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MMICC 2010 - 1st Place - THM
 

MMICC 2010 - 1st Place - THM

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  • Full Name Full Name Comment goes here.
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  • Hi.
    The financials were mostly taken from a case, published by Harvard:

    http://hbr.org/product/cirque-du-soleil-the-high-wire-act-of-building-sus/an/709411-PDF-ENG?N=4294958507

    All of the information was based on the publication and none of the teams competing at MMICC were in contact with the company.
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  • Where did the financials come from for this presentation? Where you in direct contact with Cirque?
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  • KSF: partner, understanding of new market talent, creativity (content and talent which has alwaysbe the cornerstone of our success
  • Select and prioritize the new market given consideration the brand dilution effect and overextension successfully identify sustainable partnership model outside of the casino
  • Maintaining environment for creKSF: partner, understanding of new market talent, creativity (content and talent which has alwaysbe the cornerstone of our success

MMICC 2010 - 1st Place - THM MMICC 2010 - 1st Place - THM Presentation Transcript

  • Team 1 Thammasat Consulting Group Monsinee Vorawan Kattareeya Jiraya
  • Agenda Situation Analysis Issues and Objectives Recommendations Financial Justification Key Success Factors Conclusion
  • (1980s) (2006) (1992) MERCHAN BIG TOP ARENA RESIDENT DISE TOURING TOURING SHOWS Are show business extensions Diluting its Brand? IMPLICATION: • Never had a bad show since we extended out of big-top to different BRAND VALUE Extension of original show business does not dilute platforms Touring Shows and Resident Shows = Most important brand value so long as full control of creative process & • Many deal offers since Las Vegas businesses to Cirque du Soleil. • Partners allow us to maintain creative & commercial independence quality is maintained. • Broader reach and access to new audiences 50 % of REVENUE 10 % of 40% of Revenues Revenues BREAKDOWN Largest impact Revenues on bottom line Situation Issues & Recommen- Financial KSFs & Analysis Objectives dations Justification Conclusion
  • Main Businesses Assessment TOURING RESIDENT Strategic Current N. America, Europe, Asia, Concentrated in Presence Australia, S. America Las Vegas Alignment with IMPLICATION: Resident Show = Preferred business for expansion Mgmt Ongoing tour plans already in place Establish permanent foothold in NY, Berlin, London Sydney Objectives beyond management’s current growth strategies. Financial $20 Million in equipment and Current partner bears this Initial Capital stage charge Investment $100 $150 Ticket Price $ 30 Million $ 15 Million (Joint burden) Operating Cost Situation Issues & Recommen- Financial KSFs & Analysis Objectives dations Justification Conclusion
  • Resident Business: Strategic Growth Options Adding shows in Enter New Diversification out existing markets geographic of show business markets Low Risk of HIGH LOW LOW Cannibalization Early Market EARLY EARLY MATURE Development Stage Greater Room for growth Greater room for growth Ability to Capitalize on Core HIGH HIGH LOW Competencies High Market HIGH LOW LOW Understanding Ability for Strategy Minimal: Ongoing Lacks clear No longer Refinement Implementation with intended market expansion strong partnership strategy for strategy contract management Situation Issues & Recommen- Financial KSFs & Analysis Objectives dations Justification Conclusion
  • Resident Business: Strategic Growth Options Adding shows in Enter New Diversification existing markets geographic out of show markets business Risk of HIGH LOW LOW Cannibalization Stage of Market MATURE Issues: Key EARLY EARLY Development 1. Identifying and IMPLICATION: prioritizing geographic markets Ability to Capitalize on Core enter. to Entering New Geographic Markets is the preferred expansionLOW HIGH HIGH mode to Competencies develop our should we establish that are 2. What partnerships Resident Show Business. Market profitable and sustainable? as HIGH LOW LOW Understanding Ability for Strategy Minimal: Ongoing No longer Lacks clear Refinement Implementation with intended market expansion strong partnership strategy for strategy contract management Situation Issues & Recommen- Financial KSFs & Analysis Objectives dations Justification Conclusion
