Dentsu to Repay Advertising Overcharges First Flagged by Toyota

  • Agency estimates it billed advertisers $2.3 million too much
  • Probe going back to 2012 uncovers 111 clients affected: Dentsu

Dentsu Inc. said it will pay an estimated 230 million yen ($2.3 million) back to customers, including Toyota Motor Corp., that it overcharged for Internet advertisements in a case likely to stoke concern that digital media transactions have lacked transparency.

Japan’s largest ad agency investigated transactions going back as far as November 2012 and uncovered 633 suspicious cases affecting 111 advertisers, including 14 examples where fees were charged and no placement had been made, Dentsu said in a statement Friday. The company apologized and said business results would probably not be materially affected.

“We will repay the 230 million yen, and we will talk with clients after all the facts are disclosed,” Toshihiro Yamamoto, Dentsu senior vice president, told reporters in Tokyo on Friday.

For a look into Madison Avenue’s battle over advertising kickbacks, click here.

Toyota was the first to point out a discrepancy, Shoichi Nakamoto, Dentsu’s chief financial officer, said at the press briefing.

Dentsu shares fell Friday after the Financial Times reported that the company had talks with more than 100 companies to discuss possible overcharging cases. The meetings come amid a simmering dispute in the $600 billion global ad market after an industrywide U.S. study that showed a lack of transparency in how media space is priced.

The Dentsu irregularities included discrepancies in advertising placement periods, failure of placement and false reporting regarding performance of the advertising, according to the company’s statement Friday. Also, some invoices did not reflect actual results, resulting in overcharges. The company intends to clarify the causes leading to the inappropriate handling of ads and to report on progress of its measures by the end of the year.

“Immediately after finding out about the incidents, we organized an internal investigation team in the middle of August,” the company said. Advertising verification, placement, publication and billing was transferred to a separate section from the one involved in inappropriately handling ads, the company said, calling the step an “interim measure.”

Dentsu clients include LVMH Moet Hennessy Louis Vuitton SE, Diageo Plc, Nestle SA, SoftBank Group Corp. and Electronic Arts Inc., according to data compiled by Bloomberg.

The ad agency’s shares fell 4.8 percent to 5,170 yen, the most since June 24 on a closing basis. The decline extends the stock’s slump to about 23 percent this year, compared with a 12 percent slide in the benchmark Nikkei 225 Stock Average.

A study released by a group representing U.S. advertisers earlier this year accused ad firms of essentially receiving kickbacks. Media buyers connected to ad agencies get rebates when they buy large blocks of ad space -- many of which they neither disclose nor pass along to their clients, according to the report commissioned by the New York-based Association of National Advertisers.

The 58-page study, performed by investigative firm K2 Intelligence, doesn’t identify ad agencies or clients or lay out the size of rebates the firms allegedly retained. But in general, it said, such rebates ranged from 1.67 percent to 20 percent of aggregate media spending.

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