MMICC 2010 - 3rd Place - PEN

CIRQUE DU SOLEIL

THE WHARTON SCHOOL | TEAM 2

RAYMOND FLORES | CASEY KLYSZEIKO CAMERON ROUZER | MINDY ZHANG

EXTENDING THE EXPERIENCE: PROGRAMS, PARTNERS, & PLACES

Problem Definition

PROBLEM STATEMENTWhich opportunities should Cirque du Soleil pursue in order to grow sustainably and continuously push the creative frontier?

WHAT OPPORTUNITIES?

PROGRAMS PARTNERS PLACES

• How to balance touring and resident programs?

• New experiences and revenue streams?

• Who will provide the right synergies?

• What is the optimal deal structure?

• Which geographic markets?

Context Implementation & Results ConclusionPrograms Partners Places

Since its founding, Cirque du Soleil has successfully differentiated itself in the entertainment industry

Redefined Experience

Unique Positioning

Win-Win Partnerships

Customer Loyalty


Cirque du Soleil has redefined the traditional circus experience

TRADITIONAL CIRCUS CIRQUE DU SOLEIL

Circus performers and animals

Street performers, no animals

Low-brow amusement Provocative, sophisticated performances

Incorporates elements of “typical” circus experience

Emphasis on innovation and creativity

Targets kids and families Targets sophisticated adult population


Unique Positioning


Customer Loyalty


Cirque du Soleil has redefined the traditional circus experience

TRADITIONAL CIRCUS CIRQUE DU SOLEIL

Circus performers and animals

Street performers, no animals

Low-brow amusement Provocative, sophisticated performances

Incorporates elements of “typical” circus experience

Emphasis on innovation and creativity

Targets kids and families Targets sophisticated adult population


Unique Positioning


Cirque du Soleil Mission Statement“To invoke, provoke, and evoke the imagination, the senses, and the emotions of people around the world”

Customer Loyalty


It’s uniquely positioned away from competing forms of performing arts entertainment


Unique Positioning

Win-Win PartnershipsHigh priceLow price

Intense

Mild

PERFORMING ARTS MARKET

Customer Loyalty


It has been able to realize success through its “win-win” partnerships

Cirque du Soleil’s brand brings consumers to partner venue1. Contributed to doubled earnings growth

of three largest casino partners2. NY-NY experienced 23% increase in net

revenues given the addition of Zumanity3. MGM increased 13% increase in slot

revenue attributed to Kà


Unique Positioning


Customer Loyalty


The typical Cirque du Soleil customer is affluent and loyal to the brand


Unique Positioning


Customer Loyalty

• 70% repeat customer base• Targets sophisticated and educated adults• $75,000+ in average annual income


Due to its differentiated strategy, Cirque du Soleil has realized tremendous financial success


Unique Positioning

Win-Win Partnerships1992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20070

100

200

300

400

500

600

700

800

Revenue (CAD$ millions)

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

02468

1012

Annual Tickets Sold (millions)

Customer Loyalty

70 million tickets sold by 2007


However, the industry is becoming increasingly competitive

Fragmented Industry• 60 circuses in U.S.

alone

Past directors are creating their own

shows

Emergence of niche circuses

How will Cirque du Soleil maintain its distinctive advantage?


Resident model drives more profits, better efficiency, and lower

capital risk

And Cirque du Soleil’s business model is changing to a mixture of touring and resident shows

Touring Resident

Number of Cities 100 1

Price $40-$90 $100-$150

Seating Capacity 2,500 1,750

Occupancy to Break-Even 65% 60%

Average Occupancy Variable 95%

Performances/Year 350 480

Partners Limited Sponsors Casinos in Las Vegas; Disney

Cirque’s Capital Investment $50 Million $15 Million

Note: Figures are approximate and from case

Touring model allows for greater exposure, more touch points with

consumers, and better diversification


Cirque du Soleil is presented with many new opportunities

• On a weekly basis, Cirque du Soleil is offered opportunities with new show partners across the globe

• Corporations have a growing interest in associating with Cirque du Soleil

Cirque du Soleil is a growing global brand that people want to be a part of and associate with


