When West buys East: Lessons from Japanese media acquisitions

Courting synergy: Nikkei's circulation is six times FT's, but the latter is far ahead in digital.
Courting synergy: Nikkei's circulation is six times FT's, but the latter is far ahead in digital.

What the FT and Nikkei can learn from Dentsu and Aegis

The scale of recent Japanese acquisitions of Western media properties and agencies has been matched only by the level of surprise among international observers

In the case of Nikkei’s July agreement to buy the FT Group from Pearson, the surprise was that it happened at all: Compared to the other suitor, Germany’s Axel Springer, Nikkei was a rank outsider.

As for Dentsu’s acquisition of Aegis Group in 2013, initial shock, again at the size and suddenness of the move, has given way to surprise that the deal actually seems to be working.

To be sure, there are big cultural differences between Japanese and Western media corporations. So what do the acquirer and the acquired stand to gain — and how do they avoid a meltdown due to lack of mutual understanding?

A common acknowledgement from those Campaign spoke to was that Japanese acquirers tend to be less hands-on and more patient in terms of revenue expectations than a Western equivalent. For the acquired party, that is an appealing proposition.

"The goal of a Japanese company is more long-term in terms of shareholder value," said Marco Koeder, digital business director at J. Walter Thompson in Tokyo, who works with startups and accelerators in the US. "The mentaility is very different … [Japanese companies] are not knocking at the door every three months and going through the numbers. For European companies, it offers more opportunities and freedom."

Two-way learning
Tim Andree, executive vice president and executive chairman of Dentsu Aegis Network, admitted earlier this year that making the Aegis acquisition work has not been easy. But he said Aegis was selected because of its complementary nature: as well as being strong in Europe, a market Dentsu needs to break into, it had also been implementing a model of a single P&L.

Then instead of focusing on cost, Andree says Dentsu’s emphasis has been on "creating synergies and cross-selling opportunities", resulting in new net billings of $6 billion for fiscal 2014. Lastly, he noted that Dentsu aims to support an acquired company to move up to another level, rather than strip out its assets.

Both Dentsu and Aegis have gained expertise. Andree said Dentsu has adopted numerous global systems and functional enablers. "The acquisition wasn’t only to get into media. I wanted to use the infrastructure so we could commonize and professionalize across the global organization." Aegis’s understanding of programmatic technology, for instance, has proved useful in Japan, where the discipline is far less developed.

On the other hand, Aegis has benefited from Dentsu’s creative acumen, and its stature in sports marketing. Something that remains to be seen is where Aegis fits into Dentsu’s long-term growth plan, given that its culture and structure make it similar to a number of other media agency networks that are also looking to change. Dentsu’s role in evolving it, and whether it chooses to mold Aegis to fit the more diversified model it has in Japan, will only become clear in time.

It may also be early to assess the Nikkei-FT acquisition, but there is cause for optimism despite much hand-wringing by journalists working for Western media over differing interpretations of editorial integrity.

In terms of business, both companies have remained robust amid the general turmoil of modern publishing, but as Japan’s largest media company, Nikkei offers considerable security. Its circulation is six times that of the FT, and consolidated 2014 revenues stood at $2.4 billion. At the same time, Nikkei lags in digitizing its product, and stands to learn a lot.

"Given its portfolio, Nikkei is a good home for the FT and allows the publication deeper access to Asia," said Chuck McCallugh of David Sloan Associates, a US-based consultant who has worked in media licensing and joint-ventures across 20 markets.

"[The deal] could be brilliant, but it depends on the directionality of learning," said Barry Lustig, partner of Cormorant Group, an M&A specialist with experience in Japan’s media industry. "When Rome conquered Greece, they had the Greeks be the teachers. If Nikkei approaches the FT in that way, they will be able to modernize in a way they could not otherwise. If they go the other way, they will destroy the quality of the FT and drain their resources."

Clearly, maintaining the goodwill of the FT staff will be key. There was recently consternation from FT staff over the alleged proposal of changes to the staff pension system, which Nikkei denies are in the works.

Long-term view
Nikkei representatives declined to speak to Campaign for this article since the deal is not yet finalised. Someone with experience working with Nikkei is Tyler Brûlé, founder and editor-in-chief of Monocle magazine, himself a former FT journalist. Last September, Monocle formed a partnership with Nikkei with the aim of gaining stronger distribution in Japan, with Nikkei targeting a better international presence for its products, including its Asian Review.

Brûlé said the agreement has worked well due to extremely careful consideration from Nikkei beforehand, although Monocle was not able to provide figures showing the impact on its business. "It wasn’t a case of, ‘let’s invest in Monocle and see what happens’," he said. "It wasn’t a complicated deal — it was very pragmatic and technical."

Brûlé added that while "we see lots of pie-in-the-sky media deals with elaborate ambitions", they are not common among Japanese companies. The more technical, long-term approach stems from their bureaucratic nature, he says. With regard to Nikkei’s purchase of the FT, he expects Nikkei to "bide their time.

"Japanese companies are not in the business of ‘Let’s buy something and flip it the next day,' " he said.

Cultural barriers
So are we about to see more deals in this vein? Brûlé is doutbful due to cultural issues. One could make an argument for companies like the Yomiuri Shimbun, the Asahi Shimbun and Japan’s TV outlets to look more seriously at internationalizing, he said, "but it’s more a question of how equipped they are for it." Nikkei’s vast scale, he said, makes it "a bit like the foreign service" with a sizeable team of people with international experience that other Japanese media companies lack.

Rather than giant acquisitions, he sees more joint ventures on the horizon — "maybe a Japanese company taking a stake in part of Discovery [for example] to give access to market in a different way" — but he predicted that most will focus on expanding in Asia rather than jumping to London or New York.

A partnership to watch is Buzzfeed’s launch in the market with Yahoo Japan. McCullagh said he sees good prospects given Yahoo’s continued strength in Japan and the fact that half its users fall into the 20-to-39 age bracket that Buzzfeed aims at.

Koeder also sees the partnership working, considering Yahoo’s track record of bringing non-Japanese entities suh as KakaoTalk into the market, and its recognition of the importance of content. He expects Buzzfeed to become popular from both a consumer and brand perspective.

"Western companies are becoming more interesting for Japanese people and I don’t see a platform similar in size and reach in Japan so I see potential," he said. "Working with Yahoo really makes sense. Yahoo has become old-school but is still strong as a platform, but Buzzfeed [could be] the future of Yahoo. It’s a place to go for interesting content and if a brand can be part of that, it’s very exciting."

This article first appeared on campaignasia.com.

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