November 2002 Selling Stock

Posted on 11/1/2002 by Jim Pickerell | Printable Version | Comments (0)



Volume 13, Number 2

©2002 Jim Pickerell - SELLING STOCK is written and
published by Jim
Pickerell six times a year. The annual subscription rate is $120.00 to have the printed
version mailed to you. The on-line version is $100.00 per year. Subscriptions may be
obtained by writing Jim Pickerell, 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, fax 301-309-0941, e-mail: All rights

are reserved and no information contained herein may be reporduced in any
manner whatsoever without written permission of the editor. Jim Pickerell is also
co-owner of Stock Connection, a stock agency. In addition, he is co-author
with Cheryl Pickerell of Negotiating Stock Photo Prices, a guide to pricing
stock photo usages.

Thought For The Month

When you look for the worst you will find it every time. A positive attitude is a
decision you make moment by moment.


Getty Gives Photographers New Option

September 27, 2002 (Story 506) - For years one of the major photographer
complaints with Getty Images has been that their editing has been too tight and that
many images customers would be willing to purchase are not made available online.

In response to this concern Getty has launched "Photographer's Choice", a new way for
Getty Images photographers to get images online. In August Getty set aside 2000 online
slots and allowed photographers, already under contract, to purchase a block of 5 or
10 of these slots for $75.00 per slot. The photographers can submit any images they
want, even images that might have been previously rejected by one of the Getty brands,
and they will be put online as part of Photographer's Choice. No photographer was
allowed to purchase more than 10 slots in this initial offering.

Photographer's Choice contracts were posted for review in early August, and were
available for download on Tuesday, August 27. One week later, photographers were
informed that every slot had been filled, and then some. The company agreed to accept
all contracts that were received within a week of August 27th, even though this
brought in hundreds of additional images over the 2000 originally allotted. Getty
expects to make more slots available early next year.


One of the incentives offered to photographers is that customers will be able to
search the "Photographer's Choice" brand just like any other Getty brand. Some
photographers think that art directors will search the Photographer's Choice section
of the site to see what photographers think are their best images. I'm inclined to
think that most sales of these images will result from customers doing general
searches using keywords that happen to fit the particular images, not because they are
looking at the Photographer's Choice section of the site to find something to use.

Given Getty's market penetration getting one's images where they can be seen by
customers looking at the site is a huge advantage over having the
images almost anywhere else. The difficulty, up to now, has been that Getty was
accepting such a small percentage of the production of most photographers. Other sites
were the next best option for images that Getty would not accept, but nowhere as good
as a position on the Getty site.

However, 2000(+) images is a very small number. One of the major questions for the
future is how fast Getty will add to this group of images? Clearly, the photographers
have many other images they would like to put on the site.

Will Getty open the flood gates, or keep a very tight control on the number of images
they add to this brand. A lot will probably depend on the average return of
Photographer's Choice images. If Getty sees that these images are selling as well or
better than the images in the other brands they are likely to allow the photographers
to put up a lot more images.


Some photographers are concerned that there appears to be no editing of the images
offered for Photographer's Choice. They fear that lack of editing will dilute the
quality of the Getty offering. Given the existing parameters, I don't think there is
any reason for concern.

  • The only people who are being allowed to submit are photographers already
    contracted to Getty. The quality of their work is pre-approved.

  • Most of the photographers are experienced stock shooters. They know what sells
    in their particular area of specialty. They know the kind of images their customers
    are using.

  • As long as the number of images a photographer is allowed to submit is limited
    there is no way one photographer can overwhelm a particular section of the collection.

  • The $75 per image fee will place limitations on what photographers are willing
    to submit and keep the quality high.

    One of the big advantages of Photographer's Choice is that instead of a small team of
    editors determining what customers should want, now hundreds of editors (the
    photographers) will be making those decisions.

    The brilliance of Getty's strategy is that they get to learn how good the editing
    decisions of their photographers are relative to their staff editors who have all the
    resources of Getty Images at their disposal. Even if it turns out that there is a
    better return pre images from the images chosen by the staff editors Getty will have
    some very useful comparison figures and be able to determine how rapidly they want to
    expand the Photographer's Choice option. In addition, by letting the photographers
    make the selection and getting them to pay up front fees to post images Getty has
    significant savings on production team expenses.

    Future Price

    Some photographers are worried that by opening the door to photographers paying for
    space (which is effectively paying for scanning, keywording, upload and storage costs)
    it won't be long until Getty is charging more and more in up front fees to put all
    images online. They are reminded of what happened a few years ago when Stone catalog
    fees soared through the roof. It is also noted that this fee is paid up front and not
    deducted from sales. There is no denying that there could be an escalation in fees.

