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Transit towards a bigger arena
By Pankaj JoshiWill the e-economy excitement spill over to the amusement park industry? There are indications that this sector could well participate in the overall excitement about the new economy. The volume growth, for starters, is highly exciting. Estimates by TEAM Projects state that the industry has grown from a mere two parks in 1993 to 60 this year and the number will double in the next three years! The growth projections for the family entertainment centre (FEC) segment are even more enthusing. From the current Rs 50 crore investment in eight FECs, it is expected to grow to Rs 2,000 crore and 400 FECs in the next three years. Multinationals too, after long boycotting the Indian market, are eyeing it with interest. LAI Australia and AMF Bowling, majors in FEC operations worldwide, both have announced plans for India. Against the backdrop of all this enthusiasm, a favourable perception among markets and the banker clan, is also necessary if the industry is to grow painlessly. Those who forget history...
The potential exists, but it has to be handled. The havoc wreaked by uncontrolled growth is familiar enough -- scientists identify it as cancer. In Indian industry, it has happened much too often, the most striking cases being the aquaculture and non-banking finance company (NBFC) sectors. There are striking similarities between the NBFC boom and the current structure of the amusement park industry. There is hardly anything in the current activity profile of most promoters which could synergise in any way with their foray into this sector. Exceptions like the Essel group apart, promoters do not even have any ideas as to how they can leverage the success in their existing businesses to run their parks better, and vice versa. Right now, for its activity level, the industry is overcapitalised. There is a serious danger of many projects collapsing under their own weight. It is time that profitability and asset productivity are focussed on.In case of NBFCs, hardly 5 per cent of the companies had a clear focus about their lending mix, and the kind of profitability that they could expect. There too, the growth yardstick was the increase in assets -- deposits and branches. Such an approach is particularly dangerous for amusement parks, where the alternative use of the assets is limited and disposal value is a sharply reduced version of the book value. The NBFC industry in that initial heady phase, was characterised by vanilla products. No one bothered to innovate the structures of instruments, nor bother with service. They had just assumed that the deposits would flow in anyhow. A look at the state of the parks today reveals similar tendencies. There is little thought given in majority of cases to quality and variety of attractions, safety, hygiene and customer care. The market's reaction in such cases is ruthlessly predictable. Till the customer is satisfied, profitability cannot be achieved and maintained. The glaring absence of a regulatory authority in such a nascent industry is also disturbing. Evidence on hand indicates that leaving growth to the industry's sense of self-discipline would be hoping for too much. It may be recollected that in the NBFC case, it needed Sebi to step in and issue qualificatory guidelines for accepting fresh deposits. Till then, most NBFCs were doing business by borrowing from Peter and paying Paul. The absence of tangible parameters is another disturbing similarity. In a young industry, it cannot be entirely unexpected. But combined with the lack of an overseeing body and the overall tendency towards overcapitalisation, the implications are enormous. There is ample scope for gold plating (over-invoicing of assets and inflation of project cost), which many Indian industries in the past have been notorious for.Lack of yardsticks also means that the promoter often ends up overspending out of ignorance. Here an experienced hand, like an overseas partner or a consultant, could do wonders. As the chart below shows, involvement of TEAM Projects in the creation of Marvel Water Park saw the cost reduce drastically. The key differences -- changes in the project design and total elimination of machinery imports, which the promoter could not have had the vision or confidence to do on his own. All these make for serious trouble, which the industry must avoid. Satisfying the markets
The markets do sense the growth potential of the industry, but their past bad experiences make them wary of the pitfalls. Their need for assurance can be satisfied by the local companies adopting business approaches comparable with MNCs. The industry overseas is equally project-centric and business approaches are still being fine-tuned. But, it is well-documented and data is structured enough for analysis. The approach of MNCs has always been investor-friendly and inclined towards a long-term strategy. So, with their entry expected in the medium term, it is natural that investors expect domestic companies also to get their act together right away. That would have to incorporate the following parameters: Transparency in project creation and operation costs. This has been a major grouse and a lot of listed companies, like Gujarat Fun'n Water have created a bad reputation both for themselves and for the industry at large. Today, hardly any park shows profits, which does not do much to catalyse investor interest.Standards and yardsticks in asset creation. No investor would appreciate either gold-plating or inefficient use of resources. There are enough instances even today of companies who have gone public, like Khyati Parks, and which are doing very badly and almost on the verge of closing shop. For others like Jolly Rides, industry observers aver that, after having gone public a good seven years back, they have not even set up any equipment on their site.Innovations. Industry officials, both promoters and consultants alike, admit that imagination is sorely lacking in rides. Whatever works in a particular park is immediately copied in others. Esselworld promoter, Ashok Goel had said, "Where's the exclusivity?" Too many parks have the same rides, which is bad for tapping the local tourist potential translating into cash collections.Revenue models. The domestic industry has traditionally depended largely on gate receipts. Other, more profitable business activities, like accessories (lockers, swimming costumes, etc.,) or even F&B, have been ignored. Things have changed slightly in the last two years, but the efforts by and large have been too haphazard to show up.Merchandising. This revenue stream represents the power of the park to generate income even after the visitor has gone. It is a low-asset activity and frees the business of its geographic constraint. The simple recipe for merchandising is through brand creation and tie-ups. This is estimated to be the most profitable of all park activities. Disney's merchandising act is a phenomenal role model.Customer satisfaction orientation. This is the catalyst to many things like ensuring repeat visitors, ease in obtaining sponsorships, ensuring park events are a success and so on. With the industry's focus on personnel being tardy, this orientation is sorely lacking. But this is an area no promoter can afford to ignore and if a park does not take proactive steps soon, it will find one fine day that it has fallen behind in the popularity stakes. Individual focus is the key. There is no such entity as the average customer.Organised support
For this, some industry level effort is also required in the following areas:
Personnel management. People manning the parks are as vital as the choice of rides. Overseas, parks take a lot of efforts in the recruitment, training and retention of workforce. The International Association of Amusement Parks and Attractions (IAAPA) organises industrywide training programmes across countries. A similar effort here at the industry level is required to attract managerial talent, to fix adequate compensations and manage future growth of its people. Creating a platform, an interface for negotiations. There is still a lot of ignorance in official quarters regarding what this industry is all about and what it can do for the economy. It is a fact that only through promoter and consultant interactions have most state governments come around to creating a policy for amusement parks. An interface could help park projects immensely, if it were to quantify the increase in economic activity it creates through its operations. Interacting with financing bodies and providing the information for accurate project appraisal. This can help avoid embarrassing situations, like the current loan repayment track record of individual parks.For this, obviously an industry association is required. A small beginning has been made in the form of the Indian Association of Amusement Parks and Industries. The membership though is limited. Promoters agree that only when it is broad enough can something effective be done. Government role
Obviously a lot is expected from the government. There was a lot of initial support by way of institutional financing, but that has now petered out since no park (excepting Nicco Park) is showing profits and are way behind on their loan repayment schedules. What the government needs to appreciate is the tremendous thrust a park can bring in the development of the economy of that region. Then, location incentives can galvanise the growth of this industry the way they had successfully de-congested manufacturing activity a decade back. The biggest grouses that the industry has against the government are lack of basic infrastructural support in areas like roads and water. This cannot be seen as an unjustified woe in any way. Another complaint is the entertainment tax -- parks are considered on par with cinema theatres which is highly unreasonable. Some amount of rationalising is necessary, for which the tourism potential needs to be taken note of. Research shows that only 10 per cent of tourists in India fall in the foreign travel category. The rest are definitely potential revenue sources for the local amusement park industry. It is high time the government and industry got together to tap this potential. In the bargain, the government collections will gain from the volumes and the impact of reduced tax rates can be nullified. Possible trends
Future projects will have to narrow down their focus on the local customer requirements, rather than just nationwide trends and finance availability. There exists tremendous scope for family entertainment centres in urban areas, where the land component in project cost is lower, and the structure has the potential to pack in an entire family and that too repeatedly. Park projects, supported by government policy, will now move to rural areas, where again they will find some alleviation in land cost. In such parks, the focus on theming will also go up and they will tap the ready market that right now frequents melas and circuses.With some amount of vision, the Indian promoters can now move on to a bigger stage. There are plenty of takeover opportunities in other Asian countries too, especially South-East Asia. These economies offer the happy opportunity of being on the recovery path and still having a lot of attractive bargains, courtesy the currency factor.A very long-term dream would be the setting of an amusement park exchange, as per Khajuria. This would be loosely based on the timeshare model, where a person can purchase some visitor rights to a particular park in advance and keep them and even exchange them, as per some value mechanism, for similar rights in other parks. This would certainly be a dream situation, since it would mean that the industry has done a lot to standardise, innovate and upgrade itself, and that it has received the required support from both the investment community and the government. Ultimately, the aim is to achieve critical mass. The entertainment economy is one where India has a great advantage. Indians can be, at the very least, regional players in the amusement park industry. This can be funded because a crest -- IPO money -- is around the corner. That money could help raise the industry to a new level. But if that crest is spent just in achieving critical mass, it is tantamount to wasting a great opportunity. The time at the disposal of the industry is limited. As Shakespeare had said:
"There is a tide in the affairs of men and of nations,
Which taken at the crest, leads on to fortune,
Omitted, the voyage of their life
Is spent in shallows and in miseries". There are very few such sectors where India could dominate the Asian region. It would be a real waste if this opportunity were to lapse just because there is no one with the stature to grab it.
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