Sell to a much larger company that for some reason wants a postion in the stock
We live in interesting times.
Story 283 GETTY FOURTH QUARTER
February 10, 2000 - Getty has announced their 4th quarter results for the year ending
December 31, 1999. They had $79.9 million in sales in the 4th quarter up significantly
from $60.8 million in the 3rd quarter. Their total sales for 1999 were $247.8 million.
This growth was partially due to the acquisition of The Image Bank in November, but TIB
sales accounted for only $8.7 million of this growth.
TIB revenues for the first six months of 1999 were $38.1 million. Thus, if they had zero
growth in the second half they should have generated approximagely $7,933,150 in sales
for the 38 days they were owned by Getty. In fact, they generated $8.7 million in sales
which is $766,850 higher. This would indicate 10% growth for the second half of the year
if sales levels were consistent throughout this period.
The Consumer Channel of Getty's business showed significant sales growth. This Channel
which includes Art.com and American Royal Arts (acquired in October 1999) achieved sales
of $4.3 million in the 4th quarter and $6.1 million for 1999. However, due to continued
investment in Art.com, principally to generate sales, there was a $5.8 million EBITDA
loss in the Consumer Channel.
The percent of the business generated from e-commerce continued to be strong in the
fourth quarter with $24.5 million in sales. This was a little over 30% of total sales.
Twenty percent of Tony Stone Images sales in the fourth quarter were from e-commerce.
Over 50% of PhotoDisc sales were e-commerce at the end of 1999. It is worth noting that
in the third quarter before TIB joined Getty 32% of gross sales were e-commerce, possibly
indicating some leveling of e-commerce sales as a percentage of the total. Actual sales
did grow from $19.4 million in the third quarter to $24.5 in the fourth quarter. Total
e-commerce sales for the year were $67.9 million or 27.4% of gross sales.
If we exclude TIB's sales from Getty's total then e-commerce represented 34% of total
fourth quarter sales. Getty argued that TIB's sales figures should be excluded when
calculating percentage of e-commerce sales because TIB had not been fully integrated into
the Getty e-commerce system. However, they also pointed out that part of the reason for
TIB's high fourth quarter participation in their bottom line was the fact that they had
begun to make sales through www.gettyone.com.
In October, 1999 we reported that earlier in 1999 Mark Getty had stated that in five
years all of Getty's image delivery would be digital. Jonathan Klein has also been quoted
in several places as saying Getty's entire business would be on the web in three years.
Now Robertson Stevens, a lead investment bankers for Getty, is telling their clients,
"Getty is targeting eCommerce to contribute 50-60% of total revenues in 3-5 years."
One interesting thing is the growth in EBITDA (profits). Morgan Stanley, Getty's lead
investment banker, had estimated that sales for the quarter would be $61 million, and
that EBITDA would be $9.1 million. In fact, sales were up almost $19 million over Morgan
Stanley's estimate, but profits were only $300,000 higher than expected, or $9.4 million.
The fact that there were so little profits from the additional sales could indicate heavy
promotion expenses. Getty did acknowledge in a conference call to investors that they had
(1) higher costs in advertising, particularly for Art.com, (2) acquisition costs (3)
continued investments in management, new sales offices, and business systems and (4) the
completion of the relocation of the corporate offices from London to Seattle.
Morgan Stanley is estimating that Getty, with its current brands, will have $374 million
in revenue in 2000 and EBITDA of $62.5 million or $1.31 per share. (This was before the
New Lines Of Business
In line with its strategy to increase the range of products and services Getty supplies
to customers they purchased LicenseMusic.com, the first complete one-stop source for
music licensing and purchasing over the Internet, in the 4th quarter. LicenseMusic.com's
audio content will be available in the year 2000 on gettyone.com
Story 279 GETTY TELLS INVESTORS
Getty is having trouble getting the story they tell investors to match what they tell
In October when Getty was trying to sell 6 million shares of stock they were telling
investors that the world wide market for stock photography was between $4 and $5 billion
annually. (At that time I was saying it was a $1.25 billion annual market. I still stick
with that number.)
In order to attract investor interest, Getty must convince them that there is great
potential for growth in the stock photo business, not that it is a mature market with
little upside potential.
Investors would have been unlikely to bid the stock price up so dramatically, if they
realized that the various Getty brands already controlled almost one-quarter of total
sales in the market.
