IAG AUGUST 2015 - page 4

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Chief ExecutiveOfficer
AndrewW. Scott
Founder andEditor
EditorAt Large
PaulDoocey, JohnGrochowski, JamesHodl,
MattPollins, I.NelsonRose
Rui Gomes
Latte Iao
Ike, GaryWong, JamesLeong,
WongKei Cheong
CreatingDemandUnder theNewNormal
henSheldonAdelson reiteratedhissupply-creates-demand thesis forMacauduringa
conference inMay, saying “Supply will create the demand,” a
Business Insider
jumped on the opportunity to write “the world’s most powerful casino mogul just
showedus in fivewords that he’s living aMacaudelusion.”
Formost ofMacau’s post-monopoly casino years, supply did unequivocally create demandwith
pronouncedspikes incitywidegaming revenue registeredaroundnewpropertyopenings. In theearly,
supply-constraineddays, it didn’t even take transformativeproduct todo the trick. Evennewlyopened
casinoswithin hastily converted office buildingsmanaged to pack inplayers three deep around their
baccarat tables.
Timeshaveclearlychangedover thepast fourteenmonths, somuchso that the34.5%year-on-year
contraction in casino revenue last monthwas widely interpreted as cause for optimism. Admittedly,
themonthly declines have been easing since February’s 48.6% plunge, but as
analyst Tim Craighead noted, “We haven’t seen a firm stabilization yet.” He did add, however, that
“The second half of the year has a good chance to see a revenue inflection, withnew resorts coming
on stream andChinese stimulusmeasures hopefully supporting consumer activities.”
In addition, followingmonths of negative policy surprises, theMacau government gave hope of
more supportive policies going forward when, starting 1st July, it allowedmainland China passport
holders to visitmore frequently and stay longer. Hopes for further positive policy surprises could be
dashed, however, especiallywitha full smokingban looming—extending thesmokingbanonallmain
floors toVIP areas and alsopossibly doing awaywith smoking lounges in casinos.
As for theold supply-creates-demand chestnut, in the current environment, thepessimistsdohave
good reason to doubt whether new resortswill have anymeaningful impact. TheGalaxyMacauPhase
2opening inMay certainly doesn’t seem tohavemoved theneedlemuch. TheMacauoptimists claim,
however, that that’sbecauseGalaxyMacauwas seenby consumersmoreasanextensionof anexisting
property than a game-changing new product, and that supply can still create demand underMacau’s
newnormal—the important differencebeing that now, theofferinghas tobe truly transformative.
Take the most transformative product of the twentieth century, for example. Surely there were
somepeoplewhowantedpersonal computersbefore thefirstMacand IBMPCs. But thedemandwas
prettyweak. After all,most consumerssimplydidn’t knowwhat they coulddowithone. That firstMac
openedup aworldof newpossibilities, creating instant demand.
So the question now is, will the $2.3 billion Studio City, which Melco Crown Entertainment
announced lastmonthwouldbeunveiledon27thOctober, reallyprove transformative?Thecompany’s
co-chairman, LawrenceHo, claims it will. “Macau is going through a transitional phase from a very
VIP gaming centric market to more mass focused,” he stated. “It’s probably going to be a rough
secondhalf.HopefullywithStudioCity opening it wouldbe anew catalyst for themarket.”
StudioCity isaHollywood-themed resortwithAsia’shighestFerriswheeland familyentertainment
developed with Time Warner Inc. It will have a flight simulation ride with Batman flying through
GothamCity and a 40,000 square feet (3,700 squaremeters) indoor play center with rides andother
interactive facilities featuringDCComics characters such asDaffy Duck andBugs Bunny. It will also
have a theater formagic shows, a 5,000-seat entertainment center and a TV production studio. And
topromote the property,MelcoCrownpaid $70million for a teaser filmdirected byMartin Scorsese
and starringRobertDeNiro, BradPitt and LeonardoDiCaprio.
“The combination of new entertainment attractions will really focus on the mass market and
goes beyondmost of the other properties that still have a core of just casinos and shopping,” noted
Mr Craighead.
China’s rapidly evolvingmiddle class is hungry for new, world-class experiences, and if StudioCity
and the new resorts from other operators that will follow over the comingmonths—including Steve
Wynn’s self-proclaimed masterpiece, Wynn Palace, and Mr Adelson’s Parisian Macao—can deliver,
Macau couldfinally take thedevelopment turn the local governmentwasbankingonwhen it liberalized
thegaming industry in2002, settingdown thepath tobecomingadiversified leisuredestination,where
thehoped-for recoveryof thebeleagueredVIP segment becomes increasinglymoot.
It’s a tall order, but given the war chests the operators have accumulated over the past decade
of bounty, they certainly have the necessary funding to create resorts that not only stand among the
world’s best, but could also prove transformative by redefining the possibilities of a resort holiday
experience for China’s risingmiddle class.
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