inside asian gaming August 2015 4 EDITORIAL Kareem Jalal We crave your feedback. Please email your comments to
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[email protected] or call: (853) 6680 9419 www.asgam.com ISSN 2070-7681 Chief Executive Officer Andrew W. Scott Founder and Editor Kareem Jalal Director João Costeira Varela Editor At Large Muhammad Cohen Contributors Paul Doocey, John Grochowski, James Hodl, Matt Pollins, I. Nelson Rose Graphic Designer Rui Gomes Administrative Assistant Latte Iao Photography Ike, Gary Wong, James Leong, Wong Kei Cheong Creating Demand Under the New Normal W hen Sheldon Adelson reiterated his supply-creates-demand thesis for Macau during a conference in May, saying “Supply will create the demand,” a Business Insider reporter jumped on the opportunity to write “the world’s most powerful casino mogul just showed us in five words that he’s living a Macau delusion.” For most of Macau’s post-monopoly casino years, supply did unequivocally create demand with pronounced spikes in citywide gaming revenue registered around new property openings. In the early, supply-constrained days, it didn’t even take transformative product to do the trick. Even newly opened casinos within hastily converted office buildings managed to pack in players three deep around their baccarat tables. Times have clearly changed over the past fourteen months, so much so that the 34.5% year-on-year contraction in casino revenue last month was widely interpreted as cause for optimism. Admittedly, the monthly declines have been easing since February’s 48.6% plunge, but as Bloomberg Intelligence 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, with new resorts coming on stream and Chinese stimulus measures hopefully supporting consumer activities.” In addition, following months of negative policy surprises, the Macau government gave hope of more supportive policies going forward when, starting 1st July, it allowed mainland China passport holders to visit more frequently and stay longer. Hopes for further positive policy surprises could be dashed, however, especially with a full smoking ban looming—extending the smoking ban on all main floors to VIP areas and also possibly doing away with smoking lounges in casinos. As for the old supply-creates-demand chestnut, in the current environment, the pessimists do have good reason to doubt whether new resorts will have any meaningful impact. The Galaxy Macau Phase 2 opening in May certainly doesn’t seem to have moved the needle much. The Macau optimists claim, however, that that’s because Galaxy Macau was seen by consumers more as an extension of an existing property than a game-changing new product, and that supply can still create demand under Macau’s new normal—the important difference being that now, the offering has to be truly transformative. Take the most transformative product of the twentieth century, for example. Surely there were some people who wanted personal computers before the first Mac and IBM PCs. But the demand was pretty weak. After all, most consumers simply didn’t know what they could do with one. That first Mac opened up a world of new possibilities, creating instant demand. So the question now is, will the $2.3 billion Studio City, which Melco Crown Entertainment announced last month would be unveiled on 27th October, really prove transformative? The company’s co-chairman, Lawrence Ho, 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 second half. Hopefully with Studio City opening it would be a new catalyst for the market.” Studio City is a Hollywood-themed resort with Asia’s highest Ferris wheel and family entertainment developed with Time Warner Inc. It will have a flight simulation ride with Batman flying through Gotham City and a 40,000 square feet (3,700 square meters) indoor play center with rides and other interactive facilities featuring DC Comics characters such as Daffy Duck and Bugs Bunny. It will also have a theater for magic shows, a 5,000-seat entertainment center and a TV production studio. And to promote the property, Melco Crown paid $70 million for a teaser film directed by Martin Scorsese and starring Robert De Niro, Brad Pitt and Leonardo DiCaprio. “The combination of new entertainment attractions will really focus on the mass market and goes beyond most of the other properties that still have a core of just casinos and shopping,” noted Mr Craighead. China’s rapidly evolving middle class is hungry for new, world-class experiences, and if Studio City and the new resorts from other operators that will follow over the coming months—including Steve Wynn’s self-proclaimed masterpiece, Wynn Palace, and Mr Adelson’s Parisian Macao—can deliver, Macau could finally take the development turn the local government was banking on when it liberalized the gaming industry in 2002, setting down the path to becoming a diversified leisure destination, where the hoped-for recovery of the beleaguered VIP segment becomes increasingly moot. 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 rising middle class.