Getty's Year 2000 Results

Posted on 2/9/2001 by Jim Pickerell | Printable Version | Comments (0)



February 9, 2001

Getty Images, Inc reported 4th Quarter 2000 revenue of $129.4 million, up

less than 2% from $127 million in the 3rd Quarter. Gross revenue for all of

2000 was $484.8 million.

Getty has reported minimal quarter-to-quarter revenue growth all year.

Getty's pro forma revenue for 1st Quarter 2000 was $124.9 and some minor

acquisitions in June and the buy back of TIB's London operation should have

added revenue.

The basically flat 3rd Quarter to 4th Quarter sales are all the more amazing

considering that PhotoDisc, which represents almost one-quarter of Getty's

gross sales, instituted a 20% to 25% price increase (depending on the size of

file ordered) in September. This alone should have resulted in more than $5

million in increased revenue for the 4th Quarter if sales had remained level.

CEO, Jonathan Klein also reported the average sale for Stone in North America

is about $660 per image used. This is up from just a little over $500 the

previous year. Stone NA should represent in excess of one-eighth of Getty's

total revenue. If prices in NA are up this much, but quarter-to-quarter

revenue is flat, it must mean that the number of units sold is down.

When questioned by stock analysts during the conference call Klein refused to

acknowledge that there was any evidence in a slow down in sales volume.

Analysts had been predicting that Getty's 4th Quarter revenue would be $133

million. This was the first time in the company's history that it failed to

meet analysts' quarterly expectations. Getty did exceed analyst estimates for

EBITDA with a total of $30.7 million or 60 cents per share. Analyst

estimates were 56 cents per share.

    "EBITDA" is defined as earnings before income taxes, depreciation,

    amortization, interest, exchange gains and losses and, when applicable, loss

    on impairment, debt conversion expense, integration and restructuring costs,

    extraordinary items and other income and expenses. EBITDA should not be

    considered as an alternative to operating income, as defined by generally

    accepted accounting principles, as an indicator of our operating performance,

    or to cash flows as a measure of our liquidity.

The shortfall in revenues was attributed to the company's consumer operation, This division represents about $19.2 million or approximately 4% of

Getty's total revenues. Revenues for the 4th Quarter were about $4 million

under expectations. Losses were $13.3 million for the year. Klein said that

Getty would not allow the consumer operation to become a drain on earnings in

2001. The company is reducing staff at by more than 50 people and

evaluating alternatives, including the "potential disposal of the business,"

according to Klein. In their projections for 2001 Getty does not any revenue

for beyond the 1st Quarter. (A little less than two years ago Getty

purchased for shares and cash worth $135 million, and has had

continual losses since the acquisition.)

Klein also noted that 4th Quarter revenues were lower due to a strong dollar

and that on a currency neutral basis revenues would have been $135 million

for the quarter.

Analysts interpretations of the news was reserved, but basically positive.

The stock was up almost 7% to 27 5/8 the day following the announcement.

Web Sales

E-commerce sales represented almost $49.3 million of the 4th Quarter revenue,

or over 38% of total revenues. Separating out VCG which Getty has only

started to e-commerce enable, 43% of all sales were on the web. For the whole

of 2000 there was $165 million in e-commerce sales, or 34% of all revenue for

the year. This was a 134% increase in web sales over 1999. In the 4th Quarter

more than 40% of Stone sales were e-commerce; more than 60% of PhotoDisc

sales; about 60% of Allsport sales and more than 70% of EyeWire sales.

Klein said, "We expect that substantially all of our North American business

will be on the web in 3 years and substantially all worldwide business in 5

years. The trend is all in one direction and that is more on the web."

    It should be noted that an e-commerce sale is one where the customer

    uses the web to search for the image, but does not necessarily pay for the

    transaction on the web, or receive delivery on the web. Getty classifies a

    sale as "digital" or "analog" based on how the image is delivered. If a

    image is delivered on the web it is classified as a "digital" sale. If any

    type of "hard copy" is delivered it is called an analog sale. Thus, if a

    digital CD-ROM disc is delivered to the customer it is classified as an

    "analog" sale for Getty's accounting purposes. Getty has not provided any

    statistics as to the percentage of sales that are "digital," but many

    photographers report that they have very few sales where Getty takes a

    digital royalty share as opposed to the lower (for Getty) analog royalty


Royalties To Creators

Klein said that in 2000 they paid about $120 million to photographers and

filmmakers which is a little less than 25% of total revenues. Rights

Protected photographers should recognize that Getty wholly owns its Hulton

Getty collection, most of the material handled by AllSport and much of the

PhotoDisc imagery. Thus, if we only looked at the revenue generated by those

who are entitled to royalties, the average paid would undoubtedly be

somewhat higher.

The company's average gross margin grew from 70.5% in the 3rd quarter grew to

72.5% in the 4th Quarter and was led by faster growth at Stone.

Klein mentioned that later this quarter Getty would be introducing a new

contract that would provide "fair and equitable treatment to photographers

across all brands." He said, "Getty Images has been, and will continue to

be, a financial gold mine for high quality commercial photographers. There is

no doubt that the contracts are more favorable to our photographers than the

contracts that we inherited with the acquisitions of VCG and The Image Bank

and there are also many improvements to the terms concerning photographers.

