MMICC 2010 - 1st Place - THM

Team 1Thammasat Consulting Group

MonsineeVorawan

KattareeyaJiraya

Agenda

Situation AnalysisIssues and Objectives

RecommendationsFinancial Justification

Key Success Factors

Conclusion

Situation Issues & Recommen- Financial KSFs &Analysis Objectives dations Justification Conclusion

(1980s) BIG TOP TOURING

(1992) RESIDEN

TSHOWS

(2006) ARENA

TOURING

MERCHANDISE

BRAND VALUE

REVENUE BREAKDOWN

Are show business extensions Diluting its Brand?• Never had a bad show since we extended out of big-top to different platforms • Many deal offers since Las Vegas• Partners allow us to maintain creative & commercial independence • Broader reach and access to new audiences

Extension of original show business does not dilute brand value so long as full control of creative process & quality is maintained.

40% of Revenues

50 % of Revenues

Largest impact on

bottom line

10 % of Revenue

s

IMPLICATION:Touring Shows and Resident Shows = Most important businesses to Cirque du Soleil.


Main Businesses Assessment

TOURING RESIDENT

Current Presence

Alignment with Mgmt Objectives

Strategic

N. America, Europe, Asia, Australia, S. America

Concentrated in Las Vegas

Ongoing tour plans already in place

Establish permanent foothold in NY, Berlin,

London Sydney

Initial Capital Investment

Ticket Price

Operating Cost

Financial $20 Million in equipment and stage

Current partner bears this charge

$100 $150

$ 30 Million $ 15 Million (Joint burden)

IMPLICATION:Resident Show = Preferred business for

expansion beyond management’s current growth strategies.


Resident Business: Strategic Growth OptionsAdding shows in existing markets

Enter New geographic

markets

Diversification out of show

business

Low Risk of Cannibalization

HIGH LOW LOW

Early Market Development Stage

MATURE EARLYGreater Room for growth

EARLYGreater room for growth

Ability to Capitalize on Core Competencies

HIGH HIGH LOW

High Market Understanding

HIGH LOW LOW

Ability for Strategy Refinement

Minimal: Ongoing Implementation

with strong partnership

contract

Lacks clear market

expansion strategy

No longer intended

strategy for management


Resident Business: Strategic Growth Options

Adding shows in existing markets

Enter New geographic

markets

Diversification out of

show business

Risk of Cannibalization

HIGH LOW LOW

Stage of Market Development

MATURE EARLY EARLY

Ability to Capitalize on Core Competencies

HIGH HIGH LOW

Market Understanding

HIGH LOW LOW

Ability for Strategy Refinement

Minimal: Ongoing Implementation

with strong partnership

contract

Lacks clear market

expansion strategy

No longer intended

strategy for management

IMPLICATION:Entering New Geographic Markets is the preferred expansion

mode to develop our Resident Show Business.

Key Issues:1. Identifying and prioritizing geographic

markets to enter.2. What partnerships should we establish that

are as profitable and sustainable?

Situation Analysis Issues and Objectives Recommendations Financial KSFs & Conclusion

Justification


Where We AreWhere We Want to

Be

Looking to expand to the resident business, yet lacks a clear market expansion strategy

Resident shows have established foothold in London, New York and Sydney with identification of attractive markets for long term expansion.Strong partnership with

MGM Mirage, Las Vegas, but is in need of an equally favourable partnership model for future growth.

Secure new partners to support resident shows that is as profitable and sustainable as the MGM Mirage deal.

Successfully communicate and develop new show contents that are creatively appealing to the new markets.

Market Identification

Partnership Model

Market Penetration

ISSUES AT HAND

To date, lacks marketing vehicles to fully reflect Cirque du Soleil outstanding quality outside home market.


