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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