ANALYSIS: HDY putting pressure on Dentsu

Could Hakuhodo DY Partners (HDY), Japan's new holding company that includes three of Japan's largest agencies, Hakuhodo, Daiko, and Yomiko, successfully challenge and perhaps unseat Dentsu from the No.1 position it has held for most of the past 100 years?

Opinions within the industry are mixed, but many believe that HDY could indeed overtake Dentsu.

Few details have emerged of how HDY president Toshio Miyagawa plans to challenge Dentsu. Right now, the launch of media arm Hakuhodo DY Media Partners next month and preparations for a listing on the Tokyo Stock Exchange next year are the key priorities.

But Miyagawa denies that this is simply an exercise in size as some have suggested. "We are not integrating to merely pursue volume, but to challenge by creating a new framework for the advertising industry in Japan.

"Spinning off the media arm from a fully-fledged Japanese advertising agency is a completely fresh departure in Japan. Also, establishing a multi-discipline media agency is an unprecedented challenge. In my belief, this attempt will provide the clients, the media, the consumers, and the society with even greater creativity and diversified added value," Miyagawa explains.

HDY's prospects are excellent, says Ron Pullem, executive vice-president of Universal McCann in Tokyo. "There are no physical barriers standing in its way, and the timing of the initiative is excellent."

Support for HDY could be powerful, provided it can generate some new ideas for what large Japanese agencies should offer their clients. "An industry suffering from nearly a decade of stagnation needs a serious challenger to disrupt the status quo in order to regain the road to growth. If HDY embraces that role, then it will succeed," adds Pullem.

Ambar Brahmachary, president of J. Walter Thompson Japan, disagrees.

He feels the formation of HDY represents "a media-centric view of the Japanese advertising industry. No real progress is being made in this combining of three agencies. This has no real benefit to clients and therefore it does not mean that this combination will make a dent in the market".

Although HDY's media company, Hakuhodo DY Media Partners, which will combine the media departments of the parent's three agencies, does not start operating until next month, the challenge is under way.

"(HDY) is already mounting a challenge to Dentsu regularly, as is Asatsu-DK (ranked No.3), in what is an increasingly competitive media market, where all agencies are chasing business by lowering rates and offering added value. It's quite possible they could reach Dentsu's size," says Andrew Meaden, MindShare's managing director in Tokyo.

Though HDY's market share of 17 per cent market share is still much lower than Dentsu's 24 per cent, it is still enough to enable the new group to compete more strongly on price. For advertisers, this is good news, though it may not be a welcome development for agencies and media owners who will find their margins squeezed.

Size matters in Japan, but at Grey Japan, Chris Beaumont, agency president, doubts that the pursuit of size can deliver much benefit for either agencies or advertisers. "It seems that HDY's focus is a volume game. I am not sure that is the most insightful or incisive strategy to disrupt the status quo."

Grey, like most multinational agencies in Japan places greater emphasis on planning than is customary in Japanese agencies.

Fallon, Japan's newest multinational agency, sees opportunities created for smaller agencies as Japanese agencies pursue size.

Fallon managing director Phil Rubel said: "If media is largely controlled by two mega-groups, competitive media planning and buying could become commoditised. If that is the case, creativity in how media is used and the kind of creative that is developed for the medium will become paramount. Smaller agencies that focus on creativity and strategy can flourish in this environment."

"But mid-sized agencies that depend on mainly media revenue and are not part of the two mega-groups will suffer."