Lawrence Ho is chairman and CEO of Melco Crown Limited. Melco Crown is a joint venture between Ho’s Melco and Crown Entertainment (MCE), controlled at one time by James Packer, who recently stepped down as co-chairman of Melco Crown. The company has been aggressively expanding in Macau, the Philippines and most recently in the Primorye gaming district, near Vladivostok, Russia. Ho has been instrumental in this expansion, understanding that opportunities across Asia can make his company one of the dominant players in the region. Ho is the son of Stanley Ho, the legendary gaming operator of SJM who held a monopoly on gaming in Macau until the government bid out licenses in 2002. Melco Crown operates under an SJM sub-concession in Macau.
GGB: Studio City opened about six months ago. Tell us how the property has been performing since then.
Ho: Financially speaking, Studio City has contributed meaningfully to MCE. With the opening of Studio City, we have now further increased our exposure to the mass market segment, which we believe will be the long-term driver of profitability for our Company and the market as a whole.
Studio City welcomed almost one million visitors in its first month alone and the customer number has been going up every month for the first six months. We are building up a unique customer database for Studio City and have achieved a meaningful percentage of premium mass and middle mass customers in the past six months. However, the ramp-up of Studio City has frankly been slower than expected, mainly due to the isolated location of the property at the southern tip of Cotai. We are trying to address this issue, using City of Dreams as one of the pickup points for the Cotai patrons, and recently we have already seen some improvement. We have also been putting in more marketing efforts since April to accelerate the ramp-up and have seen great results during the recent Golden Week holiday.
We are very proud of this great Hollywood-inspired property, which has already hosted shows for many superstars, such as Madonna and famous Canadian comedian Russell Peters, and also has attracted film-makers to use the fabulously designed property as their movie set. We are also very pleased that, in the short period since its opening, Studio City has already claimed several international awards including the “Casino/Integrated Resort of the Year” at the International Gaming Awards 2016 and the “Highly Commended Award in Hotel Architecture” category at the Asia Pacific Property Awards 2016
The heavy non-gaming attraction of the property was designed to increase mass market. How has that worked?
We believe that a casino is quite a homogeneous product, and non-gaming entertainment is the way to differentiate ourselves from our competitors. Therefore, non-gaming attractions are not just designed to attract the mass market, but also to create brand differentiators, brand stickiness and hopefully brand loyalty in the long-term and ultimately help us build a sustainable business. It has long been our strategic direction to strike a balance between gaming and non-gaming, and over the years, we have been at the forefront in the market in building innovative non-gaming attractions.
According to DICJ’s recent “Interim Review of Gaming Liberalization for Games of Fortune” research report, among the six gaming operators in Macau, we have the highest ratio of non-gaming floor area, accounting for 93 percent of our total floor area. With Studio City, we continue to bring the best variety of first-of-its-kind non-gaming entertainment offerings appealing to people of all ages, such as the world’s highest figure-eight Ferris wheel, Golden Reel; the 4D action-packed simulation ride, Batman Dark Flight; Warner Bros. Fun Zone; the Ibiza-style nightclub Pacha Macau; The House of Magic, and more.
Besides our efforts in creating great attractions, we have also been conducting substantial strategic outreach to the South China market to penetrate and grow the mass market.
You are adding on to the City of Dreams with a new hotel tower. Please explain how that is progressing and give us the tentative opening date.
The design of the fifth hotel tower at City of Dreams is well underway. We trust that through Zaha Hadid Architects, in cooperation with our various contractors, the late Dame Zaha Hadid’s vision for the hotel tower will come to fruition in 2018. We are confident that the new property will become an iconic landmark in Cotai and Macau.
With the decline of the VIP market in Macau, what is the status of Altira, which was built mainly with the VIP market in mind?
Altira is our first property and it celebrates its 9th anniversary this year. Since its launch, Altira has continued to refine its services and earned a sizable group of loyal customers. As the VIP segment has weakened due to macroeconomic and regulatory changes that have affected our industry as a whole, we have continued to right-size Altira and its cost structure, reducing the number of VIP tables and number of junkets to focus on the big junket operators, trimming the fat from the operation and optimizing table efficiency by constantly evaluating the best position to deploy the tables, be it in Altira or our other properties. We believe our forward-thinking development and infrastructure blueprint for the region ensures MCE’s long-term success regardless of the market situation.
Given its strategic location and its exclusive quality, Altira Macau is one of the leading hotels in Macau as evidenced by its long-standing Forbes 5-Star recognition and has been well-received by the market. While we are striving for ways to make the operation in Altira Macau more efficient, we believe that this direction along with other MCE properties such as the highly-successful City of Dreams in Macau and Hollywood-themed Studio City, represents the next phase in MCE’s ongoing strategic mission to aggregate, develop and deliver world-leading, highly innovative entertainment brands.
How do you envision the revenue situation in Macau right now? Have gaming revenues hit bottom?
I do think that Macau has bottomed out and is going to start recovering very soon; hopefully, before the year is out the recovery will have started.
After the past couple of years, the VIP segment has weakened, but we can see the mass market is stabilizing and we believe this segment will be the main profit and growth driver moving forward.
Gone may be the days we experienced double-digit growth every year, but we believe we can still achieve a stable and healthy rate of growth, as we continue to create quality supply to diversify Macau’s tourism and entertainment scene.
Will the VIP market continue to decline in Macau?