Justification


Strategy Overview

Issues 3-Ps Strategies

Geographic Market Identification

Partnership Model

Market PenetrationStrategy

I.Pinpointing

II.Path Finding

III.Penetrating


Justification


Strategy Overview

I.Pinpointing


Justification


I. Pinpointing`

OBJECTIVE: To evaluate and identify the truly right markets for CdS to grow and expand into over the next five years

Criteria for Market Selection & Prioritization

London

New York

Sydney

Berlin

Dubai

Macau

Las Vegas

Los Angeles

Tokyo

Paris

No. of touristsannually

Growth of tourist traffic

Average Spending

Importance ofentertainment

Moderate

Moderate

Moderate

HighHighHigh

High

HighHighHigh

High

$8041

2

3

4

5

6

7

8

910

$620

$644$551

7.6M

1.9M

2.6M

6.5M

3.9M

1.7M

8.8M

2.7M2.4M

15.3M -1.90%

23%

0.90%

10.50%

6.80%

28.7%

4.40%

5.50%

13.80%-10.20%

$638

$610

$296

$500

$513

$750


Justification


I. Pinpointing`

OBJECTIVE: To evaluate and identify the truly right markets for CdS to grow and expand into for the next five years

Risk Consideration

London

New York

Sydney

Berlin

Add a new show in any new market

Risk of quality & brand dilution1

2

3

4Recruitment/Training

Development of content

Management still need to provide support for the current businesses that

have exponentially grown in size and complexity

Over the next 5 years


Justification


I. Pinpointing`

OBJECTIVE: To evaluate and identify the truly right markets for CdS to grow and expand into for the next five years

Proposed Expansion Methodology

“Slower” Pace of Expansion

1Will only be entering top 3 new markets over 5 years not 4 markets

as intended by management

“Subsequent”Expansion

2Entering each new market and give enough time before moving on

to the next market rather than “simultaneous” expansion

Launch “Touring” show first

3To test market receptiveness and allow the company to develop

understanding of the content that fits each market.


Justification


Strategy Overview

II.Path-Finding


Justification


II. Path Finding

OBJECTIVE: To develop the new type of partnership model that would be as successful, profitable, and sustainable as MGM Mirage in new markets

London

New York

Sydney

1

2

3Non-Gambling Destination

Main partnership model with MGM Mirage in Vegas that has served Cirque well could not be implemented


Justification


II. Path Finding


Exploring the successful deal of MGM Mirage & CdS

Key 2 features that have made this deal profitable and sustainable:

The business of Mirage and Cirque complement

each other

1

MGM’s trust in our ability to create show

2

• Share an exclusive clientele group• Cirque : magnet that draw the huge traffic & businesses • Mirage : incur full capital investment of theatre for Cirque

• Allow for the full control over the creative content• which is the crucial engine that drives our show successes

To ensure the success and sustainability for the new type of partnership formed, we need to come up with the business model that would allow us to most closely replicate the deal with

MGM that contain these two features


Justification


II. Path Finding


Proposed New Partnership

Entertainment Complex

One-stop multi-entertainment entity that include businesses such as a

large size meeting convention, hotels, golf courses, spas, bars and

night clubs


Justification


II. Path Finding


Proposed New Partnership

Partnership Profile

High-end position

Full control over creativity

Strong Financial capability

Long-term growth potential


Justification


II. Path Finding


Sydney The Burswood Entertainment Complex : largest in Australia, seven restaurants, eight bars, a nightclub, two international hotels (a luxury 5-star InterContinental and a 4-star Holiday Inn), a Convention Centre, Theatre and the Burswood Dome.

New YorkLincoln Center for the Performing Arts : s a 16.3-acre complex of buildings in the Lincoln Square neighbourhood of New York City's Upper West Side.

London The Empire: the largest state-of-the-art electronic gaming machines, two restaurants, a stylish bar, ice cream parlour, nightclub and VIP room.