At the Morgan Stanley Dean Witter Internet Conference in early January, MSDW made the
following statement about Getty's potential. "Commissioned phototgraphy is another new
area for Getty. The company had not participated in this $3.5 billion market in the past,
only the $1.5 billion non-commissioned photography market (or stock photography). With
gettyone.com, professional photographers can pay a subscription fee to have their images
posted on the site. Getty's 300--350,000 registered users can access these photos (which
are posted at no cost to Getty), or commission full professional photo shoots (at Getty's
expense, but generates high returns). The vertical portal allows Getty to participate in
a large market where it previously had no presence." (MSDW is Getty's lead investment
banker. They certainly checked these numbers and these statements with Getty before
Note that the stock photo side of the business has suddenly dropped to $1.5 billion. Now
they are going to try to grow their business by converting those photo users who have
traditionally obtained their images by commissioning assignments into stock photo
$3.5 Billion In Assignments
We also need to look at the $3.5 billion figure for the assignment market and not let
that stand unchallenged. This number is much more difficult to pin down than stock sales
because so much of the work is done by thousands of sole proprietors who are not
represented in any way by organizations that collect data on their income.
My guess is that actual figure may be much smaller. One thing is certain. A huge
percentage of the assignment business is for product related shots and fashion. No stock
or generated images will ever be satisfactory for the creatives doing this type of work
because they need the product in the shot. Thus, even if Getty were wildly successful in
capturing 100% of the market for generated images, it would represent only a small
fraction of $3.5 billion annually.
They also have to compete with all those assignment photographers who are very creative
and have built solid personal relationships with creatives making the assignments.
In addition Getty should be concerned about their own photographers heading back to the
assignment market. Rather than shoot on speculation for Getty Art Directors who have no
money to pay them, it would seem to make more sense for many of Getty's top shooter to
market directly to those art directors offering assignments. Then they would only do
work when there is an actual commitment that they will be paid for their efforts.
One small example that this may be the way the photographers are thinking. Flour
Corporation, in Orange County, CA just completed the shooting for their latest annual
report. The art director said he reviewed more portfolios for this project than he has
seen in years. Most of the photographers said they had been shooting stock, but that
market is changing and now they are returning to aassignments.
Story 279 GETTY TELLS PHOTOGRAPHERS
On Friday, January 21st Tony Stone Images (recently re-named "Stone") had a session in
New York with 80 to 100 of their top photographers to explain the "evolution of the
brand," and to deal with other photographer concerns.
Speaker at the conference pointed out that the existing stock photo market has reached a
point of saturation. The only way to expand is to find photo users who have, for one
reason or another, up to now, not been using stock -- i.e. those who commission
Third Way To Source Photography
Stone's extensive market research has revealed that the high end buyers who rely on
assignments to acquire their photography, view stock as "worthless" and a "shopping bag
full of rejects". According to the findings, creatives feel that all stock has a
distinctive look and that it is not an option for a high end ad campaign.
In order to get the attention of these high end creatives, Stone has determined that it
needs to re-brand itself and create a third way to source photography. They call this
"generated" photography. It will be distinguished as separate from assignments and stock.
On the production side "generated" photographs will further raise the creative bar. The
images will be extensively art directed after careful research into market trends. All
will be generated in advance of any specific client need and made available for licensing
later on, just like stock.
Getty has had a team going through magazines to identify images that were produced on
assignment, but could have been stock. This information will be provided to Stone
photographers who agree to work closely with Stone art directors to produce, at the
photographer's expense, the kinds of images the market research says will be needed.
Aside: One attendee who attended has done a lot of work for Coca Cola over the
years, suggested to some of his friends that sometimes very high priced market research
can be fatally flawed. Remember Classic Coke!
It was not explained how "Stone" would be marketed except to say that a major marketing
campaign will be launched in February.
If the primary promotion vehicle is "Gettyone," as the MSDW statement implies, art
directors may get the impression that "generated" images are more, rather than less,
stocky. One complaint about "Gettyone" is that the inclusion of PhotoDisc, EyeWire,
Hulton Getty, etc. with TSI images has made the total offering look more low end, than
high end, in terms of visual impact. If the creatives Getty wants to reach consider stock
a "shopping bag full of rejects," the Gettyone site is not going to change their minds.
Stone made it clear to the photographers that they do not intend to represent
photographers for assignment work -- something that had been speculated by a number of
photographers after the MSDW announcement.
