Village Roadshow hits the road

Village Roadshow boss Graham Burke is very positive about the company’s prospects in China and South-East Asia.

As Asia’s growing middle class spends big on fun, the entertainment giant makes the most of it.

When Village Roadshow opened a Wet’n’Wild water theme park in Las Vegas in May 2013, it sold out of season passes and hit capacity within a fortnight.

The December 2013 launch of Wet’n’Wild in Sydney’s western suburbs got off to the same fast start, as 160,000 people paid A$90, pre opening, for an annual season ticket.

The success has not gone unnoticed in China where Village has partnered with Chinese property developer Guangzhou R&F to develop and manage two theme parks on China’s Hainan Island.

Opening this year, one park is based on Wet’n’Wild, the other on Village’s Gold Coast Sea World property. Hainan Island is touted as a cross between Hawaii and Australia’s Gold Coast, and attracts up to 40 million visitors each year.

This makes Village Roadshow boss Graham Burke feel extremely positive about the company’s prospects in China and South-East Asia.

“We’re in the same time zone, we have strong economic links and we’re not threatening to the Chinese. They like what they see at Movie World and Sea World ... and so they should. They’re world-class parks,” he says.

Burke has been one of the strategic forces behind Village Roadshow for more than 20 years. He became managing director in 1988 and co-chief executive and co-chairman in November 2013.

And now he’s adjusting the company’s strategy, scaling back Village’s investment in the US to focus on the fast-growing markets in Asia. He has sold water parks in Hawaii and Arizona but kept the group’s majority stake in the Las Vegas Wet’n’Wild park.

This change of tack gets the nod of approval from analysts.

“The company’s growth will mostly come from theme parks,” tips Ord Minnett’s Nicholas McGarrigle.

“So directing capital and management of resources to areas with more profit potential makes sense. No one will begrudge them selling parks in the US that never really took off in a big way.”

Theme parks are a growing source of revenue for Village Roadshow.

Theme parks are a growing source of revenue for Village Roadshow.

But, he adds, having a Wet’n’Wild park in the tourism mecca of Las Vegas is a useful marketing tool for Village in Asia.

Village Roadshow has been in the business of fun for a long time. It kicked off as Village Drive-Ins in 1954, when its founder Roc Kirby started one of the first drive-ins in Australia in the Melbourne suburb of Croydon.

Today it’s an energetic Australian mid-cap with interests in cinemas, film production and distribution, and theme parks.

Roc’s sons, John and Robert Kirby, are still part of the business – Robert is co-CEO and co-chairman along with Burke, and John is deputy chairman.

Second act

For the past 20 years, Melbourne-based Burke and his team have been establishing cinemas in Asia’s cities, and have built some strong regional relationships as a result.

Back in the 1990s, Village had ambitions of establishing a global cinema empire with joint ventures throughout Europe and Asia. However, in 2002 the market became saturated, so Village chose to abandon that strategy and progressively scaled back its cinema chain to Australia and Singapore. But the episode brought some lasting benefits.

As Burke explains: “We have relationships that go back two decades. Governments and potential clients value that.”

Yet while Guangzhou R&F was impressed with Village’s expertise, investors were not. They didn’t warm to the exposure to China.

One gripe was legitimate. Village’s market capitalisation had suffered from a lack of share trading liquidity and a complicated corporate structure.

Keen to fix the problem, the company’s three major shareholders – Burke together with John and Robert Kirby – sold down their stock in 2013. This immediately boosted liquidity and bumped the company into the ASX 200.

Burke says investors are starting to see the value of entertainment, particularly when consumers have more disposable income.
"The LEGO Movie is a blockbuster and it is an extraordinarily joyful experience." – Graham Burke, Village Roadshow
“Many other areas of commerce are under threat whereas the area of entertainment is a very enduring one, and an important part of what people do. People love to go out, whether it’s to theme parks or picture theatres.

"The delivery systems may be different, but the fundamental business remains the same – providing that entertainment and ‘going out’ experience.”

Young Chinese travellers present the fastest-growing market in global tourism. Like their US and Australian counterparts, they’re seeking an escape and some fun, says Burke.

“They relish the fact they’re in a different culture and in a different part of the world. They love the adventure and the excitement of water parks, they love the dolphins and stunt shows and they love just walking around soaking up the atmosphere and the crowds.”

Hong Kong-based economist Chris Yoshii, global director of economics with AECOM, has noted the change in demand from the young Chinese market.

“They are more interested in thrills and excitement,” he says.

A global boom in the amusement and theme park market means operators will attract revenue of almost US$32 billion by 2017, according to US market research house Global Industry Analysts.

While the US remains the global leader in theme parks, Asia is catching up fast. Yoshii predicts the total number of theme park visits in China will soon exceed those in the US. In the water parks segment, Asian attendance figures have already outstripped those of the US.

