Getty Images, Inc. has announced that it has agreed to acquire Visual
Communications Group (VCG), its largest competitor, from United News & Media
PLC. for $220 million.
The acquisition will be financed through the proceeds of a convertible
subordinated note offering by Getty Images. It is expected that Getty will
seek to raise $250 million with this offering.
The various companies that make up VCG are: FPG, Telegraph Colour Library,
Bavaria Bildagentur, Pix, Definitive Stock, Giraudon, Planet Earth, Space
Frontiers and Colorific.
VCG's gross sales in 1999 were $90.7 million with $6 million in operating
profits. Based on figures for the first six months of 1998 provided by UN&M in
their June 30, 1999 interim report, 1999 revenue and profits closely matched
1998 indicating no growth since January 1999. Getty's gross sales in 1999 were
$247.8 million which included 39 days of The Image Bank income as a result of
Getty's purchase of TIB late last year.
Investment bankers on Wall Street are being told to expect VCG's sales to be
flat in 2000, and to expect a 12% growth in 2001.
Robertson Stephens is predicting that Getty's revenues for 2000 will be in
excess of $440 million. If Getty reaches that figure it would mean that close
to 35% of all the sales in the industry will be made by a Getty brand.
Getty is scheduled to start the "Road Show" this week to tell their story to
major investors around the country. They will price the offering the week of
March 6th. The deal is expected to close before the end of March.
Hart-Scott-Rodino approval (relating to monopoly of an industry) has already
been received. Deutsche Banc Alex Brown, Morgan Stanley Dean Witter and Cowen
& Company will be underwriting the offering.
Evidently, there were six companies in the bidding and Corbis had the next
highest bid at approximately $200 million.
Following the acquisition, Getty Images' collection will be in excess of 70
million images and more than 27,000 hours of footage.
Challenges For The Future
One of the challenges will be the integration of four separate and distinct
competitive brands -- Tony Stone Images (Stone), The Image Bank, FPG and
Telegraph Colour Library -- that have competed head to head for the same
clients. When Getty purchased TIB they said they would maintain that brand
distinction, but three months later they already far along in the process of
closing the Dallas headquarters, and are terminating some long time employees
in key positions within that organization.
Given the oversupply of images in the industry it would not be surprising to
see staff reductions at FPG and the Telegraph Colour Library in the near
future. One thing photographers with these agencies, and TIB, should track
closely is the number of their images that make it to the Gettyone site.
Images that are not placed on-line as part of the consolidation will probably
have little chance of sale. File research at these agencies is likely to
Stone photographers, who attended a meeting in New York in January, came away
with the understanding that Getty believes there is little potential for
additional growth in rights protected sales from traditional buyers. Getty's
answer to this problem is to produce an even higher level of imagery that will
encourage art directors, who typically get the images they need by hiring
photographers to do assignments, to turn to stock.
(See Story 279) .
Since it was felt that TSI needed to be re-branded in order to appeal to these
art directors, it is hard to imagine that the Stone brand would now be expanded
to include TIB, FPG and Telegraph. More likely, a few photographers will be
invited to switch to the Stone brand, much as Liaison photographers were
invited to switch to TSI a year or so ago. The rest with TIB, FPG and
Telegraph will probably be marketed as a separate middle level of "rights
protected" stock in the middle between RF and the "Stone" brand.
Keep in mind that only about 200,000 of the 70 million images are on-line.
Getty says that over 80% of their income comes from these 200,000 images or
1/350th of their total file. I will be greatly surprised if Getty spends a lot
of energy trying to integrate much of the non-catalog images from these other
companies into their system. The costs are certainly likely to outweigh the
Another interesting question is the future of new catalogs scheduled to be
produced by TIB, FPG and Telegraph. Are such products needed, or will they
simply dilute sales or the Stone brand. There is definitely a question as to
whether the volume of catalogs produced by these for major suppliers in the
past couple of years is necessary or desirable. One way to cut overhead
quickly is to produce fewer catalogs. This will particularly be true as Stone
consolidates their mailing list to make sure they are mailing to all the
customers of the other agencies.
Finally, what happens to iSwoop, FPG's new entry in royalty free? It had the
potential of giving FPG a competitive position against PhotoDisc and Corbis
Digital Stock, but considering that it is just getting off the ground and
building a client base, is it needed now? My guess is that some of the images
may be folded into the PhotoDisc offering and control of all new production
will migrate to PhotoDisc.
Six to nine months after the VCG acquisition is completed, Getty will be faced
with a very interesting problem. In order to keep their investors happy they
must keep growing the business on a quarterly basis. Up to now their growth
has been generated principally through acquisition, and capturing market share
from their competitors, rather than a real growth in sales. This has been
particularly true in the past year. Now they own the competitors and there is
little left to acquire of any significance.
Some of the options that might be available to them:
- Not worry about sales growth as much, but focus on cost cutting as a way
of increasing profits.
- Acquire other companies outside the still stock photo industry to continue
- Sell to a much larger company that for some reason wants a postion in the stock photo industry.
We live in interesting times.