There are many regions for continued global growth

• High brand awareness– Shows regularly sell-out

• Only 3 countries with resident programs– 7/10 U.S. shows in Las Vegas

Note: Planned 2010 Opening In Dubai

Touring Coverage

Resident Locations


Cirque du Soleil is at a crossroads with new opportunities and threats

• Scalable creativity• The Cirque du Soleil experience• Loyal customers• Profitability• Investment capability

• Many partnership opportunities• Untapped market potential• More global audience• Leverage brand in new platforms

• Increasingly complex business model

• Dependence on specific people• Lack of diversification

• Uncontrolled expansion leading to brand dilution

• Competitive entrants• Partners’ demands on creative

control

Strengths

Opportunities Threats

Weaknesses


Problem Statement

Which opportunities should Cirque du Soleil pursue in order to grow sustainably and continuously push the creative frontier?


Cirque du Soleil has leveraged its current model for engaging consumers extremely well

CURRENT MODELCustomer interacts with Cirque du Soleil mainly through its tour and

resident shows.


However, Cirque du Soleil can extend its distinctive experience through new platforms

NEW MODELCustomer interacts with Cirque du

Soleil through new programs, partners and places.

CURRENT MODELCustomer interacts with Cirque du Soleil mainly through its tour and

resident shows.

PROGRAMS

PARTNERS

PLACES


Cirque du Soleil should create an extended experience through new programs, partners and places in order to push the frontiers of creativity and drive profit


1.Continue touring and resident shows simultaneously

2.Launch new nightclub experience

3.Develop flagship theatre

1. Expand successful partnership models to hotels

2. Introduce corporate sponsors for touring shows

Global expansion:1. Dubai2. Sydney3. Berlin4. London

Drive profitabilityExtend Cirque du Soleil experience

Push frontiers of creative expression







4. Invest in social media







Existing and new programs will extend and improve the Cirque du Soleil experience

OBJECTIVETo create brand extensions that increase opportunities to engage with the Cirque du Soleil experience

Recommendations1. Continue pursuing both touring and resident shows

simultaneously2. Launch a nightclub and flagship theatre3. Leverage social media to further engage consumer


Existing tours and resident shows serve as complements and should be pursued together

TOURING SHOWS

RESIDENT SHOWS

• BROAD ACCESS• Lower-priced tickets• Serve non-resident show cities

• EXCLUSIVE EXPERIENCE• Higher-priced tickets• Serve selective cities with

large tourism industries

IMPLICATIONCirque du Soleil should pursue both programs simultaneously to extend customer

lifetime value and increase financial and brand impact

Touring shows encourage customers to seek out

resident shows in the future


A nightclub and flagship theatre will further extend the Cirque du Soleil experience

NIGHTCLUB AND

FLAGSHIP THEATRE

1. LAUNCH NIGHTCLUB WITH EXISTING

PARTNER

OBJECTIVESCreative Potential

Compatibility with Brand Experience Feasibility of Implementation

Financial Opportunity

Evaluate opportunities

2. BUILD FLAGSHIP THEATRE


The nightclub will extend the experience in a new realm with limited financial and operational risks

NIGHTCLUB • Unique brand extension• Can leverage existing partners’ expertiseWhy?

Implementation• Work with MGM Mirage – best relationship• Upfront cost: $1.6mil (50% of total capital)

Risk Mitigation• Reduce financial and operational risk through

partnership / short term contract

1. LAUNCH NIGHTCLUB WITH EXISTING PARTNER

Outcomes • Annual revenue: $2.8 million


The flagship theatre will be the premier creative vehicle for Cirque du Soleil

FLAGSHIP THEATRE

• Base for creative freedom• Significant financial potentialWhy?

