Cirque du soleil
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Cirque du Soleil is evaluating potential partnerships and growth opportunities. Key considerations include maintaining creative control and quality, achieving target returns of 10-11% IRR, and finding partners willing to share risks and costs. For resident shows, focusing on more permanent Las Vegas Strip locations could leverage its success there. For touring shows, ensuring ticket prices, occupancy, costs and profit shares support the IRR target. Partners should allow Cirque control over creativity. Festivals may also promote shows. Overall the strategy is to carefully select partners that preserve Cirque's values and financial sustainability.
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Cirque du soleil
- 1. Cirque du Soleil The High-Wire Act of Building Sustainable Partnerships Case Analysis Yoshio Kawamoto McGill University MBA Alumnus
- 2. Issues to answer New development of the show: (Page1) a) Is there a creative challenge? b) Can the partnership be sustainable in the long run? c) Is there a good return to be made? d) Will the partner adhere to Cirque's social responsibility parameters? WW geographical diversification (page 10) Can Cirque find a model as profitable as it had with MGM Mirage? ( See Table A) Will Cirque be willing to capture less value to enter? Should Cirque seek out new types of partners? Cirque Strategy How many more Cirque shows could be absorbed in Vegas? If Cirque finally feel cannibalization? Should Cirque dilute its brand by extending arena shows rather than big-top shows? How can Cirque choose right partners around the world? How can Cirque maintain the creative quality?
- 3. Business Framework of Resident Show Supply Demand 10yr IRR Assumption According to Table A CdS MGM Mirage Show IRR Average Ticket $120 Royalty Rent 1900 seats * 90% 10.6% Creative Process 10 shows * 48 weeks CdS IRR MGM IRR assuming $100M / year 11.0% 10.1% 150M in 2~3+ Years Profit 50% 50% Creativeness as Differentiator Entertainment as Extra Revenue Generator Sustainable Reputation and Fame Magnet Effect is Higher than Other Shows/Events (Cirque du Soleil Effect) Creativeness maintain the power balance among threat forces namely Bargaining Power of Buyer(Partner), New Entry, Rivalry and Substitute CdS must stay as Creative Leading Edge
- 4. Business Framework of Arena Tour Live Nation Commission Box Office CdS Ticket $40-$90 Box Office + 8000-12000 seats * 60% Merchandise 10 shows * 48 weeks Creative Process CdS IRR Arenas & Approx. $200M / year assuming 10.0% Amphitheaters + Merchandise $20M 150M in 2~3 Years Business Framework of Big-Top Tour Show Production Cost $30M 65% out of 2,500 seats = 1,625 seats per show Scenic + Transportation $7M Ave $70 tickets per seats Big Top $13 CdS Approx. $115K per show Total $50M Box Office + 10 shows per week and 7 weeks per city Merchandise BEP Approx. $8M per City Creative Process CdS IRR assuming 10.2% Shows in 7 Cities can cover initial cost of $50M 150M in 2~3 Years But it takes more than 1 year to visit 7 Cities Both Tour Show: Seat Occupation Rate will be lower and drops over the year
- 5. Financial Simulation by Business Framework Year0 Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 IRR C dS Resident -165 28 28 28 28 28 28 28 28 28 28 11. 0% C dS Arena -165 44 38 32 28 24 20 17 14 12 10 10. 0% C dS B i gTop -165 30 27 25 30 27 25 27 25 27 25 10. 2%
- 6. Big Top Tour Production Cash Curve Initial Estimation BEP 65% of occupancy rate Occupancy ratio decreases over the year by region (Fixed Cost) 50-60 artists 70-80 support staff 150 technicians 40-50 trucks of equipment $30~50M Direct Cost per Year? North America Europe Asia 0 1 2 3 4 5 6 7 8 9 10 11 12 13 year Creative Assumption Process # of Staff 200 per Tour Direct C ost 0. 1 C $M per year # of Seats 2500 -150 O ccupancy Rate 65% # of Show 10 per W eek Production Run 7 W eeks per C i ty -200 Ave Ti cket Pri ce 70 C$ Premier C i es vi t ti si 5 per Year Montreal
