiko in 1960. Another top agency, Asatsu-DK, was created as Asatsu in 1956; in 1999, it merged with rival Dai-Ichi Kikaku, which opened in 1951, and added the shop's DK initials to its name.

The industry today

Dentsu was Japan's leading agency in 2003, with worldwide revenue of $2.5 billion. The next largest was Hakuhodo DY Holdings, a holding company formed by Hakuhodo, Daiko Advertising and Yomiko Advertising in October 2003. According to Advertising Age estimates, the company had combined 2003 worldwide revenue of $1.2 billion. It was followed by Asatsu-DK wiht $413.9 million and Tokyu Agency with $181.6 million.

The nation's top advertiser in 2000 was Toyota, which spent $716 million. Honda was next, with ad spending of $406 million, followed by Kao Soap, $401 million; Suntory, $326 million; and Takashimaya, $295 million. The country's top ad category in 2000 was food and groceries, with $2.73 billion in spending, followed by cosmetics and toiletries, $2.57 billion; beverages and cigarettes, $2.42 billion; information and communications, $2.21 billion; and transportation and leisure, $2.16 billion.

The country's leading advertising group, the Japan Advertising Agency Association, had 130 member companies. If a non-member wishes to carry out a transaction with the mass media, it must do so through a member agency, which takes half the commission. This practice accounts for the concentration of power in a relatively small number of top-ranking agencies. In addition, advertising agencies in Japan, unlike those in many other countries, work on the accounts of more than one company in an industry. Thus, large Japanese agencies often handle a number of competitors.

All advertising in the media is done through agencies, and payment is made within one month after the ad is printed or aired. The advertiser pays the advertising agency by bank draft, but the agency must maintain a certain amount of liquidity because of the short grace period before payment is due to the media. This practice is another reason large agencies tend to become even bigger.

The advertising media in Japan are roughly divided into two categories: mass media and house media. Mass media include TV, newspapers, magazines, and radio, while house media include outdoor (i.e., billboards), direct mail, publication inserts, mass transit advertising, cinema advertising and events sponsorships.

Zenith Media predicted that in 2002, TV would draw 46.1% of the country's advertising media spending; newspapers, 27.3%; outdoor, 12.4%; magazines, 9.6%; and radio, 4.6%. Online ad spending remained low, drawing $600 million in 2001, while the country's Internet penetration reached 34%.

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