Flat Sales At Getty

Posted on 7/25/2002 by Jim Pickerell | Printable Version | Comments (0)



July 25, 2002

Getty Images Inc. posted a profit for the second consecutive quarter, but sales dipped 2.2% to
$113.3 million when compared with sales a year ago. The first quarter marked Getty's first
profitable quarter since its founding in 1997.

Getty said its net profit for the second quarter was $4.5 million, or 8 cents per share,
compared with a net loss of $23.7 million, or 46 cents a share one year ago.

Second quarter sales were below the $116.3 million that analysts polled by Thompson First Call
had been expecting. Concerns over declining revenues led to a drop in Getty's stock price late
in June.

CEO, Jonathan Klein told analysts that the 2nd Quarter results were a further demonstration of
the strength of the Getty Images business model. "Not withstanding the turmoil in the financial
markets and the very difficult environment in which many of our customers still find
themselves, our business is in the best shape it has ever been," Klein said.

In speaking of the current sales climate Klein said, "Our customers will not accelerate
marketing and communications spend unless and until they feel more confident in the outlook for
their own businesses. In these uncertain times every business is keeping a tight reign on
marketing spend."

He referred to a recent article in Advertising Age that quoted several advertising industry
executives who stated that a recovery in marketing and communications spend will lag an
economic recovery because "Corporations are reluctant to commit to spend until they get more
visibility into the outlook for their own earnings and into the economic cycle."

Klein also pointed that sales of magazine advertising pages is not necessarily a good barometer
of stock images sales. Getty Images earns twice as much revenue from RM sales for brochure and
direct mail uses as they earn from the use of RM images in print advertising. The number of
magazine ads published has no bearing whatsoever on the number of images that will be used in
brochures and direct mail.

Market Share

In speaking of market share Klein said, "We are absolutely certain that we gained share during
a period when the market for stock photography contracted against both the 2nd Quarter of last
year and the 1st Quarter of this year. We can not point to 3rd party data to prove this fact.
It is simply not publicly available, but I would like to draw your attention to a number of
data points. We know that the competition is struggling.

  • A major competitor of ours has effectively withdrawn from the U.S. market after a
    major ramp up in the last couple of years.

  • One of the United Kingdom's largest stock photography businesses, Pictor, ceased

  • Another competitor, also in the U.S., is struggling in meeting payroll."

"This information is further supported by the feedback we are getting from our photographers.
We have just had three major photographer workshops across the world with more than 400
photographers present and the overwhelming view was that where they have imagery with a
competitor and with us the payments from us both dwarf what they are receiving from the
competitors and are also growing faster."

"Senior members of our sales organization confirm that when we fail to close a deal it is very
rare indeed that the client has gone ahead with that project but with a competitor. This
further validates this information."

"Our customers tell us that they are highly satisfied with our products and our service and we
know that we are continuing to gain a share of their wallets. Our sales organization will tell
you that they do not lose business to competitors, if business slows down it is due to economic
factors and not competitive factors."

Business Outlook

For the third quarter of 2002, the company expects to report revenue in the range of $110
million to $115 million and diluted earnings per share of $0.08 to $0.10. The company expects
fourth quarter revenues to be in the range of $110 million to $115 million, resulting in 2002
revenue of $450 million to $460 million and diluted earnings per share of $0.31 to $0.36.

At the end of the first quarter Getty had estimated that earnings for the year would be in
range of $460 million to $480 million for 2002. Some analysts questions whether the new,
somewhat lower, estimate went far enough. They pointed out that historically the 3rd Quarter is
always the weakest quarter and that Getty is estimating sales will remain at 2nd Quarter
levels, not drop further.

Klein gave three reason for his belief that 3rd Quarter sales will be as good as those in the
2nd Quarter.

  • Getty Images is revitalizing VCG by re-branding it as Taxi and they will launch a
    major promotional campaign for this brand in September,

  • A new upgrade of the gettyimages.com site was just released, and

  • A new promotional campaign called Passion will be rolled out in September.

Percent Of Revenue

Klein provided for following information relative to the percent of revenue from each segment
of the business.


Q2 2002   

Q1 2002   

Q4 2001   

Rights Managed   




Royalty Free   




News & Sports   




Archival & Footage   




Based on the $113.3 million in sales the actual revenue in these areas for the Q2 2002 would
have been.


Q2 2002   


Rights Managed   



Royalty Free   



News & Sports   



Archival & Footage   



Klein said, "It is interesting that the RM sales are growing even in this difficult climate
when some might have suspected that customers would make more use of cheaper RF images."

Rights Managed includes all the rights managed brands, RF includes PhotoDisc, EyeWire, Artville
and Digital Vision. The News & Sports division includes Allsport and Getty Images News Service.

Average Price Per Usage

The average price per images for Rights Managed Images in Q2 2002 was $500 per image,
worldwide, up from $490 in the 1st Quarter. The average price for a single image sale of RF was
$99, up from
$85 in the 1st Quarter. This jump in single image pricing for RF was due to a recently
instituted price increase.

Klein also announced that Getty has just signed an agreement with Digital Vision to sell their
Royalty Free images. This is expected to increase the volume of Royalty Free sales through the
Gettyimages.com site. Prices for Digital Vision images are significantly higher than those of
PhotoDisc or the other brands in Getty's offering. This should result in another significant
jump in the average price for single image sales in the third quarter.

One interesting metric to look at is the number or RF images purchased in the quarter. If we
make the assumption that all RF revenue in both the 1st and 2nd quarters resulted from single
image sales the number of units sold would be 348,717 in the 1st Quarter and 297,575 in the 2nd
Quarter. That is a 15% drop in usage. We know these numbers are not exact because some of the
RF revenue came from selling discs. However, if we assume that approximately the same
percentage of total revenue came from disc sales in both quarters then the 15% drop should
still be in the ballpark regardless of how many single image units were actually licensed in
each quarter.

From other sources (not anything that could be interpolated from
Getty's reported numbers) we have indications that about 15% of the RF revenue comes from disc
sales and 85% comes from single image sales. Next quarter, it will be interesting to see if
there is a further decline in the total number of units sold, and if the expected increase in
average price per unit sold will be enough to offset the drop in unit sales.

Average Revenue Per Sales Employee

No information was provided this quarter on the average annualized revenue per sales employee.
Last quarter that number was about $900,000 (that would be about $225,000 per quarter) so we
assume there was little or no change. The company's goal is to achieve $1 million per sales
employee by year-end on an annual basis.

Geographic Breakdown

The geographic breakdown of sales worldwide was reported to have remained substantially the
same as last quarter. These numbers were:


Q1 2002   

Q4 2001   

North America   









The company reported net income of $4.5 million, or $0.08 per diluted share, for the second
quarter, compared to a net loss of $23.7 million, or a loss of $0.46 per diluted share, for the
same period in 2001. In 2002, the company adopted SFAS No. 142, under which the company
discontinued the amortization of goodwill. Excluding the impact of goodwill amortization, for
the second quarter of 2001, the net loss was $6.9 million, or a loss of $0.13 per diluted
share, on $115.9 million of revenue, as compared to net income of $4.5 million, or $0.08 per
diluted share, on $113.3 million of revenue for the second quarter of 2002.
Cash and short-term investment balances increased from $54.3 million at the end of the first
quarter to $86.9 million at June 30, 2002.

Copyright © 2002 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  


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