  • ISSUES AT HAND Where We Are Where We Want to Be Looking to expand to the Resident shows have resident business, yet lacks a established foothold in clear market expansion Market Identification London, New York and strategy Sydney with identification of attractive markets for long term expansion. Strong partnership with MGM Mirage, Las Vegas, but is in Secure new partners to need of an equally Partnership Model support resident shows that is favourable partnership model as profitable and sustainable for future growth. as the MGM Mirage deal. To date, lacks marketing vehicles to fully reflect Cirque Successfully communicate du Soleil outstanding quality Market and develop new show outside home market. Penetration contents that are creatively appealing to the new markets. Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Strategy Overview Issues 3-Ps Strategies Geographic Market I. Identification Pinpointing II. Partnership Model Path Finding Market Penetration III. Strategy Penetrating Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Strategy Overview I. Pinpointing Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • I. Pinpointing` OBJECTIVE: To evaluate and identify the truly right markets for CdS to grow and expand into over the next five years Criteria for Market Selection & Prioritization No. of tourists Growth of Average Importance of annually tourist traffic Spending entertainment 1 London 15.3M -1.90% $804 Moderate 2 New York High 7.6M 23% $638 High 3 Sydney 1.9M 0.90% $610 High 4 Berlin 2.6M 10.50% $296 Moderate 5 Dubai 6.5M 6.80% $500 High 6 Macau 3.9M 28.7% $513 High 7 High Las Vegas 1.7M 4.40% $750 High 8 Los Angeles 2.7M 5.50% $620 High 9 Tokyo 2.4M 13.80% $644 8.8M -10.20% $551 Moderate 10 Paris Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • I. Pinpointing` OBJECTIVE: To evaluate and identify the truly right markets for CdS to grow and expand into for the next five years Risk Consideration Risk of quality & brand dilution 1 London 2 New York Add a new show in any new market 3 Sydney Recruitment/Training 4 Berlin Over the next 5 years Development of content Management still need to provide support for the current businesses that have exponentially grown in size and complexity Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • I. Pinpointing` OBJECTIVE: To evaluate and identify the truly right markets for CdS to grow and expand into for the next five years Proposed Expansion Methodology 1 “Slower” Pace Will only be entering top 3 new markets over 5 years not 4 markets of Expansion as intended by management 2 “Subsequent” Entering each new market and give enough time before moving on Expansion to the next market rather than “simultaneous” expansion 3 Launch “Touring” To test market receptiveness and allow the company to develop show first understanding of the content that fits each market. Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Strategy Overview II. Path-Finding Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • II. Path Finding 1 London 2 New York Non-Gambling Destination 3 Sydney Main partnership model with MGM Mirage in Vegas that has served Cirque well could not be implemented OBJECTIVE: To develop the new type of partnership model that would be as successful, profitable, and sustainable as MGM Mirage in new markets Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • II. Path Finding OBJECTIVE: To develop the new type of partnership model that would be as successful, profitable, and sustainable as MGM Mirage in new markets Exploring the successful deal of MGM Mirage & CdS Key 2 features that have made this deal profitable and sustainable: 1 The business of Mirage •Share an exclusive clientele group •Cirque magnet that draw partnership formed, we need To and Cirque complementsustainability:for the new type ofthe huge traffic & businesses to ensure the success and •Mirage : incur full capital investment of theatre for deal with come up with the business model that would allow us to most closely replicate the Cirque each other MGM that contain these two features 2 •Allow for the full control over the creative content MGM’s trust in our •which is the crucial engine that drives our show successes ability to create show Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • II. Path Finding OBJECTIVE: To develop the new type of partnership model that would be as successful, profitable, and sustainable as MGM Mirage in new markets Proposed New Partnership Entertainment Complex One-stop multi-entertainment entity that include businesses such as a large size meeting convention, hotels, golf courses, spas, bars and night clubs Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • II. Path Finding OBJECTIVE: To develop the new type of partnership model that would be as successful, profitable, and sustainable as