Potential Partners

http://en.wikipedia.org/wiki/InterContinental

http://en.wikipedia.org/wiki/Holiday_Inn

http://en.wikipedia.org/wiki/Lincoln_Square,_New_York

http://en.wikipedia.org/wiki/New_York_City

http://en.wikipedia.org/wiki/Upper_West_Side


Justification


Strategy Overview

III.Penetrating


Justification


III. Penetrating

OBJECTIVE: To develop clear and effective market penetration strategy to successfully gain strong foothold in new markets

Content1

Communication2

&

•need to develop deep understanding of each market + •contents will be well-receptive by the market and target group

Channels

Movie TrailerBanners

Shows during awards ceremony

“Cirque du Soleil:World’s artistic legend

now showing”

“Michael Jackson Show”


Justification


Timeline

2011f 2012f 2013f 2014f 2015fI. Pin-Pointing

Penetration London NYC Sydney

II. Path Finding

Partner Selection

III. Penetrating

Content Development

Marketing Activities


Justification


Revenue Forecast

2010 2011f 2012f 2013f 2014f 2015f0

200

400

600

800

1000

1200

1400

1600

Revenue Forecast

Revenue Forecast

$ mn 2010 2011f 2012f 2013f 2014f 2015f

Revenue 700 766.53 837.81 980.37 1,132.43 1,360.53

Incremental 66.53 71.28 142.56 152.06 228.10

CAGR = 14%


Justification


Cost Estimation

Capital Expenditure (Incremental, $mn)

Production Cost 90

Total CAPEX 90

Expenses

Rent 79

Theatre Operations 66

Total Expenses 145

Internally Generated Fund

Long-termDebt

Return NPV $52 mn PBP 2.38 years


Justification

Situation Issues & Recommen- Financial ConclusionAnalysis Objectives dations Justification

Key Success Factors

Understan-ding of

new markets

Partner-ship

Creativi

ty and

Talent


Justification

Situation Issues & Recommen- Financial ConclusionAnalysis Objectives dations Justification

ConclusionIssues

Market Identification

Partnership Model

Market Penetration

Strategies

• Select and prioritize the new market• Enter into London, Sydney, and New York

• Sustainable model: entertainment complex

• Content development for new markets • Marketing communications

I. Pinpointing

II. Path- finding

III. Penetrating

Slide Navigator Situation 1Situation ResidentSituation GrowthKey issuesTransition Strategy OverviewStrategy OverviewPinpointing`Pinpointing`Pinpointing`Strategy OverviewII. Path FindingStrategy OverviewIII. Penetrating

TimelineRevenue ForecastCost EstimationFinanceAssumptionsISNew Cost StructureCash Flow

Back-up SlidesSituationWhy entertainment complex?Entertainment Complex Cannibalization of adding more shows in Las Vegas Why not touch upon the content? What is an entertainment complex?Why not other partners?Other remaining casino partnersDeviating away from Big Top Touring Target Customers Why drop the Arena show?Promotion Showgoers – TargetAs of April 2008Key to Success of Cirque and MGM

Geographic marketStrategy of ExclusivityCreative ProcessRecom1. Risk Analysis Recom 2. Risk Analysis Recom 3. Risk AnalysisWhy is the Entertainment Complex different?

1980sBIG TOP

TOURING

1992RESIDENTVENUES

2006ARENA

TOURING

Management Concern: BRAND DILUTION?

40%

50%

10%

Revenue Breakdown

TouringResidentMerchandise

EXTENSION OF SHOW BUSINESS ON FN SIDE:• Top line contribution: Important Business of Cirque du Soleil• Even larger share on bottom line

EXTENSION OF SHOW BUSINESS ON BRAND: • Many deal offers and creative & commercial independence • Broader reach and access to new audiences

IMPLICATION:No Brand dilution from diversifying show

base out of big-top touring performances.

Finance

• High cash inflow• Operating Profit Margin = 30% ( Resident Shows)

50%

40%

10%

Revnue BreakdownResidents Tourings Merchandise

Assumptions

AssumptionsDisney(non-casino)Seats 1650Average Price $ 120Construction 52 mnProduction 18 mnAverage Performance per Year 48 weeksAverage Performance per Week 10 times

Occupancy Rate 2011 2012 2013 2014 2015London 70% 75% 80% 85% 90%New York City 70% 75% 80%Sydney 70%

IS % of salesCreative Royalty 13%Rent 12%Theater Operations 10%Show Operations 35%