- 7. Cirque du Soleil -Trend of Cost- 70 50 40 50 56 60 72 75 95 84 75 68 71 84 79 70 Exhibit2 Exhibit4 Exhibit3 Exhibit8
- 8. The Flawed Model First Las Vegas Lack of Creative Control Caesars Palace Depreciates Value of Cirque Diversity of show base London Project Battersea Power Station CdS Parkview International 2000 seats Closing real-estate offices (Amsterdam, Singapore) Closing Shows (Macau, Tokyo) Lesson learned Hong Kong and Concentrating CdS New York also Content Creation dropped Other Local CdS Partners 100-room Hotel Spa, Restaurants
- 9. The Successful Model Applicable Domains Core Value of CdS Destination Tour Place For Growth Creativity Las Vegas Strip NY-NY Hotel Arena Tour Zumanity MGM Grand Ka The Mirage Love Next Strip Mistere Treasure Island (WaMu MSG) Expanding Bellagio O BigTop Tour
- 10. Modified CATWOE Analysis Customer Environment Magnet Effect (Guests of Show) (New Domain) WOW! Experience Transformation World View (CdS Value Proposition) Owner of Entertainment FROM (Partner) Conventional ORIGINAL and LEADING EDGE Entertainment TO CdSs Unique Actor and thrilling show (CdS Control of Creativity) CdS Effect UNCHANGED ENTITIES
- 11. Cirque du Soleil Exhibit 1,2 (Ticket Sold to Date) 1992 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Kooza 0.5M Production Cost Touring Shows Delirium 1.2M (Arena) Corteo 1.8M 3 ~ 15 M Varekai 4.3M Dralion 6.6M Quidam 8.8M Alegria 10M Alegria 700M Saltimbanco 9.9M (Arena see Exhibit 5) Mystere(Treasure Island) 9.2M O(Bellagio) 7.2M Production Cost La Nouba(Downtown Disney) 5.4M Resident Shows Alegria Zumanity(NY-NY) 1.9M 20 ~ 165 M Biloxi MS Ka(MGM Grand) 1.8M Love(The Mirage) 1.8M Wintuk(WaMu) C $M 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Revenue 35 50 80 100 140 150 180 300 380 420 450 475 500 590 630 700 Ticket Sold 0. 5 1 2 2 2. 2. 2. 5 5 5 4 4 5 6 7 7 7 8 10 C om ul ve ati 3 4 6 8 10 13 15 19 23 28 34 41 48 54 61 71
- 12. Cirque du Soleil Exhibit 5 Saltimbanco 2008 Tour Plan (Arena Show) 9 7 8 9 7 9 8 8 8 16 8 8 7 6 Average 7 weeks per city 8 10 shows a week Level 1 $70 Level 3 $40 Top Ticket $100 Ticket Price Level 0 $90 Level 2 $60 VIP Ticket $200
- 13. Cirque du Soleil Tour Page 6 and Exhibit 6 (Big-Top) Tokyo Dubai Macau Touring operations travel across four continents / more than 100 cities 2-3 years for Creative Process Show Premier at Montreal 4-5 years in North America 3 years in Europe 2-3 years in Asia 1 year in Australia 1 year in South America
- 14. Las Vegas Strip TI is sold to Phil Ruffin in 2008 Mystere (1993) Love(2006) O(1998) Ka(2004) Zumanity(2003) MGM Mirage
- 15. Directions to consider Resident Show 1. Develop more permanent shows at MGM Owned Hotel in Las Vegas. 2. Expand Shows for Other Owners Resort Hotel in Strip and apply same rule as MGM. Making Las Vegas Strip as the home of CdS. Las Vegas may become the benchmark of profitable resort destination 3. Apply similar Resort strategy in North America, Europe and APAC only if the same contract was applied. (e.g. share of operating profit, independency of creative process.) Big-Top and Arena Tour 1. Make sure that the expectation of IRR > 10%. The parameters are Ticket price, Occupancy ratio, initial and running cost, and profit share. 2. Select the partners who allow CdS maintain the above IRR Performance Level and Creativity Control , especially Arena Tour 3. Find the selected partners are willing to share the risk like MGM. Criteria can be, someone who covers the initial cost and operating cost even profit is shared. Other Domain 1. Join / Create the art festivals to promote the show.