Cirque du Soleil

The 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 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?
 Business Framework of Resident Show
Supply Demand
10yr IRR Assumption
According to Table A

CdS MGM Mirage

Show IRR Average Ticket
Royalty Rent $120
10.6%
Creative 1900 seats * 90%
CdS IRR MGM IRR
Process 10 shows * 48
11.0% 10.1%
assuming weeks
150M in 2~3+ Profit $100M / year
50% 50%
Years
Creativeness as Differentiator
Entertainment as Extra Revenue Genera
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 *
Merchandise 60%
Creative CdS IRR Arenas & 10 shows * 48
Process 10.0% Amphitheaters weeks
assuming
Approx. $200M /
150M in 2~3
Years Business Framework of Big-Top Tour year
+ Merchandise
Show $20M
roduction Cost $30M 65% out of 2,500 seats = 1,625 seats
Scenic + Transportation $7M per show
Big Top $13 CdS Ave $70 tickets per seats
Total $50M Box Office + Approx. $115K per show
Merchandise 10 shows per week and 7 weeks per
Creative CdS IRR city
Process 10.2% BEP Approx.
assuming $8M per City
150M in 2~3
Years Shows
Both Tour Show: Seat Occupation Rate willinbe
7 Cities can cover
lower and drops initial cost
Financial Simulation by Business Framew
ork
 Big Top Tour Production Cash Curve
Initial Estimation
EP 65% of occupancy rate
ccupancy 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 Yea
North America Europe Asia
0
1 2 3 4 5 6 7 8 9 10
11 12 13 year
Creative
Assumption
Process

-150
Productio
-200 n
Premier
Montreal
 Cirque du Soleil -Trend of Cost-

Exhibit2
Exhibit4
Exhibit3
Exhibit8
 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 office
(Amsterdam, Singapore)
Closing Shows

s
(Macau, Tokyo)

he
Lesson learned
Hong Kong

t
of
Concentrating CdS and

e
Content Creation

on
New York

be
also dropped

t
no
ld
ou
Other Local

sh
CdS Partners

al
os
100-room Hotel

op
Spa, Restaurants
pr
e
 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
 Modified CATWOE Analysis

Customer
Environment Magnet Effect
(Guests of Show)
(New Domain)
WOW! Experience

Transformation
World View
(CdS Value Proposition) Owner of
FROM Entertainment
Conventional ORIGINAL and LEADING
EDGE (Partner)
Entertainment

TO
CdSs Unique Actor
and thrilling (CdS Control of
Creativity) CdS Effect
show

UNCHANGED ENTITIES
 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
Touring Shows
Cost
Production

(Aren
Delirium
a)
Corteo
1.2M
1.8M
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
Resident Shows
Cost
Production

La Nouba(Downtown Disney) 5.4M

Zumanity(NY-NY)
Alegria
1.9M
Ka(MGM
Biloxi 1.8M
MS Grand)
Love(The 1.8M
Mirage)
Wintuk(WaMu
)
 Cirque du Soleil Exhibit 5
Saltimbanco 2008 Tour Plan (Arena Show)

9
7
8
9 7 9
8

8
8 1
86
8
7

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
 Cirque du Soleil Tour Page 6 and Exhibit 6 (Big-
Top)

Toky
o

Dubai Maca
u

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
 Las Vegas Strip

TI 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.