Inside Asian Gaming

December 2009 | INSIDE ASIAN GAMING 15 Aristocrat our current market share for machines sold [to casino operators] outright. “We’re very focused on growing the number of machines that we have out on lease or participation, and also on growing our overall fee per day. A lot of the machines we have had out in the market have been there for a number of years. We will be refreshing the product offer with new titles and new themes, and will be replacing older machines with new ones.” David Punter: “Licensing products is a big focus for us—such as our recent release Jaws [based on the Hollywood film franchise]. The North America market and our competitors Bally, IGT and Williams [WMS], have a lot of licensed themes driving a lot of recurring revenue for them. So an objective for Nick’s group and for the rest of Aristocrat is to get hold of some great licences that appeal to players and will grow our participation revenues .” Is there any difference between ‘participation’ and ‘revenue share’? NK: “The 2 terms are used inter- changeably. I prefer to call it leasing. Operators tend not to use the word participation, because the thought of us participating in casino revenues is not immediately attractive. We call it leasing. In fact, thedepartmentwe’ve set up [tomanage it] is called Gaming Operations. That group is focused on growing our installed base and improving overall product performance.” From speaking to contacts close to the regulator in Macau, it seems Macau is unlikely to approve revenue share agreements for slot machines. Do you have any perspective on that? DP: “In Macau, you need a [gaming] licence or concession in order to take some cash out of the box, so what we have done there with the Viridian™ cabinet is a fee per day [arrangement] for providing the cabinet on the [casino] floor. Internally, we call it a licensing programme. It amounts to a fee per day for cabinets on the floor. What we provide the operators is a way to regularly update their software over a term of the contract. Some of the major casinos in Macau have adopted this as it provides flexibility for them to upgrade their floors without large amounts of capital outlay. Is it a fixed fee? DP: “Yes. For Asia Pacific, it works differently [from in the US] because our market shares are greater and some of our premium products make up large proportions of the Casino floors we offer combinations of outright sales and flexible fee per day options, roundabout effect is a net positive for us. With the other competitors [competing suppliers] offering products such as MONOPOLY and theWizard of Oz [both WMS releases], they are only putting in smaller banks. But you know what we’ve done with successful products such as [Aristocrat’s] Fa Fa Fa—we have 10, 20 or 40 machines [on a floor] at a time.” Over what period of time are the fee per day deals in Macau? DP: “Traditionally, it’s been three year contracts and we review and renegotiate [on that cycle]. That’s manageable for us.” Is the leasingmodel in the US helping you and the operators to compensate for the overall fall in market revenue? NK: “Certainly, the latter parts of 2008 and into 2009 have been difficult times for the industry in total, whether you’re a supplier or whether you’re an operator. The Las Vegas market alone has been affected significantly. Convention business—the lifeblood of this town—is down 27% year- on-year as of today. That’s certainly had some impact on the operators. “We at Aristocrat entered the recession with a fairly conservative and strong balance sheet. As a result, we have been able to leverage off that balance sheet and offer some pretty interesting types of deals and terms to operators, to really help them keep their floors fresh. I’d like to say they’ve taken us upon theoffer and that they are increasing their ‘participation product’. However we haven’t seen a significant increase in the overall number of participation products from an industry perspective, but there has been a lot of interest in financing-type leases, lease-to-own arrangements and obviously payment terms.” DP: “That’s happening in Asia Pacific as well, since in many cases you have the same stakeholders—MGM, Las Vegas Sands etc. They are looking for opportunities to get the product on the floor—which is great. So from our side, we’re looking at more flexible terms than we have previously.” DP: “Asia Pacific is also quite small [as a market] when you look at the overall spread. Australia is still large, as is the US and bits of Europe. Japan is unique and has large volumes at times—volatile but strong.