MGM Mirage in new markets Proposed New Partnership Partnership Profile High-end position Full control over creativity Strong Financial capability Long-term growth potential Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • II. Path Finding OBJECTIVE: To develop the new type of partnership model that would be as successful, profitable, and sustainable as MGM Mirage in new markets Potential Partners Sydney The Burswood Entertainment Complex : largest in Australia, seven restaurants, eight bars, a nightclub, two international hotels (a luxury 5-star InterContinental and a 4-star Holiday Inn), a Convention Centre, Theatre and the Burswood Dome. New York Lincoln Center for the Performing Arts : s a 16.3-acre complex of buildings in the Lincoln Square neighbourhood of New York City's Upper West Side. London The Empire: the largest state-of-the-art electronic gaming machines, two restaurants, a stylish bar, ice cream parlour, nightclub and VIP room. Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Strategy Overview III. Penetrating Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • III. Penetrating OBJECTIVE: To develop clear and effective market penetration strategy to successfully gain strong foothold in new markets •need to develop deep understanding of each market + •contents will be well-receptive by the market and target group 1 Content “Michael Jackson Show” & 2 Communication Channels “Cirque du Soleil: Movie Trailer World’s artistic legend Banners now showing” Shows during awards ceremony Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Timeline I. Pin-Pointing 2011f 2012f 2013f 2014f 2015f Penetration London NYC Sydney II. Path Finding Partner Selection III. Penetrating Content Development Marketing Activities Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Revenue Forecast Revenue Forecast 1600 1400 CAGR = 14% 1200 1000 800 Revenue Forecast 600 400 200 0 2010 2011f 2012f 2013f 2014f 2015f $ mn 2010 2011f 2012f 2013f 2014f 2015f Revenue 700 766.53 837.81 980.37 1,132.43 1,360.53 Incremental 66.53 71.28 142.56 152.06 228.10 Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Cost Estimation Capital Expenditure (Incremental, $mn) Internally Production Cost 90 Generated Fund Total CAPEX 90 Expenses Rent 79 Long-term Theatre Operations 66 Debt Total Expenses 145 Return NPV $52 mn PBP 2.38 years Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial KSFs & KSFs & Conclusion Analysis Objectives dations Justification Justification Conclusion
  • Key Success Factors Creativity and Talent Partner- ship Understan- ding of new markets Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial Conclusion KSFs & Conclusion Analysis Objectives dations Justification Justification
  • Conclusion Issues Strategies I. Pinpointing • Select and prioritize the new market Market Identification • Enter into London, Sydney, and New York II. Path- finding Partnership Model • Sustainable model: entertainment complex III. Penetrating Market Penetration • Content development for new markets • Marketing communications Situation Situation Analysis Issues & Issues and Objectives Recommen- Recommendations Financial Financial Conclusion KSFs & Conclusion Analysis Objectives dations Justification Justification
  • Slide Navigator Timeline Situation 1 Revenue Forecast Situation Resident Cost Estimation Situation Growth Finance Key issues Assumptions Transition IS Strategy Overview New Cost Structure Strategy Overview Cash Flow Pinpointing` Pinpointing` Pinpointing` Strategy Overview II. Path Finding Strategy Overview III. Penetrating
  • Back-up Slides Situation Geographic market Why entertainment complex? Strategy of Exclusivity Entertainment Complex Creative Process Cannibalization of adding more shows in Recom1. Risk Analysis Las Vegas Recom 2. Risk Analysis Why not touch upon the content? Recom 3. Risk Analysis What is an entertainment complex? Why is the Entertainment Why not other partners? Complex different? Other remaining casino partners Deviating away from Big Top Touring Target Customers Why drop the Arena show? Promotion Showgoers – Target As of April 2008 Key to Success of Cirque and MGM
  • Management Concern: BRAND DILUTION? 1980s 1992 2006 BIG TOP RESIDENT ARENA TOURING VENUES TOURING EXTENSION OF SHOW BUSINESS ON FN SIDE: Revenue Breakdown • Top line contribution: Important Business of Cirque du Soleil 10% • Even larger share on bottom line 40% Touring EXTENSION OF SHOW BUSINESS ON BRAND: 50% Resident • Many deal offers and creative & Merchandise commercial independence • Broader reach and access to new audiences IMPLICATION: No Brand dilution from diversifying show base out of big-top touring performances.
