Tatsuya Mizuno
Mar 1, 2024

The rise of indies amid Japan's advertising oligopoly

Amid the vast expanse of Japan's advertising landscape dominated by giants like Dentsu, Hakuhodo and ADK, independents are mushrooming. These David-like contenders may lack the colossal budgets of their Goliath counterparts, but they wield a different kind of power—one fueled by strategy, resilience, and agility.

The rise of indies amid Japan's advertising oligopoly

In the wake of the bid-rigging and corruption scandal that rocked the Tokyo Olympics and Paralympics, Japan found itself grappling with a seismic event. Dentsu employees and the former ADK president were arrested, casting a shadow over the integrity of the games.

A year ago, Hiroshi Igarashi, president of Dentsu Group, stepped forward in an interview with the Tokyo District Public Prosecutor’s Special Investigation Department, acknowledging corporate responsibility. His admission resonated across the industry.

Despite the magnitude of these scandals, the domestic advertising landscape has remained remarkably unchanged. The Dentsu Group’s leadership stood firm, unshakable, as if it reflected the country's political scene. Much like the LDP (Liberal Democratic Party), perpetually embroiled in its own scandals, the advertising giant maintained an unwavering position. This symbiotic relationship between the LDP and Dentsu, often whispered about in media circles, became even more evident when Yoshiro Mori - a former prime minister from LDP and former chairman of the Tokyo organizing Committee of the Olympic and Paralympic Games appointed Haruyuki Takahashi, the former Dentsu executive who was later arrested, as the marketing director of the Tokyo Olympics and Paralympics organizing committee.

In 2022, Dentsu Group’s sales reached an impressive 5.25 trillion yen, while Hakuhodo followed with 1.5 trillion yen, and ADK trailed at 350 billion yen. However, a new contender has emerged: CyberAgent. Driven by the surge in internet advertising spending, CyberAgent has overtaken ADK to claim the third spot.

Despite CyberAgent’s rise, the duopoly of Dentsu and Hakuhodo remains unshaken.

Why? Let’s delve into history.

Dentsu, founded in 1901, and Hakuhodo, established in 1895, have weathered over 120 years in advertising. These pioneers have witnessed the industry’s evolution from infancy to the digital age. In contrast, ADK (Asahi News Agency) came into existence much later, in 1956.

Advertisers often cite inertia as the driving force behind their choices.L-R: Yusuke Tominaga, Ayako Chujyo, Cairo Marsh, Barry Lustig

Among advertisers, there are many voices, such as "There is no guideline or decisive factor in choosing a new advertising agency, and there is no time to consider it" and "I have no opportunity to learn about other agencies unless I have an open competition, and as a result, I have continued to work only with major companies with whom I have a relationship." In other words, the main cause of oligopoly is "inertia."

"The two companies are often partners and 'friends' who often come and go in human resources, and through this relationship, they have continued to share excellent human resources and good work," says Barry Lustig, president of consulting firm Cormorant Group.

However, the situation has shifted in recent years. "The demand for independent agencies that embrace more modern and transparent practices has never been higher among brands, and there is a growing need for unique talent, ideas and creativity that major companies can't offer."

Another industry source commented, "Large companies tend to focus on clients with high-profit margins because they have a wide range of business areas due to their large parent companies, and although they have dynamism, they are difficult to turn around." Furthermore, due to the scandals that have continued in recent years, "compliance is being placed more emphasis than necessary, and it is difficult to pass innovative and advanced projects."

The economy of insights: how independents view competition from major companies?

Yusuke Tominaga, CEO of the creative studio Whatever, asserts that the concept of rivalry is outdated. Instead, everything is now seen through the lens of partnership. "Beyond agency, production and client, we work with any company that is interested in a project," he said.  

"Our strengths are the diversity of output, the ability to respond quickly, and the uniqueness of content development," he further added.

