The First Dance - An Account of Four Days in Macau

20 March 2006

For the I-Gaming industry, this is the age of discovery in Asia, and a recent visit to the Far East painted a clearer picture in my mind as to the state of the industry's progress in these markets.

Par for the course, River City Group, publisher of IGN, held its fourth annual Pacific Congress on I-Gaming (PCIG) last month in Macau. After three years in Australia, it was our first endeavor in this part of the world, and I believe it was well received.

We knew going in that it would be an educational experience for industry veterans making a move in the Asian markets as well as for Asian businesses entering the I-gaming industry. As it turns out, it was an enlightening experience for us as well.

Stepping out of the digital realm for just a moment, my first impression was the hold that gambling fever has taken on Macau. I had heard coming in that Macau is on it's way to becoming the Las Vegas of the Far East, and I was skeptical. I was last in Macau in the summer of 2002, and while it was clearly a major gaming destination, I was sure that the "Vegas" culture would not fly in this part of the world. I was wrong.

Macau's handful of casinos already generate more turnover than all of Las Vegas, but what's perhaps more impressive is the emergence of a new "Strip" that looks (or at least will look eventually) as if Las Vegas Blvd. and several of its properties were plucked from the Nevada desert and plopped down on the shore of the South China Sea. It very much reminds me of the Vegas casino boom in the 1990s

The ultimate source of all this, of course, is a hunger for gambling (particularly in the Far East), and the Asian population clearly has an appetite for new tastes.

This, I believe, will translate to the I-gaming space. It is no secret that the industry is (and has been) very interested in Asia, but what was immediately evident and continuously reinforced throughout my visit was that Asia is equally as interested in the industry. So at the very least, coming out of this event, we know that we have two very willing and enthusiastic dance partners and a lot of money to be made.

Having said that, the many challenges to seizing big-time opportunities in Asia were equally as evident, and pretty much an ongoing theme at PCIG. None of these roadblocks are new--we've been hearing about them for years--but my four days in Macau gave me a much better handle on why they exist, how they can be overcome, and how far we've come so far in getting past them.

Always at (or near) the top of everyone's list is payment processing. It is well documented that most payment mechanisms (particularly credit cards) utilized in Western markets are not optimal in Asia. This places the industry in a position similar (albeit more challenging) to the problematic situation brought on in the United States by credit card banks' implementation of the 7995 transaction coding policy a few years ago.

While a solution in Asia, one would think, is inevitable, BetOnSports CEO David Curruthers pointed out while speaking on a panel at PCIG that it is not realistic to expect a single magic formula for overcoming barriers to payment processing, and I believe he's right. BetOnSports, he said, uses a combination of payment mechanisms, based on the philosophy that the more options the customer has, the better.

It is reasonable to expect Asian merchants to get past the barriers in the same manner that Western merchants have. That is, rather than discover a superior payment solution, merchants over time will figure out what works in various areas and with various customer bases. Slowly, the payment channels will be navigated and optimized, and the players will be served.

Then there are the laws. While new gambling business opportunities are emerging in pockets throughout Asia, so are crackdowns on gambling--specifically Internet gambling--services. Most notable is the Chinese government, which has partaken in a well publicized campaign over the last year to punish those involved in providing Internet gambling services as well as those partaking in them.

But, despite the prohibitory stance taken by many Asian governments, the I-gaming industry remains determined to break into the Asian markets wherever and however possible. What remains perplexing to me is that few people seem to truly understand the legal climate in Asian jurisdictions. I have made numerous inquiries over the years as to what's legal and what's not legal in these countries, and have received very little guidance. I believe this is partially because the governments themselves are not putting forth clear policies as well as because of the East/West language barriers. But I realized something else over the course of the week: The few who seem to have a real grasp on the legal issues aren't eager to share. One individual told me that his group has spent hours upon hours evaluating Chinese case law and has gained a sense of what the legal parameters are for the business. This, he said, gives them an edge over competition, and they are, therefore, not about to reveal what they've learned.

This brings us to the issue of secrecy in general. As seen through the under-cultured westerner's eyes, it seems like virtually every morsel of knowledge in Asia is considered a trade secret to be guarded at all costs. In this sense, synergy among industry leaders is scarce, and this presents a major barrier toward getting the industry off the ground. Companies are working together (this was very obvious throughout the conference) but beyond strategic partnerships, there is a reluctance toward sharing ideas and collaborating to find solutions to common problems.

The secrecy is not entirely unlike what we saw in the early days of the Caribbean I-gaming frontier, but I get the impression that working through this in Asia will be more of a challenge because openness and collaboration aren't necessarily embraced by the business communities in this part of the world. The barriers to gaining trust are much, much higher.

From the perspective of a conference planner, this all came to light during the closing roundtable discussion on the future of I-gaming in Asia. We have held similar discussions at several events with great results (particularly at previous PCIG events in Australia, where there's never a shortage of individuals willing to share their thoughts), but very few audience members were willing to jump into the discussion. I suspect language barriers were a big part of this, but I believe the secrecy factor also came into play.

In the big picture, we get a sense that not only do I-gaming businesses need to adapt to do business in Asia, but Asian businesses and consumers will have to adapt to embrace I-gaming. (And judging by the success the Sands is already experiencing in Macau, there's no doubt that this is possible.)

A prime example of Asia's need to come up to speed is the overall attitude toward responsible gambling. I was a bit disappointed in Macau at the lack of concern in this area. One individual during a panel discussion proclaimed that problem gambling is not a concern for most of the people in the room. (I'm not mentioning his name because my intention is to make a point, not to call anyone out.) That he would divulge this was surprising (hence, the smattering of gasps throughout the room), yet indicative of the general lack of sensitivity to this issue. This needs to change. In a perfect world, everyone in the industry will be genuinely concerned about problem gambling, but even looking at it through a cynical lens, they need to at least understand what's good for business.

On the part of the industry, some adaptation has already taken place., for example, figured out through months of experimentation how to best service its online customer base. They were the first online operator to target Asian players with live casino games broadcast via the Internet, and they captured a nice pocket of high-rollers who are not willing to play at an online casino powered by RNG-based software--but not before trialing a preliminary product with a massive download that scared away most potential customers and then reverting to an RNG-based game. They also had to work their way through IP issues pertaining to live casino software. Now operators are focusing on specific games that appeal to Asian players, particularly baccarat and mahjong.

The adaptation process, in general, is reminiscent of transitions we've seen in more mature I-gaming markets. The industry is still in its infancy in Asia and in many ways resembles the I-gaming industry in established regions seven or eight years ago. Deterrents such as the secrecy, the lack of cooperation and the disregard for responsible gambling were all present in the Caribbean and elsewhere. Like we saw with Australia, North America and Europe, offshore jurisdictions are emerging as alternatives for operators unwilling to wait through the slow process of moving policy through large governments. Similar to what we're seeing now in Europe, established gambling monopolies are justifying their existence by pointing to their contributions, while arguing that too much gambling is bad. And as we've seen everywhere, land-based interests are tactfully watching (and planning) with interest.

This is a developing story. There's much progress to be made, and one can only imagine what the picture will look like a year from now. It is abundantly clear, though, that the demand for interactive gambling exists, and there's an indescribable sense that the industry is on the cusp of something huge. For these reasons, we will likely bring PCIG back to Macau next year.

For now we'll continue to watch and learn from 12,000 kilometers away and look forward to our return to the Las Vegas of the Far East in 2007.

Related Links
Pacific Congress on I-Gaming (PCIG) 2006