Kingsmen Creatives: Imitation is flattery, but results may vary

THE easiest story to sell is one that people have bought before. Ever since exhibitions innovator Cityneon blazed off the Singapore stock exchange earlier this year, analysts have searched among second-liners for the next multi-bagger.

Some have suggested that Kingsmen Creatives, a builder of exhibition displays for trade shows and theme parks and provider of design works and fit-out services for stores and museums, could be "the next Cityneon".

But even as Kingsmen takes a leaf from Cityneon's playbook with its new push to become a developer and marketer of intellectual property (IP) for experiential and themed attractions, it is starting from a very different place.

On Oct 4, Kingsmen opened the world's first Nerf family entertainment centre at Marina Square. Ticket sales have been "encouraging" so far, Kingsmen chief executive Andrew Cheng said. The exhibit is permanent and ticket sales risk lies squarely on the shoulders of the company, which spent between S$5 million and S$8 million to build the activity zone; it also has to cover rent for the 18,000 sq ft space.

In contrast, the success of Cityneon and the main source of profits from its IP experience segment has been its travelling sets.

The "for a limited time only" nature of these sets are a crowd booster. More importantly, Cityneon transfers ticket sales risk to third-party promoters, who must pay Cityneon an upfront licence fee before they can operate the exhibits that incorporate its IP rights. Cityneon also bills for installation services.

Kingsmen wants to replicate this de-risking strategy, and has said it will also adopt a sub-licensing model when it sets up its next Nerf attraction outside Singapore.

Its first stop will be China, where Kingsmen has placed great faith in a partner called Vision High (HK), to which Kingsmen has given exclusive rights to the Nerf family entertainment centres for all of China.

Vision High mixes the interests of Hong Kong-based entertainment firm Min-Max International Co and other parties, including property developers that are not ready to announce who they are, Mr Cheng told The Business Times.

Kingsmen is now working with Vision High to open the first Nerf action experience in Chongqing by the end of next year.

Indeed, the natural market for an American brand like Nerf is the US. In June, toy maker Hasbro agreed to let Kingsmen expand its licensing deal to the US, where Kingsmen will open its first attraction in 2021.

But while it searches for a local sub-licensee to work with, the novelty factor isn't Kingsmen's to take.

Hasbro said recently that it has partnered with entertainment firm Kilburn Live for a live entertainment touring event called Nerf Challenge, which will debut in Los Angeles for a month come December. That tour has similarities with what Kingsmen has built here, except that it spans 50,000 sq ft - almost thrice as large.

There are other reasons to believe that Kingsmen's first shot at IP-driven attractions lacks the same wow factor that Cityneon tapped into when it acquired blockbuster movie IPs like Marvel's Avengers and Universal's Jurassic World.

Nothing is stopping game masters like Zedtown (which is hosting a zombie war at the National Stadium this weekend) or Combat Zone (in Orchard's Scape mall) from letting their participants shoot at each other with Nerf blasters and bows - as long as they don't call themselves sanctioned Nerf experiences.

Kingsmen is also taking Nerf merchandise inventory from Hasbro to sell at its experience centres at a time when Hasbro's revenues from the franchise brand is falling.

Fortunately, Hasbro is very serious about rolling out cross-branded and cheaper blasters to defend its market share, so Kingsmen gets to ride this innovation cycle.

A travelling experience

Kingsmen's second IP in development is a travelling experience of Discovery's Animal Planet, with the first exhibit to open at the Singapore Science Centre on Nov 16.

Down the road, Kingsmen also wants to "create its own IP". Pressed by BT, Mr Cheng said: "It could be a carnival with a wellness flavour... the idea is that it must have global appeal."

There are also differences in how Kingsmen and Cityneon structure their contracts with brand owners.

At the end of 2017, Kingsmen paid S$1.34 million to Hasbro to co-conceptualise, build and operate the Nerf family entertainment centres across the Asia-Pacific, with Hasbro collecting royalty fees from each centre that Kingsmen opens.

Typically, other players like Cityneon (which secured the rights to use Hasbro's Transformers brand in 2015) do all their creative work in-house and do not pay a development fee when they ink deals with franchise owners, though they may prepay the royalties.

In the case of Nerf, Mr Cheng explained that Hasbro had already done some work on experience centres, and wanted to be involved in the creation process because of the values attached to the franchise. For instance, it takes steps to ensure that Nerf blasters are not referred to as guns.

Given Kingsmen's declining earnings from its traditional business, new ideas are crucial for a turnaround, but the group's razor-thin net profit margins (2.3 per cent last year, down from 3.2 per cent in 2017) leave it with very little room for error, unless it finds a way to manage costs more efficiently.

Last year, Kingsmen made a net profit of S$8.2 million, partly due to tough competition amid a weak retail landscape, which is still not getting any better yet.

The single biggest cost factor for Kingsmen is its expense on employee benefits for its directors and 1,800 employees, which Mr Cheng has indicated he is unwilling to cut.

Meanwhile, investors are wondering if Kingsmen's bottom line will get Nerf'ed by higher depreciation and operating expenses from its new commitments at Marina Square, while the company waits for IP sub-licensing revenue to roll in.