The Entertainment and Leisure Empire: How Can Cirque du Soleil Face the Post-Covid Future?
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The Entertainment and Leisure Empire: How Can Cirque du Soleil Face the Post-Covid Future?
Helena Araújo Costa
Gustavo do Prado Afonso
Walkiria Maria Capucho Truss
Graziela Miranda de Azevedo Rodrigues
Ana Vitoria Muniz Bokos
1. The Company's History: from street performances to the entertainment industry reference
In 1984, Guy Laliberté, Daniel Gauthier and Gilles Ste-Croix, former street performers from Baie-Saint-Paul, founded Cirque du Soleil, which would become one of the largest entertainment companies in the world.
The company began with a Canadian government-funded concert in 1984 as part of the country's 450th anniversary celebrations. The production was a great success, with Cirque being defined as a contemporary circus, by not using animals and having great emphasis on music, costumes and incredible scenography.
Cirque du Soleil expanded rapidly in the 1990s and 2000s, growing from 1 to 19 shows in more than 300 cities on every continent of the world, employing 4,900 people from 50 countries and generating an annual revenue of approximately $1 billion. In addition, it now has permanent shows in Las Vegas attended by more than 9,000 people per night, in addition to more than 100 million people who watch its shows around the world.
Founders Daniel Gauthier and Gilles Ste-Croix left the company in 2000. In the same year, Daniel Lamarre was hired to manage the company, having been appointed CEO in 2006. In 2015, Guy Laliberté sold 90% of his stake to a U.S. private equity firm named TPG Capital and a Chinese investment group called Fosun, retaining ownership of 10% of the company. The company's creations received several awards, and in February 2020, Laliberté sold his remaining stake in the company to the Quebec pension fund CDPQ.
The entertainment industry has regarded Cirque du Soleil as a great success story and a highly recognized brand. While it competes indirectly with other entertainment sectors, such as films, concerts, museums, parks and zoos, the company positions itself more specifically in the niche of the performing arts industry, offering live artistic shows. This niche is known for targeting consumers from a variety of demographics (age, income, location) and seeing irregular cash flows due to the seasonal and fluctuating frequency of viewers.
Cirque is known worldwide as a modern circus model, drawing inspiration from sophisticated international theatre elements, combining acrobatics, music and dance in its shows. Even for Broadway musicals, the circus shows offered have become a strong reference. The final product demonstrated a strong appeal to upper-class audiences. In 2012, Christa Carone of Forbes Magazine described Cirque du Soleil as a consistently notable brand, highlighting its success in its performance at the 2012 Oscars and the show Iris in the same period, which set the record for ticket prices at the Kodak Theatre in Los Angeles, with tickets selling for $253.
The company pioneered its marketing strategy and found significant growth while exploring its possibilities without major direct rivals. Over time, the proven success attracted competitors to launch their own companies based on this concept, attracting attention and being reproduced in some way. As an example, former Cirque executives Franco Dragone and Normand Latourelle left the company and launched Franco Dragone Entertainment Group in 2000 and Cavalia, Inc. in 2003, respectively. [1].
2. The empire's current challenge: judicial reorganization in 2020
The coronavirus pandemic has affected several industries in the world since its inception in 2020. Tourism, travel, entertainment and major events were extremely affected. Cirque Du Soleil did not escape the situation.
The pandemic had already hit Asia hard (China, Japan, Korea) and was spreading around the world, affecting Europe, North America, and reaching South America in March 2020. On January 21, the first case of Covid-19 infection was registered in the United States, which recorded the first case of death from the disease in the country on February 6.
On March 3, Cirque du Soleil announced the launch and opening of sales of Drawn to Life , a new show to be held at the Walt Disney World Resort , in Florida. A few days later, on March 13, the company published the suspension of traveling shows in several regions of the world due to the advance of the Covid-19 pandemic and its implications for those events. Two days later, the suspension of resident shows in Las Vegas. Finally, on March 17, the newly launched show Drawn to Life in Florida it was temporarily suspended.
On June 29, 2020, despite its well-established corporate image, Cirque du Soleil filed for bankruptcy under the Corporate Creditors Agreement Act ("CCAA") in Canada and Chapter 15 in the United States. Just three months after canceling dozens of concerts around the world due to the Covid-19 pandemic, which hit the entertainment sector hard globally, the company decided to take this decisive step.
"For the past 36 years, Cirque du Soleil has been a highly successful and profitable organization. However, with zero revenue since the forced closure of all our events due to COVID-19, management has had to act decisively to protect the company's future" [2] said Daniel Lamarre, president and CEO of Cirque. He ends his speech by saying, "I look forward to rebuilding our operations and coming together to once again create the magical spectacle that is Cirque du Soleil for our millions of fans around the world."
By that time, the group had laid off 3,500 employees (95% of its workforce) and accumulated debts of almost $1 billion.