Implementation • Upfront cost: $180million

Risk Mitigation• Limit financial risk through gradual development

timeline• Launch in new location to limit cannibalization

2. BUILD FLAGSHIP THEATRE

Outcomes • Annual revenue: $100 million


Finally, interactive and social media will engage the consumer and build loyalty

BUILDING BUZZ THROUGH SOCIAL

MEDIA

RECOMMENDATIONSIncrease usage of social & interactive media• Social networking sites (blogs, websites)

OBJECTIVEIncrease exposure to Cirque du Soleil to attract new customers and continue loyalty among existing customers• Of the 80% of online American adults who use social

media monthly, 48% use it to review product and service ratings*

EXPECTED OUTCOMES• Increase connection with potential customers• More ticket purchases from existing customers

* 2009 Forrester Research


New programs will enable the consumer to extend the Cirque du Soleil experience

TOURING SHOWS

BUILDING BUZZ THROUGH SOCIAL MEDIA

RESIDENT SHOWS

NIGHTCLUB AND

FLAGSHIP THEATER


Finding the right partners will be integral to enhancing and growing the Cirque du Soleil experience

Criteria for Successful

Partnerships

Resident Partnerships

Touring Partnerships

1. Respect Creative FreedomCirque du Soleil must have complete control over all artistic decisions

2. Brand CompatibilityThe mission, values, and market perception of a partner must align with that of Cirque du Soleil

3. Mutual Financial AdvantageCirque du Soleil presence provides additional revenue opportunities for partnerAmplifies Cirque’s financial returns and awareness


Cirque should build upon the success of past resident program partnerships


Partnerships



Respect Creative Freedom

Brand Compatibility

Mutual Financial

AdvantageCasinos

Hotels

Cities

Restaurants

Venues



Brand Compatibility

Mutual Financial

AdvantageCasinos

Hotels

Cities

Restaurants

Venues

Resident partnerships should be pursued with casinos and hotels


Partnerships



• Continue resident programs with casinos• Pilot new programs with compatible hotel resorts


The Atlantis Palm is the ideal candidate for a pilot hotel partnership


Partnerships



The Cirque Effect• Hotel-owned restaurants and shopping

will benefit from additional spending by Cirque customers

• 80% of customers are not staying at the hotel

• Average attendee spends approx. $30 on food and drinks

At a Glance• Rooms: 1,539• Restaurants: 17• Average Rate:

$490 - $5,450

Recommended Target: Atlantis Palm, Dubai

Deal Structure• Atlantis pays $100M

construction cost• $30M production cost

evenly split• Profits shared 50/50• Cirque maintains complete

creative control


There is an opportunity to benefit from partnerships with touring shows


Partnerships




Brand Compatibility

Mutual Financial Advantage

Corporate Sponsorships



Brand Compatibility

Mutual Financial Advantage

Corporate Sponsorships

Infiniti provides an example of a lucrative corporate sponsor


Partnerships



Natural alignment of market perception of performance and innovation

Infiniti financially supports Cirque du Soleil shows while Infiniti benefits from brand association

Cirque du Soleil brand moves from one night experience to everyday exposure

Case Example: Infiniti Automotive Partnership


New hotel partners and corporate sponsors will support, enhance and grow the Cirque experience

Resident Partnerships Touring Partnerships

ex. Atlantis Palm Dubai ex. Infiniti Sponsorship

• Drive additional revenue streams• Facilitate new growth and expansion• Extend the brand experience to new venues


Cirque du Soleil should expand in geographies that share characteristics with current successes

• Cirque du Soleil has worldwide presence• Resident shows extremely concentrated in the U.S., particularly Las Vegas

• Cirque du Soleil should look to expand in geographies that share similar location and population characteristics with current resident shows

Location Criteria

1. High and/or growing population income2. Tourism & travel-based destination3. Past experience from touring shows4. Diversify locations and offerings


Cirque du Soleil should expand in geographies that share characteristics with current successes

1. High and/or growing

population income

2. Tourism & travel-based destination

3. Past experience from touring

shows

Dubai

London

Sydney

Berlin

4. Diversify locations and

offerings

New York

$41,800

$35,400

$38,500

$34,200

$46,400

6,535,000 arrivals per year

15,340,000arrivals per year




Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No


Dubai, London, Sydney and Berlin present the best opportunities for future Cirque expansion

