HONG KONG (Reuters Breakingviews) - With Harry Potter’s help, Comcast can conjure up growth in sleepy Japan. The biggest U.S. cable operator is paying 255 billion yen ($2.3 billion) to buy out Goldman Sachs and other partners in Universal Studios Japan. The Osaka theme park’s success, thanks partly to the boy wizard, highlights a part of the economy where domestic consumption growth is no illusion.
USJ was briefly listed, but faltered during the financial crisis. It was taken private in a 2009 management buyout backed by Goldman, private equity firm MBK, and Owl Creek, a hedge fund. That gave USJ an enterprise value of just $1.4 billion.
Growth at USJ has raced ahead since, in a manner more befitting the Hogwarts Express than the wider Japanese economy. In dollar terms, sales have roughly doubled since 2008-2009. Visitor numbers are up more than 70 percent - and about nine-tenths of those visitors are Japanese. The latest deal values USJ at $7.5 billion including debt.
Such growth bucks the stereotype of penny-pinching local consumers. Despite Prime Minister Shinzo Abe’s efforts to rejuvenate the economy, household consumption fell 1.5 percent in real terms last year, excluding spending on houses, cars, and cash gifts.
The theme park’s outperformance is partly the result of USJ’s specific strategy. It deliberately targeted young women and families, which has paid off. And the Potter attractions, which opened in 2014, have been a big hit. But cross-country rival Tokyo Disneyland has also fared well. Despite high prices – USJ charges adults 7,600 yen per head – the operators appear insulated against wider economic doldrums.
The new deal consummates a process initiated in late 2015, when Comcast bought 51 percent of USJ for $1.5 billion. That multi-year approach to acquisitions is unusual but will be familiar to Comcast investors, since the company used a similar two-stage deal to buy NBCUniversal from General Electric.
Limited financial disclosure makes it hard to gauge how full a price Comcast is paying. But it can expect continued growth from new Nintendo and Minions attractions coming online soon. The group could also expand geographically, perhaps bringing Harry Potter to Tokyo. And while foreigners now make up just a tenth of visitors, they should be a significant source of future demand growth. Growth in Japanese tourism has already blown past expectations under Abe. Now he wants 40 million annual visitors by 2020. Comcast should enjoy the ride.
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