COLUMN ONE : Ad Giant in Japan Sells Clout : Dentsu Inc. is the world’s biggest advertising agency, and its influence at home is pervasive. Now it is ready to expand its global network and is shopping for acquisitions.
When a big advertising agency is likened to the CIA, is called the “Shadow Ministry of Information” or is suspected of snuffing out scandals in the weekly magazines, it would appear to be doing more than selling soap.
But, then, Dentsu Inc. is no ordinary huckster. Dentsu is the largest advertising company in the world, a distinction it has claimed for the past 17 years. The name is not a household word outside Japan, but give it time. Domestically oriented Dentsu plans to expand its global network dramatically and is shopping overseas for acquisitions.
At home, it is already a colossus, handling roughly one out of every four advertising dollars, outclassing and overwhelming its competitors.
Dentsu is the nation’s copywriter, the clever, omnipotent voice inside every consumer’s head. It represents almost every major Japanese corporation, even competing ones, under its banner of “total communication service.” The meaning of this slogan, the agency says, is that it goes beyond mere ads and puts on sporting events and expositions and organizes elaborate sales campaigns.
But critics say that behind Dentsu’s total communication is a tacit web of influence and manipulation that grows out of its near-monopoly position. Dentsu is more an institution than a company, perhaps the epitome of “Japan Inc.”--as successful as it is purportedly enmeshed in the murky layers of political and corporate power.
So legendary is Dentsu’s clout with the news media that when American corporate raider T. Boone Pickens had trouble getting an opinion ad published in Japanese newspapers last month, his Tokyo lawyer blamed the company in a complaint to the Fair Trade Commission, Japan’s antitrust watchdog.
The lawyer, Kanji Ishizumi, alleges that Dentsu colluded with Toyota Motor Corp. in pressuring newspapers not to run the ad. Pickens had wanted to criticize Toyota and other car makers in connection with a dispute over his rights as the major shareholder of a Japanese auto parts supplier.
Dentsu, Toyota and the newspapers denied the allegation. The ad was published after a two-week delay--with Toyota’s name deleted. Three of the four top national newspapers printed the ad on the same day, May 15.
“The timing was rather strange,” Ishizumi said. “Was this spontaneous mind reading, or an implied conspiracy?”
Gohei Kogure, Dentsu’s president and chief executive officer, dismissed the collusion charge as “laughable.”
“He’s got a real imagination,” Kogure said in an interview. “That’s a completely preposterous idea. This kind of thing could never happen in the Japanese advertising business.”
Yet not everybody is laughing. Gregory Carley, an American businessman in Tokyo, said a new mail-order enterprise he was getting off the ground in the early 1980s was nearly ruined when Dentsu put pressure on Japanese magazines not to carry his advertising. Dentsu’s former president, Hideharu Tamura, admitted the intervention and defended it in a letter to Carley saying the agency had merely “transmitted” a request to the magazines on behalf of a client.
Carley had worked for Dentsu’s client, the Franklin Mint, and quit to start a competing company, Chateau Blanc. He said Franklin and Dentsu relented after the situation was exposed by Fortune magazine in late 1982, but the advertising ban “slowed us down for several months, and it was demoralizing.”
“Dentsu really is a bad institution, a nasty thing that typifies Japan’s closed system,” Carley said. “But everyone knows very little can be done against Dentsu because they’re plugged in to the highest level of politics. They’re part of the network, and Japan is very much a network.”
Expanding Abroad
All this aside, exactly what kind of advertising agency is Dentsu?
That may be an increasingly important question in the coming years, as the company follows Japanese multinational clients overseas and establishes itself as a heavyweight player in international markets.
“Dentsu is the world’s biggest, but in a way they can only get away with inside Japan,” said Eiji Oshita, a journalist who chronicled the agency’s alleged ethical abuses in a fictional work, “Dentsu, the Novel.” Oshita, who says his book is based on fact, added, “Dentsu won’t be able to do these kinds of things abroad.”
He said Dentsu’s practice of representing competitors in the same industry, and even in the same product lines, would be frowned on in the United States or Europe. So would rendering its “tacit services,” which Oshita said can include using influence with the media to suppress or soften criticism of clients.
But Dentsu has had its hands full catering to the legitimate whims of clients in Japan’s booming ad industry, according to Kogure. It has been so busy, in fact, that it has had little time to concentrate on foreign business. That is expected to change, however. More clients are asking for global services, and Dentsu, above all else, aims to please.
Last year only about 10% of Dentsu’s $10 billion in account billings were made overseas, mostly through joint venture arrangements with Young & Rubicam of the United States and the French agency Eurocom. Kogure said he plans to double foreign billings to 20% within five years, or sooner, primarily by strengthening Dentsu’s independent network through “friendly” mergers and acquisitions.
“Dentsu has a certain corporate climate, a kind of culture,” Kogure said. “We’re looking for partners who can understand our total communication service, and who can trust us and work cooperatively with us.”
A Quarter of Market
The outstanding feature in Dentsu’s culture is size. Its $10 billion in 1989 billings was about twice that of its closest international rivals, according to the trade journal Advertising Age. Dentsu’s share of the domestic ad business, by its own account, has ranged between 22% and 26% over the last decade. In contrast, America’s biggest agency, Young & Rubicam, claims only 7% of the U.S. market.
Dentsu dominates the industry enough to have caught the attention of the traditionally tame and toothless Federal Trade Commission, which conducted a “fact-finding study” of advertising transactions in 1980. The commission found an “oligopolistic structure” in the industry “with Dentsu Inc. as the Gulliver at the apex.”
The FTC cited no specific cases of anti-competitive behavior by Dentsu, but it issued a warning on the company’s formidable position with the media:
“It is feared that in the present seller’s market for premium advertising space and air time, a bias toward Dentsu in transactions could result in a strengthening of its influence over the media and that a trend toward oligopoly could accelerate.”
