Team 4 – Copenhagen Business School: A. Bruntse, L. Lawaetz, L. Pedersen, S. Troll

• Cirque du Soleil is too reliant on their partnership with MGM Issue

• 50% of revenue comes from Vegas shows• Touring shows generate relatively low profits• Finding sustainable partnerships• Brand dillusion with residence shows

Complication

• How can Cirque du Soleil build new sustainable partnerships that will increase their profits with 37% in 2015?Question

• Sustainable partnership: Analyze, Negotiate, and ExpandAnswer

Cirque du Soleil needs to ANALYZE, NEGOTIATE, EXPAND

AGENDA

• Analyze• Negotiate• Expand

Industry Analysis

New Sustainable Partnership

Timeline

Risks

Financial Impact

Cirque du Soleil differentiates through uniqueness and brand

Brand Awareness

Uni

quen

ess

High

HighLow

Unexploited potential for residence shows in Europe

7 Vegas shows

1 NY show

1 FL show

Resident show

Touring show

2 Macau show

1 Tokyo show

1 Dubai show

Three pronged strategy: Analyze, Negotiate, Expand

• Identify profitable business area: cruise ships

• Negotiate partner deal with Royal Caribbean

Analyze

• Implement MGM deal structure

• Set up Cirque du Soleil show in one of RC`s ships

Negotiate • Develop shows for other cruise ships

Expand

Cruising industry has high revenue and sustainable partnership potential

Current Partnerships

New Partnerships New Business Area

Initial Costs

Ease of Implementation

Sensitivity to Macro

Scope of Partnership

Potential Revenue

BestWorstSlide 7Team McGill

Cruise industry is booming despite financial crisis

2007 2008 2009 2010 20130

5

10

15

20

25

10.29 10.87 10.89 11.7513.34

3.734.12 4.34

4.45

5.26

Europe has 12% market growth

Rest of the World North America Europe

Mill

ions

52%

22%

10%

5%4%

7%

Royal Caribbean is the second strongest player in

the market

CarnivalRoyal CarribeanMSCStarLouisOther

Source: http://www.cruisemarketwatch.com

Cirque du Soleil @ Sea merges resident and touring

Pro ConsResident Shows • High revenues

• 60% break even• 90-95% occupancy

• High costs• Need for sustainable partnership

Touring Shows • Core business• Global reach

• Comparatively low revenues• 80% occupancy• 65% break even

TouringResident Cirque du Soleil @ Sea

Royal Caribbean is the best partner

Top three in the cruise industry

Premium offer X X

Passenger capacity > 3500

X X

Theatre size > 1000 seats

X

Show entertainment offer

Presence in Europe

Three pronged strategy: Analyze, Negotiate, Expand

• Identify profitable business area: cruise ships• Negotiate partner deal with Royal Caribbean

Analyze

Partnership fits both partners

Creative challenge Sustainable in long run Good potential return Socially responsible partner

Competitive advantage Revenue growth Increased brand value

Current fleet Adventure of the Sea, Voyager of the Sea10 ships total

Target group High income, sophisticated tourists

Ship capacity Approx 3200 guests

Theatre capacity 1350 guests

Destinations Barcelona, Rome, Monaco, Nice

European cruise ships have large theatres and visit large cities

Average European cruise ships

Cirque Du Soleil customers can enter the theatre without getting access to the whole ship

Physical conditions on the ship

Security check

Security check

Source: Royal Caribbean

In Port

At sea

• Targeting the people in the city• The ship will be arena for night entertainment

• Targeting cruise passengers• Package deals (Cruise + Show)

Introduction of Cruises to the Mediterranean sea

20112013

Three pronged strategy: Analyze, Negotiate, Expand

• Identify profitable business area: cruise ships• Negotiate partner deal with Royal Caribbean

Analyze

Promising platform for future expansion

Total cruise industry growth (2009-2013): 17%Royal Caribbean fleet growth:

– Four ships launched by 2012– Capacity increase of 13,950

(approx. 3500 passengers/ship)