Since that is not Getty's intention, much of the MSDW statement makes no sense. Nothing
was said about "commissioning full professional photo shoots (at Getty's expense)." It
was indicated that if an art director wanted to commission a particular Stone
photographer for a specific shoot Stone would probably provide the photographer's phone
number, but that they do not want to get in the business of marketing for assignment
In addition nothing was said to the photographers about "professional photographers
paying subscription fees to have their images posted on" Gettyone. Maybe Getty hasn't
figured out how, or when they will do this. Or maybe they have totally changed their mind
in the two weeks since the MSDW Internet Conference. One thing is definitely clear --
they are telling their photographers one thing and the investors something else.
Hurdles To Overcome
The Stone brand has several hurdles to overcome.
It was left unclear as to what images from the current site will be resident on the Stone
site. They indicated that approximately 40% of the images on the TSI site are
"conventional" images, 40% are a step beyond conventional using current techniques and
trends and 20% are avant garde or cutting edge. When the assignment creatives are looking
for is the 20% avant garde and some of the best of those that exhibit current techniques
If they move all images on the current TSI site to the Stone brand they will include
those conventional images that the creatives perceive as traditional stock. This would
seem to doom the re-launch to failure.
In editing the current TSI file they are faced with the question of how to market the
remaining "traditional stock," which, if the 40% is correct, generates $40 million in
income per year. They may also be faced with a rebellion from those photographers whose
images are not selected.
It is clear that Stone has not been accepting updated conventional "stock looking"
images for quite some time. They tell photographers to take those images somewhere else.
One question is how long the 40% sales of conventional imagery can be maintained without
The biggest intangible is the motivation of the creatives. I believe most of them want to
create something that is totally their concept, rather than buying the creative ideas of
someone else. As long as they have the budget, and the time, they will always go for a
At Stone there is a single view of what is a good image. The view of Andy Saunders. While
his track record of picking images that will sell is certainly excellent one wonders if
there aren't a few other editors -- and buyers -- in the world with different points of
In a creative industry like photography lots of different approaches and points of view
will sell, if they are made available to the buyers. The Getty approach of narrowing the
focus of their offering opens up opportunities for their smaller competitors to review
the rejected imagery, identify those which their experience tells them will sell, and
make those images available to the buyers.
According to John Hallberg, President of Stone, the number of wholly owned images in the
Stone collection is less than 2%. However, there is some commissioning of work where the
photographer is paid a day rate, expenses and receives a minimal royalty of 10% or less.
This category of imagery may make up 8% of the file. It was unclear what percentage of
sales this category of imagery represents. Individual photographers retain copyright to
Hallberg also said the average license fee in North America in 1999 was $518. He prefaced
his statement with "I know you won't believe this," and many photographers were shaking
their heads agreeing that they didn't believe it based on the numbers their sales reports
One of the major complaints from TSI photographers in the past year, or so, is that when
they make their best efforts to produce exactly what the TSI art directors say they want,
the images are still rejected. This happens after the photographers has spent thousands
of dollars and much time on the production. These complaints come, not from photographers
who are out doing things on their own, but from those who have been listening to the TSI
More Positive Attitude
According to several reports many photographers came away from this meeting feeling more
positive and energized than they had since the new contract was released more than a year
ago. "They (TSI) seemed more willing to listen to us and to explain their plans than has
been the case for some time," one said. However, some of those who have been around for
many years cautioned, "We've had these kind of pep rallies before when Tony was running
the show, but things have usually reverted quickly to the way they were before."
Story 284 TIMES COMPANY DIGITIAL IPO
The New York Times has announced plans to issue a tracking stock for their internet
division, TCD, in an effort to raise $100 million.
TDC had more than 138 million page views on all web sites in December 1999 and 90.7
million were for the Times web site alone. For the 9 months ednding September 30, 1999,
TCD's net revenue was $15.3 million, up 48% from 1998. Net loses were $11.7 million, up
108% from 1998.
Story 288 CHANGING EDUCATIONAL USES
March 3, 2000 - The stock photo industry needs to totally revise its pricing model for
uses in educational publishing as it takes into account new methods of distributing
For more than twenty five years prices for photo usages have been based on the assumption
that a publisher would gather material for a title and order the material in a certain
logical format with a fixed number of chapters. This package, or book, was then sent for
printing. Given the costs of press time, marketing and distribution certain minimum press
runs were necessary, or the project would never have been started in the first place.
