On February 24th at an invitation-only conference hosted in Miami by JPMorgan Chase & Co. Getty Images executives told investors that midstock revenue had declined 15% in Q4 2014 compared to Q4 2013. This decline was on top of a 9.8% decline in Q3 2014 compared to a year earlier. Getty’s midstock division includes iStock, Thinkstock and Photos.com.
In the spring and summer of 2013 Getty made a serious effort to turn
Thinkstock into a strong competitor to Shutterstock’s subscription service. In addition in April of 2014 Getty launched an
iStock subscription service in an attempt to further improve its competitive position. Back in December Moody’s reported that more than 25% of Getty’s midstock revenue was coming from subscriptions.
Based on Q3 2014 sales figures, I estimate that gross midstock revenue in 2014 was about $250 million. If subscriptions represent 25% of that then the subscription segment of the business would be about $63 million. I estimate that Thinkstock and Photos.com represent about $30 million of the midstock business and the bulk of that (roughly $23 million) is in Thinkstock subscriptions. Based on these numbers total revenue generated by iStock would be about $220 million with $40 million of that (18%) for subscriptions. That leaves about $180 million in iStock single image sales.
It is also important to note that Getty has reported that 75% of its iStock revenue ($165 million) comes from the licensing of exclusive images. In addition, I estimate that in 2010 iStock revenue was between $350 and $375 million which means that over a four year period annual revenue for iStock has declined almost 40%.
According to Bloomberg, “Getty… told holders of its $2.46 billion of debt that it depleted a third of its cash during the last three months of 2014, leaving it with $27 million….It had almost $41 million three months earlier.”
As of Tuesday Getty’s term loan due in October 2019, dropped 4 cents to a record-low of 86.8 cents on the dollar, according to prices compiled by Bloomberg. Getty’s $550 million of unsecured 7 percent notes maturing in October 2020 have fallen 6.25 cents to 63.25 in the past two days and traded at a record-low 57.75 cents Tuesday, according to the Financial Industry Regulatory Authority’s Trace price-reporting system.
Can Getty Turn It Around?
Getty told Bloomberg that iStock has “8 million images that competitors don’t have.” The problem is that subscription access to these “exclusive” 8 million images cost $3,999 a year compared to $2,388 at Shutterstock. If the customer needs access to iStock exclusive images or videos for just one month they can get it for $499, but Shutterstock will give the customer up to 350 images in one month for a fee of $149.
Subscription access to iStock’s non-exclusive images (about another 8 million) is slightly cheaper than Shutterstock’s prices, but not enough to drive most customers to switch. Shutterstock has over 45 million images to choose from (compared to iStock’s 8 million) and virtually all of iStock non-exclusive images are also available on Shutterstock.
Of interest is that while Getty has been trying to develop a subscription business to compete with Shutterstock, Shutterstock has been going in exactly the opposite direction. They have found ways to charge more and are aggressively going after customers who are willing to pay higher fees for the right image, at the right time, and in some cases for additional services.
Shutterstock started out as an all-subscription company. But they have discovered that the image needs of many customers vary greatly project-to-project and month-to-month. Often subscriptions are not the most cost effective way for a customer to acquire images. Many are willing to pay a little more for just the right image. For example at Shutterstock customers pay on average $1.25 for every image downloaded through a subscription, but many are willing to pay about $9.50 for a single image.
While subscriptions currently represent over 90% of image downloads they only represent a little over 40% of Shutterstock’s gross annual revenue. Single image licensing, not counting video, represent approximately half of the company’s total revenue. The chart below gives an idea of my latest estimates of the breakdown of Shutterstock’s 2014 revenue.
| |
Revenue |
Percent |
Price per |
Total |
| |
Breakdown |
Total Rev |
Download |
Downloads |
| |
|
|
|
|
| Subscription |
$137,760,000 |
42% |
$1.25 |
110,208,000 |
| Image on Demand |
$95,120,000 |
29% |
$9.50 |
10,012,632 |
| Enterprise |
$65,600,000 |
20% |
$15 |
4,373,333 |
| Video |
$29,520,000 |
9% |
$60 |
492,000 |
| |
|
|
|
|
| |
$328,000,000 |
100% |
|
125,085,965 |
Will Increased Marketing Solve Getty’s Problem?
Shutterstock has no debt and plenty of cash for marketing. In 2014 Shutterstock spent about $85 million on marketing.
According to Bloomberg, “The weak performance (in Q4 2014) is squeezing Getty’s access to credit because of terms of its $1.9 billion loan limit borrowing when debt is more than six times its EBITDA. That ratio was already eight times as of Sept. 30, according to a Dec. 16 Moody’s report.”
“The company can’t draw more than $30 million on its $150 million revolving credit line due October 2017 because doing so would run over the leverage test, Moody’s said in the report. Tripping the covenant would trigger a breach of its debt terms and risk a technical default.” The short answer is that Getty can’t increase its marketing spend even if it wanted to.
Other Options
If Getty were to lower its price on “Signature” subscriptions to match Shutterstock it might be enough of an incentive to cause some Shutterstock subscribers to switch, but it seems highly unlikely that enough would switch to offset the lower price.
And any addition move to lower prices would certainly cause exclusive contributors to either switch to non-exclusive and start uploading their images on Shutterstock and other sites, or simply stop producing new images. Either action would lead to further revenue declines for iStock.
All in all it seems highly unlikely that Getty will be able to turn its midstock business around. Further declines can be expected.