The VIP segment is still going through structural changes, but I am not too worried; Altira is stabilizing and still has a very stable customer base. We will continue to focus on the optimization of this asset.
We have long foreseen that the gaming market in Macau would not be always dominated by the VIP segment, and we have taken the lead to focus on developing the premium mass market segment with City of Dreams and the mass segment now with the introduction of Studio City, which have both been doing very well and become integral parts of our business’s long-term sustainability. With the diversified revenue streams, MCE can weather the process of stabilization of our industry.
How about the attitudes of the two governments that oversee gaming in China? How has the Macau government responded to the downturn and are you satisfied that they are doing everything they can to promote tourism to Macau?
MCE firmly supports both governments’ development direction for Macau. We think both the Chinese and Macau governments are supportive to our industry’s development, mainly through encouraging tourism growth in Macau, which will in turn benefit our industry as a whole.
As noted in Premier Li Keqiang’s recent government work report and the country’s 13th Five-Year Plan, China wishes for Macau to become a city with diversified and internationalized tourism products of an international standard of tourism quality, while in the Macau government’s recent five-year plan, there is also plan for the city to build the Macau tourism brand worldwide, through more diversification, a boost in visitation by increasing number of hotel rooms, and more co-operation between large-scale integrated resort projects and local SMEs.
Despite the downturn, Macau’s government is undoubtedly still very committed to developing Macau into world center of tourism and leisure. The Macau Government Tourism Office (MGTO) has engaged in global outreach programs throughout the years, not only focused on China, but also overseas, to proactively promote Macau. MCE has also supported in such strategic initiatives by welcoming overseas media tours to our properties.
The Chinese government has indicated that it would help the casino industry in Macau by backing off some of the rigid policies of the past. Have you seen this happening?
I am fully confident that the PRC government will implement policies that support the long-term sustainable growth of Macau and the gaming industry. In the past, the Chinese government helped the industry to weather the tough times. For instance, during the financial crisis of 2007-09, the Chinese government continued to extend the ”Free Travel Scheme” program, from covering only four cities in 2003 to 49 cities in 2007, bringing large influx of Chinese tourists to Macau and stimulated the economy. This greatly helped Macau’s GGR grew stably even during the financial crisis. We trust that the PRC government will continue their support to our industry in the future.
With several more properties slated to open this year on Cotai, and even more next year, are you concerned that there’s going a problem with oversupply?
We believe the quality supply of facilities will diversify tourism and drive new demand for gaming and non-gaming entertainment markets in Macau, leading to the growth of the industry as a whole, as we serve more customers coming from mainland China, as well as visitors from the entire Asia-Pacific region and beyond. MCE will continue to be the integrated resort operator offering top-of-mind resorts in Cotai with our many world-class entertainment offerings that set us apart from our competition.
Looking ahead, MCE as it executes its future strategy, will continue to introduce new or enhanced offerings, such as the fifth tower at City of Dreams designed by the late Dame Zaha Hadid, the next phase development of Studio City, and more top-notch performances at the Studio City Event Center, in order to attract new customers and capture the growing demand from a burgeoning middle-class in mainland China and in Asia.
What is going to define success in Macau in the next few years? More non-gaming attractions and tourist visits or an upturn in gaming revenue? Or both?
According to Macau government’s recently published five-year plan, the target is to keep the annual gaming table growth under 3 percent in the coming 5 years, and to increase revenue from non-gaming activities to 9 percent or above of total revenue by 2020.
As the local government further embraces economic diversification, Macau’s reliance on gaming will be reduced to a certain extent, yet the gaming industry will still remain one of the key engines for driving continuing development and success for the city.
As a socially responsible operator, we believe achieving sustainable development of the economy is important for the stability for the community and will create a long-term win-win situation for all.
How about competition to Macau throughout Asia? Melco has a property in Vladivostok and Manila. Are you tapping the same market as your Macau casinos for these properties?
MCE has established the flagship City of Dreams brand in Macau, and the launch of City of Dreams Manila is an extension of the CoD brand overseas to create synergy with the flagship property in Macau, raising our game and overall market position in the Asia market and enabling us to fence off growing competition in the region.
Tigre de Cristal, partly owned by MCE’s single largest shareholder Melco International, focuses more on Northern China, Japan and South Korea markets. MCE’s other properties in Macau, on the other hand, focuses mainly on the South China markets. There is therefore no head-to-head competition between our Macau properties and overseas properties.
Is it your sense that the Chinese VIPs are more comfortable leaving the country to gamble at this time?
Unlike a decade ago in the days of the casino monopoly before the liberalization of the casino industry in Macau, China consumers nowadays are more aspirational and will explore higher quality services, products and experiences, be it in Macau or elsewhere. Given this trend, not only the gaming industry, but also the entertainment and retail industries as a whole have to upgrade their standards to meet these demands. MCE therefore continues to enhance our services so that we may live up to the new standard and fulfill the expectations of this group of customers.
Tell us how you expect the Macau casinos to be performing in the next three years?
The Macau gaming market is undergoing stabilization and this wave of change is beyond the control of any one gaming operator. What we can do, however, is to focus on achieving excellence in our own properties and assets.
Next year, Macau will mark the 15th anniversary of casino liberalization. With continuous support from the government, our community and expected improvement in the city’s infrastructure to make Macau even more accessible to visitors, I believe Macau will remain competitive in the region and grow to become a world tourism and entertainment center.