Source: Royal Caribbean 10K

NPV $24,628,188.09

IRR 50%

Benefit/Cost Ratio 3.46

Financial criteria per ship addedIndustry development

By 2014, Cirque du Soleil will have two ships operating

Analyze

Negotiate

Expand

2010 2011 2012 2013 2014

Negotiate RC deal

Negotiate target routes

Expand deal agreement

Develop more shows

Analyze partner

opportunities

Analyze Negotiate Expand

Get in touch with Royal Caribbean

Develop content for 2h

show

Reduction of operating risks with new strategy

Dillusion of brand value High end partnerHigh class show

Keeping price scheme

Loose creative control Las Vegas deal structureGood offer to Royal

Caribbean

Cannibalism Go to other markets than North America

Overall risk Set up new sustainable partnerships

Expand to new markets

Risks How to meet the risks

Win-win partnership for both partners

0%

5%

10%

15%

20%

25%

30%

35%

40%

Cirque de Soleil improves business

CAGR

EBIT

Benefits

NY-NY Grand Mirage Total

• 30$ per spend pr. customer• Promotion of the Royal Caribbean• High-end people coming to the ship• Royal Caribbean will get a competitive advantage• NPV positive project Source: MGM in material

Proposal to Royal Caribbean

Revenue increases by 12% with new alliance

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015500

600

700

800

900

1000

1100

Alliance increases revenue by 12%

Cana

dian

$ (m

illio

n)

Costs Benefits

• Production of 2 new shows• Marketing• Operational cost • Royalty

• New Cirque Du Solei platform•Significant growth potential•Adapable structure•Higher presence in Europe •Sustainable partnership

37% profit growth by 2015 with expansion into cruises

• Cost based on break even• WACC=12%• Cases derived from growth rate• Avg. ticket price of 120$• 9.3 Shows a week• 48 running weeks a year• Show runs for 10 years

Assumptions

2010 2012 2014 2016 2018 2020 2022 2024

-$25,000,000

-$5,000,000

$15,000,000

$35,000,000

$55,000,000

$75,000,000

Partnership nets NPV of 54 million $

Most Likely Scenario Best Case Secenario Worst Case Scenario

• Increased merchandise sales•Yearly profit growth by 9%•37% growth by 2015

Benefits

Most Lik

ely Sc

enari

o

Best Case

Secen

ario

Worst

Case Sc

enari

o$0

$20,000,000$40,000,000$60,000,000$80,000,000

NPV positive project

Attractive offer to Royal Caribbean

20112013

20152017

20192021

2023$0

$20,000,000$40,000,000$60,000,000$80,000,000

$100,000,000$120,000,000$140,000,000$160,000,000$180,000,000

Royals revenue

Additional salesCruise 2Cruise 1$

2010 2012 2014 2016 2018 2020 2022 2024

-$60,000,000

-$50,000,000

-$40,000,000

-$30,000,000

-$20,000,000

-$10,000,000

$0

$10,000,000

$20,000,000

$30,000,000

Partnership nets NPV of 54 million $

Most Likely Scenario

Benefits

NPV $27,397,360.11

IRR 19%

Benefit/Cost Ratio 1.50

• Cost of Refurbish theater: 24.6 million $•Avg. Spending 30$ per customer•25% EBIT margin on additional sales

Assumptions

Cirque du Soleil needs to ANALYZE, NEGOTIATE, EXPAND

Q&A

Growth rates

Q1 Q2 Q3 Q4 Avg. Occ0%

10%20%30%40%50%60%70%80%90%

100%

63% occupancy rate in the first year

• Initial occupancy rate of 63%•Growth rate of 12% a year•Growth ends at occupancy rate of 88%

Most likely

• Initial occupancy rate of 60%•Growth rate of 8% a year•Growth ends at occupancy rate of 82%

Worst case

• Initial occupancy rate of 63%•Hereafter an occupancy rate of 90%

Best case

Source: MGM

Weighted NPV, derived from the three scenarios

NPV Probability Avg. NPV

Most Likely Scenario $53,914,644.37 60% $32,348,787

Best Case Secenario $74,586,132.95 30% $22,375,840

Worst Case Scenario $18,106,820.85 10% $1,810,682

$56,535,309

European destinations are attractive due to high GDP and tourists

Barcelona

Monaco (including Nice)

