274 FIVE BILLION DOLLAR INDUSTRY??
December 21, 1999
One of the most interesting questions to develop this fall has been the size of the
Stock Photo Industry. Many have said, "Who cares, I'm just worried about my little
part of the industry and whether I show a profit at the end of the year."
In fact, we all have good reason to be concerned, particularly as outside investors
who know nothing about the industry increasingly control the flow of money and the
directions this industry will take in the future.
As a baseline we have said that the worldwide market for stock photography is about
$1.25 billion annually, and that there has been little or no real growth in the last
few years. (This number was also used by Corbis in presentations given at the PACA
Claims By Getty
In making its pitch to investors in October Getty claimed that the stock photo
industry was a $4 to $5 billion industry in annual sales.
In talking about "Getty's Market Opportunity" Morgan Stanley Dean Witter, Getty's
principal investment banker said recently, "The market for graphics products and
services is an estimated $45 billion, while the arts and collectibles market is an
estimated $20 billion. This results in a $65 billion addressable market."
Quite a variation. Who is right? Are Getty's claims all PR smoke that no one
Some investors must have believed some of it because they bid Getty stock up to almost
double its September level. During this period Getty showed no huge increase in sales
or profits, they simply said we're the number one agency in the industry, were
purchasing number three and we're poised to capitalize on this huge growing market.
So the question for investors became, is this, or is it not, a huge growing market?
Why Did Getty Need A Larger Market?
Getty didn't want to tell investors that with their acquisition of TIB they would
control almost 25% of industry sales. If that were the case investors might look a
lot harder at real growth in sales, not growth through acquisition. Better for
investors to think that Getty only controls 6% of the potential market now and that
there is a lot of room for growth.
Interestingly, in May, 1999, after Getty purchased Art.com, Mark Getty was quoted in
an Internet World article by Elizabeth Gardner as saying the stock photography market
was a $1.5 billion market. Other, high level insiders at Getty say the company uses a
figure of $1.2 to $1.4 billion for internal planning purposes.
Why not focus on sales? Third quarter reported sales were $60.82 million, for a total
of $167.9 million for the first three quarters. The "street" estimate for Getty's 4th
quarter sales is $61 million. Not huge growth. Maybe they will do better than that,
but in the 2nd and 3rd quarters they just barely made their estimates.
We must also keep in mind that there are seveal additional sources of revenue in the
4th quarter that were not available previously. They include:
- 38 days of ownership of TIB which should add $6 to $7
million to their revenues, (We know that TIB had $38.1 million in revenues for the
first six months and now Getty is saying that the total for the year will be $70
million which is only $31.9 million for the last six months.)
- A full quarter of EyeWire which should add $1 million to the revenue EyeWire
provided in the 3rd quarter,
- American Royal Art, a new acquisition, is expected to provided high seasonal
internet sales in the 4th quarter of about $1 million,
- And, seasonal sales of Art.com should be up significantly over previous
quarters, up to an estimated $2 million.
Thus, if all their other properties had flat income for the quarter -- zero growth --
Getty's gross revenues should be up $11 million over the 3rd quarter.
Could it be that Getty's sales for their major brands are actually going down on a
year-to-year basis, if we discount acquisitions? Both VCG and TIB reported that their
sales of still images were down, year-to-year, for the first half of 1999.
Anything less than $71 million for the 4th quarter will be evidence of a downward
sales trend for Getty's major brands, and should be a wake up call for investors.
Getty would need a number in the range of $75 million to argue that they are still
experiencing internal growth.
It appears large investors, principally mutual funds, poured millions into Getty's
coffers in October with very little understanding of the business they were buying
into. They bought because of its connection to e-commerce.
Now, individual investors are jumping on the bandwagon. As I write this, the stock
jumped from $48 to $55. Pacific Crest Securities in Seattle is predicting that the
stock will go to between $75 and $100 per share.
If the company starts generating less revenue and less profits will it make a
difference to the investment community so long as Getty can demonstrate they are
reaching more eyeballs? Is anything likely to reverse investor enthusiasm for
e-commerce companies? If so, what happens then? Will the stock value drop faster
than it went up, and if it does how will that affect those of us who are interested in
producing and selling pictures?
Investment Advise In General
One other thought occurs to me. If the "professional investment advisors" are doing
this poor of a job in analyzing an industry, I know something about, how much can I
trust their advice on other industries about which I know very little?