Advertising spending drops for first time in 5 years – The Mainichi Daily News

The Mainichi Daily News reports that Ad spending in Japan has dropped for the first time in 5 years.

“Advertising spending was down 4.7 percent in 2008 from the year earlier, the first drop in five years, according to estimates released by advertising giant Dentsu.

Print media showed the biggest decrease since the figures first came out in 1947, with TV, radio, newspapers and magazines taking less than half the market share with 49.3 percent for the first time. Other media, including newspaper pullouts and billboards, also showed a decrease.”

As I’ve reported in a past blog entry, we’re seeing a drastic drop in ad spending in traditional ad channels, due mostly to the economic downturn. But what about online ad spending?

“However, Internet advertising proved still healthy, taking more than a 10 percent share for the first time (10.4 percent).”

Newspapers showed the biggest drop, decreasing 12.5 percent to 827.6 billion yen. Magazine advertising spending was down 11.1 percent to 407.8 billion yen, radio down 7.3 percent to 154.9 billion yen and TV dropping 4.4 percent to 1.9 trillion yen. The ad spending cutbacks will prove to be a bonanza for many online media channels. I suspect mobile portals stand to benefit the most due partly to the pervasiveness of mobile devices in Japan and the increasing popularity of mobile based SNS.

Is there a downturn in the Search Ad market?

I was sadden to read last week that the Tokyo based SEO firm Sozon announced it would be closing down. I have a professional relationship with Sozon that goes back several years with the original founder of the company Amir Ayalon. In 2005, Sozon was acquired by affiliate marketing giant ValueCommerce as a way to add search engine optimization to its list of special services. Over the last two years, Sozon’s focus shifted from organic search results to paid results. The move proved lucrative as Sozon was able to tap into ValueCommerce’s fat client list to sell it’s services. The details behind Sozon’s demise are not clear to me, finance could have been part of the reason, or perhaps it was a strategic move on the part of ValueCommerce and its major shareholder YahooJapan.  One thing I am sure of is that the company’s closing is not indicative of the state of SEM in Japan. Japan is the biggest slice of the search market ad pie in all of Asia. Search ad spend is projected to be about $1.7 billion this year alone. And the future of paid search looks brighter than ever from where I’m standing here in Japan. Traditional advertisers are beginning to understand the importance of search in brand building and maintenance. Japan is still in the middle of a huge shift in terms of ad spend and retailing from brick and mortar to web & mobile. The market is still growing, thus the need for SEM services will continue to grow. How much will search ad spend grow over the next fews years in Japan? By 2011 search will represent 36% of all web based on-line ad spending and 40% of all mobile ad spending.  The Japanese market is huge. There are over 88.9 million Internet users and 90 million mobile users in Japan. 92% of Internet users use search engines to find information on-line. In fact, search ads influence 20 -30% of all purchases made at retail locations! Does this sound like an industry on the downturn? The measurable effectiveness of search marketing will play a big role over the next few years as offline advertisers  move their spending away from print and TV and demand higher ROI for their ad dollars. It’s sad to see Sozon close its doors, but judging from the relative health of the search market, I predict that the smart people at Sozon will continue to have a future in search ad industry.

New Trend in Online Revenue

Popular mobile game site GREE is bucking the recent trend in decreasing revenue for online businesses. Last month GREE announced that their net profit will probably hit JPY3.5bn on sales of JPY11.2bn for the financial year ending June 30th. These numbers are nothing to sneeze at. At a time when corporate ad budgets are being squeezed in Japan, it is impressive to see a fairly new company report earnings as high as GREE.  Most online businesses continue to rely on ad dollars to fire their growth engines. And though over the years we have witnessed a redistribution in ad spending from traditional print and TV to online media, the last few quarters have revealed to us that even web and mobile players are not immune to ad spending cutbacks. Unlike most SNS and content sites that rely on corporate ad revenue, GREE generates most of its cash flow directly from its users.  More than 70% of GREE’s income is derived from selling enhancements and avatar accessories to users of its free mobile games. The comparatively low cost of selling digital content will help make companies like GREE, Yahoo Auctions and other similar entities the dominant business models for the digital age.