Bankruptcy Trend of Advertising Related Agencies

The advertising industry was largely influenced by the global financial crisis since Lehman Shock last fall and following the sharp downturn of Japanese economy and rapidly worsening corporate performance. According to the report on "Advertising Spending of Influential Companies in 2009" issued by the Nikkei Advertising Research Institute, total advertising spending of 4,444 influential companies was 3,060,800 million yen, down 7.33% from the previous year, dropping two consecutive years.

On a consolidated basis, it was 5,924,500 million yen, down 6.02% from the previous year, recording a decrease for the first time in the past five years. Japan's economy is calming down, yet the tough situation seems to continue in the future due to aggravating employment situation and sluggish consumer spending. Under these circumstances, bankruptcies filed by advertising related agencies have tended to increase continuously. The number of bankruptcies during Jan-Sep 2009 was 201 cases, showing the worst pace since 2001.

TEIKOKU DATABANK conducted research and analysis on bankruptcy trend (*2) of advertising agencies (*1) from 2001 to September 2009.

*1 - Research subjects are companies whose core business is ad agency services and ad material production services.
*2 - Legal liquidation only. As for the data from 2001 to March 2005, values of legal liquidation based on the old aggregation method were used as reference values.

201 bankruptcies were filed by advertising related agencies in 2009 (Jan-Sep), up 40.6% from the same term of the previous year. The number increased rapidly, already getting closer to the worst record of the last year (206 cases) even as of September, and the advertising industry is still under a tough business climate. The top ranking was "less than 0.1 billion yen (142 cases, 70.6%)" by liability amount, "insolvency (194 cases, 96.5%)" by bankruptcy type, and "ad agencies (93 cases, 46.3%)" by business type.

There were 201 bankruptcies in 2009 (Jan-Sep), recording a substantial increase of 40.6% from the same term of the previous year, reporting the worst pace of increase since 2001. By the end of 2009, it seems to renew the worst record of 206 cases in 2008, showing that the advertising industry continues to be under a tough business environment. Total amount of liability in 2009 (Jan-Sep) was 31,340 million yen, up 136.1% from the same term of the previous year. The amount was already exceeded the worst record of 24,132 million yen in 2002 since 2001, and bankruptcies with large amount of liabilities tend to increase.
Since this spring, the domestic economy has been better, thanks to economy-boosting measures and crisis response loans by the Japanese government and Bank of Japan. However, corporations continue to refrain from spending on advertising due to the uncertainty of the employment situation and personal spending.

In addition, the advertising industry's conventional business model is reaching a turning point since the profits from the traditional four mass media (newspapers, magazines, radios, and televisions) are dropping. Influenced by these internal and external factors, bankruptcies filed by advertising firms are increasing.

Among 201 companies, "less than 0.1 billion yen (142 cases, 70.6%)" ranked the top, followed by "0.1-0.5 billion yen (46 cases, 22.9%), "0.5-1 billion yen (7 cases, 3.5%)", and "more than 1 billion yen (6 cases, 3.0%)", showing the vast majority of bankruptcies were filed by small businesses. In comparison with 2008, "less than 0.1 billion yen" dropped slightly (from 74.3% to 70.6%) while "more than 1 billion yen" increased (from 1.0% to 3.0%). In other words, relatively large-sized bankruptcies are gradually increasing.

Among 201 companies, "ad agencies (93 cases, 46.3%)" ranked the top, followed by "ad production companies (63 cases, 31.3%)", and "display companies (18 cases, 9.0%)". Filings by small to medium sized companies who could not change their conventional ad agency business models seem to boost the number of bankruptcies. As for the total amount of liability by business type, "ad production companies" (14,755 million yen, 47.1%) ranked the top, followed by "ad agencies" (10,401 million yen, 33.2%). A higher number of bankruptcies were seen in "ad agencies" and higher liability amount was seen in "ad production companies". The shakeout of small to medium sized "ad agencies" seems to continue due to their insufficient management power to obtain advertising deals like larger ad agencies. As for "ad production companies", a spate of bankruptcies filed by classified ad production companies boosted overall liability amount, showing "classified ad production companies" are suffering from the current worsening employment situation.

Among bankruptcies with liabilities of more than 1 billion yen during 2001-2009 (Jan-Sep), the largest amount of liabilities was filed by Pubic Center (with liabilities of 7.7 billion yen and filing with the Civil Rehabilitation Law in Nov 2004). As for the bankruptcies with liabilities of more than 1 billion yen in 2009 (Jan-Sep), there were six cases including Creative Adac Company Limited (with liabilities of 6.3 billion yen and receiving the decision to start bankruptcy procedures in July) and i-one Corporation (with liabilities of 2 billion yen and filing with the Civil Rehabilitation Law in September), recording the highest number since 2001. As a trend of 2009, more bankruptcies have been filed by classified ad production companies such as APJ (with liabilities of 1,880 million yen and went bankrupt in Sep) and Towa (with liabilities of 1.1 billion yen, went bankrupt in March).

Date		Company Name	Liability (mil. yen)	Industry
Nov. 2004		PUBLIC CNETER, KK	7,700	Ad Agency
Jan. 2001		CHUO KOKOKU TUSHIN KK	6,500	Ad Agency
May 2002		KYOWA KOKOKU KK	6,500	Ad Agency
July 2009		CREATIVE ATACK KK	6,300	Ad Production Company
Mar. 2002		SHIBAHAMA KIKAKU, KK	6,000	Ad Agency
Feb. 2002		SANKOSYA, KK	5,600	Ad Agency
Sep. 2009		AI WAN, KK	2,000	Display Company
July 2007		CYBER BUREDO, KK	1,934	Other Ad Company
Sep. 2009		A.P.J., KK	1,880	Ad Production Company
Nov. 2007		FUTABA NEXT WORKS KK	1,826	Ad Production Company

 

In addition to the Olympics in Beijing last year, Japan enjoyed a victory of World Baseball Classic in March and a general election took place in summer 2009. There were some lucrative events for advertising agencies this year, however, these events were handled by large ad agencies and 201 bankrupt small companies couldn't benefit from them. Soccer World Cup will be held in South Africa in June 2010, but it doesn't seem to have positive effects for most of the ad agencies except for a few of the leading agencies.
Without promising business performance recovery, we expect that corporations will continue to refrain from ad spending, and instead, invest more on promotion for distribution channels due to weak consumer spending, concerns for deflation, and uncertainty for future economic recovery. As a result, it seems that the advertising industry will continue to suffer under the tough business environment. On the other hand, the job-to-applicants ratio in August was 0.42, reaching its worst level in history. Since this situation expects to continue, we may see more bankruptcies filed by classified ad agencies in the future.

One of other reasons for a slumping industry is structural change of the overall advertising industry. According to "Japan's advertising spending in 2008" compiled by Dentsu Inc., advertising spending on the four mass media (newspapers, magazines, radios, and televisions) dropped 7.6% from the previous year, recording a decrease for four consecutive years on a year-on-year basis. On the other hand, ad spending on the Internet and satellite media enjoyed double digit growth. Ad agencies that can cater to these next generation typed media may grow in the future, but the ones that stick to the traditional ad agency business model, which is to gain profits from advertising fees based on the assumption of eternal economic growth, may not be able to survive, and we expect to see more bankruptcies filed by small to medium sized ad agencies excluding some leading firms.