    However, it seems to me that photographers have to look at the specific situation
    each time there is a new offering to participate on Photographer's Choice. At that
    point they must determine if the offer makes economic sense for them. It seems to me
    that the current offer made a lot of sense for virtually every photographer. Future
    offers should be viewed on their merits.

    If a photographer uses reasonable judgment in the images selected it is hard to
    imagine that he won't make a significant return on this investment in a very short
    period of time at a $75 per image price. If he doesn't that would certainly be an
    indication that he really does need the guidance of the Getty editors, but I believe
    very few photographers will fall into that category.

    Certainly, the $75 fee should more than cover the costs of getting an image online.
    If Getty later chooses to raise that fee it would be a clear indication that they want
    the loading images into their system to be a profit center, as well as the return they
    receive from any sales they make of these images.

    On the other hand, as with any business decision, the photographer needs to weight
    the potential income from an image on the Getty Images site and compare that with the
    likely return if that image were on another portal or agency site.

    Implications For Other Photographers And Agencies

    Now that Getty has made this move other agencies may feel that they can also charge
    up front fees. It is hard to imagine that any other agency could justify charging as
    much as Getty, because they don't offer the market penetration. But it will be easier
    for other agencies to justify charging something.


    October 25, 2002 (Story 513) - Despite announcements at the end of August
    (Story 498) Creative Eye is still limping along and the situation is actually
    improving. John Grime continues as Chairman of the Board and two new board members
    have replaced the four who resigned.

    The website at is still operating and making sales. The operations of
    the company have been totally reorganized and costs have been cut dramatically. Bank
    loans have been re-negotiated and the debt the company faced in August has been
    dramatically reduced.

    Many of the functions formerly handled in house have been outsourced. Volunteers are
    assisting with some functions and there is a strong sense that photographers and
    management want to keep the organization functioning.

    New technology has been added to the website by Stock Media that will enable
    photographers to link from their own sites to their images, and only their images, on
    MIRA. This feature should encourage more photographers to make their images available
    through MIRA.

    It is expected that the members will be polled in the coming weeks and asked to
    approve changes in the structure of the cooperative that will enable Creative Eye to
    move ahead and license images on a continuing basis.


    October 25, 2002 (Story 512) - Getty Images, Inc. reported revenue of $118.2
    million for the 3rd quarter that ended September 30, 2002. This was an improvement of
    4% over the 2nd quarter. "We are pleased with the results of the third quarter, which
    exceeded our expectations for revenue growth and earnings," said Jonathan Klein, Getty
    Images' co-founder and CEO. The company expected earning for the quarter to be between
    $110 and $115 million.

    Earnings were $6.8 million, or $0.13 per diluted share and this was up from $4.5 million or $.08 per
    diluted share in the 2nd quarter, and the third consecutive quarter with positive earnings.

    The 3rd quarter is normally weak for most companies in the stock photo industry due to the vacation
    period. However, CEO, Jonathan Klein said sales at Getty increased
    steadily month by month during the quarter and that the company is continuing to see the same
    steady growth in October. "Our success this year, and indeed this quarter, is particularly meaningful
    to our management and
    employees as the environment for our customers remains choppy." In explaining
    "choppy" he said that in this recession customer use has been difficult to predict. Projects get delayed
    or killed overnight as companies make adjustments to their budgets. Often,
    there is a spurt in sales at the end of a quarter as customers try to spend their budgets. This
    did not happen in the 2nd quarter, but the 3rd quarter ended strong.

    Getty's revenue was up 10 percent over the $107.5 million in revenue in the 3rd quarter of
    2001, but it should be remembered that 3rd quarter 2001 saw a major drop in sales due to the
    9/11 tragedy. Free cash flow totaled $15.2 million for a year-to-date cash flow of $36 million and on track
    for $50+ million cash flow for the full year. The operating margin of 12.7% was up from 9.5%
    in 2nd quarter and 8.1% in the first quarter.

    Klein said several factors were important in achieving the 3rd quarter revenue growth. They

    • Continued progress on our price optimization strategy.

    • Early success with third-party RF provider initiatives

    • Strong progress for both the TIB and Taxi brands

    • Currency benefits due to a weak dollar that accounted for about $2 million of the revenue.

    In light of 3rd quarter trends, Getty is estimating 4th quarter revenues at between $112 and $117
    million. This would put total
    revenues for the year at between $457.4 and $462.4 million, up from $451 million in 2001, but
    still below the $484.8 million in 2000.

    Share Repurchase

    In addition to the above positive results on September 23rd the Getty Board of Directors approved
    a plan to repurchase up to $50 million of its common stock over the next six months. Under
    the plan, the company is authorized to purchase shares on the open market from time to time. On
    September 30, 2002 the company had approximately 53.5 million shares of common stock
    outstanding. "This approval reflects our confidence in our ability to continue to generate free
    cash flow," said Klein.