In Yoshii’s view, theme park attendance generally and visitor per capita spending will improve in Korea, India and China due to their governments’ focus on promoting tourism and entertainment.

“The benchmark in China, for instance, is any city with one million population should have a theme park. China has 200 major cities.”

Building blocks

In Asia, theme parks are often built by real estate developers whose projects need local government approval to get off the ground. But according to Yoshii, while there are a large number of projects on the drawing board in China, Indonesia and Malaysia, there are not enough top-notch managers to run them.

“The US giants like Disney or Universal can’t fill the gap since they prefer to incrementally add new mega destinations every few years. They wouldn’t do single water parks,” he says.

But for a smaller, nimbler outfit like Village, this is a huge opportunity. Signing up for management rights for parks in Asia – to supplement their own theme parks – is a way for Village to grow offshore with minimal risk. 

“If attendances are strong and operating earnings are above a certain hurdle, they can get additional performance payments. So there’s not a lot of capital risk for them – it’s pretty much all upside,” notes McGarrigle.

Village’s previous experience in Asia also puts them ahead.

“Some international operators just want to build their own brand; others are just imperious and impatient,” says Burke.

“It takes patience. You can’t do what some Americans try to do which is to sign a contract after one meeting. You might have three or four meetings before a potential client will come and look at your parks.”

The company is still deciding whether it’s better to build more of its own theme parks or keep to management/performance deals in the region. “We’re still sorting out the bigger direction and strategies for Asia,” says Burke.

“The emphasis is on the latter right now. We’re playing to our skills and we’re good at developing and operating theme parks.”

Licensing fees or royalties from theme-park rides inspired by Village Roadshow films are another potential money-spinner. The company’s 48 per cent-owned film production unit is one of the biggest independent movie producers in Hollywood, co-producing box office hits such as the Matrix trilogy, The Great Gatsby and Happy Feet. Visitors to its Gold Coast theme parks are already rising to the thrills of Superman, Green Lantern and Scooby-Doo rides.

And the bets are on for Village to make even more from the recently released box office smash The LEGO Movie, which pulled in US$60 million in the Presidents Day holiday weekend in the US. It was the second-best showing of all time over that holiday.

The LEGO Movie is a blockbuster and it is an extraordinarily joyful experience,” says Burke. “We’ve got a giant on our hands.”

Village’s own cinema chains continue to thrive in Australia and Singapore, and there is a whole new business in the US specialising in luxury Gold Class theatres. But the health of Village’s cinema and film distribution businesses rely on a steady flow of high-grossing movies.
'The LEGO Movie', a Village Roadshow co-production, had one of the best US openings ever for an animated film.

'The LEGO Movie', a Village Roadshow co-production, had one of

the best US openings ever for an animated film.

Things look promising for 2014 with releases including Iron Man 3, The Amazing Spider-Man 2, X-Men: Days of Future Past and Godzilla.

An ever-present threat in the movie business is piracy and while Village Roadshow’s digital business is growing dramatically, it is uncertain how the digital landscape will play out. In this environment, taking the smart way forward with the thrills and spills of the massive theme park market in Asia makes sense to Burke.

At 71, he is often asked about his retirement plans, but he counters that he has no plans at all for retirement.

“I have kicked too many goals and am getting too much satisfaction from building what we’re building to quit now,” he insists.

Making movies for China

Village Roadshow is expanding into China through its 48 per cent stake in Beijing-based Village Roadshow Pictures Asia (VRPA), which released two local language movies last year to huge acclaim.

Journey to the West: Conquering the Demons, a fantasy about a Buddhist master who trains to become an exorcist, hit screens in February 2013. It had the best-ever opening day for a Chinese language film, taking 78 million yuan (US$12.5 million). VRPA’s romantic comedy Say Yes! has been another success, earning 47 million yuan (US$7.5 million) on Valentine’s Day 2013.

Most big movie studios try to make both Chinese- and English-language co-productions, pleasing both Eastern and Western audiences. But VRPA has a different approach.

“We considered the possibility of making movies in China – for the Chinese,” says Village Roadshow’s Graham Burke.

“We saw that China had good stories and great storytellers, and we realised that’s where the opportunity was, to work with filmmakers there. Our Chinese language films are at an embryonic stage but the potential is significant.”

For the year to date, China’s box office has taken US$4 billion, up 30 per cent on the previous year.

What I’ve learned

  • Robert Kirby [Village Roadshow’s co-chairman and co-chief executive] comes back from holidays each year with a powerful thought. This year it was “Contagious Optimism”. This empowers people to seek solutions and opportunities within problems. We are all embracing this ethos.
  • The entertainment business never changes. We entertain people, whether it be our theme parks or theatres. It is all about creating both a fashionable and exciting environment that people of all ages want to visit.
  • It is about selling tickets and we are showmen motivating people to step right up and go to a theme park or a theatre.
This article is from the June 2014 issue of INTHEBLACK.

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