Cirque du soleil case study solution

C270 CASE 35 :: CIRQUE DU SOLEIL

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CASE 35 CIRQUE DU SOLEIL*

The founder of Cirque du Soleil, Guy Laliberté, after see- ing the firm’s growth prospects wane in recent years, was thinking about expanding his firm in new directions. For three decades, the firm had reinvented and revolutionized the circus. From its beginning in 1984, Cirque de Soleil had thrilled over 150 million spectators with a novel show concept that was as original as it was nontraditional: an astonishing theatrical blend of circus acts and street enter- tainment, wrapped up in spectacular costumes and fairy- land sets and staged to spellbinding music and magical lighting.

Cirque du Soleil’s business triumphs mirrored its high- flying aerial stunts, and it became a case study for business school journal articles on carving out unique markets. But following a recent bleak outlook report from a consultant, a spate of poorly received shows over the last few years, and a decline in profits, executives at Cirque said they were now restructuring and refocusing the business—shifting some of the attention away from the firm’s string of suc- cessful shows and toward several other potential business ventures.

Cirque du Soleil had also suffered other setbacks. Plans for a new show that would have been based in Dubai fell through after the city had financial problems that stemmed from the 2008 recession. Cirque also recently suffered its first death during a performance, when an acrobat tum- bled 94 feet during a stunt in a Las Vegas performance of the show Ka in 2013. After a hiatus of more than a year, Cirque brought a revamped version of the stunt back to the show with more stringent safety measures. “The recent struggles,” said Chief Executive Daniel Lamarre, “cer- tainly brought a lot of humility to the organization.”1

For the first time in recent history, Cirque du Soleil failed to generate a profit in 2013. Its market had dropped 20 percent from $2.7 billion in 2008. In recent inter- views with The Wall Street Journal at Cirque du Soleil’s sleek headquarters in Montreal, top executives, including founder and 90 percent owner Guy Laliberté, revealed rare details of the firm’s financial status and new business plans. The company was seeking to position itself as an attractive bet as Laliberté began to look for investors to buy a significant portion.

Debate swirled over whether Cirque du Soleil should return to its roots or aim for constant reinvention. At the end of 2011, Bain & Co., contracted by Cirque, reported that Cirque’s market had hit saturation and the company needed to be careful about how many new shows it should add. Bain suggested Cirque seek growth by moving its con- cept to movies, television, and nightclubs. “Guy Laliberté always said we are a rarity—but the rarity was gone,” said Marc Gagnon, a former top executive in charge of opera- tions for Cirque du Soleil, who left in 2012.2

Starting a New Concept Cirque du Soleil developed out of early efforts of Guy Laliberté, who left his Montreal home at the age of 14 with little more than an accordion. He traveled around, trying out different acts such as fire-eating for spare change in front of Centre Pompidou in Paris. When he returned home, he hooked up with another visionary street performer from Quebec, a stilt-walker named Gilles Ste-Croix. In 1982, Laliberté and Ste-Croix organized a street performance festival in the sleepy town of Baie St. Paul along the St. Lawrence valley.

By 1984, Cirque du Soleil was formed with financial support from the government of Quebec as banks were reluctant to support the band of fire-eaters, stilt-walkers, and clowns. Its breakthrough 1987 show We Reinvent the Circus burst on the art scene in Montreal as an entirely new art form. No one had seen anything like it before. Laliberté and Ste-Croix had turned the whole concept of circus on its head. Using story lines, identifiable characters, and an emotional arc, Cirque du Soleil embodied more than a mere collection of disparate acts and feats.

Despite its early success, Cirque du Soleil was strug- gling financially. It took a gamble on making its debut in the United States as the opening act of the 1987 Los Angeles Festival. Cirque managed to sell out all of its per- formances, which were run in a tent on a lot adjacent to downtown’s Little Tokyo. Its success in Los Angeles led the troupe to open shows across the U.S. in cities such as Washington, San Francisco, Miami, and Chicago. Soon afterward, Cirque du Soleil performed in Japan and Switzerland, introducing its concept to audiences outside North America.

In 1992, Cirque du Soleil took a show called Nouvelle Experience to Las Vegas for the first time. It was per- formed under the big top in the parking lot of the Mirage. The success of this show led to the building of a perma- nent theater at Treasure Island for a show called Myster̀e,

* Case prepared by Jamal Shamsie, Michigan State University, with the assistance of Professor Alan B. Eisner, Pace University. Material has been drawn from published sources to be used for purposes of class discussion. Copyright © 2015 Jamal Shamsie and Alan B. Eisner.

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CASE 35 :: CIRQUE DU SOLEIL C271

All of the Cirque du Soleil shows were originally developed to be performed under a Grand Chapiteau, or Big Top, for an extended period of time, before they were modified, if necessary, for touring in arenas and other ven- ues. The troupe’s Grand Chapiteau were easily recogniz- able by their blue and yellow coloring. The facility could seat more than 2,600 spectators and was accompanied by smaller fixtures that were necessary to accommodate practice sessions, food preparation, and administrative services. However, after the contract to develop Myster̀e for Treasure Island in Las Vegas, Cirque began to develop shows that were to be performed on a more permanent basis in specially designed auditoriums.

Losing Its Touch Cirque du Soleil continued to expand even as the reces- sion cut into demand. It launched 20 shows in the 23 years from 1984 through 2006, none of which closed during that time other than a couple of early ones. Over the next six years, however, it opened 14 more shows, 5 of which flopped and closed early. The reasons for the failures dif- fered. One show, Zarkana, couldn’t make enough money to cover its production costs playing in New York City’s 6,000-seat Radio City Music Hall. Iris, in Los Angeles, played in Hollywood, a seedy neighborhood that despite heavy tourist traffic was commercially marginal. Zaia, in Macau, simply didn’t appeal to local audiences. Perhaps more troubling, the company’s nearly perfect record of producing artistic successes began to waver. Viva Elvis and Banana Shpeel were among several Cirque shows that gar- nered terrible reviews. Both shows closed quickly. “Shows like that diluted the brand,” said Patrick Leroux, a profes- sor at Montreal’s Concordia University who had closely studied Cirque du Soleil.3