CdS Case

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
CdS’s 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.