3. Aspects that led the company to the crisis in 2020
The decision made by the company was due to a confluence of factors. Among them, three could be highlighted as possible reasons.
a. The Covid-19 pandemic
The company attributed the reason for the bankruptcy to the forced closure of its events, a necessary measure in the face of the Covid-19 pandemic. Its directors intended to restructure its debt with the support of the government and private investment firms.
The opening of the company's judicial reorganization process took place three months after the suspensions of events, with the interruption in the inflow of revenue and lack of cash to meet ongoing financial obligations being the first reason for the request for judicial reorganization.
b. High level of debt before the pandemic
Even before the pandemic hit, Cirque du Soleil was in debt with some acquisitions made with the aim of diversifying its products beyond the live shows it is known for around the world, seeking to accelerate its financial growth.
These acquisitions helped increase revenues from $882 million to $1.04 billion at that time. On the other hand, it is estimated that the company owed creditors around $900 million in that period. A report by Ernst & Young showed that the company's net loss gradually increased from $10 million to $80 million from 2017 to 2019.
Cirque du Soleil CEO Daniel Lamarre said the company's profits totaled about $155 million in 2019, but that figure doesn't include interest, taxes or depreciation. At the end of March 2020, the company's various debts amounted to nearly $1.6 billion, according to a document filed with the Quebec High Court.
c. Financial Situation and Lack of Understanding of Cirque du Soleil as a Business
Cirque has always tried to maintain its humble and creative roots in its organizational culture. It was common to have a clown in meetings to avoid a serious atmosphere in the environment. Daniel Lamarre once remarkably said, "If we start thinking like a corporation, we're dead! Our environment needs to stimulate our people" [3].
This statement may reveal an apparent contradiction for a company with 4,000 employees, by denying its vision as a corporation. In a sense, this understanding of the business may have contributed to the financial situation.
From the early years, when the group was not yet what it had become, the three founders faced financial difficulties. The first show they did, The Waders of Baie-Saint-Paul, was a financial failure. At that moment, they learned that a show couldn't work if it wasn't profitable. In addition to the second show, A Feira de Diamusement, a mix of workshops and shows having achieved some financial success, the group would still have problems in the future.
In 1985, in the first performances outside Quebec, they had a deficit of US$ 750 thousand. They had no experience traveling with the group at that time. Some of the debts were covered by the Desjardins Group and others by the Quebec government, and even free of charge by representatives of Daniel Lamarre. This allowed Cirque to continue touring in 1986. In 1987, they made more than $1.5 million from performances at the Los Angeles Festival of the Arts.
During 1988 and 1989 they traveled through Canada and the United States, but at the end of that year the company was again lost, with some management conflicts between its leaders. However, from 1990 to 1999, with a different creative team, the shows found success and prosperity. Thus, Cirque faces a trajectory of financial ups and downs.
In the year 2000 many changes took place, Gilles Ste-Croix and Daniel Gauthier left the company, and Daniel Lamarre was brought in by Laliberté to be the manager. Cirque du Soleil, currently with almost 2,000 employees, decided to have a specialist dealing with Information Technology and Knowledge Management (IT and WM), but without considering IT as a differential for the success of the organization. For them, creativity, imagination and inspiration played the main role in the company.
In the following decade, the company would be present in the European, Asian and Pacific markets, showing great expansion. Thus, Cirque du Soleil, from its inception to its great decade, which was from 2000 to 2010, had rapid growth with glories and failures. For example, they are known in the market for their tailor-made solutions, complex logistics, and little documentation about their processes [4]. At the same time, the company maintained competitive advantages over competitors and built a recognized brand, which also impacted the company's finances.
Lamarre's main concern was brand equity, as he said in a 2011 interview: "My main concern is to remain a relevant brand, because my fear is that one day, a kid somewhere will wake up with a big new idea that makes us look like Une chose du passé (a thing of the past). That's why we're investing a lot of money in research and development so that we stay ahead of the curve at all times." [5]. All this effort is made to maintain its outstanding characteristic: taking care of the customer's experience, imagination and delight [6].
4. Company restructuring: investments and commitments
For the company's restructuring, the current shareholders (TPG Capital, Fosun and Caisse de depot et placement du Quebec) agreed in June 2020 to invest $300 million and assume Cirque's responsibilities, including ticket holders affected by the canceled shows and financial support for 3,500 laid-off workers. Meanwhile, Quebec's government structure would provide $200 million in debt financing.
The involvement of Investissement Québec requires investors to commit to maintaining the company's headquarters in Montreal and also to commit to keeping the company's top leadership in Quebec, and rehiring as many former Quebec-based workers as possible. The main financial commitments were:
• $15 million in financial aid for 3,500 laid-off workers.
• $5 million to settle outstanding contracts (especially Quebec-based contractors).
• Refunds for programs canceled due to the pandemic.
