Getty Images has been privately owned by Carlyle Group for a
little over a year, and before that by Hellman & Friedman for about 5 years. One of the results of going private is that much of the data that used to be shared about Getty’s operations is no longer available to the general public.
However, the company still supplies a great deal of information on a quarterly basis to private lenders who buy and trade Getty’s debt. In order to receive this information investors agree not to share it with the general public. These Debt Investors invest money at a fixed rate of return. Once owned, this debt can also be traded at a premium (the purchaser effectively receives a lower interest rate) or a discount (where the purchaser receives a higher effective interest rate for accepting greater risk). If held to maturity the loan holder gets the face value of the loan.
Currently, Getty has $2.6 billion in outstanding debt including an approximate $1.9 billion term loan at 4.37% that has been trading at about 90 cents on the dollar and $550 million of 7% notes due October 2020 that traded at around 89 cents on the dollar a few weeks ago. They also have a $150 million line of credit. (See
here for more information.)
Investors either holding or interested in acquiring debt in any company need a clear understanding of the company’s business and the likelihood that the company will be able to regularly pay the interest and eventually the principal on the loan.
To assess the value and trends of the company here are a few questions debt investors should be asking Getty in its Q3 2013 conference call.
1 – Midstock: Getty has included the revenue generated by Thinkstock, a subscription product, with that of iStock, a product that charges a separate fee for each image delivered based the file size delivered. 70% of the approximate $300 million in Midstock revenue is generated by images that are exclusive to iStock and licensed at much higher prices than most microstock and subscription products. What percentage of the Midstock revenue is generated by Thinkstock?
2 – Is the Thinkstock share growing? (Some creators are estimating, based on their comparative sales through both Thinkstock and Shutterstock that Thinkstock revenue could be as high as $40 to $45 million. Sales of other contributors would indicate much lower revenue.)
3 – For year-to-year comparisons, was Thinkstock revenue reported in a category separate from iStock in Q2 2012 before they were lumped together in the Midstock category? (If Thinkstock’s sales were not included in the figure reported as iStock in 2012 that would indicate that iStock’s revenue may be declining at an even greater rate than the 9% announced at the end of Q2 2013.
4 – Has the “1/2 Our Images For 1/2 Price” promotion started at the beginning of Q3 generated enough additional unit sales to offset the loss of revenue from lower prices? (Based on reports from individual contributors the average license fee of a non-exclusive image on iStock has dropped from about $10 in the first half of 2013 to $4.25 in Q3.)
5 – Getty increased its marketing efforts substantially in Q3. Was revenue growth in Q3 enough to offset the added marking costs?
6 – Is there any indication that sales of RF on Gettyimages.com, Jupiterimages.com and iStock.com have fallen off as a result of making many of the same images available on Thinkstock at much lower prices?
7 – What is the average price per image downloaded on Thinkstock compared to the $2.33 on Shutterstock?
8 - What percentage of the more than 7 million “Creative Stock Images” on gettyimages.com are wholly owned by Getty meaning that Getty pays no royalty when they are used? (A high percentage of the Editorial images are wholly owned, but the percentage of Creative Stock Images is much lower.)
9 – Is all the revenue reported as “Premium Stock” generated from the licensing of images in the “Creative Stock Images” collection on the Gettyimages.com website or is revenue from other sources included?
10 – In the Editorial division Getty has deals with the NBA, NHL, Olympics, etc.. They pay these organization an annual fee and are obligated to provide coverage of every event. Given today’s prices for licensing uses to such images are the costs exceeding the annual return from the licensing of these images?
Industry Background
For more about Getty Images and the general state of the stock photo industry check out this
collection of stories we’ve published, mostly in the last few months. Regular readers of Selling-Stock will have seen all this information before. However, if you’re looking for data and analysis – both current and historical –these stories are worth examining.