I’m getting more frequent requests from long/short hedge fund investors about Getty Images’ turnaround potential in 2015. Getty’s $550 million of 7 percent unsecured notes due in October 2020 are selling for approximately 50 cents on the dollar. Investors are trying to determine if that is a good price, or if they could go even lower. (Getty also has about $2 billion in additional debut.) Here’s some of what I tell them.
It is my understanding that 2014 gross revenue for Getty Images was $869.4 million. The approximate breakdown is as follows:
| |
Millions |
| Premium |
$280 |
| MidStock |
$252 |
| Editorial |
$264 |
| Video |
$73 |
Getty’s gross revenue has declined every quarter for the last 8 quarters. Revenue in 2014 was up for Editorial and Video, but down for Premium and Midstock.
It is also worth looking at Getty’s gross revenue trends since 2005. I don’t have revenue for all the years when the company was privately held, but here are some of the figures that have been reported.
| Year |
Revenue |
| |
Millions |
| 2005 |
$733.7 |
| 2006 |
$807.3 |
| 2007 |
$857.0 |
| 2011 |
$945.0 |
| 2013 |
$884.0 |
| 2014 |
$869.4 |
In 2006 Getty’s Premium sales (RM and RF) were $634 million. In 2014 they were down to $280 million. In 2006 revenue generated by RM and RF was about evenly split, but RF only represented about 45% of the 1,767,214 images in the Premium collection. By 2014 they had over 10,000,000 images in the collection, and 60% of that was RF. The percentage of the $280 million that was generated by RF is not available, but based on the growth in the number of RF images I suspect it was greater than 60%.
In 2006 Getty licensed a total of 1,661,696 images almost one license for every image in the collection. In 2014 they licensed fewer than in 2006 (I don’t have the exact number) and there were 5.6 times the number of images in the Premium collection as in 2006.
In 2006 the average price of an RM image licensed was $536 and the average price of an RF image was $292. Based on analysis of gross 2013 sales reported to a few of Getty’s top earning contributors the average price of an RM license had dropped to $299 and the average for RF had dropped to $133. There is every reason to believe that the price was even lower in 2014.
In summary they are adding more and more images to the collection and licensing fewer of them at lower prices.
Turnaround
There is almost no chance that Getty will regain any market share in the Midstock or Premium space. I expect revenue overall will continue to decline. The only question is how much, how fast.
What Getty reports as Midstock includes Thinkstock and Photos.com as well as iStock. I think about $30 million of the $252 million in 2014 came from Thinkstock and Photos.com so I am placing the iStock revenue at approximately $220 million. About 75% of that, or $165 million, came from the licensing of iStock exclusive images that are priced 2 to 3 times higher than Shutterstock’s single image prices.
It seems likely that the licensing of exclusive images will continue to decline. Getty cannot lower the prices enough to compete with Shutterstock. Getty tries to argue that their exclusive images are “of higher quality” than the images available at Shutterstock. However, image buyers don’t seem to be buying that argument. Very few care whether a particular image can be found only on iStock or whether it is also available on lots of other sites. What is important is how well a particular image works for their current project.
If Getty were to eliminate exclusive pricing and allow those contributors to also place their images on Shutterstock, Fotolia, Dreamstime and other microstock sites in addition to iStock they would have to make three times as many sales just to stay even revenue wise. Such a move would greatly anger the exclusive contributors and cause great disruption. At the very least a lot of these contributors would stop adding new images to iStock (
already a significant percentage of the top producers have stopped). This would certainly result in a lower quality offering.
On the Premium side of the business it seems that fewer and fewer customers feel the need to search collections of RM images that must be licensed based on usage. Given the huge explosion of quality images available as RF, most customers can find what they need in royalty free collections somewhere. I believe that less than 1% of the images licensed worldwide in 2014 were licensed based on usage. Over 99% were licensed using some type of RF license that allowed unlimited use. Moreover, in order to try to hang onto customers Getty is licensing as much as 25% of its RM uses for fees lower than $25, and often for prices lower than microstock.
In addition Shutterstock is aggressively going after the customers that use Premium RM images. Their Enterprise division is particularly focused on reaching out to the major big budget customers and supplying them with all the special services those customers used to expect from RM sellers. Some of their Enterprise sales can be as high as $250 to $500, but the vast majority are at much lower prices. I believe that in 2014 Shutterstock generated about $60 million from its Enterprise division that also includes Offset.com. That coupled with its Image-On-Demand revenue probably represented about $170 million in total revenue. That is probably more than Getty’s total revenue generated by RM licensing. Clearly, Getty Images is no longer the only game in town, or even perceived by customers as their primary source for images.
Prices Could Go Lower
There are lots of start-ups that are aggressively going after content via the social media route. A small percentage of it is very good, made available at very low prices. To the degree customers find it and use it will undercut the demand for higher priced content.
While the demand for photography may be growing (Getty’s numbers certainly don’t show it) prices customers are willing to pay for photos and illustrations are declining more rapidly. The net result is that gross revenue generated by the industry is probably growing at a rate no greater then 5%. From the image creators point of view this revenue is being divided among a significantly larger number of creators meaning that everyone ends up with less.
A major factor in consider relative to future revenue growth is how Adobe will handle its recent acquisition of Fotolia. Subscription prices for Fotolia, Shutterstock and iStock non-exclusive image are about the same (iStock exclusive images are priced much higher).
But single image prices (Images-On-Demand) for Fotolia range from $2.80 to $3.60 for images that will be used online to around $6.00 for images used in print. Customers can also join Fotolia’s “Dollar Image Club” and get 10 images for $10. Images on Demand on Shutterstock and non-exclusive images on iStock are in the $10 each range. This is a big difference and one Adobe should be able to leverage.
All in all, expect prices to continue to fall.