1. High and/or growing

population income

2. Tourism & travel-based destination

3. Past experience from touring

shows

Dubai

London

Sydney

Berlin

4. Diversify locations and

offerings

New York

$41,800

$35,400

$38,500

$34,200

$46,400






Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No


Expanding in Dubai, London, Sydney and Berlin will give Cirque du Soleil a truly global footprint

Touring Coverage

Resident Locations

New Resident Locations

A global footprint will extend the Cirque du Soleil experience to more consumers and diversify its programs and partnerships

New Flagship Locations


Given the increased complexity of pursuing additional expansion, a gradual implementation strategy is most appropriate

Current Programs

Touring Shows

Resident Shows

2010

New Programs

Nightclub(Las Vegas)

Flagship Theatre(London)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Launch and operateBuild

Explore potential expansion

Build OperateLaunch

New show in DubaiNew show in Sydney

New show in Berlin

Continue current shows and pursue corporate sponsorships

Continue current shows


This strategy will increase revenues by 25.6% and profits by 33% annually over the next 10 years

2010 2020

$137,300

$452,665

Total Profits

CAGR: 33%

2010 2020

$701,500

$1,797,176

Total Revenue

CAGR: 25.6%

(millions) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Total Revenue 702$ 738$ 778$ 818$ 858$ 1,030$ 1,215$ 1,552$ 1,629$ 1,712$ 1,797$ Total Profits 137$ 144$ 148$ 151$ 87$ 136$ 189$ 391$ 410$ 432$ 453$

Note: Graphs in 000s


New ventures will generate annual profits by 2017 and contribute nearly $800M over the next 10 years

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-$100,000

-$50,000

$-

$50,000

$100,000

$150,000

$200,000

$250,000

New Venture Profits

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-$200,000

-$100,000

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

Cumulative New Venture Profits

• New Ventures included are:1.Dubai Resident Show2.Sydney Resident Show3.Berlin Resident Show4.London Flagship Theatre5.Las Vegas Nightclub6.Touring Corporate Sponsorships

• Cirque will sustain losses from 2013-2015 during initial investment phase

QUESTIONS

Problem Definition

Strategy Statement

Changing Business Model

Corporate Social Responsibility

Extending the Experience

Touring v. Resident

Nightclub

Flagship Theatre


Touring Sponsorships

Touring Shows: Additional

Considerations

Resident Shows: Additional

Considerations

Evaluating Program

Opportunities

Social media campaigns

Infiniti Deal Structure

Risk Mitigation

New Venture Profits Sensitivity

Analysis

New Venture Shows: Financial

Projections

Nightclub Venture: Financial

Breakdown

Organizational Structure

Places Analysis

Coverage Map

Timeline

Profits & Revenues

New Venture Analysis

EXTENDING THE EXPERIENCE: PROGRAMS, PARTNERS, & PLACES

PROGRAM APPENDIX – Touring Shows: Additional Considerations (A)

TOURING SHOWS

Should Cirque du Soleil pursue arena touring shows in addition to big-top shows?

Yes, but limit arena touring shows to older, repeat shows rather than new pilots.

Should Cirque du Soleil continue to invest in touring shows despite lower profitability?• Yes, touring shows are core to CDS’s tradition and brand• Doing otherwise would compromise broad brand exposure• Fewer customers exposed -> fewer loyal customers and repeat

purchasers

PROS OF ARENA SHOWS CONS OF ARENA SHOWS

Broader reach Danger of brand dilution

Scale and profitability Less intimate experience for consumers

PROGRAM APPENDIX – Resident Shows: Additional Considerations (B)

RESIDENT SHOWS

Does an excess of resident shows cannibalize financial impact?