• Average occupancy rate is 90 – 95%

IS

2010 2011f 2012f 2013f 2014f 2015fRevenue 700 766.53 837.81 980.37 1,132.43 1,360.53 CAGR 14%Incremental 66.53 71.28 142.56 152.06 228.10 London 66.53 71.28 76.03 80.78 85.54New York City 66.53 71.28 76.03Sydney 66.53

Expense 55.57 49.90 108.79 106.44 168.67 Creative Royalty 17.65 9.27 27.53 19.77 38.65 Rent 7.98 8.55 17.11 18.25 27.37 Theater Operations 6.65 7.13 14.26 15.21 22.81 Show Operations 23.28 24.95 49.90 53.22 79.83

Operating Profit 10.96 21.38 33.77 45.62 59.43

New Cost Structure

Old New

MGM - Construction - 50% production

Partner - Construction

CdS - 50% production - 13% creative royalty (CdS) - 12% rent (MGM) -10% theatre operations - 35% show operations

CdS - 100% production - 17.76% creative royalty (CdS) - 12% rent (Partner) - 10% theatre operations - 35% show operations

OPM = 30%, 50 and 50 OPM = 27%, 50 and 50

Cash Flow2011f 2012f 2013f 2014f 2015fCash InflowTickets London 66.53 71.28 76.03 80.78 85.54 New York City 66.53 71.28 76.03 Sydney 66.53Total Inflow 66.53 71.28 142.56 152.06 228.10

Cash OutflowProduction Cost 18 18 18 18 18Creative Royalty 17.65 9.27 27.53 19.77 38.65 Rent 7.98 8.55 17.11 18.25 27.37 Theater Operations 6.65 7.13 14.26 15.21 22.81 Show Operations 23.28 24.95 49.90 53.22 79.83 Total Outflow 73.57 67.90 126.79 124.44 186.67

Net CF - 7.04 3.38 15.77 27.62 41.43

WACC Wd 36%Kd*(1-t) 7%We 64%ke 12%WACC 10%

NPV $52.85PBP 2.38 yrs

WACC Assumption• From stern.nyu.edu research• Average from 3,061 firms in entertainment industry

Why entertainment complex?

• Also provide revenues for partner’s other businesses which are complementing (draws in traffic), not just sharing revenues for our show • Average spending per customer increases• Sustainability lies in: business complement sharing of clientele group

Entertainment Complex

Sydney The Burswood Entertainment Complex : largest in Australia, includes a 24-hour casino, seven restaurants, eight bars, a nightclub, two international hotels (a luxury 5-star InterContinental and a 4-star Holiday Inn), a Convention Centre, Theatre and the Burswood Dome.

New YorkLincoln Center for the Performing Arts : s a 16.3-acre complex of buildings in theLincoln Square neighbourhood of New York City's Upper West Side.

London Casino at the Empire: the largest casino in London and offers 30 gaming tables, a private poker room and state-of-the-art electronic gaming machines, as well as two restaurants, a stylish bar, ice cream parlour, nightclub and VIP room.

http://en.wikipedia.org/wiki/Casino

http://en.wikipedia.org/wiki/InterContinental

http://en.wikipedia.org/wiki/Holiday_Inn

http://en.wikipedia.org/wiki/Lincoln_Square,_New_York

http://en.wikipedia.org/wiki/New_York_City

http://en.wikipedia.org/wiki/Upper_West_Side

Cannibalization of adding more shows in Las Vegas

• Current 7 shows in Las Vegas is not cannibalizing •Adding more shows will cannibalize each other at certain point• Overexploitation of creative ideas • limited location (stages in Vegas)

• Hence, must look into new markets

Why not touch upon the content?

• Already the core competency: creativity• outstanding stage directors thru the recruitment process• devoted to research and development/ innovation

What is an entertainment complex?

An entertainment complex is an one-stop location, multi entertainment businesses entity that includes a hotel, golf course, day spa, several restaurants, bars and nightclubs.

Why not other partners?

