Wake-up call for Dentsu

The half-year financial report from Dentsu, the leading Japan-based marketing group, may prove to have been more noteworthy for what it did not spell out than for what it actually said.   That’s not to suggest that Dentsu is anything but open in its disclosure policy, it’s just that some of the information provided seems to have greater significance than has been attributed to it so far.

The company announced that its bottom line profit for the six months to 30 September was up by 180% on the comparable period in 2010, but that’s only because there were fewer exceptional items this time.   The unadulterated operating profit for the period was down by 17.2% as margins were eroded in the tough trading conditions that followed the traumatic Great East Japan earthquake.

Almost all of Dentsu’s major traditional income sources have been in decline, while digital revenues were up by 9.9%.  Even so, those digital revenues represented only 3.3% of the group’s total revenue.

Small wonder then that Dentsu is giving priority to expanding its digital capability.  Its declared aim is to “strengthen competitive advantages and expand alliances” in this area of activity.  Progress may have been rather slow until now, but evidence is emerging of a serious commitment to catch up.

In this year alone, Dentsu has bought the search engine marketing business Steak, the New York creative digital agency Firstborn and, most recently, the Adjug sales and affiliate network.  Steak and Adjug are based in the UK.

Last year the Dentsu Digital Fund was set up with initial capital of ¥10 billion yen (£75 million) to make “proactive investments” to accelerate growth in the group’s digital business in the US, China and Japan.  The group also bought the US based global digital marketing agency Innovation Interactive.

On the face of it Dentsu has been lagging behind groups like Publicis and WPP in responding to the changing world of digital communications.   Unless its recent initiatives allow it to make a dramatic improvement in its offer, future revenue and profits will be under continuing threat.

Bob Willott is editor of “Marketing Services Financial Intelligence” at www.fintellect.com

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