  • Finance • High cash inflow • Operating Profit Margin = 30% ( Resident Shows) Revnue Breakdown Residents Tourings Merchandise 10% 50% 40%
  • Assumptions Assumptions IS % of sales Disney(non-casino) Creative Royalty 13% Seats 1650 Rent 12% Theater Operations 10% Average Price $ 120 Show Operations 35% Construction 52 mn Production 18 mn Average Performance per Year 48 weeks Average Performance per Week 10 times Occupancy Rate 2011 2012 2013 2014 2015 London 70% 75% 80% 85% 90% New York City 70% 75% 80% Sydney 70% • Average occupancy rate is 90 – 95%
  • IS 2010 2011f 2012f 2013f 2014f 2015f Revenue 700 766.53 837.81 980.37 1,132.43 1,360.53 CAGR 14% Incremental 66.53 71.28 142.56 152.06 228.10 London 66.53 71.28 76.03 80.78 85.54 New York City 66.53 71.28 76.03 Sydney 66.53 Expense 55.57 49.90 108.79 106.44 168.67 Creative Royalty 17.65 9.27 27.53 19.77 38.65 Rent 7.98 8.55 17.11 18.25 27.37 Theater Operations 6.65 7.13 14.26 15.21 22.81 Show Operations 23.28 24.95 49.90 53.22 79.83 Operating Profit 10.96 21.38 33.77 45.62 59.43
  • New Cost Structure Old New MGM - Construction Partner - Construction - 50% production CdS - 50% production CdS - 100% production - 13% creative royalty (CdS) - 17.76% creative royalty (CdS) - 12% rent (MGM) - 12% rent (Partner) -10% theatre operations - 10% theatre operations - 35% show operations - 35% show operations OPM = 30%, 50 and 50 OPM = 27%, 50 and 50
  • 2011f 2012f 2013f 2014f 2015f Cash Flow Cash Inflow Tickets London 66.53 71.28 76.03 80.78 85.54 WACC New York City 66.53 71.28 76.03 Sydney 66.53 Wd 36% Total Inflow 66.53 71.28 142.56 152.06 228.10 Kd*(1-t) 7% We 64% Cash Outflow ke 12% Production Cost 18 18 18 18 18 WACC 10% Creative Royalty 17.65 9.27 27.53 19.77 38.65 Rent 7.98 8.55 17.11 18.25 27.37 Theater Operations 6.65 7.13 14.26 15.21 22.81 Show Operations 23.28 24.95 49.90 53.22 79.83 Total Outflow 73.57 67.90 126.79 124.44 186.67 Net CF - 7.04 3.38 15.77 27.62 41.43 NPV $52.85 PBP 2.38 yrs WACC Assumption • From stern.nyu.edu research • Average from 3,061 firms in entertainment industry
  • Why entertainment complex? • Also provide revenues for partner’s other businesses which are complementing (draws in traffic), not just sharing revenues for our show • Average spending per customer increases • Sustainability lies in: business complement  sharing of clientele group
  • Entertainment Complex Sydney The Burswood Entertainment Complex : largest in Australia, includes a 24- hour casino, seven restaurants, eight bars, a nightclub, two international hotels (a luxury 5-star InterContinental and a 4-star Holiday Inn), a Convention Centre, Theatre and the Burswood Dome. New York Lincoln Center for the Performing Arts : s a 16.3-acre complex of buildings in the Lincoln Square neighbourhood of New York City's Upper West Side. London Casino at the Empire: the largest casino in London and offers 30 gaming tables, a private poker room and state-of-the-art electronic gaming machines, as well as two restaurants, a stylish bar, ice cream parlour, nightclub and VIP room.
  • Cannibalization of adding more shows in Las Vegas • Current 7 shows in Las Vegas is not cannibalizing •Adding more shows will cannibalize each other at certain point • Overexploitation of creative ideas • limited location (stages in Vegas) • Hence, must look into new markets
  • Why not touch upon the content? • Already the core competency: creativity • outstanding stage directors thru the recruitment process • devoted to research and development/ innovation
  • What is an entertainment complex? An entertainment complex is an one-stop location, multi entertainment businesses entity that includes a hotel, golf course, day spa, several restaurants, bars and nightclubs.
