Dentsu Posts First Annual Loss in More Than 100 Years

Japanese Advertising Giant's Net Income Fell $209.4 Million Amid Recession

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TOKYO -- The global recession has taken a heavy toll on Japan's largest ad agency. Dentsu's net income fell $209.4 million during the fiscal year ended March 31, 2009, its first annual loss in more than a century.

Dentsu, which controls about a quarter of Japan's ad market, experienced "extremely severe business conditions" in the past year, according to a company statement released today, "with clients broadly conservative in their advertising spending. [Both] the corporate sector and the household sector were deeply affected [by] the rapid economic downturn since last summer, arising from the financial crisis, [which] has substantially affected Dentsu's business results."

The group posted net sales of $19.3 billion, an 8.3% drop, while gross profit fell 8.9% to $3.2 billion. Its operating income fell just over 23% to $442 million, and ordinary income was down 21.5% to $546.5 million.

Ad spending in Japan in the 2008 calendar year fell 4.7% to $68 billion, with the deepest cuts hitting traditional media such as TV and print, areas in which Dentsu has profited heavily in the past. Internet-advertising spending actually rose 16.3% year on year in 2008, and satellite-media-related ad spending increased 12.1% year on year as well.

Unlikely to improve soon
With Japan's GDP expected to fall 3.3% in 2009, conditions are unlikely to improve soon. The Japan Center for Economic Research predicts that ad spending in Japan will fall about 15% in the fiscal year ending March 31, 2010.

"In an environment in which the domestic economy is rapidly worsening," Dentsu said, it "will look to further strengthen its activities in the solutions, digital and global domains in order to cope with the severe circumstances, [but] the financial outlook for the fiscal year ending March 31, 2010, and thereafter continues to be uncertain."

What's also uncertain is how much the recession will change the way agencies are managed in the world's second-largest ad market. Many agencies, particularly the local ones such as Dentsu and the No. 2 player, Hakuhodo DY Holdings, earn income from commissions on media buys, usually about 15%. That system has been dropped in many other developed markets, where agencies earn fees instead of commissions, and is likely to disappear in Japan as marketers seek ways to reduce expenses.

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