7GETTY ANALYSTS DAY
December 17, 2004
I want to acknowledge a complaint of some readers that I spend too much time writing about Getty Images. I'm aware of the concern, but given the company's dominance in the in the industry it seems that everything relates, in one way or another, to what's happening at Getty.
When Getty sneezes everyone else gets pneumonia. If you want to survive in this industry you cannot afford to ignore Getty's next move.
On the plus side Getty provides good, solid information, in much greater depth and detail than is the case for leading companies in most other industries. CEO Jonathan Klein should be commended for this, and while it certainly has benefited his company, its relationship with analysts, and its stock value, it can also benefit others in the industry when they take time to analyze what Getty is doing and where they are heading.
Often, after such analysis, many of us won't like the choices facing us, but they are the reality. Armed with information about where Getty is heading every company and individual in the industry should be able to better anticipate the future and make wiser decisions.
Recently, CEO Jonathan Klein and other senior Getty Images executives met in New York with investment analysts that follow the company and outlined some of the directions and initiatives the company intends to take in 2005. The following are some of the highlights of the event.
Growth In Volumes
Getty expects to see a 5% growth in the number of RM images licensed in 2005 and a 7% increase in the number of RF images licensed. Analysts Paul Coster of J.P. Morgan noted in his report to investors, "Increased volumes is a refreshing change from prior years, when most of the sales growth was fueled by price increases."
But, in 2004 Getty Images added about 28% more images to the Creative section of their site, and the number of images licensed only increased by about 1% when Q3 2004 is compared with a year earlier. Despite this significant increase in the number of images in the database there was a slight decline in sales on an annual basis. Thus, it would seem that at Getty's level of operation adding new images has little effect on the number of images customers will purchase.
One conclusion would be that Getty already has access to ALL the customers and that each of these customers uses about the same number of images year-to-year. Thus, the customers may like the fact that they have greater choice, and a large selection of newly produced images, but that does not cause them to actually purchase more images.
For the image suppliers, the growth in the volume of images on the site probably means that the average image will sell fewer times over the course of the year than was the case in the past. Each supplier must try to annually add more images than the average growth (that 28%) just to stay even with competitors on the site, or trust that license fees will steadily increase allowing them to earn more revenue for the licensing of the same or fewer images.
On the RM side of the business it is hard to see what has changed that will begin to generate growth after such level sales for the last two years. Possibly, Editorial buyers who Getty has been courting heavily in the past year may begin to buy more images from the Creative section of the site as well as Editorial images. If that happens it will probably mean a corresponding decline in sales for Getty's competitors.
In RF, Getty intends to make a significant marketing push to bring back some of the credit card customers that have been disappearing and this could add to the number of RF units licensed.
Robert Gubas, VP, Marketing for RF and Credit Cards said credit card buyers come from all major segments of the market, but they are distinguished by the relative small size of their operations. They tend to purchase only 1.2 times annually. About 75% of what they purchase is RF and the remaining portion is RM.
One of the major challenges is in finding a way to market to these customers and to remind them of Getty Images at about the time they are ready to purchase. To accomplish this Getty will be doing more frequent direct mail promotions and is exploring the use of Google and Yahoo to reach them. They have also introduced "RF Zone" which makes it easy for customers to search only for RF images. And they plan to create new Virtual CD's and Image Bundles.
Klein indicated that they were "looking at the possibility" of offering a Subscription Licensing Model (a low cost option that appears to be attractive to credit card customers) and told the analysts that they "may" see a subscription offering from Getty in 2005.
Getty intends to make an increased push into the International markets in 2005 by increasing the depth and breadth of "local" images (particularly in editorial). They also will be focusing more on non-English speaking countries.
Klein pointed out that much of their imagery has been produced in the English speaking areas or the world and marketed on a web site where the search is primarily in English. He believes that the opportunity for expansion in the non-English speaking countries requires content that is targeted toward each country's unique characteristics. And they also need to make it easier for buyers from non-English speaking countries to search in their local language.
To solve the content problem they will focus on adding Image Partners (3rd Party Suppliers) rather than getting the imagery directly from photographers. In some cases they will relocate some of their editorial staff photographers in an effort to expand their coverage in a certain area. They have recently relocated one photographer to Spain.
In 2005 the company will be particularly focused on expanding their sales in Germany and Spain and will introduce local language versions of their web site in these countries. They also believe they have found a way to let customers in smaller markets, such as Russia, search in their own language without building a total web site in that language. The roll out of this technique may begin in 2005.
