1. Cirque du SoleilThe High-Wire Act of BuildingSustainable PartnershipsCase AnalysisYoshio 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 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? 3. Business Framework of Resident Show SupplyDemand 10yr IRR Assumption According to Table ACdSMGM Mirage Show IRR Average Ticket $120RoyaltyRent 1900 seats * 90% 10.6%Creative Process10 shows * 48 weeksCdS IRRMGM IRRassuming $100M / year11.0% 10.1%150M in 2~3+ YearsProfit50%50% Creativeness as DifferentiatorEntertainment as Extra Revenue Generator Sustainable Reputation and FameMagnet 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 TourLive Nation Commission Box OfficeCdS Ticket $40-$90 Box Office + 8000-12000 seats * 60% Merchandise10 shows * 48 weeksCreative Process CdS IRRArenas & Approx. $200M / yearassuming 10.0%Amphitheaters+ Merchandise $20M150M in 2~3 Years Business Framework of Big-Top Tour ShowProduction Cost $30M65% out of 2,500 seats = 1,625 seats per showScenic + Transportation $7M Ave $70 tickets per seatsBig Top $13CdS 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 CitiesBoth Tour Show: Seat Occupation Rate will be lower and drops over the year 5. Financial Simulation by Business FrameworkYear0Year1Year2Year3Year4Year5Year6Year7Year8Year9Year10IRRC dS Resident -165 28 28 28 28 28 28 28 28 2828 11.0%C dS Arena-165 44 38 32 28 24 20 17 14 1210 10.0%C dS B i gTop -165 30 27 25 30 27 25 27 25 2725 10.2% 6. Big Top Tour Production Cash CurveInitial 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 AmericaEuropeAsia0 1 23 45678 910 11 1213 yearCreativeAssumptionProcess # of Staff 200 per TourDirect C ost0. 1 C $M per year# of Seats2500 -150 O ccupancy Rate65%# of Show 10 per W eek Production Run7 W eeks per C ity -200 Ave Ti cket Price70 C$ PremierC i es vi ttisi 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 Exhibit4Exhibit3Exhibit8 8. The Flawed ModelFirst Las Vegas Lack of Creative ControlCaesars PalaceDepreciates Value of Cirque Diversity of show base London Project Battersea Power StationCdSParkview International 2000 seats Closing real-estate offices(Amsterdam, Singapore)Closing Shows(Macau, Tokyo)Lesson learned Hong Kong andConcentrating CdSNew York alsoContent Creation droppedOther LocalCdS Partners100-room HotelSpa, Restaurants 9. The Successful Model Applicable Domains Core Value of CdSDestination Tour Place For Growth Creativity Las Vegas StripNY-NY HotelArena TourZumanityMGM GrandKaThe MirageLoveNext Strip MistereTreasure Island(WaMu MSG)Expanding BellagioOBigTop Tour 10. Modified CATWOE AnalysisCustomerEnvironment 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 TOCdSs UniqueActorand thrilling show(CdS Control of Creativity)CdS EffectUNCHANGED 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 07Kooza 0.5MProduction Cost Touring ShowsDelirium 1.2M (Arena)Corteo 1.8M3 ~ 15 M Varekai 4.3M Dralion 6.6MQuidam 8.8M Alegria 10MAlegria700M Saltimbanco 9.9M (Arena see Exhibit 5) Mystere(Treasure Island) 9.2MO(Bellagio) 7.2MProduction CostLa Nouba(Downtown Disney) 5.4MResident Shows Alegria Zumanity(NY-NY) 1.9M20 ~ 165 MBiloxi MS Ka(MGM Grand) 1.8M Love(The Mirage) 1.8M Wintuk(WaMu)C $M92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07Revenue35 50 80 100 140 150 180 300 380 420 450 475 500 590 630 700Ticket Sold0.512 2 2. 2. 2.5 5 5 4 4 5 6 7 7 7 8 10C om ul veati 346 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) 978 9 7 9 8 8 816 88 76Average7 weeks per city8 10 shows a week Level 1 $70 Level 3 $40 Top Ticket $100Ticket Price Level 0 $90 Level 2 $60 VIP Ticket $200 13. Cirque du Soleil Tour Page 6 and Exhibit 6 (Big-Top)TokyoDubai 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 14. Las Vegas StripTI is sold to Phil Ruffin in 2008Mystere (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.