• Must maintain novelty of each show• Diversity of partners and show offerings reduce

cannibalization within geographic markets• Example: Las Vegas

PROGRAM APPENDIX – Evaluating Program Opportunities (C)

Creative Potential

Compatibility with brand experience

Feasibility - implementation

Financial Opportunity Total

Nightclub 5 5 5 2 17

Hotel 5 3 2 3 13

Spa 3 2 5 1 11

Restaurant 3 2 5 2 12

Multi-use theater 2 5 2 5 14

Mall 2 1 1 4 8

Amusement Park attraction 4 4 1 4 13

Virtual simulation 4 3 3 3 13

The nightclub and flagship theater are the most viable opportunities to extend the Cirque du Soleil experience

PROGRAM APPENDIX – Evaluating Program Opportunities (D)

Size (SF) /description

Zip Code Upfront Costs (feasibility)

Potential Avg. Annual Revenue (opportunity)

Club 15,000 90048 (LA) $3.1 million $1.6 million

Hotel 300,000 90048 (LA) $74.8 million $1.9 million

Spa 23,000 90048 (LA) $2.8 million $60,000

Restaurant 9,000 90048 (LA) $2.2 million $980,000

Theater 500,000 90048 (LA) $180 million $100 million

Mall 2,500,000 90048 (LA) $262 million $62 million

Amusement park attraction

Benchmarked to new Harry Potter attraction

N/A $200+ million $55.3 million

Virtual simulation Benchmarked to Star Tours simulation

N/A $50 million $5.5 million

Metrics used to determine the development feasibility and financial potential of program opportunities

PROGRAM APPENDIX – Social media campaigns (E)

Existing Interactive Media Platforms• Conversations

Twitter Performing arts blogs Nightlife blogs Video-sharing (YouTube)

• Communities Facebook Other social networking sites

• Referrals Local city websites Referral / review sites City tourism websites

How will Cirque du Soleil utilize social media to create buzz about its programs?

New Platform: Exclusive Cirque du Soleil “Supporters” Website• Exclusive to show-goers• Incentives for referring friends• Sneak peaks into new shows• Discussion forum for sharing photos• Exclusive interactive features online

(e.g. games, behind-the-scenes videos, interviews with performers, etc.)

PARTNERS APPENDIX – Infiniti Deal Structure


Partnerships



Other Partnerships

Case Example: Infiniti Automotive Partnership

• No infringement on Cirque creative freedom• Infiniti will receive recognition as sponsor on show

promotional materials and during marketing • No use of Cirque images or brand in Infiniti advertising

Potential Deal Structure

• Fixed Initial Sponsorship Fee: $1.5M• Occupancy Bonus: $10,000 for every 1% over 80% occupancy

Note: Estimates based on benchmark of comparable sponsorship deals

IMPLEMENTATION & OUTCOMES APPENDIX – Risk Mitigation

Risk Mitigation

1. Brand dilution • Maintain high-end exclusivity through resident shows and flagship theatre

2. Potential competition between new Cirque du Soleil programs and existing partner shows

• Cross-promotions and bundling with existing partners to drive customers to all shows

3. Upfront cost of expansion • Collaborate with existing partner for night club -> spread financial and operational risk

• Build flagship theatre gradually to avoid high upfront cost4. Unprofitable operations • Collaborate with existing partner for night club -> spread

financial and operational risk• Start with one night club as a “testing ground” for future

initiatives5. Oversaturation of circus market • Cirque du Soleil’s market is broader than just circus-goers –

the potential extends to all high-end entertainment-seekers6. Potential for delayed project start • Current operations provide continued revenue streams

7. Potential for partners to infringe upon Cirque du Soleil’s creative freedom

• Prioritize existing partners with proven reputation for respecting Cirque du Soleil’s creative freedom

• Encourage future creative developments through flagship theatre – Cirque du Soleil has 100% control

FINANCIAL APPENDIX - New Venture Profits Sensitivity Analysis (A)

• Breakeven in 2017

• $1 Billion in Profits by 2020 from New Ventures

• 25% profit margin increase over normal scenario


• Loses of $250M+ through 20162010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-$300,000 -$250,000 -$200,000 -$150,000 -$100,000

-$50,000 $-

$50,000 $100,000 $150,000

Bad Scenario: Cumulative New Venture Profits

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-$200,000.00

$-

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

Good Scenario: Cumulative New Venture Profits

FINANCIAL APPENDIX - New Venture Shows: Financial Projections (B)

