The advertising agency 'Iruda Creative' located in Gangnam, Seoul, recently applied for bankruptcy after unilaterally notifying all employees of their dismissal. Representative Kim Tae-ho left a company-wide email with this information last month and then disappeared. A small to medium-sized agency that was generating $18 billion in revenue as of 2023, with over 30 employees, has vanished overnight.
The independent advertising agency 'D-blend,' which ranked among the top 10 advertising agencies in 2022, has also recently entered corporate rehabilitation procedures due to liquidity issues. Hong Seong-eun, the representative who led D-blend's growth, has passed away.
As of the 23rd, looking at the industry as a whole, small and medium-sized advertising agencies are being hit hard as political and economic uncertainties continue both domestically and internationally. Excluding large affiliated advertising agencies like Cheil Worldwide and INNOCEAN, the management difficulties of small and medium-sized agencies, which account for about 95% of the total, are becoming apparent.
An industry insider estimated, "Given that there is a tendency to keep quiet about management difficulties due to the risk of losing advertising contracts or credibility, there are likely quite a few agencies going bankrupt or closing down without being noticed."
The main reason is that corporate advertisers are cutting marketing budgets. A spokesperson for the Korea Digital Advertising Association noted, "With unfavorable external conditions resulting from high interest rates and a strong dollar, combined with the recent impeachment politics, advertisers are postponing ad executions," adding, "Especially with a significant reduction in advertising volumes primarily from games and startups, small agencies that relied heavily on this are facing liquidity crises."
A digital advertising agency named 'Grand Monster,' which had a significant revenue share from the gaming sector, has been put up for sale but is reportedly struggling to find a suitable acquirer for this reason.
According to the '2024 Advertising Industry Survey' report recently published by the Ministry of Culture, Sports, and Tourism, the size of the advertising industry in 2023 was $19.4196 trillion, reflecting a 1.3% decrease from the previous year ($19.6661 trillion). The industry anticipates the decline will be even greater in 2024 due to worse advertising conditions.
In a situation where advertising volumes are shrinking, small and medium-sized agencies can hardly cope with fixed costs such as labor and operating expenses. To manage this, there have been incidents where they used funds received from advertisers first, failing to compensate collaborating companies that actually participated in the ad execution.
A representative example is the massive unpaid situation caused last year by 'DDB Worldwide,' a subsidiary of Omnicom Group, which is the second-largest advertising giant in the world. It is reported that over 100 external advertising companies were owed tens of billions of won in payments. The industry still finds that a significant number of these companies have not yet received their payments.
Advertising agencies facing liquidity crises are taking steps to minimize the crisis, such as demanding 'cash prepayments' or 'payment guarantees.'
However, the industry commonly points out that finding a breakthrough for the current crisis of advertising agencies is challenging. The Korea Digital Advertising Association recently signed a memorandum of understanding (MOU) with the Vietnam Advertising Association to help primarily domestic small-sized member companies look towards overseas expansion, but this may take time.
Jung Hyun-young, deputy director of the Korea Advertising Federation, said, "In order to prevent liquidity crises among small and medium-sized agencies, measures such as providing emergency loans must be supported by the enactment of the Advertising Industry Promotion Act, which aims to support the growth of advertising companies and activate the industry," adding, "Currently, there is no way to intervene. The industry will be even more difficult this year as the economic downturn continues."
An anonymous representative from an independent advertising agency stated, "Typically, the new year is considered a peak season for advertising, but corporations are closing their wallets due to various conditions, leading to a recession. Even if advertising is executed, with the domestic market frozen, advertisers' concerns are growing."