The breadth of Whatever’s business activities spans advertising campaigns, television production, new product development, and well-being initiatives. Their strengths lie in diverse output, rapid responsiveness, and the ability to create unique content.

Ayako Chujyo, president of the creative agency Eat Creative, highlights a key distinction.

"The scale of the business models of the major agencies is different, such as full-year contracts, including media buying, and that allows us to separate ourselves. Our small team allows us to be flexible and agile in responding to urgent requirements, and our multinational workforce allows us to offer a global and diverse perspective," she said. 

Cairo Marsh, CEO of marketing agency Relativ, has been working in the Japanese advertising industry for 15 years and the company for nine years.

"I don't think it's a difficult environment to work in. Competition is inevitable in any industry. That's why it's fun to be involved and it gives me the opportunity to grow.

"We don't see Dentsu or Hakuhodo as competitors, and we don't aim for a business model like theirs. Their business foundation is economies of scale. On the other hand, we are 'economy of insight'. That's why we focus on niche customer connections and propose strategies that help our clients build stronger, longer-lasting relationships with their customers," he added. 

The position of each agency is clear. While many independents collaborate with Dentsu and Hakuhodo, it can be said that success isn't solely about "compensation" for major companies but it involves demonstrating solid originality.

So, what elements appeal to clients the most?

"Recently, there have been an increasing number of cases where clients themselves have not been able to identify issues, so we have been working together from the stage of identifying issues. We are refining our skills for this purpose by promoting in-house development projects," says Tominaga.

Chujyo cites reliability as a factor.  "As a team that is an extension of the client's department, we make proposals from a broad and comprehensive perspective."

In addition to organisational simplicity, Marsh cites honesty and always delivering what the client truly needs as an element. 

"We don't get caught up in the politics of the business to deliver the best deliverables, and we always give our clients what they think is the most right," he said. 

Post-Covid challenges

In the post-Covid world, independent agencies aim to distinguish themselves from large holding companies. However, the challenges are formidable.

Marsh reflects, “Acquiring exceptional human resources was challenging even before the pandemic, and that remains unchanged."

However, Chujyo says "with our clients’ businesses recovering and expanding, physical communication has become more active, leading to a steady increase in project volume.”

"Interestingly, remote work has become the norm, prompting more companies to explore partnerships with smaller, remote agencies," she says.

Tominaga views this shift positively. “During the pandemic, we seized the opportunity to promote in-house development. We introduced AR (augmented reality) apps and original anime movies. Last January, I founded a new company centred around well-being and creativity. Well-being extends beyond medical care—it encompasses a wide array of wisdom and technologies from various fields. Our research and development focus on daily actions that enhance overall well-being,” he concludes.

True creativity

Each independent agency charts its own course, seeking innovative solutions, but the biggest vulnerability at this point remains in financial stability.

With a limited client pool, agencies grapple with significant challenges when deposits lag or budgets tighten. Marsh candidly acknowledges, “We face huge challenges.” The strain extends to the staff, who bear the weight of perpetual performance expectations. As Lustig humorously puts it, “Wearing a black T-shirt won’t shield you; you must be consistently exceptional.”

Yet, independents wield a powerful asset: freedomthe freedom to choose creativity for both the management and clients. Chujyo emphasises the direct connection to clients and the thrill of creative challenges. “Hearing the client’s voice directly” fuels motivation. Marsh concurs, contrasting his current role with past experiences at large agencies. “I’m free to do what I believe is right,” he asserts. Unlike shareholder-driven corporations, independent agencies prioritise long-term well-being—benefiting employees, clients, and shareholders.

Tominaga echoes this sentiment.

“Relatively few profit restrictions” grant them latitude. He muses on the inherent tension between capitalism and creativity. While capitalism adheres to time constraints, creativity thrives without boundaries, embracing iterative refinement. This freedom empowers agencies to channel their creativity, producing truly valuable outcomes for society and clients.

Campaign Japan

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