(millions) Location Profit Margin 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Dubai -$ -$ -$ -$ 100.00$ 105.00$ 110.25$ 115.76$ 121.55$ 127.63$ 134.01$ Berlin -$ -$ -$ -$ -$ 100.00$ 105.00$ 110.25$ 115.76$ 121.55$ 127.63$ Sydney -$ -$ -$ -$ -$ -$ 100.00$ 105.00$ 110.25$ 115.76$ 121.55$

Flagship London -$ -$ -$ -$ -$ -$ 100.00$ 105.00$ 110.25$ 115.76$ 121.55$ Dubai -$ -$ 5,202.00$ 5,306.04$ 5,412.16$ -$ -$ -$ -$ -$ -$ Berlin -$ -$ -$ 5,306.04$ 5,412.16$ 5,520.40$ -$ -$ -$ -$ -$ Sydney -$ -$ -$ -$ 5,412.16$ 5,520.40$ 5,630.81$ -$ -$ -$ -$

Flagship London -$ -$ -$ -$ 64,945.93$ 66,244.85$ 67,569.75$ -$ -$ -$ -$ Dubai 28% -$ -$ 5,202.00-$ 5,306.04-$ 5,384.16-$ 29.40$ 30.87$ 32.41$ 34.03$ 35.74$ 37.52$ Berlin 28% -$ -$ -$ 5,306.04-$ 5,412.16-$ 5,492.40-$ 29.40$ 30.87$ 32.41$ 34.03$ 35.74$ Sydney 28% -$ -$ -$ -$ 5,412.16-$ 5,520.40-$ 5,602.81-$ 29.40$ 30.87$ 32.41$ 34.03$

Flagship London 55% -$ -$ -$ -$ 64,945.93-$ 66,244.85-$ 67,514.75-$ 57.75$ 60.64$ 63.67$ 66.85$ -$ -$ -$ -$ 128.00$ 262.40$ 558.52$ 586.45$ 615.77$ 646.56$ 678.88$ Total Profits

Resident

Reve

nues

Profi

ts Resident

CapE

x Resident

FINANCIAL APPENDIX - Nightclub Venture: Financial Breakdown (C)

Customers Per Night 200 Nights Open Per Year 312 People Served (Customers/Night * Nights/Yr) 62,400 Cover Charge/Customer 10$ Drink Spending/Customer 15$ Revenue 1,560,000$ Profit Margin 15%Profit Margin after Sharing with Partner 7.5%2012 Profit 117,000$


• Cirque Profit Margin: 7.5%

• Based on 50/50 profit sharing with partner

• 5% annual revenue growth

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-$2,000,000.00

-$1,500,000.00

-$1,000,000.00

-$500,000.00

$-

$500,000.00

$1,000,000.00

Cumulative Nightclub Profits

OTHER APPENDIX – Organizational Structure (A)

Current StructureCEO

Show 1 Show 2 Show 3 Show 4

Show directors have complete creative freedom to develop innovative programs

OTHER APPENDIX – Organizational Structure (B)

Proposed Structure

CEO

Touring Director

Show 1

Show 2

Resident Director

Show 1

Show 2

Development Director

New Initiatives

Maintain “show over business” philosophy

• Increased business staff to manage expansion and development of brand extensions

• Modify structure while maintaining “show over business” philosophy

Extending the Cirque du Soleil experience

Time

Engagement with brand

TRADITIONAL CUSTOMER LIFE CYCLE: Consumer reaches maximum engagement with brand through singular interaction point, with engagement decreasing over time.

Show

Extending the Cirque du Soleil experience

Time

Engagement with brand

NEW CUSTOMER LIFE CYCLE: Consumer experiences increasing and sustained engagement with the brand through multiple interaction points.

Show 1 Club Show 2

Parameters for corporate responsibility

Community Environment

• Promote the potential of youth• Cirque’s creative complex

• Cultural action in Montreal• Citizenship action in St. Michel• TOHU – City of Circus Arts

• Citizenship action on tour shows• Resident shows

• Social action• Cultural action

• Social Circus – artistic intervention• Cirque du Monde• Training in Social Circus

• Reduce impact on climate change by ensuring responsible energy consumption

• Waste management and hazardous waste disposal

• Air and water quality management

MMICC 2010 - 3rd Place - PEN

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