Still room for improvement at Studio City: pundits

Oct 27, 2016 Newsdesk Features, Latest News, Macau  

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As Studio City – the US$3.2-billion, 2015 addition to Macau’s roster of mega resorts – marks its first anniversary on Thursday, several commentators say there is still room for improvement in the gaming and non-gaming offer of the property.

The Studio City site has had a chequered history, with the project being mothballed for several years after an original set of investors failed to agree on funding in the aftermath of the global financial crisis that began in 2007.

In 2011, Macau casino operator Melco Crown Entertainment Ltd paid US$360 million to take a 60-percent interest in the project, joining forces with a bloc of existing Studio City investors in the form of New Cotai LLC.

Studio City – as the name suggests – was conceived as a gaming resort that also had a focus on media-themed activities.

A lot has changed in the Macau market between 2007 – when the original consortium of investors broke ground on the project – and October 2015, when the property finally opened.

Even as recently as 2011, it seemed any new project in Macau would be a certain winner. That year, casino gross gaming revenue (GGR) market wide in Macau expanded by 42 percent year-on-year, according to data from the city’s Gaming Inspection and Coordination Bureau.

In 2012 that all changed, noted retrospectively the investment bank Morgan Stanley in a December 2015 report. The bank said the reason was largely due to politics rather than economics. The year 2012 was when Xi Jinping became China’s Communist Party chief, and the nation embarked on an anti-corruption drive. Analysts say it is still in play today, and has had a negative effect in particular on high-stakes gambling in Macau.

In 2012 and 2013, Macau casino GGR growth year-on-year moderated to teens of percent, before GGR contracted by nearly 3 percent year-on-year in 2014 and declined by a whopping 34 percent in 2015.

Public policy

In the past few years the Macau government has also involved itself in giving specific policy guidance to the city’s casino industry regarding the importance of non-gaming. It has made the provision of such amenities in new Macau casinos a determining factor when it comes to giving them new-to-market live-dealer gaming tables under the city’s table cap policy.

In the run up to Studio City’s opening, the property – presented as a mass-market focused venue with an extensive range of non-gaming attractions – seemed to capture the spirit of the times.

But some commentators have noted that in terms of its market positioning, Studio City seemed to have one foot in the Macau ‘boom years’, with high-end brands such as Prada and Gucci in its 35,000-square-metre (376,737-sq-foot) shopping mall; and one foot in the ‘new’ Macau with non-gaming attractions such as the virtual reality ride ‘Batman Dark Flight’.

“Studio City probably suffers from being the first resort of its kind in the Macau market to be a pure mass market product,” casino industry consultant Ben Lee of iGamix Management and Consulting Ltd told GGRAsia.

“It probably also suffers from a confusion of identity in that – whilst being a pure mass segment offering – it incorporates high-end retail; plus an entertainment offering (Pacha) that does not gel with its market positioning,” he added, referring to a branded nightclub on the site.

There has also been some confusion as to the market positioning of the hotel accommodation at Studio City. “Five-star standards” are mentioned in marketing materials. The property is listed by the Macao Government Tourism Office as having only four-star accommodation.

In mid-September it emerged that JD Clayton – the president of Studio City since the pre-launch phase – had left the property, and that David Sisk, a former chief operating officer for Macau casino operator Sands China Ltd, had been hired by Melco Crown.

Chinese want gambling

Despite the Macau government’s call for more non-gaming products in the casino industry, Andy Choy, chief gaming officer for Melco Crown investor Melco International Development Ltd, stated during a conference session at the Global Gaming Expo Asia 2016 in Macau in May that consumers in the Macau market “overwhelmingly” wanted gaming.

“In an environment where you are motivated purely by satisfying your customers, that would dictate that you would spend your investment dollars primarily on the gaming product,” he noted.

In the Macau context currently, “customers” mostly means Chinese people. In 2015, a total of 66.5 percent of Macau’s 30.7 million visitors were from mainland China, according to Macau government data. Visitors from Hong Kong made up a further 21.3 percent of the total.

VIP gambling – predominantly by Chinese players – still accounts today for more than 50 percent of Macau casino GGR.

So when, at the opening of Studio City on October 27 last year, Melco Crown’s chief executive Lawrence Ho Yau Lung announced the property would not have any VIP tables – the first time this had been tried in the Macau market for a major casino resort – and said that this was a “business decision”, it attracted the attention of investment analysts.

One, speaking to GGRAsia on condition of anonymity, had noted at the time that the smaller margins on VIP baccarat compared to mass-market games might have spurred Melco Crown to keep high roller play at its 100-percent owned Macau properties.

But after what analysts termed a slow ramp-up of Studio City operations, and some rumblings in the investment community about the property’s modest level of earnings relative to its debt, Mr Ho confirmed on Melco Crown’s second-quarter earnings call in August, that the company would seek to add 30 VIP tables at Studio City.

Earlier this month, the local regulator, the Gaming Inspection and Coordination Bureau, told GGRAsia it was still “analysing” Melco Crown’s request for VIP tables.

VIP vital

“Essentially, any [Macau casino] property without VIP gaming in any form is a losing proposition,” said industry consultant Mr Lee.

He added: “The resurgence of the VIP segment in the past two to three months demonstrates the importance of this segment in the recovery of Macau.”

In the third quarter, VIP baccarat casino GGR decline moderated to 1.2 percent judged year-on-year, compared to a 16 percent year-on-year retreat in the second quarter.

“Facing this fact [the importance of VIP business] may not be ‘politically correct’: nevertheless it is a critical element that should be incorporated into the design of any gaming business model in Asia,” stated Mr Lee.

Research by Morgan Stanley and other institutions has indicated that a significant portion of Macau’s annual visitors is likely to be repeat visitors. If that is accurate, it may be important for a Macau casino resort to have enough ‘content’ to make people come back; and to refresh the overall offer to customers on a regular basis.

Chan Chi Kit, president of the Macau Hoteliers and Innkeepers Association, told GGRAsia that Studio City still had room for improvement in this regard.

“Studio City does have some refreshing elements like the Batman ride and the Ferris wheel, but it doesn’t really have a must-see attraction like The House of Dancing Water.” The latter was a reference to the in-house show at Melco Crown’s wholly owned City of Dreams Macau property.

“Overall, the property [Studio City] is still very much like the traditional casino resorts here, and it is not the type that visitors would like to visit more than once,” added Mr Chan.

“For mass visitors, the packages they offer are quite reasonably priced; but they are not yet the cheapest in this market,” stated Mr Chan, referring to Studio City’s packages offering a combination of accommodation, access to the resort’s amenities and ferry tickets.

Mr Chan’s association represents the operators of approximately 60 hotels – ranging from five-star to three-star hotels, as well as inns. Some association members also run travel agencies.

IGamix’s Mr Lee said of Studio City: “The only component that can be said to have been done well is the food and beverage offerings; reinforcing the viewpoint that food is very important culturally to Asian people.”

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