Once a first edition was nearly sold out, the plates might be put back on press to print
another edition, or certain revisions might be made to the original text. In some cases
books would be translated into another language and a separate edition would be printed
in that language. Again the assumption was that given the basic costs of printing it
would be uneconomic to print in another languarge unless a certain minimum number of
copies were produced.
The internet is providing educational publishers with an opportunity to market directly
to book buyers and to better understand the motivations of these buyers.
In the past, book publishers focused most of their marketing toward professors in hopes
that they would adopt the publishers books for their course. Secondarily, they marketed
to book stores, but if the professor failed to choose their book the publisher was
basically out of luck. The student -- the person with the money to actually buy the book
-- had little understanding of who the publishers were, or the distinctives of any
Now, through the web, publishers can find out who the buyers are and deal with them
directly. In addition to selling a book, they can determine what other support materials
the student needs. If the publisher's book isn't chosen by the professor, the publisher
may still be able to sell a couple chapters to the student.
Through this interaction publishers are learning that students are more willing to pay
for tutorial information than additional ancillary information. Users are also willing to
pay for better functionality and systems that reduce the amount of effort they have to go
through to get information.
Publishers have learned, over the years, that once their product is selected by a
professor there is an average "sell through" of only 60%. That means for some reason 40%
of the students choose not to buy the book even though it is a class requirement.
Mark Roller, Associate Director of Technology at Houghton Mifflin's College Division,
says early on-line sales statistics indicate that if part, or all, of a book is available
on the web there is a greater sell through of printed copies of the book. To date there
is not enough data to conclude that there is a direct causal relationship, but it is
possible that availability of information on a web site could lead to more, rather than
less, printed books being sold in the future.
Because their brands are not well known among buyers, publishers are partnering with
other site operators who for one reason of another have the attention of students/buyers.
Most of these sites are attractive to students because they offer something for free.
Many sites make money through advertising and by selling names and information about the
student rather than by selling content. In most cases, the publisher gets access to
student information in addition to a fee for making the information available. The
dilemma for the publisher is in determining how much free material to give away, and what
to sell at what price points.
Copyright holders need to think about two separate and distinct compensation models for
such material. If the copyright holder's material is sold it is easy to see how
compensation should be based on usage or some type of royalty model. But, it is much
harder to determine fair compensation for material that is given away, in effect to
advertise the brand, or other products which will be sold.
In some cases students subscribe to a group of assets. It is unclear whether the
copyright holder share of these fees is being divided proportionally among all whose work
is included in the group, or if actual usage is tracked and payment is given only to
those whose work is actually used. The model for this type of payment might be Index
Stock Imagery's relationship with the people who produce "Homework Helper". However, we
have no guarantee that all book publishers will use the same model.
While all these options are available, Mark Roller says that, "Currently, over 90% (of
on-line buyers) still pick a printed text." He says this is probably due to their price
structures, and they are studying other pricing models that might make web use more
attractive. He also acknowledged that students like to print the material they get
on-line and most of them print a lot initially. Once they get into the digital version
they print less and less.
Roller also indicates that the web model is turning out to be a profitable line of
business for the publisher.
Visual Information On-line
Looking ahead, I think we need to ask ourselves how important pictures will be, and the
kind of images that will be needed, if the percentage of students getting information
on-line, and printing that information out on a desktop B&W printer rises significantly?
Will they need as many stills? Will they want as many, or more images in the on-line
environment as they get in the paper books with glossy color printing? Will this change
the editing strategies for books or, at the very least, for those portions of books that
are offered on-line?
In the book environment one of the principle functions of images has been to break up the
black type and give the product a more user friendly appearance. Often the actual useful
additional information that the photo provides about the topic is secondary to its role
of catching the readers interest. Will still photos serve the same functions on the web,
as they do in print? Will photos be an aid to the person who is getting information off a
computer screen, or will they be a distraction? Will the kind of visual content that
helps to draw the student to a particular text be video rather than still images?
As producers and sellers of still images we can put our heads in the sand and say these
issues are not our concern -- until suddenly one day we are faced with new realities. It
might be better to gather information now, try to educate ourselves and our customers,
and be prepared for the changes.
New Systems Needed
There needs to be a dialogue between publishers, leading sellers of content to textbooks,
and representatives of individual suppliers. The sellers need to get a better
understanding of how rights to content may be licensed in the future and develop new
strategies for pricing uses that will insure a continued flow of new material and
equitable compensation for both content providers and publishers.
Some of the points that need to be on the agenda are: