Cirque du soleil san francisco december 2014

Case: Cirque Du Soleil - Assignment

CASES

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

One problem, said Cirque du Soleil executives, was that audiences didn’t understand the differences among various shows carrying the Cirque brand. As a result, many people would dismiss the opportunity to see, for instance, the show Totem thinking they had already seen something similar in the older Varekai. On the other hand, Cirque tried to move in different directions with each of the new shows that it developed. “We’re constantly chal- lenging ourselves,” Laliberté said.4 Audiences, however, complained that some newer shows were not as focused on the acrobatic feats that they had come to expect and enjoy from Cirque.

By August 2012, Laliberté was concerned and con- vened a five-day summit for executives at his estate out- side Montreal. There, he and others drew up plans to lay off hundreds of executives and performers and pare the number of big new touring circus shows Cirque produced. The cuts began soon after and continued through 2013 and amounted to around $100 million of savings, according to Laliberté. They included everything from giving out fewer suede anniversary jackets for employees to cutting out child performers and tutors.

a nonstop perpetual-motion kaleidoscope of athleticism and raw emotion that thrilled audiences. It became the first of the troupe’s permanent shows and led to several others that opened in other hotels along the Las Vegas strip. The most spectacular of these was O, which included acts that were performed in a 25-foot-deep, 1.5 million–gallon pool of crystal clear water in a custom-built theater at Bellagio.

By the end of 2011, Cirque du Soleil had 22 shows— seven of them in Las Vegas. It had become an international entertainment conglomerate with 4,000 employees work- ing in offices around the world. It had established its head- quarters in a $40 million building in Montreal, where all of Cirque’s shows were created and produced. Much of the building was devoted to practice studios for various types of performers and to the costume department that outfitted performers in fantastical hand-painted clothes. Cirque du Soleil recruited many types of talent, among them acro- bats, athletes, dancers, musicians, clowns, actors, and singers.

Growing with the Concept Cirque du Soleil hired key people from the National Circus School in its formative years in order to develop its concept of the contemporary circus. Its first recruit was Guy Caron, the head of this school, as the Cirque’s artistic director. Shortly afterward, the troupe recruited Franco Dragone, another instructor from the National Circus School, who had been working in Belgium. Dragone brought with him his experience in commedia dell’arte techniques, which he imparted to the Cirque performers.

Together, Caron and Dragone were behind the cre- ation of all the Cirque du Soleil shows during the firm’s formative years, including Saltimbanco, Myster̀e, Alegría, Quidam, and the extravagant O. Under the watchful eye of Laliberté, Cirque developed its unique formula that would define its shows. From the beginning, it promoted the whole show, rather than specific acts or performers. Cirque eliminated spoken dialogue so that its shows would not be culture-bound, using instead strong emotional music that was played from the beginning to the end by musicians. Performers, rather than a technical crew, moved equip- ment and props on and off the stage to avoid disrupting the momentum as the show transitioned from one act to the next. Most importantly, the idea was to create a circus without a ring or animals, as Laliberté believed that the lack of these two elements would draw the audience more into the performance.

Even though Laliberté and his creative team were clearly innovative in their approach, they were not reluc- tant to obtain inspiration from outside sources. They drew on the tradition of pantomime and masks from circuses in Europe. They learned about blending presentational, musi- cal, and choreographic elements from the Chinese. Caron readily admitted that Cirque took everything that had existed in the past and pulled it into the present, so that it would strike a chord with present-day audiences.

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C272 CASE 35 :: CIRQUE DU SOLEIL