  • Why not other partners? • Real estate partner will not realize the benefits of increased revenues for their own businesses • Only get revenue from share of show ticket revenues  less value proposition for them comparing to the casino, other projects may be as or more attractive to them  hence, less sustainable
  • Other remaining casino partners • Already partnered with major casinos • There are other casino partners however with a much lower traffic • In the long term, growth through casino that pose lucrative opportunity + complement our image is limited. Our concern lies in our long term sustainable growth
  • Deviating away from Big Top Touring Concerns: • not the same experience • we raised our brand and gained recognition, attract many deals since Las Vegas Reasons: • Core brand value: quality of the show • Lower Initial investment
  • Target Customers • High income, mainly adult not children • Family / Adult theme • Show content is different according to the locations
  • Why drop the Arena show?
  • Promotion Promotion vehicle • Cirque du Soleil name rather than the artists • don’t have to pay huge salaries for famed performers • can capitalize on its name and leverage to new shows across various markets
  • Showgoers - Target • Sophisticated • high incomes • draw and analyse target profile • only 20% of showgoers actually stay at casino hotel that hosts the show but • showgoers drop an average of $30 apiece on dinner or drinks at the hotel  “Cirque du Soleil Effect” • Increase on ancillary activities of casino • Cirque has made a clear difference : the NY-NY resort experienced 23% increase in net revenues due to Zumanity show • MGM cited increased with visitor traffic generated by Ka at MGM grand, Las Vegas for boosting slot revenue at that resort by 13% • Expected traffic from “Love”, 12.5 million for 2006, 25 million EBITDA
  • As of April 2008 6 big top touring shows: 2 in N.A. 2 in Europe 2 in Japan 1 in S.A. 7 resident shows 5 in Vegas 1 in Orlando, Florida 1 seasonal show in NY 4 years deal with Madison Square Garden Entertainment (to produce WinTuk) Seasonal: every autumn for period of 12 weeks @ Wamu Theater, NY, Madison Square 2 Arena touring shows 1 in Europe 1 in N.A.
  • Key to Success of Cirque and MGM •Willingness of Wynn to hand over full creative control • drawing power of Cirque and effect to increase revenue in other part of MGM’s business e.g. Ancillary revenue • MGM Mirage  large presence/control in Vegas market and provide Cirque with extensive access to showgoers • Cirque has developed deep understanding of Las Vegas market •MGM sees Cirque as more than just a content provider but truly a partner on every front •“Open Book” policy, mutual trust and respect • profitable model to both: high/premium ticket pricing, huge traffic, lower investment to cirque, increase MGM’s ancillary revenue (slots and restuarant)
  • Geographic market Las Vegas Montreal New York City Japan Macao Market Dubai World
  • Strategy of Exclusivity • Resists temptation to duplicate productions (no different troupes presenting same show • wanna see “o” go to Las Vegas  add value to partner
  • Creative Process • Creativity = cornerstone of its success • Has always put creativity first  reinvested >40% in creative process • is better positioned than ever to keep its competitive advantage in show business • chosen not to outsource any activities  unwilling to compromise on quality and artistic integrity PROPOSED STRATEGY 1. Full control over content creation 2. Creative talent recruitment 3. Maintaining environment that is conductive for creativity generation
  • Recom1. Risk Analysis • The chosen markets do not response well to Cirque du Soleil • External factors : Economical factor, recession •Brand dilution due to overextending the show
  • Recom 2. Risk Analysis • Partners do not conform with the contract • Inability to find the partners that fit with the selection criteria
  • Recom 3. Risk Analysis • Ineffective marketing channels • The content doesn’t suit well with the market • Market perception of Cirque du Soleil brand value is not as strong as in home market
  • Why is the Entertainment Complex different? • Since this is not a gambling operator like MGM • Some adjustments will have to be made in terms of revenue-cost structure • Due to different value proposition under this model •For MGM, it benefits mainly from not just the share of performance revenue but also the huge increase in ancillary revenue of its other businesses •However, for entertainment complex, our partner will be benefiting mainly from just the share of show performance revenue and less on increase in revenue of other businesses - Example: Less Cirque effect on golf course and hotel