Nevertheless, we do not expect this contracts to have a material impact on

our 2001 financial results and the guidance (2001 expected revenue of $550 to

$565 million) includes the implications of the new contract."

In her report Rebecca Runkle of Morgan Stanley Dean Witter said, "One method

to monitor the success of the new contract is to watch the speed with which

the VCG/TIB photographers transition (the faster the better). Getty doesn't

expect these changes to have a material financial impact, as the reduced

rates from the web sales are expected to offset higher outlays due to

expanded territories."

During the conference call the analysts showed little interest in, the

photographer contract or the recent letter from the StockArtistsAlliance

outlining issues of concern that were not dealt with in the contract outline.

Story 375 .

Likewise, the analysts showed no concern about the Penny Gentieu lawsuit

or the recent ASMP letter to the SEC.

Story 376 .

Other Items Of Interest

Image Bank sales grew over 10% in the 4th Quarter compared with 4th Quarter

1999 and the sequential growth between 3rd Quarter 2000 and the 4th Quarter

was 10%.

Sixty-five percent of Getty's revenue comes from creative professionals that

work for advertising agencies and graphic design firms. Other customers

include: Publishing (Newspapers, magazines and web sites) 17%, Corporate

Accounts 10% and Film 8%.

Fifty-nine percent of sales were in North America, 36% in Europe and 5% in

the Rest of the World.

TIB sales grew over 10% on the 4th Quarter compared with 4th Quarter of 1999.

Sequential growth from 3rd Quarter to 4th Quarter was also 10%. VCG did not

grow in the 4th Quarter compared with the 3rd Quarter.

Klein also acknowledged that there was some weakness in film sales.

Expected Sales In 2001

The company lowered its revenue guidance for 2001 from a growth of 20-22% to

14-17% and estimated that sales would be between $550 million and $565

million. The company had a net operating loss of $0.67 vs. $1.50 previously.

Flat Revenue Analysis

Flat revenue implies that pricing gains are COMPLETELY offset by unit sale

decreases. Are the recent price increase driving down unit volumes, and does

that mean that Getty (or others in the industry) should cut prices to

increase volume? My belief is that there are two other factors that are

having more of an effect on unit volumes than price.

First, there is strong anecdotal evidence from other suppliers to indicate

there was a reduction in the number of calls in November and December. This

seems to be continuing in January. I believe some images user have been

delaying or cancelling projects as they try to retrench with the anticipation

of a slower economy. This is happening not because the picture (a very minor

part of the total project cost) is to expensive, but because they need to cut

the total expense of the project itself. For the most part buyers are not

going to other cheaper sources, but are simply reducing their overall buying.

Secondly, in the Royalty Free area another thing seems to be happening. For

years RF buyers kept ordering new discs with 100 different images every time

they needed a new image for a new project. They would bill the cost of the

disc to the client and throw the disc in a box in the corner of their office.

Now, as the economy begins to get tight for these graphic designers they go

to that box in the corner, find an image they can use on their next project,

and bill their client an image usage fee of which they get to keep 100%. If

there is a real slow down in the economy, the Royalty Free strategy of

selling each customer their own individual library could finally come back to

haunt the RF producers, and the entire industry.

In the last recession there was no RF so Rights Protected stock benefited,

when the costs were compared with assignments. In the next recession the RF

libraries that have already been sold may be the lowest cost option for the


Additional Figures From Press Release

Revenue for the fourth quarter of 2000 was $129.4 million, a 61.9 percent

increase over revenue for the fourth quarter of 1999. For 2000, revenue was

$484.8 million, a 95.6 percent increase over 1999 revenue. Organic revenue

growth in the fourth quarter, excluding all acquisitions made in the last

twelve months, was 26.4 percent and was 29.4 percent for 2000. On a currency

neutral basis, revenue for the fourth quarter was $135.0 million,

representing revenue growth of more than 68 percent over the same period in

1999. E-commerce revenue in the quarter more than doubled over the fourth

quarter of 1999 to just under $50 million, representing 38 percent of total

sales for the company.

EBITDA increased 225 percent over the fourth quarter of 1999 to $30.7

million, or 60 cents per share, exceeding average analyst estimates of 56

cents per share. The EBITDA margin increased from 11.8 percent in the fourth

quarter of 1999 to 23.7 percent in the fourth quarter of 2000, and increased

from 14.1 percent in 1999 to 19.5 percent in 2000. For its

business-to-business operations, the company achieved EBITDA in the fourth

quarter of $34 million at an EBITDA margin of 27.4 percent, and in 2000, the

company recorded EBITDA for business-to-business operations of $108.7 million

at an EBITDA margin of 23.4 percent.

After tax cash flow for the fourth quarter was 44 cents per share, compared

with 21 cents per share in the fourth quarter of 1999 and compared with the

First Call estimate of 41 cents per share. After tax cash flow per share for

the year was $1.39, compared with 80 cents per share in 1999.

Copyright © 2001 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 301-461-7627, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of, 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:  


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