In 1990, it remains a media seller’s market, and Dentsu still has a chokehold on the selling. It books about half the commercials on prime-time network television, and has a 60% share of prime-time advertising at Tokyo Broadcasting System, Japan’s largest commercial broadcaster.
Dentsu’s visionary chief executive of the early postwar years, Hideo Yoshida, helped establish the Tokyo Broadcasting System in 1951, and Dentsu remains the network’s biggest non-financial shareholder, holding 2.7% of its stock. It does more than $400 million a year in business with TBS.
Japan’s premier TV rating company, Video Research, is also in the Dentsu fold. Yoshida created it in 1962 to compete with the recently arrived American firm A. C. Nielsen--motivated, in the eyes of one veteran industry source, by a belief that “we can’t have such vital data in the hands of foreigners.”
But Dentsu’s Kogure said that the concern was to “raise the standards” in the Japanese advertising industry and that Video Research is fully independent despite Dentsu’s 36.6% ownership. Dentsu supplies it with top executives only because it is “neutral,” unlike the other major equity partners, the TV networks, he said.
Dentsu is tied closely to the two Japanese news agencies, Kyodo and Jiji, in a cross-shareholding arrangement that results from their once having been merged as the Domei news agency, which disseminated government propaganda in the dark decade through the end of World War II. Kyodo and Jiji still hold a combined 48.4% equity interest in their advertising cousin.
Dentsu’s spell over the print media is bolstered by the common practice of ad agencies buying up blocks of space in the magazines, which sometimes can limit the choice of non-Dentsu clients.
“They hold these pages, and we can’t sell them,” a source at a major weekly magazine said. “If you want choice space in the magazines, you can really only get it through Dentsu.”
Not Crying Foul
But Dentsu’s competitors are not crying foul, at least not publicly. And not even the foreign firms are complaining.
“If all that’s being said about Dentsu were true, we couldn’t grow and we shouldn’t even exist,” said Koji Oshita, president of McCann-Erickson Hakuhodo Inc., a joint venture between Japan’s second-largest ad agency and the U.S. company, which now ranks 9th in the Japanese industry. (Koji Oshita is not related to Eiji Oshita, the author).
Indeed, the restrictions can work the other way, too.
“Dentsu can’t penetrate media blocs that the other agencies have bought up,” said Iwao Inoue, manager of the media division at Kao Corp., a giant maker of soaps and household products that is Japan’s leading advertiser. “Sometimes we’ll want to buy a slot on a prime-time program and turn to Dentsu, only to find the No. 1 ad agency can’t get it for us.”
Yet it is Dentsu the Gulliver, not its Lilliputian competitors, that gets the blame for breeding dependency in the media that fosters self-censorship and casts a vague chill on freedom of the press. Stories are rife of muckraking magazine reporters having scandalous stories quashed because of Dentsu’s perceived interest in shielding clients from embarrassment.
Typical is a tale told to The Times by a reputable magazine journalist who recalled the day, in the late 1970s, when he confronted a major consumer electronics firm with information linking the company’s president to the death of a geisha--presumably his mistress--in a golf course accident.
“When I got back to the newsroom, a guy from Dentsu and a public relations man from the company were already there, meeting with my editor in chief,” said the journalist, who asked not to be identified by name. “I took the subway, but they must have gone by taxi. Within 30 minutes Dentsu had sprung into action, like an intelligence agency.”
The editor told him to stop working on the story, he said. Later, as consolation, the Dentsu employee took him to dinner at a fancy restaurant.
“I think there’s no doubt about it, that if you were a good client and you got into trouble, Dentsu would have been able to pull strings and keep you out of the news,” said George Fields, chairman of ASI Market Research (Japan) Inc. and a longtime resident of Tokyo. “But that was in the old days.”
Kogure adamantly denied that any such editorial interference would be allowed to take place. Nor, he said, has it occurred in the past.
“We make a practice of not intervening when reporters have scoops,” he said. “The media wouldn’t listen anyway. We have rules that say this shouldn’t be done, and we educate (the staff). But Dentsu is big, so we get accused of such things.”
Company officials were unable, when asked, to produce internal documents that spell out specific rules on media interference for Dentsu’s 5,800 employees. Instead, they pointed to ethical guidelines set by the Japan Advertising Industry Assn. that call on members to “expand the freedom of expression based on social order.”
Like any powerful institution in Japan, Dentsu is driven by powerful connections. More so than other big corporations, the company has a reputation for recruiting the sons and daughters of influential politicians, government officials and industry leaders. Kogure takes the position that people are hired only on the basis of merit.
Dentsu’s No. 9 Account Services Division is renowned as the hand behind the conservative Liberal Democratic Party, perennially the ruling party. The company is secretive about this line of business, but services reportedly range from election poster designs and video image-making to speech-writing and campaign logistics.
The cozy web of relationships extends to the opposite end of the political spectrum as well.
Takao Toshikawa, editor of Tokyo Insider, a progressive investigative newsletter, recently excoriated Dentsu and Toyota in an article on the Pickens affair. But Toshikawa admits he routinely accepts speech-writing assignments and honorariums--of as much as $670--to deliver two-hour lectures at internal Dentsu seminars. The practice is widespread among journalists, he said.
“For us, it’s kind of a compromise,” Toshikawa said. “For Dentsu, it’s like insurance to touch on certain kinds of people.”
Dentsu has never interfered in his editorial content, because Tokyo Insider is a “tiny publication,” Toshikawa said. “But for Japanese journalists, Dentsu’s presence is very bad. Anybody who digs around is going to experience Dentsu’s wall, at least once.”