• Real estate partner will not realize the benefits of increased revenues for their own businesses• Only get revenue from share of show ticket revenues less value proposition for them comparing to the casino, other projects may be as or more attractive to them hence, less sustainable

Other remaining casino partners

• Already partnered with major casinos

• There are other casino partners however with a much lower traffic

• In the long term, growth through casino that pose lucrative opportunity + complement our image is limited. Our concern lies in our long term sustainable growth

Deviating away from Big Top Touring

Concerns:• not the same experience• we raised our brand and gained recognition, attract many deals since Las Vegas

Reasons:• Core brand value: quality of the show • Lower Initial investment

Target Customers

• High income, mainly adult not children • Family / Adult theme• Show content is different according to the locations

Why drop the Arena show?

Promotion

Promotion vehicle • Cirque du Soleil name rather than the artists• don’t have to pay huge salaries for famed performers• can capitalize on its name and leverage to new shows across various markets

Showgoers - Target

• Sophisticated• high incomes • draw and analyse target profile • only 20% of showgoers actually stay at casino hotel that hosts the show but• showgoers drop an average of $30 apiece on dinner or drinks at the hotel “Cirque du Soleil Effect” • Increase on ancillary activities of casino• Cirque has made a clear difference : the NY-NY resort experienced 23% increase in net revenues due to Zumanity show • MGM cited increased with visitor traffic generated by Ka at MGM grand, Las Vegas for boosting slot revenue at that resort by 13%• Expected traffic from “Love”, 12.5 million for 2006, 25 million EBITDA

As of April 2008

6 big top touring shows: 2 in N.A.2 in Europe2 in Japan1 in S.A.

7 resident shows5 in Vegas1 in Orlando, Florida1 seasonal show in NY 4 years deal with Madison Square Garden Entertainment (to produce WinTuk) Seasonal: every autumn for period of 12 weeks @ Wamu Theater, NY, Madison Square

2 Arena touring shows1 in Europe1 in N.A.

Key to Success of Cirque and MGM

•Willingness of Wynn to hand over full creative control• drawing power of Cirque and effect to increase revenue in other part of MGM’s business e.g. Ancillary revenue• MGM Mirage large presence/control in Vegas market and provide Cirque with extensive access to showgoers• Cirque has developed deep understanding of Las Vegas market•MGM sees Cirque as more than just a content provider but truly a partner on every front•“Open Book” policy, mutual trust and respect• profitable model to both: high/premium ticket pricing, huge traffic, lower investment to cirque, increase MGM’s ancillary revenue (slots and restuarant)

Geographic market

Las Vegas MontrealNew York CityJapanMacao MarketDubai World

Strategy of Exclusivity

• Resists temptation to duplicate productions (no different troupes presenting same show• wanna see “o” go to Las Vegas add value to partner

Creative Process

• Creativity = cornerstone of its success• Has always put creativity first reinvested >40% in creative process• is better positioned than ever to keep its competitive advantage in show business • chosen not to outsource any activities unwilling to compromise on quality and artistic integrity

PROPOSED STRATEGY 1. Full control over content creation 2. Creative talent recruitment 3. Maintaining environment that is conductive for creativity generation

Recom1. Risk Analysis • The chosen markets do not response well to Cirque du Soleil • External factors : Economical factor, recession•Brand dilution due to overextending the show

Recom 2. Risk Analysis

• Partners do not conform with the contract • Inability to find the partners that fit with the selection criteria

Recom 3. Risk Analysis

• Ineffective marketing channels• The content doesn’t suit well with the market• Market perception of Cirque du Soleil brand value is not as strong as in home market

Why is the Entertainment Complex different?

• Since this is not a gambling operator like MGM• Some adjustments will have to be made in terms of revenue-cost structure• Due to different value proposition under this model

•For MGM, it benefits mainly from not just the share of performance revenue but also the huge increase in ancillary revenue of its other businesses

•However, for entertainment complex, our partner will be benefiting mainly from just the share of show performance revenue and less on increase in revenue of other businesses - Example: Less Cirque effect on golf course and hotel

MMICC 2010 - 1st Place - THM

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