Editorial revenue is expected to grow 18% driven by international expansion especially in Germany and Spain.
This focus on the international markets may mean that image suppliers in the U.S. and the UK will find it more difficult to get images accepted while suppliers from Italy, Eastern Europe, Brazil, Turkey, Middle East, Asia, Latin America etc. may discover that Getty is more open to considering their offerings.
While customers tell them that their search engine is the best in the industry, they have plans to improve it, not only by adding local content as described above, but in several other ways. They plan to develop systems to track the kinds of pictures individual customers use and advise them when new imagery on the same subject area is available.
They also want to "localize by relevance". For example, in Japan, the new Japanese imagery that they have recently added to the site comes up first in any given search even though it is a very small percentage of the total imagery available in any given search.
They intend to blend the creative and editorial sections of the site. Klein pointed out that due to the splitting of the site into Editorial and Creative, much of the content that might meet customer's needs is currently "not on the shelf". They intend to make it possible for customers to enter one search command and simultaneously search both the Editorial and Creative sections of the site.
Depth Of Search
Klein indicated that Getty serves 1.5 billion thumbnails a month which raises some interesting questions. They license rights from the Creative section of the site to about 112,900 images per-month. This would mean that over 13,280 thumbnails are delivered for review for every image licensed.
The 1.5 billion undoubtedly includes Editorial images and there is no way of determining how many of these images are actually used, but given the much smaller amount of revenue the Editorial side of the business generates it would be surprising if it is an equal number of images. In addition, there will be people who search and end up purchasing nothing. Photographers check to see if their images are online. And the staff prepares lightboxes and does research that may or may not result in sales. There also may be a lot of unpaid web use if the Getty site experiences the same ratio of unauthorized use that PicScout is finding on other web sites (See Story 641). Even considering all these factors the 1.5 billion is an amazing number.
Not mentioned in the meeting with Analysts, but something to think about given these numbers is the number of thumbnails customers are willing to review to find the particular image they want. In talking to another portal manager, he indicated that the average for his site is about 300.
I also did a story 681 in November outlining changes Getty made in September in how search results are delivered to customers. For many of the suppliers this meant that in the first 270 images delivered from each search a much smaller number of their images were being shown than had previously been the case. I predicted that this might result in a decline in sales for some of these suppliers. The surprising thing is that several of the suppliers have indicated that in the first two months after the introduction of this new search algorithm, their sales did not fall off but, in fact, increased.
I'm not sure what all this means. It may indicate that serious buyers are willing to review many more thumbnails than most of us had previously thought, or that the buyers are employing searching techniques that allow them to find images that would normally be buried deep in the search return.
If buyers are willing to review so many images, it may mean many sellers need to revise their thinking relative to strategies for populating web portals.
One analysts asked if a platform battle would eventually take place in the industry if Adobe starts offering images? Adobe's Creative Suite currently offers page layout and image editing and adding image aquisition to that might be a powerful incentive for designers to stay with one platform. Klein responded that Adobe does intend to launch a new version of Creative Suite in 2005, but he feels it is not a threat because:
- Adobe does not intend to create any content themselves,
- Their intentions are to represent royalty free exclusively,
- Getty is partnering with Adobe and sees them as another distribution channel for their content, and
- Adobe does not intend to supply any customer service whatsoever such as having a call center where people can help with file sizes, rights or other issues.
Klein said, "if they don't have content from Getty it is a bit like selling soft drinks without having Coke or Pepsi."
Other Points Of Interest
Klein does not think that Visual Search will be a benefit to the industry. He says this is what their customers have told them. Getty is certainly talking to more customers than everyone else in the market combined. If they are right the agencies that are moving ahead with Visual Search technology may find that it is a wasted effort. On the other hand if they are wrong then Visual Search may offer those who employ it a strategic advantage over Getty and those who buy in to Getty's strategy. It is worth recalling that at one time customers were also saying that they didn't want online searching at all.
Currently Getty has about 7,000 Japanese oriented images in the database and expects to add 20,000 new Japanese images in 2005. The expect to earn about $8 million in 2004 and have 50% growth in 2005 to $12 million. Their projections are to reach $50 million in sales in Japan in 5 years and if they can accomplish that it would represent about one-quarter of the total Japanese market according to most estimates.
Getty plans to increase their spending to create wholly owned content in 2005. Undoubtedly, they will use their statistical resources to generate images of the subjects that are in greatest demand.
The company has 110 staff photographers on Editorial side of the business.
They expect to make an announcement about doing something in India in the first half of next year
They believe there is no ceiling on where they can go in pricing RF.