    Gross Margins

    Gross Margins essentially consist of royalties paid to photographers and
    3rd party vendors, plus the costs associated with the sale of CD-ROM discs. Getty's share of
    total revenue collected was 71.7% during the 3rd quarter. This was down from 73.5% in
    the previous quarter and 74% a year ago. The decline was driven primarily by product mix. Specifically,
    the results reflect better than expected third party revenues in the RF area. Third-party
    revenues contributed $4 million in incremental revenue during the quarter and generate 50%
    margins. Next year, Getty expects 3rd party margins to improve to 60% due to expected
    contractual changes, many of which are already in place.

    Getty intends to expand its relationships with 3rd party suppliers as a way of leveraging its
    dominant distribution platform and model. This is beneficial to the company because there are
    virtually no incremental operating costs despite the somewhat higher percentage of gross sales
    paid to the supplier.

    Third-party suppliers are anxious to participate on the web site given its dominance in
    the marketplace. The following usage figures for the month of September indicate the degree of
    that dominance.

    • 90 million page views,

    • 1.2 million unique visitors and 3.2 million visitor sessions,

    • 40,000 new registrants, and

    • served up almost 1 billion images in search results

    Percent Of Revenue

    In the 3rd quarter stock photography (a combination of RM and RF image licensing) represented
    84% of total sales, up slightly from 83% in the 2nd quarter.
    There was an important increase in RF sales and this change was due almost entirely to Getty's
    3rd party provider strategy. The major change in the RF strategy in the quarter was the
    inclusion of Digital Vision images as one of the brands offered on the site.
    The breakdown by business segments is as follows:


    Q1 2002   

    Q2 2002   

    Q3 2002   

    Rights Managed   




    Royalty Free   




    News & Sports   




    Archival & Footage   




    The above percentages translate into the following dollar figures for the 2nd and 3rd quarters.


    Q2 2002  

    Q3 2002  

    Rights Managed  



    Royalty Free  



    News & Sports  



    Archival & Footage  



    It should be noted that there was very little growth in RM revenue while there was a 12%
    growth in Royalty Free revenue. More than 80% of the RF revenue was generated from sales on the
    site meaning that less than 20% of RF revenue in todays market comes from selling the more
    expensive discs.

    Average Price Per Usage

    The average price per image, worldwide, for Rights Managed Images made a dramatic jump in the
    quarter. In Q3 2002 it was $560 and this compares with $500 for Q2 2002 and $490 for Q1 2002.

    "We are particularly gratified by the success of our strategy to optimize price and to leverage to bring our customers the best visual content available on a worldwide basis.
    Despite the continued weakness in the advertising, media and publishing markets, our
    investments in technology, imagery and the establishment of the Getty Images brand are now
    beginning to yield returns as we expand our content, extend our reach and increase our

    There was also a slight improvement in the average price of an RF image. In Q3 2002 it was $103
    up from $99 in Q2 2002 and $85 in Q1 2002. Getty increased RF prices for single images in the
    2nd Quarter and the addition of the higher priced Digital Vision images was probably
    responsible for a lot of the rise in the 3rd Quarter. Klein believes that Getty can
    increase prices further and said, "We have
    experienced no pricing pressure and continue to believe that there is further scope to optimize
    price per image in 2003 and beyond."

    However, while the total number of images licensed is huge, when we look at the trends in
    numbers of RF and RM images licensed Rights Managed producers and sellers may have some
    cause for concern.


    Q2 2002  

    Q3 2002  






    Gross Revenue




    80% - online sales




    Price Per Image




    Number Images Licensed



    up 18,998









    Gross Revenue




    Price Per Image




    Number Images Licensed



    down 10,960





    Total Images Licensed




    Percent RF




    Percent RM




    As a ratio of the total number of images used, the number of RM uses is FALLING and RF is RISING
    with the RF at 69% of total images used in the 3rd quarter. In addition there were 7.9% MORE RF
    licenses sold in Q3 than in Q2 and 8.4%
    FEWER RM licenses sold during the same period. While there was a 2.2% growth in the overall
    number of licenses sold more and more user are finding what they need in the cheaper RF
    offerings and consequently are using FEWER RM images. The recession may have something to do
    with this. When companies have more money to spend
    they may start buying more RM images. But, if art director can find what they need in cheaper
    RF why would they want to pay more?

    Rights Managed Brands

    It is also important to look at the brands that are doing well and those that might not be doing
    quite so well. Klein mentioned both Taxi and TIB as brands that did extremely well in the quarter.

    He acknowledged -- not for the first time -- that since its acquisition in March of 2000 the VCG
    brand has struggled. In the most recent quarter Getty re-branded VCG as Taxi, with, for the
    most part, wholly new imagery. Klein said, "The initial
    reception in the market has been outstanding. Our Customers first look at Taxi came through a
    new combination magazine/catalog which we produced in 5 languages and distributed to over
    100,000 companies in more than 50 countries. The response
    was both immediate and extremely positive."