Grand Chapiteau & Arena Shows Resident Shows

1990 Nouvelle Experience 1993 Myster̀e* Treasure Island, Las Vegas

1992 Saltimbanco 1998 O* Bellagio, Las Vegas

1994 Alegría 1998 La Nouba* Downtown Disney, Lake Buena Vista

1996 Quidam* 2003 Zumanity* New York New York, Las Vegas

1999 Dralion 2005 Ka* MGM Grand, Las Vegas

2002 Varekai* 2006 Love* The Mirage, Las Vegas

2005 Corteo* 2008 Zaia The Venetian Macao

2006 Delirium 2008 Zed Tokyo Disney Resort, Tokyo

2007 Kooza* 2008 Criss Angel Believe* Luxor, Las Vegas

2007 Wintuk 2009 Viva Elvis Aria Resort & Casino, Las Vegas

2009 Ovo* 2011 Iris Dolby Theatre, Los Angeles

2009 Banana Shpeel 2013 Michael Jackson: One* Mandalay Bay & Resort, Las Vegas

2010 Totem* 2014 JOYA* Riviera Maya, Mexico

2011 Michael Jackson: The Immortal World Tour

2012 Amaluna*

2014 Kurios: Cabinet of Curiosities*

*Still in performance.

Source: Cirque du Soleil.

EXHIBIT 1 Cirque du Soleil Shows

Laliberté also reexamined core production costs. The payroll for Cirque’s show O, in Las Vegas, for instance, had ballooned thanks to a surge in contortionists. “I said, ‘Why do we need six contortionists?’” Laliberté, 55, recalled while chain smoking in his office.5 In addition to the lay- offs, Cirque also suffered a blow to morale when acrobat Sarah Guyard-Guillot was killed in 2013 during a perfor- mance. The company overhauled the show’s finale, a “bat- tle” staged on a vertical wall with performers suspended from motorized wire harnesses. After the performer’s death, Cirque continued to stage the show, replacing the live finale with a videotape of the scene from a past performance.

A New Direction? Cirque du Soleil managed to generate profits out of a busi- ness model that was quite challenging. Kenneth Feld, of Ringling Bros. and Barnum and Bailey circus, commented: “If you think about spending $165 million on a show that seats 1,900 people, the economics are just staggering.”6 But Laliberté’s stroke of genius was realizing that no Cirque show ever had to close. The troupe could either keep tour- ing or play in locations such as Las Vegas and Orlando that drew a lot of tourists. By keeping as many shows running as possible, the troupe managed to build a repertory of shows that could all be running at the same time (see Exhibit 1).

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CASE 35 :: CIRQUE DU SOLEIL C273

Yet circus experts said Cirque du Soleil was walk- ing a fine line as it sought to expand into new ventures without damaging its central brand as a creative entity. But Laliberté was convinced that Cirque could apply its unique talents to other businesses. “We’ll be more about intelligent analysis of each project,” he remarked to crit- ics who questioned the new direction.7 For Laliberté, the stakes were high. He was seeking to sell 20 to 30 percent of the company to outside investors by emphasizing the more disciplined company structure and growth plan. The additional funding would help Laliberté to keep taking on new and different challenges.

ENDNOTES 1. Alexandra Berzon. Cirque’s next act: Rebalancing the business. Wall

Street Journal, December 2, 2014, p. B1. 2. Ibid., p. B4. 3. Ibid. 4. Christopher Palmeri. The $600 million circus maximus. Business

Week, December 13, 2004, p. 82. 5. Berzon, op. cit., p. B4. 6. Palmeri, op. cit. 7. Berzon, op. cit., p. B 4.

However, the rising costs of new shows and the increase in the number of early flops had cut into the firm’s revenues and profits. Although revenues dropped to $850 million in 2013 from $1 billion in 2012, Cirque still managed to return to profitability because of stringent cost controls. Chief Executive Daniel Lamarre said the com- pany expected to reduce its revenues from Cirque-branded shows to 60 percent in 5 to 10 years, down from 85 percent now. Already the special-events unit had increased revenue to $37 million from $15 million, said Laliberté.

Laliberté’s executive team had come up with a business restructuring plan to manage this diversification through the creation of discrete business units under a central cor- porate entity to try to beef up the noncircus side of the business. New Cirque subsidiaries included a musical- theater production arm based in New York City and a special-events producer that was beginning to operate under the name 45Degrees Events. Other new areas that Cirque was venturing into included small cabaret shows at hotels, children’s television programs, and theme parks. Executives said that currently the company’s biggest growth area wasn’t a show at all. It was an expanding deal to provide ticketing services to the arena company AEG.