Rome

Population 1,673,075

Tourist 3,346,150

GDP pr. Capita US $ 31,142

Population 380,060

Tourist 760,120

GDP pr. Capita (France) US $ 42,091

Population 2,731,996

Tourist 6,120,000

GDP pr. Capita US $ 34,995

Source: Royal Caribbean and International Monetary Fund

7 day cruise

Port of call Arrival Departure

Barcelona, Spain 10:30 PM

Montecarlo, Monaco 9:00 AM 12:00 AM

Livorno, Italy 8:00 AM 11:00 PM

Rome (Civitavecchia), Italy 8:00 AM 01:00 AM

Naples, Italy 8:00 AM 11:00 PM

Messina, Italy 8:00 AM 11:00 PM"Fun Day" at Sea At Sea At SeaBarcelona, Spain 8:00 AM

8 shows in port2 shows at sea10 shows in total

9 day cruise

Port of call Arrival Departure

Venice, Italy 11:00 PM

"Fun Day" at Sea At Sea At Sea

Dubrovnik, Croatia 8:00 AM 12:00 AM

"Fun Day" at Sea At Sea At Sea

Messina, Italy 8:00 AM 11:00 PM

Naples, Italy 8:00 AM 12:00 AM

Rome (Civitavecchia) Italy 8:00 AM 01:00 AM

Livorno, Italy 8:00 AM 11:00 PM

Montecarlo, Monaco 8:00 AM 10:30 PM

Barcelona, Spain 9:00 AM8 shows in port4 shows at sea12 shows in total

12 day cruise

Port of call Arrival Departure

Barcelona, Spain 5:00 AM

Montecarlo, Monaco 9:00 AM 01:00 AM

Livorno, Italy 8:00 AM 11:00 PM

Rome (Civitavecchia), Italy 8:00 AM 01:00 AM

Naples, Italy 8:00 AM 11:00 PM

"Fun Day" at Sea At Sea At Sea

Dubrovnik, Croatia 8:00 AM 01:00 AM

Venice, Italy 09:00 AM Overnight

Venice, Italy Overnight 11:00 PM

"Fun Day" at Sea At Sea At Sea

Messina, Italy 9:00 AM 11:00 PM

"Fun Day" at Sea At Sea At SeaBarcelona, Spain 5:00 PM 4 shows at sea

12 shows at Port16 Shows in total

Wrap up on estimates on Shows

Royal Caribbean Independence of the sea

Days Total shows

7 10

9 12

12 16

Avg. Show pr. Day 1.33

Avg. Show pr. Week 9.3

Why 9.3 Shows per week Why 48 shows a year

Benchmark: Indecency of the sea

In the 2011 schedule it has 48 weeks in Europe

Alliance with theme parks

2010 2012 2014 2016 2018 2020$0

$2

$4

$6

$8

$10

$12

NPV from Tivoli Projekt

Most Likely Scenario

NPV $8,388,921.44IRR 18%Benefit/Cost Ratio 1.56

Financial criteria

Tivoli

Financial criteria

• One park only• 3rd largest in Europe• Located in city center of Copenhagen

•Several parks around the world•Main presence in North America•Current partner

Source: Tivoli, Disney World

Sensitivity analysis

-22%-20%-18%-16%-14%-12%-10%-8%

-$10,000,000.00

-$5,000,000.00

$0.00

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

Highly sensitive to price change

-82%-80%-78%-76%-74%-72%-70%-68%

-$3,000,000.00

-$2,000,000.00

-$1,000,000.00

$0.00

$1,000,000.00

$2,000,000.00

$3,000,000.00

$4,000,000.00

Low sensitivity to growth

Possible partnersCarnival Number of ships Passenger occupancy Theatre size

Dream class 1(3) 3652 1350

Splender 1 3000 1350

Conquest 5 2974 main lounge:1400

Spirit 4 2300 1200

Destiny 3 2300 1200

Fantasy 8 2300 main lounge:1200

Royal Carribean

Oasis of the sea 1(2) 5400 1380

Freedom of the sea 3(4) 4370 1200

Radiance 4 2500 756

Voyager 5 3100 1350

Vision 6 2200 902

Sovereign 2 2700 1107

Star Cruises

Virgo 1 2800 1148

Aquarious 1 2156 884

Libra 1 1480 607

Pisces 1 1900 779

Norwegian

Jade 1 2224 912

Gem 1 2384 977

Jewell 1 2376 974

Pearl 1 2394 982

Source: Carnival, Royal Caribbean, Star Cruises