Cirque du SoleilThe High-Wire Act of Building Sustainable Partnerships Case Analysis Yoshio Kawamoto McGill University MBA Alumnus
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 Cirques 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?
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 IRRassuming $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
Business Framework of Arena Tour Live Nation Commission Box Office CdS Ticket $40-$90 Box Office + 8000-12000 seats * 60% Merchandise 10 shows * 48 weeksCreative Process CdS IRR Arenas & Approx. $200M / yearassuming 10.0% Amphitheaters + Merchandise $20M150M in 2~3 Years Business Framework of Big-Top Tour ShowProduction Cost $30M 65% out of 2,500 seats = 1,625 seats per showScenic + Transportation $7M Ave $70 tickets per seatsBig 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 CityCreative Process CdS IRRassuming 10.2% Shows in 7 Cities can cover initial cost of $50M150M 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
Big Top Tour Production Cash Curve Initial EstimationBEP 65% of occupancy rateOccupancy 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
The Flawed Model“First Las Vegas” Lack of Creative ControlCaesars 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 andConcentrating CdS New York alsoContent Creation dropped Other Local CdS Partners 100-room Hotel Spa, Restaurants
The Successful Model Applicable Domains Core Value of CdS Destination Tour Place For Growth “Creativity” “Las Vegas Strip” NY-NY HotelArena Tour Zumanity MGM Grand Ka The Mirage LoveNext Strip Mistere Treasure Island(WaMu MSG)Expanding Bellagio “O”BigTop Tour
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 CdS’s Unique Actorand thrilling show (CdS Control of Creativity) “CdS Effect” UNCHANGED ENTITIES
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 $100Ticket Price Level 0 $90 Level 2 $60 VIP Ticket $200
Cirque du Soleil Tour Page 6 and Exhibit 6 (Big-Top) Tokyo Dubai MacauTouring operations travel across four continents / more than 100 cities2-3 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
Las Vegas StripTI is sold to Phil Ruffin in 2008 Mystere (1993) Love(2006) “O”(1998) Ka(2004) Zumanity(2003) MGM Mirage
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.