Dentsu overbilling controversy deepens

TOKYO - A subsidiary of Dentsu’s Japan operations is facing allegations of overcharging Toyota, a longstanding client, for an ongoing period, and some sources believe the irregularities extend to traditional media as well.

As first reported by Australian publication AdNews, DA Search and Link (DASL) is alleged to have overbilled Toyota in Japan for a period of five years or longer, and it is understood that Toyota is reviewing its digital assignments with the company.

According to the Financial Times, Dentsu is currently holding “emergency talks with more than 100 clients to try to minimise damage” from the issue.

A senior industry source told Campaign Asia-Pacific that several brands have already stopped work with Dentsu on digital assignments, and some checks have found instances of overbilling in traditional media as well. This source said it is believed that Dentsu is preparing to make a formal apology some time in October and that because the practices seem to have gone on for five years or more, compensation claims will likely be made.

The situation is likely to impact the current P&G media planning and buying pitch.

All that said, it is still not known whether intentional misrepresentation of billings took place. In a statement issued to Campaign Asia-Pacific, Dentsu spokesperson Shusaku Kannan said: "We regret that we are not able to provide specifc details in answer to any questions related to the transactions or business of an individual client. We can say, however, that there were some inappropriate operations related to digital media business transactions which have already been reported to the clients concerned. We are currently in consultation with them regarding any further steps that may be required."

Kannan said the news as reported by AdNews contained "several factual inaccuracies" but that Dentsu was "unable to go into details as to what is incorrect". 

Greg Paull, principal of consultancy R3, which manages agency-client relationships in a number of markets including Japan, said it was "remarkable that this has come out in such a public way" and that the situation is “a huge wake-up call for the Japanese approach to media planning and buying”.

The process is often criticised for lacking transparency, with Dentsu controlling the bulk of traditional media inventory, and around a quarter of domestic advertising spend. Hakuhodo follows a similar model to Dentsu on a smaller scale.

“The challenge for marketers is that Dentsu and Hakuhodo not only buy media, but also own media and content, so have unparalleled leverage throughout the system,” Paull said.

Paull described Japan as “one of the most opaque media markets in the world, rivaling Brazil and Russia”. He noted that marketers often do not fully understand how their agencies are compensated.

Anthony Plant, CEO of IPG Mediabrands Japan, said “the incident should not be allowed to tarnish the entire industy, nor every company in it”.

However, another industry observer in Japan noted that “it’s impossible to believe that Dentsu’s situation is unique in our industry”.

The allegations are a setback for Dentsu’s digital business. In July, the network launched Dentsu Digital as a standalone company. Speaking to Campaign in June, Toshiya Ohyama, the CEO, said part of the reason for the spinoff of digital operations from Dentsu’s more traditional business was that clients tend to be sceptical of media planning recommendations due to the company’s focus on TV media, which accounts for the bulk of its revenues.

Update, 22 September: This article, originally published yesterday, has been updated with additional comments.