Mercedes-Benz Arena lights up the Shanghai sky.

There aren’t many major industrialized cities left on the planet where a promoter can come in and re-invent the arena business overnight, but that’s what AEG has managed to do with the year-old Mercedes-Benz Arena in Shanghai, China. After tackling some pretty significant cultural and technical barriers, the promotions giant is so pleased with the results that it is moving forward with a plan to vastly expand its holdings in the world’s most populous nation.

In its first 12 months of operation, the 18,000-seat, $400 million building, operated in partnership with Shanghai Media Entertainment Group and minority partner NBA China, has exceeded all expectations. In the process, it has also completely reinvented the live event experience in the largest city by population in China, with more than 20 million citizens in its urban areas.

“By the end of this year we will have had 1 million visitors to the building for 76 performances while centralizing entertainment offerings in the city,” said Guy Ngata, the building’s general manager. “Before it was dispersed across a lot of different venues, but now we can offer entertainment in one area and it has been very well received.”

Ngata said that success has come from bringing a level of professionalism, consistency and customer service to Shanghai that had not previously existed. In the past, he said, concerts were often announced via rumor and innuendo, but those events often did not pan out. At Mercedes-Benz, when a show is confirmed and booked, his team and their promotions partners ensure that the message is concise and reliable. “We make sure that there is confidence that the act will play on that day in the building,” he said. 

A big part of that success has also come from understanding and targeting the home market with Asian acts that are sure to appeal to Shanghai residents. Ngata said the vast majority of bookings in 2011 were Chinese and Asian-language artists, with some Korean and Japanese acts sprinkled in among such Western bookings as the Eagles, Akon, James Blunt and Cirque du Soleil.

“The key to any show is promotion and we’re not trying to sell to expats,” said Ngata. “We’re selling to the Chinese consumer and our Chinese partner has a very strong media network and their relationship with promoters helps us with experts who know the market and how to promote in it.” That means using digital media, and lots of it, as everyone in Shanghai has a mobile phone — or two. Ngata and his team learned early on that it was important to message through cellular phones. And in a city where the transportation lifeblood is its subway, any promotion underground is also key to the success of events.

There were, of course, some hiccups. The biggest one was the fact that the building was slated to open just two weeks after the close of the massive, 184-day World Expo, which drew 8 million visitors to the site and included a number of venues that were shut down after it ended on Oct. 31, 2010. That meant AEG had only 15 days from the end of the Expo until the first Mercedes-Benz Arena shows to prep the site for the five-show stand by popular singer Faye Wong, followed by five shows by equally popular Jacky Cheung.

“We were very aggressive in getting the building open after the Expo… and it caused some issues for patrons coming and going [from the venue] and transport access took some time to become smoother,” said Ngata about the challenge of working in what was essentially a (de)construction zone. “But luckily for us, those first shows were very popular and people were happy to have those obstacles and still come to the building.”

AEG China President and CEO John Cappo called the Cheung and Wong shows the highlights of his year, noting that the same artist had never played any building in China five nights in a row. Because the Chinese government was unaccustomed to such large scale gatherings run in a commercial manner, he said there were over 200 armed guards at the first Wong show, with less each night as Chinese officials saw that there was nothing to fear. “Now we have our own security in the building since they see that there’s no real security threat,” he said. 

The reins have continued to loosen, but one aspect that the government is not willing to budge on is G.A. seating. “We still have all assigned seats,” he said. “Though, at the Akon show, the first row was allowed to get up and dance. The public security bureau was very nervous and they told me that I was responsible for any consequences.”

Cappo joked that there were no incidents and he was happy neither he nor his staff were sent to jail. That’s just one example he gave of the boundaries he’s trying to push at Mercedes-Benz Arena as he encounters the kinds of issues that many take for granted in the U.S. and Europe. He’s already planning to push for more G.A. in future shows, perhaps as many as 100-200 patrons. They would, of course, have to be screened first, he said.

In the meantime, the government’s Public Security Bureau controls the manifest for the building and is in charge of determining how many overflow seats are available for security, as well as determining the distance patrons are allowed from the stage. Initially, the PSB insisted fans were not allowed closer than 10 meters (32 feet) to the stage, though that distance has now been negotiated down to around three meters (10 feet). 

While Cheung played to more than 65,000 over his stand, the Eagles, Akon and other Western acts played one-offs that drew just north of 11,000 with a number of expats filling the house for those shows. Though the market is fairly new, Ngata said it has not been difficult to lure Western acts to the building, a process he suspects will become easier as more large venues come on line in the upcoming years. “We look at Shanghai and [MasterCard Center in] Beijing as two AEG buildings that acts can play and you can only structure a tour if you have multiple stops, so we’re [pitching it] as two stops on the way to Europe or Australasia,” he said.

After exceeding the initial benchmark of 40-50 shows as well as topping 500,000 in paid attendance (in addition to another 500,000 visitors to the movie theater, hockey rink, retail shops and music club in the complex), Ngata said he hopes to draw in excess of 600,000 visitors in year two.

They may be drawn in part by the novelty of a full-service venue that offers a kind of staffing never seen before in China. Both men said that outside of hospitality service such as hotels, the idea of customer service was not previously part of the venue-going experience in China.

“Sometimes it’s been difficult culturally, because there hasn’t really been a lot of engagement between service staff and guests and we’ve worked on getting people to become comfortable with greeting and ‘farewelling’ out patrons,” Ngata said, adding that an emphasis on the cleanliness of the venue, easy entrance and exit and broad concession offerings were also new to China. 

Cappo laughed when recalling that during the first few shows a number of patrons not only tried to bring their own food in, but packed actual picnic baskets that they were asked to discard at the entrance. “We’re trying to do food that is commensurate to what they were looking for and that will take time,” he said. AEG is still working on the right mix of reasonably priced food offerings and education for patrons about what to expect when they enter a modern facility.

“Other venues [in Shanghai] were state-owned enterprises where they didn’t care if they pleased patrons and were even happier if there weren’t any events there at all, so they didn’t have to work,” said Cappo. But AEG has focused on the ABCs of hospitality in Shanghai, flying in AEG trainers from all over the world for seminars as well as scheduling cross-training exercises at the Staples Center in Los Angeles for Shanghai employees.

Ngata is aiming for 90 shows in 2012, along with 40-50 events in the adjacent smaller live music venue, and Cappo said that once construction is finished on the surrounding subway lines he expects the retail business to increase as AEG perfects the mix of stores.

It’s all part of AEG’s plan to create a string of venues across China that will give artists many more options in the future. Next to come on line will be a massive $300 million sports complex in the Northeastern city of Dalian, which will feature an 18,000-seat arena, a 60,000-seat stadium and 10,000-seat performance space, as well as two outdoor baseball fields. A construction arm of the government is developing and building the site, which AEG will manage and operate exclusively for a 15-year term.

With several more projects in the works, Cappo said AEG hopes to have a network of five venues in China in the next three years. “After we opened Shanghai in 2011, events in Beijing [at MasterCard Center] increased 60 percent and 30-40 percent of the shows played both buildings,” he said. “So we’re definitely developing a network and focusing on four key areas: the fan experience, our sponsors, standardization and the artist’s experience.”

Interviewed for this article: Guy Ngata, (86) 400 1816 688; John Cappo, (86) 21 6126 3066