    He also noted that in addition to customer feeback a key competitor of Getty in Germany
    congratulated them on the stunning images and admitted that the launch of Taxi was "Great for
    Getty Images and very bad for us."

    Sales performance for Taxi was up 40% worldwide over the 3rd quarter 2001 VCG sales, and by
    almost 50% in the major European markets where VCG has always had an important presence.

    Klein also said the TIB has been a strong performer and is, "showing very similar growth
    rates to those I have just quoted for Taxi." This begs the question as to what is happening
    at Stone. If TIB and Taxi are showing such great
    growth rates, and the total increase in revenue for all the RM brands was only $1.6 million,
    sales of Stone images must be down. In an effort to determine what customers are looking for
    these days photographers producing for these various brands, and competitors, may want to
    consider the relative styles of the Taxi, TIB and Stone images.

    Royalty Free Strategy

    Klein outlined the following plan for agressively growing Getty's RF business.

    • It will expands the quality and depth of its imagery. In 2003 Getty Images will re-launch the
      PhotoDisc collection with new content, new imagery categories which better meet the needs of
      the various customers across different price and budget categories.

    • It will innovate to expand both the category and our share. One of the innovations was the
      launching in the 3rd quarter of a completely new approach to marketing which they call the "Web
      Companion". Klein says this is unlike any other catalog or magazine that has ever been produced
      in the industry and is designed to support the online work world of the customer.

    • In 2003 it will expand its reach into Europe and Asia/Pacific with new content and targeted
      marketing campaigns.

    • Getty will bring to its customers the best and most relevant RF photography available, "including
      from collections and companies that are not owned by us." Klein pointed out that because there
      are very few SG&A expenses when they represent collections
      from other companies they are able to increase revenue with minimum incremental costs leading
      to very attractive operating margins. "Over the next year we will continue to add 3rd parties
      to our web site," he continued.

    Geographic Breakdown

    The geographic breakdown of sales worldwide remained roughly the same as the previous quarter,
    with the Asia/Pacific region showing a substantial increase. The numbers were:


    Q2 2002

    Q3 2001

    North America









    Direction for 2003

    In speaking of their direction for 2003 Klein said that in 2002 their objective was to produce
    significant cash flow and that has been accomplished. In 2003 the primary objective will be to
    grow revenue. To accomplish this they intend to build their core business and look for new sources of
    revenue. The two areas that offer a potential for new sources of revenue are Asset Management
    and Assignment Services.

    In the Asset Management area they will offer a fee based service through which they will manage
    the customers assets. Klein says, "this is an ideal extension of our core competancy. It
    leverages our expertise in managing digital assets and our track record of successfully
    monitizing digital content." There are multiple ways this might work. Getty could manage all
    aspects of a customer's content,
    or as they do for the NBA, Getty manages the site, the NBA drives traffic to the site and they
    share revenue. Other methods may be developed.

    They also intend to develop a system for providing Assignment Services for customers. This will
    range from a providing a simple directory to actually managing assignments for customers.
    Because their is a large addressable market for assignment work (Klein believes it is $4
    billion annually) Klein believes that now is the time for Getty to make some investment into
    these new revenue sources. However, he cautioned investors that, "revenue in the next two years
    (from either Assignments or Asset Management) will not be meaningful as a percentage of total

    Getty and Corbis

    Finally, is there likely to be any kind of agreement between Getty and Corbis? After further
    conversations with sources, I believe the meetings I reported on in Story
    511 may have
    had nothing at all to do with an acquisition or management arrangement. It is clear that representatives
    of the two companies have met together from time to time to discuss various issues of mutual interest
    and to see if they could find ways to cooperate for their mutual benefit. This may have been a
    continuation of such meetings. Photographers have been told by various people at Corbis that
    the talks were related to trying to find ways for the two companies to work together to
    strengthen the copyright laws.

    In addition, during the conference call in response to a question from an analysts as to whether
    Getty might use their abundance of
    cash for purposes other than retiring debt, Klein indicated that in the next 12 to 18 months
    there might be some "small tactical acquisitions, but they would be very small." This statement
    would seem to rule out acquisition of even parts of Corbis as they could not be considered "small".
    In addition various people at Corbis
    have told photographers that the discussions had nothing to do with a "merger or sale".

    With Getty's emphasis on growing revenue through asset management in 2003, the possibility of
    some type of arrangement to manage certain of the Corbis assets can not be totally
    ruled out. However, it would probably be difficult for the Corbis managers to accept such an
    arrangement, even if it made good economic sense. There is no solid indications that such a
    deal has ever been discussed or considered.

    What seems most likely is that no changes in the relative status of the two companies will take place
    in the foreseeable future.

  • Copyright © 2002 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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