The company has successfully signed a stalking horse in July 2020. This purchase agreement usually happens with companies that are in bankruptcy proceedings, seeking to auction the company. Hoping to avoid low-priced offers by investors, the company chooses an investor willing to be the first to offer and negotiate a reasonable base price and conditions for its sale. The company offers better conditions for the first investor, hoping that the others will offer better investments in the auction.
Lamarre told Radio-Canada in June 2020 that five other groups have expressed interest in the company. The company's co-founder and former CEO, Guy Laliberté, who sold his controlling stake in 2015 for $1.5 billion, was also interested in the company.
At the end of this eventful year, in November 2020, Cirque du Soleil Entertainment Group confirms the closing of the sale transaction to its secured creditors and the exit from creditor protection. The transaction provides the company with a solid foundation for a successful relaunch. The new owners have also agreed to keep Daniel Lamarre as CEO of Cirque du Soleil Entertainment Group and its Montreal headquarters.
They believe that Cirque du Soleil is a great brand, for which Lamarre has always worked. Even with strong debts and many uncertainties, Cirque is still perceived as a creative, innovative company capable of delighting the public... and even capable of recovering the investments made in it.
5. Discussion questions
a) According to the facts mentioned, share your perspective on what problems would have contributed most to the crisis in which the company found itself.
b) What competitive advantages has Cirque du Soleil built over time?
c) How can Cirque innovate and adapt its business model and products to the pandemic situation?
d) Identify and describe a Cirque du Soleil contestant. Then, analyze how the pandemic affected the company and how it handled the circumstances.
e) Suggest two strategies that the company should follow to prosper its business in the future and maintain the relevance of its brand, and not become "something of the past".
References
CIRQUE DU SOLEIL. Cirque du Soleil entertainment group announces comprehensive plan to restart business. Available at: https://www.cirquedusoleil.com/press/news/2020/cirque-du-soleil-entertainment-groupcomprehensive-plan-to-restart-business . Accessed on: Nov. 24. 2020.
CIRQUE DU SOLEIL. Cirque du Soleil entertainment group confirms closing of sale transactions and emerge from creditor protection . Available at: https://www.cirquedusoleil.com/press/news/2020/cirque-du-soleil-entertainment-groupconfirms-closing-of-sale-transaction . Accessed on: Nov. 24. 2020.
CIRQUE DU SOLEIL. Cirque du Soleil history . Available at: https://www.cirquedusoleil.com/press/kits/corporate/about-cirque . Accessed on: Nov. 24. 2020.
FORBES. #1851 Guy Laliberté . Available at: https://www.forbes.com/profile/guy-laliberte/?sh=45aa74765aef . Accessed on: 25 Nov. 2020.
GHAZZAWI, ISSAM & MARTINELLI, TERESA & PALLADINI, M.. (2014). Cirque du SOLEIL: An innovative culture of entertainment . Journal of the International Academy for Case Studies. 20. 23-46. Available at: https://www.abacademies.org/articles/jiacsvol20no52014.pdf . Accessed on: 05 Mar. 2021.
JOBIN, Marie Helena & TALBOT, Jean. Tour Planning at Cirque du Soleil . The International Journal of Case Studies in Management (HEC Montreal), vol 9, issue 1, 2011.
MONPETIT, Jonathan. Global circus company Cirque du Soleil files for bankruptcy protection . Available at: https://www.cbc.ca/news/canada/montreal/cirque-du-soleilbankruptcy-1.5631354 . Accessed on: 25 Nov. 2020.
OFOLETA, Kalechi C. A Cirque du Soleil Business Case study Analysis . Available at: https://www.kogonuso.com/a-cirque-du-soleil-business-case-study-analysis-bykelechi-c-ofoleta/ . Accessed on: Nov. 28. 2020.
RIFKLIN, Glenn. How Cirque du Soleil's Daniel Lamarre Sends in the Clowns . Briefings on talent & leadership, Korn Ferry Institute, USA, Q2, Issue 6, p. 46-57, 2011.
ROJAS, John-Paul Ford. Coronavirus: Cirque du Soleil axes 3,480 jobs - but plans to rehire most. Available at: https://news.sky.com/story/coronavirus-cirque-du-soleilaxes-3-480-jobs-but-plans-to-rehire-most-12017666 . Accessed on: 25 Nov. 2020.
AAKER, Jennifer & JOYCE, Sarah. Cirque du Soleil: Cultivating Creativity and Designing to Delight. Stanford Business Graduate School, 2013. Available at: https://www.gsb.stanford.edu/gsbcmis/gsb-cmis-download-auth/376896?pid= . Accessed on: Nov. 24. 2020.
This case was written based on information made available by the company, available in the media and/or based on other references cited. It is not the authors' intention to evaluate or judge the company in question. This text is intended exclusively for academic study and discussion, and its use or reproduction in any other form is prohibited. Copyright infringement will subject the offender to the penalties of Law No. 9,610/1998 ↩︎